U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended August 31, 2016
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to _______
YAPPN CORP.
(Exact name of small business issuer as specified in its charter)
Delaware | 000-55082 | 27-3848069 | ||
(State of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1001 Avenue of the Americas, 11th Floor
New York, NY 10018
(Address of principal executive offices) (Zip code)
888-859-4441
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 40,208,985 shares outstanding of registrant’s common stock, par value $0.0001 per share, as of October 17, 2016.
Transitional Small Business Disclosure Format Yes ☐ No ☒
TABLE OF CONTENTS
PART I | ||
Item 1. | Financial Statements | 1 |
Interim Condensed Consolidated Balance Sheets as of August 31, 2016 (unaudited) and May 31, 2016 | 2 | |
Interim Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income for the three months ended August 31, 2016 and August 31, 2015 (unaudited) | 3 | |
Interim Condensed Consolidated Statement of Stockholders’ Deficit for the three months ended August 31, 2016 (unaudited) and year end May 31, 2016 | 4 | |
Interim Condensed Consolidated Statements of Cash Flows for the three months ended August 31, 2016 and August 31, 2015 (unaudited) | 5 | |
Notes to Interim Condensed Consolidated Financial Statements (unaudited) | 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
Item 4. | Controls and Procedures | 28 |
PART II | ||
Item 1. | Legal Proceedings | 29 |
Item 1A. | Risk Factors | 29 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 |
Item 3. | Defaults Upon Senior Securities | 29 |
Item 4. | Mine Safety Disclosures | 29 |
Item 5. | Other Information | 29 |
Item 6. | Exhibits | 30 |
SIGNATURES | 32 |
PART I
Item 1.
Interim Condensed Consolidated Financial Statements and Notes to Interim Condensed Consolidated Financial Statements
General
The accompanying reviewed interim condensed consolidated financial statements are unaudited and have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company's annual report on Form 10-K for the year ended May 31, 2016. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended August 31, 2016 are not necessarily indicative of the results that can be expected for the year ending May 31, 2017.
All references to “dollars”, “$” or “US$” are to United States dollars and all references to “CAD$” are to Canadian dollars. United States dollar equivalents of Canadian dollar figures are based on the exchange rate as reported by the Bank of Canada on the applicable date.
1 |
YAPPN CORP.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Note | As of August 31, 2016 | (audited) As of May 31, 2016 | ||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash | $ | 38,914 | $ | 448,575 | ||||||
Accounts receivable | 3 | 4,406 | 29,244 | |||||||
Note receivable | 3 | 968,289 | 1,123,289 | |||||||
Prepaid expenses | 109,384 | 113,262 | ||||||||
Total current assets | 1,120,993 | 1,714,370 | ||||||||
Equipment, net | 13,612 | 14,632 | ||||||||
Intangible assets | 4 | 4,418,735 | 4,676,221 | |||||||
Total Assets | $ | 5,553,340 | $ | 6,405,223 | ||||||
Liabilities and Stockholders' Deficit | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 545,657 | $ | 533,030 | ||||||
Accrued expenses | 695,596 | 840,034 | ||||||||
Accrued development and related expenses - related party | 12 | - | 16,654 | |||||||
Short term loans | 5 | 155,299 | 284,451 | |||||||
Convertible promissory notes and debentures | 7 | 1,131,932 | 2,454,824 | |||||||
Total current liabilities | 2,528,484 | 4,128,993 | ||||||||
Other liabilities: | ||||||||||
Long term accrued interest | 781,057 | 577,231 | ||||||||
Long term secured debentures | 6 | 4,550,388 | 4,550,388 | |||||||
Convertible secured debentures | 8 | 485,104 | 375,279 | |||||||
Total Liabilities | 8,345,033 | 9,631,891 | ||||||||
Stockholders' Deficit | ||||||||||
Preferred stock, par value $.0001 per share, 50,000,000 shares authorized: Series 'A' Convertible, 10,000,000 shares authorized; nil shares issued and outstanding | 10 | - | - | |||||||
Common stock, par value $.0001 per share, 400,000,000 shares authorized 38,258,617 issued and outstanding (May 31, 2016 – 30,081,163) | 9 | 15,918 | 15,100 | |||||||
Common stock, par value $.0001 per share, 19,077,162 shares subscribed not issued (May 31, 2016 – 20,308,890) | 9 | 2,753,138 | 3,068,945 | |||||||
Additional paid-in capital | 17,886,947 | 15,353,712 | ||||||||
Deficit | (23,447,696 | ) | (21,664,425 | ) | ||||||
Total Stockholders' Deficit | (2,791,693 | ) | (3,226,668 | ) | ||||||
Total Liabilities And Stockholders' Deficit | $ | 5,553,340 | $ | 6,405,223 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
2 |
YAPPN CORP.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
(LOSS)/INCOME (Unaudited)
Three Months Ended August 31, | ||||||||||
Note | 2016 | 2015 | ||||||||
Revenues | 3 | $ | 100,068 | $ | 758,159 | |||||
Cost of revenue | 6,543 | 128,471 | ||||||||
Gross profit | 93,525 | 629,688 | ||||||||
Operating expenses: | ||||||||||
Marketing | 10,372 | 102,785 | ||||||||
Research and development expenses | 12 | 120,204 | 95,070 | |||||||
General and administrative expenses | 12 | 400,516 | 352,133 | |||||||
Professional fees | 85,734 | 91,569 | ||||||||
Consulting | 49,726 | 102,000 | ||||||||
Depreciation | 1,025 | 91 | ||||||||
Amortization | 4 | 266,649 | - | |||||||
Stock based compensation | 11 | 473,988 | 112,642 | |||||||
Total operating expenses | 1,408,214 | 856,290 | ||||||||
Loss from operations | (1,314,689 | ) | (226,602 | ) | ||||||
Other expense/(income): | ||||||||||
Interest expense | 287,053 | 153,985 | ||||||||
Financing expense on issuance of convertible notes and common stock | - | 89,490 | ||||||||
Change in fair value of convertible promissory notes and convertible secured debentures | 172,260 | (801,639 | ) | |||||||
Prepayment fees on variable notes | - | 177,232 | ||||||||
Miscellaneous expense/(income) | 9,269 | (12,318 | ) | |||||||
Total other expense/(income) | 468,582 | (393,250 | ) | |||||||
Net (loss)/income before taxes | (1,783,271 | ) | 166,648 | |||||||
Provision for income taxes | - | - | ||||||||
Net (loss)/income and comprehensive loss | $ | (1,783,271 | ) | $ | 166,648 | |||||
Net (loss)/income per weighted-average shares of common stock - basic | $ | (0.06 | ) | $ | 0.01 | |||||
Net (loss)/income per weighted-average shares of common stock - diluted | $ | (0.06 | ) | $ | 0.01 | |||||
Weighted-average number of shares of common stock issued and outstanding - basic | 31,218,711 | 13,422,941 | ||||||||
Weighted-average number of shares of common stock issued and outstanding - diluted | 31,218,711 | 16,254,733 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3 |
YAPPN CORP.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)
For the three months ended August 31, 2016 and year ended May 31, 2016
Common | Preferred | Additional | ||||||||||||||||||||||||||||||||||
Shares Outstanding | Amount | Subscribed Shares | Subscribed Amounts | Shares Outstanding | Amount | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||||||||
Balance - May 31, 2015 | 13,422,814 | 13,423 | 99,344 | 124,567 | - | - | 7,981,579 | (14,762,852 | ) | (6,643,283 | ) | |||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | 1,164,887 | - | 1,164,887 | ||||||||||||||||||||||||||||
Stock issued on exercise of warrants | 11,667 | 12 | - | - | - | - | (12 | ) | - | - | ||||||||||||||||||||||||||
Issuance of common stock for purchase technology | 12,998,682 | 1,300 | - | - | - | - | 1,805,308 | - | 1,806,608 | |||||||||||||||||||||||||||
Stock to be issued for purchase of technology | - | - | 18,988,318 | 2,639,071 | - | - | - | - | 2,639,071 | |||||||||||||||||||||||||||
Issuance of warrants classified as equity | - | - | - | - | - | - | 1,279,846 | - | 1,279,846 | |||||||||||||||||||||||||||
Warrants associated with a secured convertible debenture | - | - | - | - | - | - | 1,700,052 | - | 1,700,052 | |||||||||||||||||||||||||||
Common stock associated with common stock and warrants financing | 3,648,000 | 365 | - | - | - | - | 568,561 | - | 568,926 | |||||||||||||||||||||||||||
Warrants associated with common stock and warrant financing | - | - | - | - | - | - | 343,074 | - | 343,074 | |||||||||||||||||||||||||||
