APPYEA, INC - Quarter Report: 2019 December (Form 10-Q)

 

(Mark One)

 

 

For the quarterly period ended

 

or

 

 

For the transition period from _____________ to ______________

 

Commission File Number

   

    

  

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

5,376,140,774 common shares issued and outstanding as of February 12, 2020

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

 

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

 

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 a limited operating history.

 

The Company incorporated a wholly-owned subsidiary, “AppYea Holdings, Inc.” in state of South Dakota on January 13, 2017 and “The Diagnostic Centers Inc.” in State of South Dakota on August 2, 2017.

 

Through its wholly owned subsidiary, The Diagnostic Centers, Inc., AppYea markets comprehensive diagnostic testing services to physician offices, clinics, hospitals, long term care facilities, healthcare groups, and other healthcare providers.

 

During the quarter ended March 31, 2019 the Company entered into a 2-year management and advisory agreement with Hempori, Inc. to assist the Company in identifying and managing the Company’s overall business strategy and opportunities to enter the hemp based Cannabidiol (CBD) industry. Additionally, the Company entered into an exclusive CBD infused beverage licensing agreement with the Prouty Company to market flavored and non-flavored beverages in various formulas infused with CBD to achieve the following “mood enhancing” affects: Energy, Calm, Focus, and Sleep.

 

On February 7, 2020 the Company’s Board of Directors reached and approved terms of a separation agreement with our former CEO Doug McKinnon.

 

On February 7, 2020 the Company’s Board of Directors approved the employment contract of Todd Violette as the new CEO and the appointment of Todd Violette as a new Director and elected him to the position of Chairmen of the Board of Directors.

 

The Company’s common stock is traded on the OTC Markets (www.otcmarkets.com) under the symbol “APYP”.

 

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.

 

In the opinion of the company’s management, the accompanying unaudited interim financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the company as of December 31, 2019 and the results of operations and cash flows for the periods presented. The results of operations for the six months ended December 31, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited financial statements should be read in conjunction with the financial statements and related notes thereto included in the company’s Annual Report on Form 10-K for the year ended June 30, 2019 filed with the SEC on October 18, 2019.
  
On July 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (as amended by ASU 2018-01, 2018-10, 2018-11, 2018-20, and 2019-01, collectively, including ASU 2016-02, “ASC 842”), using the modified retrospective method. The Company elected the transition method which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented. The Company elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease. The adoption of ASC 842 did not have a material impact on the consolidated financial statements. See Note 6 for further discussion.

  

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions about the valuation and recognition of stock-based compensation expense, the valuation and recognition of derivative liability, valuation allowance for deferred tax assets and useful life of fixed assets.

 

 

 

The consolidated financial statements include the accounts of AppYea and its subsidiaries. Intercompany transactions and balances have been eliminated.

 

 

As defined in ASC 820” Fair 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 following table summarizes fair value measurements by level at December 31, 2019 and June 30, 2019, measured at fair value on a recurring basis:

 

 

 

 

Certain amounts from prior periods have been reclassified to conform to the current period presentation.

 

 

At December 31, 2019, the Company had cash of $311 and current liabilities of $1,158,815 and a working capital deficit of $1,156,504. The Company has generated net losses from operations since inception. The Company anticipates future losses in its business. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company’s ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.

 

 

 

At December 31, 2019 and June 30, 2019, convertible loans consisted of the following:

 

 

During the six months ended December 31, 2019 and 2018, the Company recognized amortization of discount, included in interest expense, of $12,603 and $44,873, respectively.

 

 

During the six months ended December 31, 2019, the Company converted notes with principal amounts and accrued interest of $24,108 into 280,205,250 shares of common stock. The corresponding derivative liability at the date of conversion of $128,021, was settled through additional paid in capital.

 

 

As of December 31, 2019, and June 30, 2019, the outstanding principal balance of the note was $0, the note had accrued interest of $454.

 

 

On November 15, 2016, the Company entered into four separate agreements with Greentree Financial Group, Inc., consisting of a Financial Advisory Agreement, a Loan Agreement, a Convertible Promissory Note, and a Warrant.

