NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(
Unaudited
)
1. NATURE OF OPERATIONS
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’s common stock is traded on the OTC Markets (www.otcmarkets.com) under the symbol “APYP”. The first day of trading on the OTC Markets was December 15, 2014.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited 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 March 31, 2017 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended March 31, 2017 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, 2016 filed with the SEC on September 30, 2016.
Use of Estimates
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.
3. GOING CONCERN AND LIQUIDITY
At March 31, 2017, the Company had cash of $20,595 and current liabilities of $347,351 and a working capital deficit of $290,756. The Company has generated net losses 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.
4. FIXED ASSETS
As at March 31, 2017 and June 30, 2016, the balance of fixed assets represented mobile application software as follows:
|
|
March 31,
2017
|
|
|
June 30,
2016
|
|
Mobile applications
|
|
$
|
257,870
|
|
|
$
|
257,870
|
|
Accumulated depreciation
|
|
|
(208,018
|
)
|
|
|
(175,226
|
)
|
Fixed assets, net
|
|
$
|
49,852
|
|
|
$
|
82,644
|
|
Depreciation expense for nine months ended March 31, 2017, and 2016, was $32,792 and $55,814, respectively.
5. CONVERTIBLE LOANS
At March 31, 2017 and June 30, 2016, convertible loans consisted of the following:
|
|
March 31,
2017
|
|
|
June 30,
2016
|
|
March 2015 Note
|
|
$
|
-
|
|
|
$
|
-
|
|
November 2016 Note
|
|
|
200,000
|
|
|
|
-
|
|
Total convertible notes payable
|
|
|
200,000
|
|
|
|
-
|
|
Accrued interest
|
|
|
7,623
|
|
|
|
454
|
|
Less: Unamortized debt discount
|
|
|
(19,674
|
)
|
|
|
-
|
|
Total convertible notes
|
|
|
187,949
|
|
|
|
454
|
|
Less: current portion of convertible notes
|
|
|
187,949
|
|
|
|
454
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
During the nine months ended March 31, 2017 and 2016, the Company recognized interest expense of $7,169 and $12,713 and amortization of discount, included in interest expense, of $9,326 and $166,079, respectively.
November 2016 Note
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. 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. Each promissory note conversion shall result in $1,500 being added to the principal of each promissory note converted. An initial promissory note of $100,000 and the note of $25,000 for a financial advisory service were issued on November 15, 2016.
On January 26, 2017, the Company issued convertible note of $75,000 according to the loan agreement on November 15, 2016 and the Company received cash of $67,500 and recognized OID of $7,500.
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.
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 Company valued the warrants using the Black Scholes valuation model. The fair value of the derivative liability for the warrants on November 15, 2016 amounted to $11,500. The derivative liability was recognized as a debt discount to the notes.
Warrants
A summary of activity during the period ended March 31, 2017 follows:
|
|
Warrant Outstanding
|
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
5,000,000
|
|
|
|
0.03
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, March 31, 2017
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
The following table summarizes information relating to outstanding and exercisable warrants as of March 31, 2017:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Number of
|
|
|
Weighted Average
Remaining Contractual life
|
|
|
Weighted
Average
|
|
|
Number of
|
|
|
Weighted
Average
|
|
Shares
|
|
|
(in years)
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
2.63
|
|
|
$
|
0.03
|
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
6. DERIVATIVE LIABILITIES
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 March 31, 2017. 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 March 31, 2017, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
Nine Months
Ended
|
|
|
Year
Ended
|
|
|
|
March 31,
2017
|
|
|
June 30,
2016
|
|
Expected term
|
|
2.63 - 3.00 years
|
|
|
0.00 - 1.00 years
|
|
Expected average volatility
|
|
528%-567
|
%
|
|
25%-1,390
|
%
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
1.28%-1.50
|
%
|
|
0.00%-0.57
|
%
|
At March 31, 2017, the estimated fair values of the liabilities measured on a recurring basis are as follows:
Fair Value Measurements at March 31, 2017
|
|
|
|
|
|
Quoted
Prices in
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
March 31,
|
|
|
Active
Markets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
|
|
2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
March 2015 Note
|
|
$
|
1,237
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,237
|
|
Warrants -Issued in fiscal year 2017
|
|
|
7,499
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,499
|
|
Total liabilities
|
|
$
|
8,736
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,736
|
|
The following table summarizes the changes in the derivative liabilities during the nine months ended March 31, 2017:
Balance - June 30, 2016
|
|
$
|
1,452
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
11,500
|
|
Gain on change in fair value of the derivative
|
|
|
(4,216
|
)
|
Balance - March 31, 2017
|
|
$
|
8,736
|
|
The aggregate gain on derivatives during the nine months ended March 31, 2017 was $4,216.
7. COMMITMENTS AND CONTINGENCIES
Leases and Long term Contracts
The Company has not entered into any long term leases, contracts or commitments.
Legal
To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.
Rent
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 nine months ended March 31, 2017 and 2015, the Company incurred $1,820 and $1,882, respectively.
8. SHAREHOLDERS’ EQUITY
Convertible Preferred Stock
The Company is authorized to issue 5,000,000 shares of convertible preferred stock at a par value of $0.0001.
Each convertible preferred share is convertible into 1,500 shares of common stock and has the voting rights of 1,000 shares of common stock.
As at March 31, 2017, and June 30, 2016, 5,000,000 shares of the Company’s convertible preferred stock were issued and outstanding.
Common Stock
The Company is authorized to issue 750,000,000 shares of common stock at a par value of $0.0001.
As at March 31, 2017, and June 30, 2016, 464,667,527 shares of the Company’s common stock were issued and outstanding, respectively.
Stock payable
The Company had insufficient authorized shares as of March 31, 2017 and as a result, the Company had $24,000 in stock payable for which it is obligated to issue 10,000,000 shares of common stock for consulting services.
9. RELATED PARTY TRANSACTIONS
In March 2016, the Company appointed current CEO and approved a base compensation package of $8,000 per month for CEO. As of March 31, 2017, and June 30, 2016, the Company recorded accrued salary of $104,000 and $32,000, respectively.
During the period ended March 31, 2017, the Company borrowed a total amount of $56,617 from Evergreen Venture Partners LLC (“EVP”), which the CEO is the majority owner, and repaid $16,809. This loan is a non-interest bearing and due on demand. As of March 31, 2017, and June 30, 2016, the Company owed EVP, a related party $42,808 and $0, respectively.