NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 incorporated a wholly-owned subsidiary, "The Diagnostic Centers Inc." in State of South Dakota on August 2, 2017.
On June 9, 2017, the Company entered into a Management Services Agreement (“MSA”) with The Diagnostic Group, LLC, A Delaware limited liability company (“TDG”) under the terms of which, the Company shall perform activities related to direct marketing of TDG products and services to healthcare providers. The initial term of the Agreement will be for thirty-six (36) months from the effective date. The MSA shall automatically renew for successive one (1) year terms, unless either Party gives the other Party ninety (90) days’ written notice of termination prior to the effective date of any renewal term, or unless the MSA is terminated earlier in accordance with Section 6 of the MSA. The Company will be paid for providing services to directly recruited customers at the rate of 35% of the Net Collected Revenue collected from non-federally funded payors by third party providers affiliated or contracted with TDG for ancillary services ordered by recruited customers less any lab specific costs related to any referred samples and/or services and less any refunds or chargebacks. The Company will be paid by the 15th of each month for Net Collected Revenue from the previous month.
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 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 September 30, 2017 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended September 30, 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, 2017 filed with the SEC on October 13, 2017.
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.
Principles of Consolidation
The consolidated financial statements include the accounts of AppYea and its subsidiary. Intercompany transactions and balances have been eliminated.
3. GOING CONCERN AND LIQUIDITY
At September 30, 2017, the Company had cash of $548 and current liabilities of $576,473 and a working capital deficit of $575,925. 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 September 30, 2017 and June 30, 2017, the balance of fixed assets represented a vehicle and mobile application software as follows:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
Mobile applications
|
|
$
|
257,870
|
|
|
$
|
257,870
|
|
Accumulated depreciation
|
|
|
(229,634
|
)
|
|
|
(218,826
|
)
|
Fixed assets, net
|
|
$
|
28,236
|
|
|
$
|
39,044
|
|
Depreciation expense for the three months ended September 30, 2017 and 2016 was $10,808 and $11,093, respectively.
5. CONVERTIBLE LOANS
At September 30, 2017 and June 30, 2017, convertible loans consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2017
|
|
March 2015 Note
|
|
$
|
-
|
|
|
$
|
-
|
|
November 2016 Note -1
|
|
|
189,802
|
|
|
|
246,833
|
|
November 2016 Note -2
|
|
|
4,044
|
|
|
|
4,044
|
|
Total convertible notes payable
|
|
|
193,846
|
|
|
|
250,877
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
17,657
|
|
|
|
11,267
|
|
Less: Unamortized debt discount
|
|
|
(72,927
|
)
|
|
|
(87,240
|
)
|
Total convertible notes
|
|
|
138,576
|
|
|
|
174,904
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes
|
|
|
138,576
|
|
|
|
174,904
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
During the three months ended September 30, 2017 and 2016, the Company recognized amortization of discount, included in interest expense, of $81,813 and $0, respectively.
March 2015 Note
On March 13, 2015, the Company issued a $10,000 convertible promissory note payable. The unsecured convertible promissory note payable is due upon demand and carries an interest rate of 12% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 60 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed. Effective March 13, 2015, the Company evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company valued the conversion feature at the issue date (March 13, 2015) at $14,552 using the Black Scholes valuation model. $10,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture. The balance of $4,552 of the value assigned to the derivative liability was expensed on the issue date of the convertible note.
As of September 30, 2017 and June 30, 2017, the outstanding principal balance of the note was $0, the note had accrued interest of $454 and an unamortized debt discount of $0.
November 2016 Note 1
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. 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 was issued on November 15, 2016.
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.
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.
During the three months ended September 30, 2017, the Company converted notes with principal amounts and accrued interest of $69,284 into 175,131,324 shares of common stock. The corresponding derivative liability at the date of conversion of $137,170 was credited to additional paid in capital.
During the year ended September 30, 2017, a total of $19,000 note principal was assigned to two lenders under the same term and conversion price.
November 2016 Note 2
On November 15, 2016, the Company also issued note of $25,000 for a financial advisory service, which will automatically mature 6 months from the date of applicable Note, will accrue interest at a rate of 12% per annum. 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. 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.
The Company valued the conversion feature using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrants that became convertible for the year ended June 30, 2017 amounted to $331,959. $90,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $241,959 was recognized as a “day 1” derivative loss.