 

The Loan Agreement allows for the Company to borrow up to $250,000 from Greentree, which will be evidenced by various promissory notes, which will automatically mature 12 months from the date of applicable Note, will accrue interest at a rate of 12% per annum, and will include an original issuance discount (“OID”) of 10%. In addition, the promissory notes will be convertible at a price equal to 55% of the lowest trading price during the 10 trading days immediately prior to a conversion date. The conversion price shall not be lower than $0.0001. Note may not be converted prior to 6 months from its issuance. There is a 10% prepayment penalty associated with each of the promissory notes. An initial promissory note of $100,000 was issued on November 15, 2016. On January 26, 2017 and June 30, 2017, the Company issued convertible note of $75,000 and $75,000 according to the loan agreement on November 15, 2016. Note is currently in default.

 

The warrant issued to Greentree allows for the purchase of up to 5,000,000 shares of the Company’s common stock for a three-year period, expiring on November 15, 2019, with an exercise price of $0.03 per share. The warrants also contain a cashless exercise feature, based on a cashless exercise formula.

 

 

During the year ended June 30, 2018, the Company issued a total of $180,614 note with the following terms:

 

 

 

Certain notes allow the Company to redeem the notes at rates ranging from 115% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the note includes original issue discounts and financing costs totaling to $38,447 and the Company received cash of $142,167. Convertible notes issued in fiscal year 2018 are currently in default.

 

 

During the year ended June 30, 2019, the Company issued a total of $105,000 of notes with the following terms:

 

 

Certain notes allow the Company to redeem the notes at rates ranging from 115% to 125% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the note includes original issue discounts and financing costs totaling to $5,000 and the Company received cash of $100,000. Certain convertible note was also provided with a total of 50,000,000 common shares and 800,000,000 warrants.

 

 

The Company determined that the exercise feature of the warrants met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability. The fair value of the warrants was recorded as a debt discount being amortized to interest expense over the term of the note.

 

The fair value of the derivative liability for all the notes that became convertible for the year ended June 30, 2019 amounted to $387,038. $85,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $302,038 was recognized as a “day 1” derivative loss.

 

 

A summary of activity during the six months ended December 31, 2019 follows:

 

 

 

The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2019:

 

 

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

 

Fair Value Assumptions Used in Accounting for Derivative Liabilities.

 

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

 

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of December 31, 2019. The Black-Scholes 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. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.

 

At December 31, 2019, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

 

The following table summarizes the changes in the derivative liabilities during the six months ended December 31, 2019:

 

 

The aggregate gain (loss) on derivatives during the six months ended December 31, 2019 and 2018 was ($171,144) and $355,325, respectively.

 

 

 

 

On October 2, 2017, the Company entered into an agreement with Pacific Pain & Regenerative Medicine. The Company was required to pay $3,000 per month for a collector in exchange for a minimum of 5 PGX tests per week or 20 per month. During the year ended June 30, 2018, the Company terminated the services and stopped making the monthly payments. As of December 31, 2019 and June 30, 2019, the Company has accrued expense of $21,000 and $21,000, respectively.

 

On October 17, 2017, the Company entered into an agreement of the acquisition financing of up to $30,000,000 (“the “Placement’) with Wellington Shields & Co. The Company shall pay (i) a success fee equal to 8% of the gross proceeds of the Placement, (ii) 3% of the total Company’s shares outstanding at the time of closing the placement, and (iii) was required to pay $15,000 at the time of signing and $10,000 per month. This engagement agreement was terminated at the close of business April 30, 2018. During the year ended June 30, 2019, the Company recognized gain on settlement of debt of $50,000. As of December 31, 2019 and June 30, 2019, the Company has accrued expense of $10,000 and $10,000, respectively.

 

 

As of January 30, 2013, the Company leases office space at $200 per month with three-month terms, which shall be automatically extended for successive three-month periods unless there is the notice to cancel. The lease can be cancelled at any time by either party with 30 days’ notice prior to expiration of an applicable term. For the six months ended December 31, 2019 and 2018, the Company incurred $1,259 and $1,246, respectively.

 

 

The Company is authorized to issue 60,000,000 shares of Series A Preferred Stock at a par value of $0.0001.