Shares to be issued on conversion of debt | - | - | 1,221,228 | 305,307 | - | - | - | - | 305,307 | |||||||||||||||||||||||||||
Beneficial conversion feature | - | - | - | - | - | - | 510,417 | - | 510,417 | |||||||||||||||||||||||||||
Net loss for the year ended May 31, 2016 | - | - | - | - | - | - | - | (6,901,573 | ) | (6,901,573 | ) | |||||||||||||||||||||||||
Balance – May 31, 2016 | 30,081,163 | 15,100 | 20,308,890 | 3,068,945 | - | - | 15,353,712 | (21,664,425 | ) | (3,226,668 | ) | |||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | 423,988 | - | 423,988 | ||||||||||||||||||||||||||||
Issuance of warrants classified as equity | - | - | - | - | - | - | 57,827 | - | 57,827 | |||||||||||||||||||||||||||
Common stock associated with Common Stock and Warrants financing | 1,000,000 | 100 | - | - | - | - | 141,207 | - | 141,307 | |||||||||||||||||||||||||||
Warrants associated with Common Stock and Warrants financing | - | - | - | - | - | - | 108,693 | - | 108,693 | |||||||||||||||||||||||||||
Shares issued on conversion of debt | 7,177,454 | 718 | - | - | - | - | 1,801,520 | - | 1,802,238 | |||||||||||||||||||||||||||
Shares to be issued for debenture conversion | - | - | (1,221,228 | ) | (305,307 | ) | - | - | - | - | (305,307 | ) | ||||||||||||||||||||||||
Stocks to be issued under prior obligation | - | - | (10,500 | ) | (10,500 | ) | - | - | - | - | (10,500 | ) | ||||||||||||||||||||||||
Net loss for the three months ended August 31, 2016 | - | - | - | - | - | - | - | (1,783,271 | ) | (1,783,271 | ) | |||||||||||||||||||||||||
Balance – August 31, 2016 | 38,258,617 | 15,918 | 19,077,162 | 2,753,138 | - | - | 17,886,947 | (23,447,696 | ) | (2,791,693 | ) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4 |
YAPPN CORP.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended August 31 | ||||||||
2016 | 2015 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net and comprehensive (loss)/income | $ | (1,783,271 | ) | $ | 166,648 | |||
Adjustments to reconcile net (loss)/income to cash used in operating activities: | ||||||||
Depreciation | 1,025 | 91 | ||||||
Amortization | 266,649 | - | ||||||
Stock based compensation | 473,988 | 112,642 | ||||||
Change in fair value of derivative liabilities and convertible notes | 172,260 | (801,639 | ) | |||||
Financing expense on issuance of convertible promissory notes, and common stock | - | 89,490 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 24,838 | 7,520 | ||||||
Note receivable | 155,000 | - | ||||||
Prepaid expenses | 3,878 | (43,070 | ) | |||||
Accounts payable and accrued liabilities | 230,946 | 162,056 | ||||||
Accrued development and related expenses - related party | (16,654 | ) | (193,616 | ) | ||||
Net Cash Used in Operating Activities | (471,341 | ) | (499,878 | ) | ||||
Cash Flows From Investing Activity: | ||||||||
Expenditures on patents | (9,168 | ) | - | |||||
Net Cash Used in Investing Activity | (9,168 | ) | - | |||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from convertible promissory notes and debentures | - | 90,750 | ||||||
Proceeds from line of credit, net | - | (942,025 | ) | |||||
Proceeds from secured debentures | - | 1,830,695 | ||||||
Repayments of short term loans | (29,152 | ) | (152,395 | ) | ||||
Repayment of convertible promissory notes and debentures | - | (340,846 | ) | |||||
Proceeds from common stock private placement | 100,000 | - | ||||||
Net Cash Provided by Financing Activities | 70,848 | 486,179 | ||||||
Net decrease in cash | (409,661 | ) | (13,699 | ) | ||||
Cash, beginning of period | 448,575 | 19,496 | ||||||
Cash, end of period | $ | 38,914 | $ | 5,797 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Non Cash Investing and Financing Activities Information: | ||||||||
Common stock issued on exercise of warrants | $ | - | $ | 37,100 | ||||
Conversion of short term loan | $ | 100,000 | $ | 1,494,305 | ||||
Private placement of units in settlement of payables | $ | 50,000 | $ | - | ||||
Common stock issued for conversion of debt | $ | 1,802,238 | $ | - | ||||
Cash paid for interest during the three month period | $ | 5,000 | $ | 49,885 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
5 |
YAPPN CORP.
Notes to Interim Condensed Consolidated Financial Statements
August 31, 2016
(Unaudited)
All references to “dollars”, “$” or “US$” are to United States dollars and all references to “Canadian” are to Canadian dollars. United States dollar equivalents of Canadian dollar figures are based on the exchange rate as reported by the Bank of Canada on the applicable date.
1. Summary of Significant Accounting Policies
Basis of Presentation and Organization
Yappn Corp., formerly “Plesk Corp.”, (the “Company”) was incorporated under the laws of the State of Delaware on November 3, 2010. The business plan of the Company is to provide effective unique and proprietary tools and services that create dynamic solutions that enhance a brand’s messaging, media, e-commerce and support platforms. The Company has offices in the United States and Canada. In March 2013, the Company acquired a concept and technology license from Intertainment Media Inc., a Canadian company, in exchange for 7,000,000 shares of common stock of the Company. As a result of this exchange, Intertainment Media Inc. acquired, at that time, a seventy percent (70%) ownership of the Company. On September 15, 2015, the Company closed the acquisition of Ortsbo Inc.’s (subsidiary of Intertainment Media Inc.) intellectual property. As a result of the acquisition, Intertainment Media Inc.’s ownership was reduced to 37%. The accompanying interim condensed consolidated financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.
Unaudited Interim Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements of the Company as of August 31, 2016, and for the three month periods ended August 31, 2016 and August 31, 2015, are unaudited. However, in the opinion of management, the interim condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position as of August 31, 2016 and August 31, 2015, and the results of its operations and its cash flows for the three month period ended August 31, 2016 and August 31, 2015. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2017. The accompanying interim condensed consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States. Refer to the Company’s audited consolidated financial statements as of May 31, 2016 filed with the Securities and Exchange Commission, for additional information including significant accounting policies.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 which was amended in August 2015 by Update No 2015-14: Revenue from Contracts with Customers. The standard outlines a five-step model for revenue recognition with the core principle being that a company should recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Companies can choose to apply the standard using either the full retrospective approach or a modified retrospective approach. Under the modified approach, financial statements will be prepared for the year of adoption using the new standard but prior periods presented will not be adjusted. Instead, companies will recognize a cumulative catch-up adjustment to the opening balance of retained earnings. This new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company has not yet made a determination as to the method of application (full retrospective or modified retrospective). It is too early to assess whether the impact of the adoption of this new guidance will have a material impact on the Company's results of operations or financial position.
On August 27, 2014 the FASB issued a new financial accounting standard on going concern, Update 2014-15, “Presentation of Financial Statements – Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The amendments in this update apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted. The Company is currently evaluating the impact of this accounting standard.
In November 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.” The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivatives feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years beginning after December 15, 2015 and interim periods beginning after December 15, 2016. The Company has determined there is no material impact to the accounting treatment of its hybrid financial instruments based on this new standard.