Warrants
A summary of activity during the three months ended September 30, 2017 follows:
|
|
Warrants Outstanding
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2017
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited/canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding, September 30, 2017
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
The following table summarizes information relating to outstanding and exercisable warrants as of September 30, 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
|
|
|
|
2.13
|
|
|
$
|
0.03
|
|
|
|
5,000,000
|
|
|
$
|
0.03
|
|
7. 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 September 30, 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 September 30, 2017, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
Three months
ended
|
|
|
Year Ended
|
|
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
Expected term
|
|
0.13 - 2.13 years
|
|
|
0.38 - 2.38 years
|
|
Expected average volatility
|
|
173%-291%
|
|
|
235%-288%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
Risk-free interest rate
|
|
1.03%-1.47%
|
|
|
1.14%-1.38%
|
|
At September 30, 2017, the estimated fair values of the liabilities measured on a recurring basis are as follows:
|
|
September 30,
|
|
|
Quoted Prices in
Active Markets
|
|
|
Significant Other
Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
|
2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
March 2015 Note
|
|
$
|
1,996
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,996
|
|
November 2016 Note 1
|
|
|
163,162
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163,162
|
|
November 2016 Note 2
|
|
|
8,987
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,987
|
|
Warrants -Issued in fiscal year 2017
|
|
|
4,738
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,738
|
|
Total liabilities
|
|
$
|
178,883
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
178,883
|
|
The following table summarizes the changes in the derivative liabilities during the three months ended September 30, 2017:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
|
|
|
|
Balance - June 30, 2017
|
|
$
|
114,316
|
|
|
|
|
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
67,500
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
222,531
|
|
Settled on issuance of common stock
|
|
|
(137,170
|
)
|
Gain on change in fair value of the derivative
|
|
|
(88,294
|
)
|
Balance - September 30, 2017
|
|
$
|
178,883
|
|
The aggregate loss on derivatives during the three months ended September 30, 2017 and 2016 was $134,237 and $2,178.
9. 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.
During 2017, the Company entered into discussions regarding a proposed merger with Decision Diagnostics Corporation (“DECN”) and entered into a Preliminary Agreement Leading to a Triangular Merger (“Merger Agreement”). The Company determined that the Merger Agreement was not in the best interest of its Shareholders and terminated the Merger Agreement. In order to resolve any potential disputes or claims, the Company entered into a Settlement Agreement and Release (“Settlement”), a copy of which is included as Exhibit _____ to this Form 10-Q.
DECN shall forever release and discharge, any and all claims or demands, of any type or description, whether known or unknown, that have been asserted or could have been asserted against the Company and shall further forever release and discharge the Company, from any and all claims, demands, causes of action, and liabilities of any kind whatsoever (upon any legal or equitable theory, whether contractual, common-law, statutory, federal, state, local, or otherwise) (collectively the “Claims”), arising by reason of any act, omission, transaction or occurrence which DECN ever had or now has against the Company existing on, after, or prior to the execution date of the Settlement Agreement. DECN further agrees to indemnify the Company to the fullest extent of the law with respect to any violation by DECN of the releases and discharges given hereunder.
According to the Settlement, the Company issued 75,000,000 shares of common stock in October 2017. During the three months ended September 30, 2017, the Company recorded settlement expense of $67,500 and accrued expenses of $67,500 as of September 30, 2017.
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 three months ended September 30, 2017 and 2016, the Company incurred $613 and $607, respectively.
10. 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 September 30, 2017 and June 30, 2017, 5,000,000 shares of the Company's convertible preferred stock were issued and outstanding.
Common Stock
During the three months ended September 30, 2017, the Company issued common shares, as follows:
|
·
|
an aggregate of 175,131,324 common shares were issued for the conversion of debt and accrued interest of $69,284, and released derivative liabilities of $137,170 to paid-in capital
|
|
·
|
30,000,000 common shares were issued for cash of $200 and reduction in common stock payable of $57,273
|
As at September 30, 2017 and June 30, 2017, 725,104,637 and 519,973,313 shares of the Company's common stock were issued and outstanding, respectively.
Stock payable
The Company had insufficient authorized shares as of June 30, 2017 and as a result, the Company had $105,000 in stock payable for which it is obligated to issue 55,000,000 shares of common stock for consulting services. During the three months ended September 30, 2017 the company issued 30,000,000 common shares for cash of $200 and reduced common stock payable by $57,273.
As of September 30, 2017, 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.
11. 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 September 30, 2017, and June 30, 2017, the Company recorded accrued salary of $152,000 and $128,000, respectively.
During the three months ended September 30, 2017, the Company borrowed a total amount of $1,750 from Evergreen Venture Partners LLC (“EVP”), which the CEO is the majority owner, and repaid $100. This loan is a non-interest bearing and due on demand. As of September 30, 2017, and June 30, 2017, the Company owed EVP, a related party $75,258 and $73,608, respectively.
12. SUBSEQUENT EVENTS
Subsequent to June 30, 2017, the Company issued common shares as follow;
|
·
|
87,049,697 shares of common stock for conversion of debt and accrued interest of $35,212.
|
|
·
|
75,000,000 shares of common stock according to the settlement agreement (Note9).
|