 

Each Series A preferred share is convertible into 1,500 shares of common stock and has the voting rights of 1,000 shares of common stock.

 

As of December 31, 2019 and June 30, 2019, 9,750,000 shares of the Company's Series A Preferred Stock were issued and outstanding.

 

 

During the six months ended December 31, 2019, the Company issued 280,205,250 shares of common stock for conversion of debt and accrued interest of $24,108.

 

As at December 31, 2019 and June 30, 2019, 5,376,140,774 and 5,095,935,524 shares of the Company's common stock were issued and outstanding.

 

As of December 31, 2019, the Company had $47,727 in stock payable for which it is obligated to issue 25,000,000 shares of common stock for consulting services.

 

 

 

In March 2016, the Company appointed the former CEO and approved a base compensation package of $8,000 per month. During the six months ended December 31, 2019 and 2018, the Company recorded management fees of $48,000 and $48,000, respectively. As of December 31, 2019, and June 30, 2019, the Company recorded accrued salary of $45,506 and $3,506, respectively.

 

During the six months ended December 31, 2019 and 2018, the Company borrowed a total amount of $25 and $377 from Evergreen Venture Partners LLC (“EVP”), which the former CEO is the majority owner, and repaid $0 and $300, respectively. This loan was a non-interest bearing and due on demand. On February 7, 2020, a separation agreement was entered into between the Company and the former CEO, pursuant to which, the Company shall amend the loan from interest free to 6% per annum and to recognize all prior unaccrued interest at 6% per annum. In addition, this loan became convertible upon execution of this separation agreement, at a 45% discount to market. For the six months ended December 31, 2019, the Company recorded an interest expense of $16,000, representing the cumulative interest for the period this loan has been outstanding, as a result of signing the agreement. As of December 31, 2019, and June 30, 2019, the Company owed EVP $104,249 and $88,224, respectively.

 

 

On February 7, 2020, the Company’s Board of Directors approved the employment contract of Todd Violette as the new CEO and the appointment of Todd Violette as a new Director and elected him to the position of Chairmen of the Board of Directors. Mr. Violette’s base salary shall be $240,000 per annum and he received 50,250,000 shares of Class A Preferred stock. In addition, Mr. Violette was granted an option to purchase up to10% of the common stock outstanding at prevailing market price, within twenty-four months.

 

On February 7, 2020, the former CEO agreed to reduce the salary payable to him to $26,750.

 

 

 

FORWARD LOOKING STATEMENTS

 

 

 

As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our” and “AppYea” mean AppYea, Inc., and our wholly owned subsidiaries, AppYea Holdings, Inc., a South Dakota corporation and The Diagnostic Centers, Inc., a South Dakota corporation unless otherwise indicated.

 

 

We were incorporated in the State of South Dakota on November 26, 2012. We are engaged in the acquisition, purchase, maintenance and creation of mobile software applications.

 

Our administrative office is located at 777 Main Street, Suite 600, Fort Worth, TX 76102, Telephone: (817)-887-8142. Our corporate website is located at www.appyea.com.

 

Our fiscal year end is June 30. We have not been subject to any bankruptcy, receivership or similar proceeding.

 

We have two wholly owned subsidiaries, AppYea Holdings, Inc., a South Dakota corporation and The Diagnostic Centers, Inc., a South Dakota corporation.

 

 

We are a development stage company that was initially only engaged in the acquisition, purchase, and maintenance of mobile software applications (“apps”). Although we are still active in the mobile applications industry, we began investigating healthcare markets to augment the apps business in early 2017 and subsequently formed a wholly owned subsidiary The Diagnostic Centers, Inc. to focus on marketing certain products and services to healthcare providers.

 

On November 15, 2017, we entered into a distribution agreement with Cedar Creek Labs Series Two LLC (“LLC”) for the term of 1 year. The agreement shall be automatically extended for successive 1 year unless there is the notice to terminate. Our Company shall use best efforts to market the Products for the LLC and will receive compensation ranging from 15% to 40% of profit. Our company owns membership interests of 5% in LLC and the transactions between our company and LLC which is an equity method investee are deemed to be between related parties. The Company reviewed Cedar Creek Labs Series Two LLC financial condition at June 30, 2018 and concluded that there is a 100% impairment loss related to the Company’s investment, and recorded an impairment loss of $24,524, for the year ended June 30, 2018. As of June 30, 2019 our company is no longer utilizing this lab.