6 |
2. Going Concern
The accompanying interim condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced negative cash flows from operations since inception and has incurred a deficit of $23,447,696 through August 31, 2016.
As of August 31, 2016, the Company had a working capital deficit of $1,407,491. During the three months ended August 31, 2016, net cash used in operating activities was $471,341. The Company expects to have similar cash needs for the next twelve months. At the present time, the Company does not have sufficient funds to fund operations over the next twelve months.
Implementation of the Company business plan will require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. The Company has realized limited revenues to cover its operating costs. As such, the Company has incurred an operating loss since inception. This and other factors raise substantial doubt about their ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet their obligations, to obtain additional financing as may be required, and ultimately to attain profitability. The interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management plans to meet its operating cash flow requirements from financing activities until the future operating activities become sufficient to support the business to enable the Company to continue as a going concern. The Company continues to work on generating operating cash flows from the commercialization of its business. Until those cash flows are sufficient the Company will pursue other financing when deemed necessary.
The Company is pursuing a number of different financing opportunities in order to execute its business plan. These include, short term debt arrangements, convertible debt arrangements, common share equity financings, either through a private placement or through the public markets. During the three months ended August 31, 2016, the Company raised $70,848 through various financial instruments, net of repayments. Subsequent to the three month ended August 31, 2016, the Company raised $500,000 in cash proceeds (Note 13).
There can be no assurance that the raising of future equity or debt will be successful or that the Company’s anticipated financing will be available in the future, at terms satisfactory to the Company. Failure to achieve the equity and financing at satisfactory terms and amounts could have a materially adverse effect on the Company’s ability to continue as a going concern. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and the Company may have to cease operations.
3. Concentration of Credit Risk
All of the Company’s revenues are attributed to a small number of customers. One former customer comprises 100% of the note receivable balance as at August 31, 2016 and 0% of the revenue recorded for the three months ended August 31, 2016 and 100% of the revenue for the three months ended August 31, 2015. Intelligent Content Enterprises (“ICE”) comprises 53% of revenue recorded for the three months ended August 31, 2016. The Company billed ICE $59,681 for the three month ended August 31, 2016, none of which has been recorded as part of the accounts receivable or revenue. Due to the long period without payment, the Company has determined the revenue recognition criteria starting at the beginning of the Company’s second quarter of fiscal 2016 for Digital Widget Factory (Belize) (“DWF”) was not met and further revenues in fiscal 2017 will not be recorded until reasonable assurance over collectability has been established.
Effective February 29, 2016, DWF sold the technology platform, partially developed by Yappn, in conjunction with DWF’s principals, to ICE in exchange for common shares of ICE. As part of the transaction, DWF received ownership and rights to 24 million common shares of ICE for a large minority shareholder position of ICE. During the fourth quarter of fiscal 2016, the Company executed a promissory note from DWF, for the outstanding value of the billings of $2,125,000 (of which $968,289 is recorded as a note receivable at August 31, 2016 and was previously recognized in revenue and a trade receivable). The promissory note is secured by DWF’s ICE stock holdings in the amount of 2,250,000 restricted common shares, which at the market value at the time of execution significantly exceeded the value of the promissory note. The note receivable includes monthly payments of differing amounts with the final payment scheduled by November 30, 2016. The note receivable is past due on contractual payments by $807,500 as at August 31, 2016.
Additionally, the Company received stock options for the purchase of shares of common stock of ICE from DWF. The first option entitles Yappn to subscribe for purchase from DWF up to 1,000,000 fully paid and nonassessable shares of ICE’s common stock at a purchase price of $0.55 per share exercisable until $987,500 remains outstanding on the note receivable, of which the price of the option is offset against $550,000 of the remaining note receivable. DWF can elect to buy out the option at any time at a price of $0.75 per each underlying share of the option agreement. For each missed payment (not the remedy period per the promissory note, but any payment not made on the exact due date), the buyout price will increase by $0.05 per underlying share for each payment date missed starting with the payment due on June 30, 2016 per promissory note. The second option entitles Yappn to subscribe for purchase from DWF up to 1,250,000 fully paid and nonassessable shares of ICE’s common stock at a purchase price of $0.35 per share until $437,500 is remaining on the note receivable. DWF can elect to buy out the option at any time at a price of $0.50 per each underlying share of the option agreement. For each missed payment (not the remedy period per the promissory note, but any payment not made on the exact due date), the buyout price will increase by $0.05 per underlying share for each payment date missed starting with the payment due on June 30, 2016 per promissory note. The value of these options is not recognized in the interim condensed consolidated financial statements, as the maximum value recorded is limited to what has previously been recorded as revenue as at August 31, 2016.
7 |
4. Acquisition of Intellectual Property
On September 15, 2015, the Company finalized its purchase of intellectual property assets of Ortsbo, Inc. (“Ortsbo”) pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015. With this closing, the Company had an obligation to issue 31,987,000 shares of common stock of Yappn to Ortsbo or its designees. During the second quarter of fiscal 2016, from the share issuance obligations from the purchase of the Ortsbo intellectual property assets, 12,998,682 shares were issued comprising 8,312,500 to Ortsbo and 4,686,182 to the former debt and minority shareholders of Ortsbo, which were valued at $1,806,608 leaving 18,988,318 shares to be issued which remain outstanding as at August 31, 2016. Yappn also assumed $975,388 of debt as part of the transaction. This assumed debt was immediately subscribed as part of the secured debenture in Yappn (Note 6). The fair value for the agreed upon consideration for the acquisition of intellectual property from Ortsbo was $16,968,888, however, due to the common control of Ortsbo Inc. and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo Inc. This value was $5,421,067 on September 15, 2015.
Intangible Assets | Technology | Patents | Issued Patents | Total | ||||||||||||
Balance on Acquisition - September 15, 2015 | $ | 5,278,773 | $ | 142,294 | $ | - | $ | 5,421,067 | ||||||||
Additions | - | 21,522 | - | 21,522 | ||||||||||||
Amortization | (747,830 | ) | - | - | (747,830 | ) | ||||||||||
Disposal | - | (18,538 | ) | - | (18,538 | ) | ||||||||||
Balance, May 31, 2016 | $ | 4,530,943 | $ | 145,278 | $ | - | $ | 4,676,221 | ||||||||
Additions | - | 9,163 | - | 9,163 | ||||||||||||
Issuance | - | (23,250 | ) | 23,250 | - | |||||||||||
Amortization | (263,940 | ) | - | (2,709 | ) | (266,649 | ) | |||||||||
Balance, August 31, 2016 | $ | 4,267,003 | $ | 131,191 | $ | 20,541 | $ | 4,418,735 |
5. Short Term Loans
The Company has a past due term loan originated on April 1, 2014 with an interest rate of 1% per month. The Company repaid $15,483 (Canadian $20,000) during the three months ended August 31, 2016. As at August 31, 2016, the loan had a value of $90,588 ($118,815 Canadian).
The Company has a past due term loan originated on January 7, 2014 with an interest rate of 1% per month. The Company repaid $13,899 (Canadian $18,125) during the three months ended August 31, 2016. As at August 31, 2016, the loan had a value of $64,711 ($75,000 Canadian).
During the fourth quarter of fiscal 2016, the Company received $100,000 from a director as an intended subscription in anticipation of a third closing of a private placement of units consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. The Company completed this closing on August 31, 2016 and the loan was applied against the private placement (Note 9).
The following is a summary of Short Term Loans:
Principal amounts | April 1, 2014 Term Loan | January 7, 2014 Term Loan | Other Loans | Total | ||||||||||||
Fair value at May 31, 2015 | $ | 152,545 | $ | 82,817 | $ | 556,566 | $ | 791,928 | ||||||||
Borrowing during the first quarter | - | - | 328,265 | 328,265 | ||||||||||||
Borrowing during the second quarter | - | - | 1,201,000 | 1,201,000 | ||||||||||||
Borrowing during the third quarter | - | - | 170,468 | 170,468 | ||||||||||||
Borrowing during the fourth quarter | - | - | 100,000 | 100,000 | ||||||||||||
Fair value adjustments | (9,446 | ) | (4,251 | ) | (19,726 | ) | (33,423 | ) | ||||||||
Conversions | - | - | (1,832,768 | ) | (1,832,768 | ) | ||||||||||
Repayments | (37,214 | ) | - | (403,805 | ) | (441,019 | ) | |||||||||
Fair value at May 31, 2016 | $ | 105,885 | $ | 78,566 | $ | 100,000 | $ | 284,451 | ||||||||
Borrowing during the first quarter | - | - | - | - | ||||||||||||
Fair value adjustments | 186 | 44 | - | 230 | ||||||||||||
Conversions | - | - | (100,000 | ) | (100,000 | ) | ||||||||||
Repayments | (15,483 | ) | (13,899 | ) | - | (29,382 | ) | |||||||||
Fair value at August 31, 2016 | $ | 90,588 | $ | 64,711 | $ | - | $ | 155,299 |
8 |
6. Line of Credit Arrangement and Secured Debentures
On April 7, 2014, the Company finalized its line of credit arrangement whereby the Company could borrow up to $3,000,000 from a third party lender. The loan agreement was for an initial two year term subject to the lender’s right to demand repayment of the outstanding balance. It carried an interest rate of 12% per annum and a 1% draw down fee on each draw.
During fiscal 2016, the Company borrowed $150,000 against the line of credit and converted $2,000,000 to secured debentures. The facility is no longer available to the Company and the outstanding obligation was $nil at August 31, 2016.
Yappn closed the first tranche of secured debentures in the amount of $4.5 million. The secured debentures carry an annual interest rate of 12% payable at maturity. Maturity was initially the earlier of the date proceeds are available from a public offering or December 31, 2015. During the third quarter of fiscal 2016, the holders of the Secured Debentures (the “Holders”) agreed to extend the maturity date of the Secured Debentures from December 31, 2015 to July 15, 2020, and were provided with the right to amend the Secured Debenture such that a Holder shall have the right, at any time after the earlier of (i) six (6) months from the date of first issuance of any subsequent Debentures; and (ii) June 30, 2016, to require the Company to satisfy the outstanding obligations underlying the Secured Debenture; provided, however, that at least two thirds (66.67%) of the Holders of the principal amount of the Secured Debentures consent to a put of their Secured Debentures to the Company. Yappn executed a non-binding letter of intent with Winterberry Investments Inc. ("Winterberry"), a private company led by Mr. David Berry, a current director, pursuant to which Winterberry will facilitate and manage the financing transaction as well as to advise on Yappn's future capital programs. The Company received $2.5 million of this financing in the form of cash and cash commitments, including conversion of the short term loans obtained on May 11, 2015 and June 19, 2015. $2,000,000 of the $4.5 million financing is conversion of a portion of the Company’s existing debt that remained in the secured debenture. $925,000 was repaid out of the secured debenture, in the form of cash in the amount of $465,000 with the remainder in the form of the release of secured deposit that was applied against accounts receivable. On September 15, 2015, the Company closed the acquisition of intellectual property from Ortsbo, and as part of this closing, assumed debt and non-controlling equity interests from Ortsbo in the amount of $975,388 that was immediately subscribed to a second tranche of secured debentures. The secured debentures balance as at August 31, 2016, was $4,550,388 (Note 12). Interest expense for the three month period ended August 31, 2016 was $136,512 ($63,805 for the three months ended August 31, 2015). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet.
7. Convertible Promissory Notes and Debentures
The following is a summary of the convertible promissory notes and debentures as of August 31, 2016:
Principal amounts: | Convertible Promissory Notes and Debentures | Conversions | Total Outstanding Principal | |||||||||
Total Borrowings | ||||||||||||
Borrowing on January 29, 2014 | $ | 395,000 | $ | (260,000 | ) | $ | 135,000 | |||||
Borrowing on February 27, 2014 | 305,000 | - | 305,000 | |||||||||
Borrowing on April 1, 2014 | 469,000 | (175,000 | ) | 294,000 | ||||||||
Borrowing on April 23, 2014 | 50,000 | 50,000 | ||||||||||
Borrowing on May 31, 2014 | 1,000,000 | (1,000,000 | ) | - | ||||||||
Borrowing on June 27, 2014 | 250,000 | - | 250,000 | |||||||||
Borrowing on September 2, 2014 | 125,000 | (125,000 | ) | - | ||||||||
Borrowing on October 6, 2014 | 50,000 | - | 50,000 | |||||||||
Borrowing on October 27, 2014 | 50,000 | - | 50,000 | |||||||||
Total | $ | 2,694,000 | $ | 1,560,000 | $ | 1,134,000 | ||||||
Balance at May 31, 2015 | $ | 1,945,833 | ||||||||||
Fair Value adjustment | 768,991 | |||||||||||
Conversions | (260,000 | ) | ||||||||||
Balance at May 31, 2016 | $ | 2,454,824 | ||||||||||
Fair Value adjustment | (22,892 | ) | ||||||||||
Conversions | (1,300,000 | ) | ||||||||||
Balance at August 31, 2016 | $ | 1,131,932 |
9 |
Convertible Debentures with Series A and B Warrants
On January 29, 2014, February 27, 2014, and April 1, 2014, the Company issued 395, 305, and 469 Units for $395,000, $305,000, and $469,000 respectively, to accredited investors under subscription agreements. The Units, as defined in the subscription agreements, consist of (i) one unsecured 6% convertible promissory note, $100 par value, convertible into shares of the Company’s common stock; (ii) a warrant entitling the holder thereof to purchase 1,000 shares of common stock (individually Series A Warrant) at an exercise price of $1.50; and, (iii) a warrant entitling the holder thereof to purchase 1,000 shares of common stock (individually Series B Warrant) at an exercise price of $2.00 (Note 10). The purchase price for each Unit was $1,000 and resulted in a funding total of $1,069,000 in cash and the retirement of $100,000 debt obligation to a private investor.
The notes mature 24 months from the issuance date and has an interest rate of 6% per annum payable in arrears on the earlier of a default date or the maturity date. The notes may be converted at any time after the original issuance date at the election of their holders to convert all or part of the outstanding and unpaid principal amount and accrued interest at a conversion price of $1.00 per share repriced from $1.50 due to a breach to previously contracted price protection clauses which have expired. Any amount of principal or interest which is not paid when due, shall bear interest at the rate of 16% per annum from the date it is due. The Series B warrants do not provide any price protection provisions and therefore are treated as equity instruments at the commitment date and thereafter. Both the Series A and Series B warrants have a five year life.
The convertible debentures due on January 29, February 27, 2016, and April 1, 2016 respectively were not repaid or converted into common shares of the Company by the maturity dates. Non-repayment of the debentures triggered a penalty interest rate whereby the stated interest rate goes up to 16% from the original 6%. The Company management is diligently working with the debenture holders on either extension terms or conversion into common shares as the Company does not currently have the ability to repay these debtholders in cash. In fiscal 2016, $260,000 in principal value of debenture holders took the offer for additional investment and repricing of both warrants (Note 9). During the three month period ended August 31, 2016, $175,000 in principal value of debenture holders took conversion but only the Series A warrants were repriced (Notes 9 and 10). The holders of $175,000 in principal converted have the right to an additional issuance of shares if Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share. Interest expense for the three month period ended August 31, 2016 was $43,760 ($17,679 for the three months ended August 31, 2015). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet.
Convertible Debentures with Series C or Series D Warrants
During late fiscal 2014, and early fiscal 2015 the Company authorized and issued 1,050 Units for $1,050,000 to private investors, and 475 Units for $475,000 to seven independent accredited investors respectively. The 475 Units were issued in exchange for $300,000 in cash and release of $90,777 (Canadian $100,000) in the loan originated on January 7, 2014 and $50,000 in settlement of trade payables. The Units, as defined in the subscription agreement, consist of (i) one unsecured 6% convertible debenture, $100 par value convertible into shares of the Company’s common stock at a conversion price of $1.50 per share; and (ii) a warrant entitling the holder thereof to purchase 700,000 shares of common stock (Series C Warrant) and 316,666 shares of common stock (Series D Warrant) at a purchase price of $2.20 per share that expires in 5 years (Note 10).