 

 

 

 

 

We generated revenues of $68 for the three months ended December 31, 2019, compared to revenues of $119 for the same period in 2018.

 

Our operating expenses, for the three months ended December 31, 2019 were $49,677 compared to $45,022 for the same period in 2018. The increase in operating expenses was primarily as a result of an increase in professional fees.

 

Other expense, for the three months ended December 31, 2019 was $195,954 compared to other income of $451,958 for the same period in 2018. The decrease in other income was primarily related to change in fair value of derivative liabilities.

 

We incurred a net income (loss) of ($245,563) and $407,055 for the three months ended December 31, 2019 and 2018, respectively.

 

 

 

We generated revenues of $203 for the six months ended December 31, 2019, compared to revenues of $197 for the same period in 2018.

 

Our operating expenses, for the six months ended December 31, 2019 were $104,976 compared to $89,340 for the same period in 2018. The increase in operating expenses was primarily as a result of an increase in legal expenses.

 

Other expense, for the six months ended December 31, 2019 was $228,249 compared to other income of $278,622 for the same period in 2018. The decrease in other income was primarily related to change in fair value of derivative liabilities.

 

We incurred a net income (loss) of ($333,022) and $189,479 for the six months ended December 31, 2019 and 2018, respectively.

 

 

The following table provides selected financial data about our company as of December 31, 2019 and June 30, 2019, respectively.

 

 

 

 

 

 

As at December 31, 2019 our company’s cash balance was $311 and total assets were $2,311. As at June 30, 2019, our company’s cash balance was $45,056 and total assets were $54,556.

 

As at December 31, 2019, our company had total liabilities of $1,158,815, compared with total liabilities of $1,030,167 as at June 30, 2019.

 

As at December 31, 2019, our company had a working capital deficiency of $1,156,504 compared with working capital deficiency of $975,611 as at June 30, 2019. The increase in working capital deficiency was primarily attributed to a decrease in cash and an increase in derivative liabilities, accrued salary and due to related party.

 

 

During the six months ended December 31, 2019, our company used $44,770 in cash from operating activities, compared to $45,209 cash used in operating activities during the six months ended December 31, 2018. During the six months ended December 31, 2019, we incurred a net loss of $333,022 of which $183,747 arose from non-cash expenses and we generated cash flows of $104,505 from the operating assets and liabilities. During the six months ended December 31, 2018, we incurred a net income of $189,479 of which $355,325 arose from non-cash income from change in derivative valuations and $51,373 arose from non-cash expenses and we generated cash flows of $69,264 from the net increase in operating liabilities.

 

 

During the six months ended December 31, 2019 and 2018, our company did not have any investing activities

 

 

During the six months ended December 31, 2019, our company received $25 in financing activities compared to $77 received from financing activities during the six months ended December 31, 2018. During the six months ended December 31, 2019, we received $25 loan from a related party. During the six months ended December 31, 2018, we received $377 loan from a related party and repaid $300 to a related party.

 

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, and capital expenditures or capital resources that are material to stockholders.

 

 

 

The preparation of financial statements in conformity with generally accepted accounting principles requires that management makes estimates and assumptions that 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 during the period. Actual results could differ from those estimates.

 

 

 

Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method.

 

 

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our 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 in the statements of operations. For stock-based derivative financial instruments, the Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

 

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

 

 

The Company’s management conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the 1934 Act) pursuant to Rule 13a-15 under the 1934 Act. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported on a timely basis and that such information is communicated to management and the Company’s board of directors to allow timely decisions regarding required disclosure.

 

Based on this evaluation, it has been concluded that the design and operation of our disclosure controls and procedures are not effective since the following material weaknesses exist:

 

 

 

 

To the extent reasonably possible given our limited resources, as financial resources become available we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, the following:

 

 

 

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.

 

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

 

None.

 

 

None.

 

 

Not applicable.

 

 

None.

 

 

 

 

  

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.