The debentures mature 24 months from the issuance date and have an interest rate of 6% per annum payable in arrears on the earlier of a default date or the maturity date. The notes may be converted at any time after the original issuance date at the election of their holders to convert all or part of the outstanding and unpaid principal amount and accrued interest at a conversion price of $1.50 per share. The warrants may be exercised in whole or in part.
During the fourth quarter of fiscal 2016 and first quarter of fiscal 2017 $1,125,000 in principal value of debenture holders converted their outstanding debentures and accrued interest into common stock of the company as well as received amendments to their warrants price of $0.25 (Notes 9 and 10). The holders of $1,125,000 in principal converted have the right to an additional issuance of shares if Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share. All remaining term and conditions still same as before. Interest expense for the three month period ended August 31, 2016 was $28,878 ($23,063 for the three months ended August 31, 2015). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet.
8. Convertible Secured Debentures
On December 30, 2015, the Company completed a secured debenture and warrant financing of $2,040,000 ($1,075,000 from directors of the Company) through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested in one year, 1/3 to be vested in two years and 1/3 to be vested in three years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit.
10 |
Values were allocated for this private placement between the debt, equity warrants, and the beneficial conversion feature. The valuation approach involved determining a fair value for the debt and warrants and then using the relative fair value method to allocate value to these components. Based on relative fair values, the present value method was used to determine the fair values of the debt and the binomial tree option pricing model was used to determine the fair value of the warrants. The value of the interest and principal payments of the debentures resulted in a value of $459,020 for the debentures and the binomial model resulted in a value for warrants for $1,580,980. The assumptions used for the binomial model are: Volatility 177%, expected life of five years, risk free interest rate of 1.80%, and dividend rate of 0%. Additionally, this convertible secured debenture instrument includes a beneficial conversion feature as the effective conversion price is less than the Company’s market price of common stock on the commitment date. The value of this beneficial conversion feature is $459,020. The resulting fair value of the debt is $nil, with $1,580,980 allocated to equity warrants (Note 10) and $459,020 to the beneficial conversion feature, both which are recorded as components of additional paid in capital.
On May 1, 2016, the Company closed a secured debenture and warrant financing through conversion of a short term loan of $170,468 from a director of the Company that was otherwise payable on demand in cash. The offering of units was by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested immediately, 1/3 to be vested in one year and 1/3 to be vested in two years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit.
Values were allocated for this private placement between debt, equity warrants, and the beneficial conversion feature similar to the secured debenture and warrant financing of $2,040,000 closed in the third quarter of fiscal 2016 (see above). The value of the interest and principal payments of the debentures resulted in a value of $51,396 for the debentures and the binomial model resulted in a value for warrants for $119,072. The assumptions used for the binomial model are: Volatility 180%, expected life of five years, risk free interest rate of 1.28%, and dividend rate of 0%. Additionally, this convertible secured debenture instrument includes a beneficial conversion feature as the effective conversion price is less than the Company’s market price of common stock on the commitment date. The value of this beneficial conversion feature is $51,396. The resulting fair value of the debt is $nil, with $119,072 allocated to equity warrants (Note 10) and $51,396 to the beneficial conversion feature, both which are recorded as components of additional paid in capital.
The difference between the fair value and face value of the debentures is to be accreted up to face value over the term to maturity using the effective interest method. The carrying value of the debenture liability as at August 31, 2016 is $273,714 for the December 30, 2015 closing and $11,390 for the May 1, 2016 closing.
The following table summarizes the fair values of the components of the convertible secured debentures, including the debt, warrants, and the beneficial conversion feature.
Accounting allocation of initial proceeds: | December 30, 2015 | May 1, 2016 | Total | |||||||||
Gross proceeds | $ | 2,040,000 | $ | 170,468 | $ | 2,210,468 | ||||||
Fair value of the convertible secured debt | - | - | - | |||||||||
Fair value of equity warrants (Note 10) | (1,580,980 | ) | (119,072 | ) | (1,700,052 | ) | ||||||
Beneficial conversion feature | (459,020 | ) | (51,396 | ) | (510,416 | ) | ||||||
Change in fair value (from commitment date) | 170,932 | 4,347 | 175,279 | |||||||||
Convertible secured debenture at fair value at May 31, 2016 | $ | 170,932 | $ | 4,347 | $ | 175,279 | ||||||
Change in fair value | 102,782 | 7,043 | 109,825 | |||||||||
Convertible secured debenture at fair value at August 31, 2016 | $ | 273,714 | $ | 11,390 | $ | 285,104 |
On May 1, 2016, the Company completed a secured debenture financing with a consultant in settlement of $200,000 in obligations with similar terms as the above private placement with no warrant financing, through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. The $200,000 debenture was accounted for as a single debt instrument.
Interest expense for the three month period ended August 31, 2016 was $72,314 ($nil for the three months ended August 31, 2016). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet.
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9. Common Stock
On August 31, 2015 the Company issued 11,667 shares of common stock in the form of a cashless exercise of warrants with a previous allocation to equity of $37,100 in full settlement of warrants issued to a variable note holder that was extinguished in fiscal 2016.
On September 15, 2015, the Company closed an agreement with Ortsbo Inc. to acquire all of its intellectual property assets. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of $16,968,888, which was paid by the assumption of $975,388 in debt and the issuance of $15,993,500 worth of Yappn restricted common shares (32 Million shares at $0.50 per share), however, due to the common control of Ortsbo Inc. and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo Inc. This value was $5,421,068 on September 15, 2015. During the second quarter, 12,998,682 shares were issued at a value of $1,806,609 with obligations incurred to issue the remaining 18,988,318 shares when signed registration forms are all obtained by the Company. As at the filing date, the 18,988,318 shares at a value of $2,639,071 remain reserved but not issued (Note 4).
On April 18, 2016, the Company issued 1,008,000 shares of common stock for $252,000 cash received against the first tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. These warrants will vest in increments of thirds with the first 1/3 being vested on April 17, 2017, second increment of 1/3 on April 17, 2018, and last 1/3 on April 17, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $157,046 and $94,854 respectively. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.24%, and dividend rate of 0%.
On May 17, 2016, the Company issued 2,640,000 shares of common stock for $660,000 cash received against the second tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. (Note 10) 1,200,000 of the shares from the second tranche for $300,000 were issued to two members of the board of directors. (Note 12) These warrants will vest in increments of thirds with the first 1/3 being vested on May 16, 2017, second increment of 1/3 on May 16, 2018, and last 1/3 on May 16, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $411,515 and $248,221 respectively. The assumptions used for valuation were: Volatility 179%, expected life of five years, risk free interest rate of 1.29%, and dividend rate of 0%.
On August 31, 2016, the Company issued 1,000,000 shares of common stock for $200,000 cash received and settlement of $50,000 in prior obligations against the third tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share (Note 10). All of the shares from the third tranche were issued to four members of the board of directors. (Note 12) These warrants will vest in increments of thirds with the first 1/3 being vested on August 31, 2017, second increment of 1/3 on August 31, 2018, and last 1/3 on August 31, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $141,307 and $108,693 respectively. The assumptions used for valuation were: Volatility 191%, expected life of five years, risk free interest rate of 1.19%, and dividend rate of 0%.
The Company closed a fourth tranche of the same private placement as above subsequent to quarter end (Note 13).
On June 13, 2016, principal and interest totaling $305,307 was converted into 1,221,228 of common shares as part of the conversion of convertible debt as described in Note 7. The common shares to be issued were recorded as an obligation as at May 17, 2016 however the issuance did not occur until June 13, 2016
On August 31, 2016, principal and interest totaling $1,489,057 was converted into 5,956,226 of common shares as part of the conversion of convertible debt as described in Note 7.
On September 23, principal and interest totaling $262,592 was converted into 1,050,368 of common shares as part of the conversion of convertible debt as described in Note 13.
Registration Statement
The Company filed a Registration Statement on Form S-1 (File No. 333-199569) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) for up to 7,592,667 shares of Yappn Corp.’s $0.0001 par value per share common stock (the "Common Stock") issuable to certain selling stockholders upon conversion of promissory notes and/or warrants currently held by those selling stockholders, specifically (i) 1,844,000 shares of Common Stock issuable to them upon exercise of promissory notes and (ii) 4,588,000 shares of Common Stock issuable to them upon exercise of warrants. The warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). The Registration Statement covering the above noted shares was declared effective under the Securities Act of 1933 on November 17, 2014. On October 5, 2015, the Company filed a continuing registration statement in part to update to this S-1 filing, and subsequently filed an amendment to this filing. This registration statement was withdrawn and a new registration statement filed (Note 13).
12 |
10. Preferred Stock and Warrants
Series A Preferred Stock
The Company has an authorized limit of 50,000,000 shares of preferred stock, par value $0.0001 with none issued and outstanding as at August 31, 2016 and May 31, 2016.
Warrants
The following is a summary of warrants issued, exercised and expired through August 31, 2016:
Shares Issuable Under Warrants | Equity Value | Exercise Price | Expiration | |||||||||||
Outstanding as of May 31, 2012 | - | - | - | - | ||||||||||
Issued on March 28, 2013 | 401,000 | 917,087 | $ | 1.00 | March 28, 2018 | |||||||||
Issued on May 31, 2013 | 370,000 | 543,530 | $ | 0.54 | May 31, 2018 | |||||||||
Exercised and expired | - | - | - | - | ||||||||||
Total – as of May 31, 2013 | 771,000 | 1,460,617 | - | - | ||||||||||
Issued on June 7, 2013 | 165,000 | 211,365 | $ | 0.54 | June 7, 2018 | |||||||||
Issued on November 15, 2013 | 12,000 | 3,744 | $ | 1.00 | November 15, 2018 | |||||||||
Issued Series A warrants on January 29, 2014 | 135,000 | 135,989 | $ | 1.00 | January 29, 2019 | |||||||||
Issued Series A warrants on January 29, 2014 - Repriced | 260,000 | 268,770 | $ | 0.25 | January 29, 2019 | |||||||||
Issued Series B warrants on January 29, 2014 | 135,000 | - | $ | 2.00 | January 29, 2019 | |||||||||
Issued Series B warrants on January 29, 2014 - Repriced | 260,000 | 9,022 | $ | 0.25 | January 29, 2019 | |||||||||
Issued Series A warrants on February 27, 2014 | 305,000 | 224,135 | $ | 1.00 | February 27, 2019 | |||||||||
Issued Series B warrants on February 27, 2014 | 305,000 | - | $ | 2.00 | February 27, 2019 | |||||||||
Issued Series A warrants on April 1, 2014 | 294,000 | 147,294 | $ | 1.00 | April 1, 2019 | |||||||||
Issued Series A warrants on April 1, 2014 - Repriced | 175,000 | 93,660 | $ | 0.25 | April 1, 2019 | |||||||||
Issued Series B warrants on April 1, 2014 | 469,000 | - | $ | 2.00 | April 1, 2019 | |||||||||
Issued to Lender – Line of Credit | 800,000 | 1,495,200 | $ | 1.00 | April 7, 2019 | |||||||||
Issued Series C warrants on April 23, 2014 | 33,333 | 9,395 | $ | 2.20 | April 23, 2019 | |||||||||
Issued Series C warrants on May 30, 2014 - Repriced | 666,667 | 214,212 | $ | 0.25 | May 30, 2019 | |||||||||
Exercised and expired | - | - | - | - | ||||||||||
Total – as of May 31, 2014 | 4,786,000 | 4,273,403 | ||||||||||||
Issued Series D warrants on June 27, 2014 | 166,667 | - | $ | 2.20 | June 27, 2019 | |||||||||
Issued Series D warrants on September 2, 2014 - Repriced | 83,333 | 41,593 | $ | 0.25 | September 2, 2019 | |||||||||
Issued Series D warrants on October 6, 2014 | 33,333 | 15,567 | $ | 2.20 | October 6, 2019 | |||||||||
Issued Series D warrants on October 27, 2014 | 33,333 | 15,667 | $ | 2.20 | October 27, 2019 | |||||||||
Issued warrants – consultants | 330,000 | 165,330 | $ | 1.50 | May 30, 2019 | |||||||||
Issued warrants on February 4, 2015 Typenex Co-Investments, LLC | 70,000 | - | $ | 1.00 | February 4, 2020 | |||||||||
Issued warrants – consultant on May 31, 2015 | 5,000 | 990 | $ | 1.00 | May 31, 2017 | |||||||||
Issued warrants – consultant on May 31, 2015 | 15,000 | 2,970 | $ | 1.50 | May 31, 2017 | |||||||||
Exercised and expired | - | - | - | - | ||||||||||
Total – as of May 31, 2015 | 5,522,666 | 4,515,520 | ||||||||||||
Issued warrants to advisory board on September 28, 2015 | 300,000 | 233,490 | $ | 0.25 | August 31, 2020 | |||||||||
Issued to Lender – Line of Credit on November 5, 2015 | 1,700,000 | 519,520 | $ | 1.00 | April 7, 2019 | |||||||||
Issued warrants to consultant on November 5, 2015 | 100,000 | 23,240 | $ | 1.00 | October 16, 2017 | |||||||||
Issued warrants on December 30, 2015 | 20,400,000 | 1,580,980 | $ | 0.01 | December 29, 2020 | |||||||||
Issued warrants to advisory board on March 21, 2016 | 1,750,000 | 94,691 | $ | 0.25 | March 21, 2021 | |||||||||
Issued warrants to consultant on May 1, 2016 | 4,000,000 | 721,200 | $ | 0.25 | May 1, 2021 | |||||||||
Issued warrants on May 1, 2016 | 1,704,680 | 119,072 | $ | 0.01 | May 1, 2021 | |||||||||
Issued warrants for private placement on April 18, 2016 | 1,008,000 | 94,854 | $ | 0.25 | April 18, 2021 | |||||||||
Issued warrants for private placement on May 17, 2016 | 2,640,000 | 248,221 | $ | 0.25 | May 17, 2021 | |||||||||
Exercised Warrants Typenex Co-Investments, LLC | (70,000 | ) | - | $ | 1.00 | - | ||||||||
Total – as of May 31, 2016 | 39,055,346 | 8,150,788 | ||||||||||||
Issued warrants to consultant on July 6, 2016 | 90,000 | 22,500 | $ | 0.25 | July 6, 2018 | |||||||||
Issued warrants to advisory board member on August 25, 2016 | 250,000 | 559 | $ | 0.25 | August 25, 2021 | |||||||||
Issued warrants for private placement on August 31, 2016 | 1,000,000 | 108,693 | $ | 0.25 | August 31, 2021 | |||||||||
Exercised and expired | - | - | - | - | ||||||||||
Total – as of August 31, 2016 | 40,395,346 | 8,282,540 |
The outstanding warrants at August 31, 2016 and May 31, 2016 have a weighted average exercise price of approximately $0.26 and $0.31 respectively and have an approximate weighted average remaining life of 4.1 and 4.3 years, respectively.
Warrants vesting terms and repricing related to Convertible debentures, Secured Converted Debentures, and Common Stock Private Placement are described in Notes 7, 8, and Note 9. All warrants not described in other notes to the financial statements, vested immediately upon issuance. Warrants issued to consultants in fiscal 2016 and to the advisory board are described below.
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The Company issued 300,000 warrants on September 28, 2015 to new advisors in advance of their appointment to the Board of Directors at an exercise price of $1.00 with expiry of five years from September 1, 2015. These were expensed as stock based compensation. The warrants exercise price was repriced on March 21, 2016 to $0.25 and a nominal expense was recorded. The assumptions used for initial and repricing valuation are: Volatility 178-180%, expected life of five years, risk free interest rate of 1.38%-1.42%, and dividend rate of 0%.
The Company issued 1,700,000 warrants to the line of credit holder included in financing expense in contemplation of taking a pari passu security position and allowing Winterberry to act as collateral agent for the secured debenture financing. These warrants were issued November 5, 2015 have an exercise price of $1.00 with expiry date of April 7, 2019. The assumptions used for valuation were: Volatility 178%, expected life of five years, risk free interest rate of 1.65%, and dividend rate of 0%.
The Company issued warrants to a consultant in the amount of 100,000 included in financing expense on November 5, 2015 at an exercise price of $1.00 with expiry date of October 16, 2017. The assumptions used for valuation were: Volatility 178%, expected life of approximately two years, risk free interest rate of 0.85%, and dividend rate of 0%.
The Company issued 1,750,000 warrants on March 21, 2016 to new the advisory board at an exercise price of $0.25 with expiry date of March 21, 2021. These were expensed as stock based compensation. These warrants will vest in increments of 1/3 with the first 1/3 being vested on March 21, 2017, second increment of 1/3 on March 21, 2018, and last 1/3 on March 21, 2019. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.38%, and dividend rate of 0%.
On May 1, 2016 the Company issued 4,000,000 warrants to an entity, Imagination 7 Ventures, LLC controlled by the former CEO at an exercise price of $0.25 included in consulting expense with an expiry of May 1, 2021. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.28%, and dividend rate of 0%.
The Company issued 250,000 warrants on August 25, 2016 to a new advisory board member at an exercise price of $0.25 with expiry date of August 25, 2021. These were expensed as stock based compensation. These warrants will vest in increments of 1/3 with the first 1/3 being vested on August 25, 2017, second increment of 1/3 on August 25, 2018, and last 1/3 on August 25, 2019. The assumptions used for valuation were: Volatility 191%, expected life of five years, risk free interest rate of 1.13%, and dividend rate of 0%.
11. Employee Benefit and Incentive Plans
On August 14, 2014, the Board of Directors approved the adoption of the 2014 Stock Option Plan, which was ratified by the shareholders on December 22, 2014. On August 21, 2015, the Company amended its 2014 Stock Option Plan to increase the number of options available to 25,000,000.
The following table outlines the options granted and related disclosures:
Stock Options | Weighted- Average Exercise Price | |||||||
Outstanding at May 31, 2015 | 1,804,500 | $ | 1.00 | |||||
Granted in fiscal 2016 | 8,775,000 | 0.25 | ||||||
Exercised | - | - | ||||||
Cancelled, forfeited or expired | (189,500 | ) | 1.00 | |||||
Outstanding at May 31, 2016 | 10,390,000 | $ | 0.28 | |||||
Granted in fiscal 2017 | 3,200,000 | 0.25 | ||||||
Exercised | - | - | ||||||
Cancelled, forfeited or expired | (385,000 | ) | 1.00 | |||||
Outstanding at August 31, 2016 | 13,205,000 | $ | 0.25 | |||||
Options exercisable at August 31, 2016 | 4,069,167 | $ | 0.44 | |||||
Fair value of options vested as at August 31, 2016 | $ | 1,826,217 | $ | - |
As at August 31, 2016, vested and exercisable options do not have any intrinsic value and have a weighted-average remaining contractual term of 4.0 years. It is expected the 9,135,833 unvested options will ultimately vest. These options have a weighted average exercise price of $0.26 per share and a weighted average remaining term of 4.58 years. The aggregate intrinsic value of options represents the total pre-tax intrinsic value, the difference between our closing stock price as at August 31, 2016 and the option’s exercise price, for all options that are in the money. This value was $nil as at August 31, 2016.
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As at August 31, 2016, there is $1,800,919 of unearned stock based compensation cost related to stock options granted that have not yet vested (9,135,833 options). This cost is expected to be recognized over a remaining weighted average period of 1.6 years.
710,000 and 520,000 of the stock options granted on August 14, 2014 and March 2, 2015 respectively vest 1/3 immediately, 1/3 after one year and 1/3 after two years. The remaining options have immediate vesting terms or have been cancelled or expired. 8,750,000 and 3,200,000 of the stock options granted on March 21, 2016 and August 25, 2016 respectively vest 1/4 immediately, 1/4 after one year, 1/4 after two years, and 1/4 after three years. The remaining 25,000 options issued on March 21, 2106 have immediate vesting terms.
The estimated fair value of options granted is measured using the binomial model using the following assumptions:
Fiscal 2015 | Fiscal 2016 | Fiscal 2017 | ||||||||||
Total number of shares issued under options | 1,804,500 | 8,775,000 | 3,200,000 | |||||||||
Stock price | $ | 0.60-1.00 | $ | 0.20 | $ | 0.20 | ||||||
Exercise price | $ | 1.00 | $ | 0.25 | $ | 0.25 | ||||||
Time to expiration – days (2 year options) | 730 | NA | NA | |||||||||
Time to expiration – days (5 year options) | 1,826 | 1,826 | 1,826 | |||||||||
Risk free interest rate (2 year options) | .42-.66 | % | NA | % | NA | % | ||||||
Risk free interest rate (5 year options) | 1.57-1.58 | % | 1.38 | % | 1.13 | % | ||||||
Forfeiture rate (all options) | 0 | % | 0 | % | 0 | % | ||||||
Estimated volatility (all options) | 150 | % | 180 | % | 191 | % | ||||||
Weighted-average fair value of options granted | 0.50-0.90 | 0.25 | 0.25 | |||||||||
Dividend | - | - | - |
The assumptions used in the stock based compensation binomial models are consistent with the methodology used in valuing the Company’s other derivatives debt and warrant financings. Due to a lack of history, the Company has assumed the expected life of the options is the contractual life of the options.
12. Related Party Balances and Transactions
Services provided by Intertainment Media, Inc. personnel in the prior fiscal year were invoiced on a per hour basis at a market rate per hour as determined by the type of activity and the skill set provided. Costs incurred by Intertainment Media, Inc. on behalf of the Company for third party purchases are invoiced at cost.
On September 15, 2015, the Company closed an agreement with Ortsbo Inc. to acquire all of its intellectual property assets. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know. With this closing, the Company had an obligation to issue 31,987,000 shares of common stock of Yappn. During the fiscal year 2016, 12,998,682 shares were issued comprising of 8,312,500 to Ortsbo Inc. and 4,686,182 to the former debt and minority shareholders of Ortsbo, which were valued at $1,806,608, leaving 18,988,318 shares to be issued at May 31, 2016 comprising 17,687,500 to Winterberry and 1,300,818 to a former holder of Ortsbo stock. As of the filing date, these aforementioned shares remain to be issued. Yappn also assumed $975,388 of debt as part of the transaction. This assumed debt was immediately subscribed as part of the secured debenture in Yappn (Note 8). The fair value for the agreed upon consideration for the acquisition of Intellectual property from Ortsbo was $16,968,888. This transaction was completed on September 15, 2015. Due to the common control of Ortsbo Inc. and Yappn Corp at the time of the acquisition, the value of the Intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo Inc. This value was $5,421,068 on September 15, 2015 (Note 4).
For the year ended May 31, 2016, related party fees incurred and paid for general development and managerial services performed by Intertainment Media, Inc. and its subsidiary totaled $146,982. $92,589 is related to managerial services and $54,393 related to development. As of May 31, 2016, the related party liability balance totaled $16,654. Payment to Intertainment Media was satisfied in full during the first quarter ending August 31, 2016.
Directors subscribed for $1,783,526 of $4,550,388 from the secured debenture that closed in September 2015 at which time they were not directors. Directors also subscribed for $1,075,000 of the $2,086,000 convertible secured debentures issued on December 30, 2015 (Note 8). A director also advanced $170,468 to the Company on an anticipated second closing of the same convertible secured debenture financing closed on December 30, 2015 (Note 8). This $170,468 closing occurred on May 1, 2016.
The Company issued 300,000 warrants on September 28, 2015 to advisors prior to their appointment as members of the Board of Directors at an exercise price of $1.00 with expiry of five years from September 1, 2015. These were expensed as stock based compensation. These warrants were repriced to $0.25 on March 21, 2016 and are valued at $233,490.
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The Company issued 1,750,000 warrants on March 21, 2016 to members of the Company’s Advisory Board at an exercise price of $0.25 with expiry date of March 21, 2021. These were expensed as stock based compensation.
The Company issued 250,000 warrants on August 25, 2016 to a recently appointed Advisory Board member at an exercise price of $0.25 with expiry date of August 25, 2021. These were expensed as stock based compensation.
On May 1, 2016, the Company completed secured debenture financing with a consultant, whose principal is the former CEO of the Company, for $200,000 with no warrant financing, through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. This closing includes conversion of $200,000 in consulting expense. The Company also issued 4,000,000 warrants at an exercise price of $0.25 included in consulting expense with an expiry of May 1, 2021. Consultant was also granted a $100,000 signing bonus payable in cash. All obligations due to the former CEO of Yappn including $294,906 in cash obligations as an employee and $18,200 as a consultant prior to May 1, 2016, have been forgiven. All obligations being forgiven were recorded as general and administrative expenses within fiscal 2016 and were reversed out from general and administrative expenses.
1,200,000 of the shares from the 2nd tranche of common stock private placement at $0.25 per unit totaling $300,000 in cash proceeds were issued to two members of the board of directors (Note 9).
1,000,000 of the shares from the 3rd tranche of common stock private placement at $0.25 per unit totaling $250,000 in cash proceeds and compensation for consulting work were issued to four members of the board of directors (Note 9).
On March 21, 2016, the Board of Directors passed a resolution for a contingent common stock award in line with the metrics used in the CEO’s targets for additional bonus compensation. The award would see the members of the Board of Directors as well as the Advisory Board receive common shares for the Company reaching revenue milestones. Per the resolution, 500,000 common shares for each member of the Board of Directors and 250,000 for each Advisory Board member would be issued when the following milestones are met: (i) $3.5 million in new revenue generated and realized within 12 months of the start date of the CEO which was February 22, 2016 and minimum of 5 new recurring revenue contracts being signed within 12 months of the start date; or (ii) $5 million of new revenue generated and realized within 24 months of the start date and minimum of 5 new recurring revenue contracts being signed within 12 months of the start date.
On August 25, 2016 a recently appointed Advisory Board member received the same contingent common stock award of 250,000 common shares as described above for the March 21, 2016 award to Advisory Board members.
13. Subsequent Events
On September 21, 2016, $224,000 in principal value of debenture holders converted their outstanding debentures and accrued interest into common stock of the company as well as received amendments to their Series A, C or D warrants as applicable to a price of $0.25. The holders of $224,000 in principal converted have the right to an additional issuance of shares if Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share (Note 10). All remaining terms and conditions remain the same.
On September 21, 2016, a debenture holder with a principal value of $100,000 agreed to extend the outstanding debenture to May 31, 2017 with no penalty interest from default date to May 31, 2017 in exchange for both Series A and B warrants repriced to $0.35.
On September 23, 2016, the Company issued 780,000 shares of common stock for $195,000 cash received against the fourth tranche and final closing of a private placement of units consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. These warrants will vest in increments of thirds with the first 1/3 being vested on September 23, 2017, second increment of 1/3 on September 23, 2018, and last 1/3 on September 23, 2019.
On September 30, 2016, the Company issued 120,000 shares of common stock as settlement against prior accounts payables.
On October 3, 2016, the Company filed a request to withdraw is previously filed Registration Statement on Form S-1 (File No. 333-207292), with the Securities and Exchange Commission (the “SEC”). On October 3, 2016 the Company filed a new Registration Statement on Form S-1 (File No. 333-213947) (the “Registration Statement”) with the Securities and Exchange Commission for up to 14,840,964 shares of Yappn Corp.’s $0.0001 par value per share common stock (the "Common Stock") issuable to certain selling stockholders that are issued and outstanding and upon conversion of promissory notes, related past due accrued interest and penalties and/or warrants currently held by those selling stockholders, specifically (i) 8,227,821 shares of Common Stock issued and outstanding (ii) 907,200 shares of Common Stock issuable to them upon exercise of promissory notes (iii) 273,272 shares of Common Stock issuable underlying past due accrued interest and penalties and (iv) 5,432,671 shares of Common Stock issuable to them upon exercise of warrants. The warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). The Registration Statement has not yet been declared effective.
On various dates in October 2016, a director advanced the Company $500,000 to be subscribed as a part of a future secured debt financing in which the Company is currently finalizing the definitive agreements which will be followed by a formal approval by its Board of Directors of the definitive agreements and the total dollar amount approved.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to “we,” “Yappn,” “us,” and “our” are to Yappn Corp., unless the context requires otherwise. The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our unaudited Interim Condensed consolidated financial statements and the accompanying related notes included in this quarterly report and our audited financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended May 31, 2016 filed with the Securities and Exchange Commission.
Forward Looking Statements
The discussion contained in this Quarterly Report on Form 10-Q (“Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases like “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “target,” “expects,” “management believes,” “we believe,” “we intend,” “we may,” “we will,” “we should,” “we seek,” “we plan,” the negative of those terms, and similar words or phrases. We base these forward-looking statements on our expectations, assumptions, estimates and projections about our business and the industry in which we operate as of the date of this Quarterly Report. These forward-looking statements are subject to a number of risks and uncertainties that cannot be predicted, quantified or controlled and that could cause actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Quarterly Report describe factors, among others, that could contribute to or cause these differences. Actual results may vary materially from those anticipated, estimated, projected or expected should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect. Because the factors discussed in this Quarterly Report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. New factors emerge from time to time, and it is not possible for us to predict which 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 statement. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available after the date of this Quarterly Report or the date of documents incorporated by reference herein that include forward-looking statements.
Management’s Discussion and Analysis of Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our financial statements included herein. Further, this quarterly report on Form 10-Q should be read in conjunction with our Financial Statements and Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2016, filed with the Securities and Exchange Commission on August 18, 2016. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K.
Business History
We were originally incorporated under the laws of the State of Delaware on November 3, 2010 with an initial business plan to import consumer electronics, home appliances and plastic housewares. In March 2013, we filed an amended and restated certificate of incorporation to change our name to “YAPPN Corp.” and increase our authorized capital stock to 200,000,000 shares of common stock, par value $0.0001 per share and 50,000,000 shares of preferred stock, par value $0.0001 per share. Further, in March 2013, our Board of Directors declared a stock dividend, whereby an additional 14 shares of our common stock was issued for each one share of common stock outstanding to each holder of record on March 25, 2013. All per share information in this report reflect the effect of such stock dividend. On December 22, 2014, our shareholders approved the increase of authorized and issued shares of common stock to 400,000,000 shares of common stock.
On March 28, 2013, we purchased a prospective social media platform and related group of assets known as Yappn (“Yappn”) from Intertainment Media, Inc. (“IMI”), a corporation organized under the laws of Canada, for 7,000,000 shares of our common stock, pursuant to an asset purchase agreement (the “Purchase Agreement” and the transaction, the “Asset Purchase”) by and among IMI, us, and our newly formed wholly owned subsidiary, Yappn Acquisition Sub., Inc., a Delaware corporation (“Yappn Sub”). Mr. David Lucatch, our prior Chief Executive Officer was the Chief Executive Officer of IMI at that time. IMI, as a result of this transaction had a controlling interest in our company. Included in the purchased assets is a services agreement (the “Services Agreement”) dated March 21, 2013 by and among IMI and its wholly owned subsidiaries Ortsbo, Inc., a corporation organized under the laws of Canada (“Ortsbo Canada”), and Ortsbo USA, Inc., a Delaware corporation (“Ortsbo USA” and, collectively with Ortsbo Canada, “Ortsbo”). Ortsbo is the owner of certain multi-language real time translation intellectual property that we believe is a significant component of the Yappn business opportunity. On July 6, 2015, Yappn entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo (see below).
On July 15, 2015, after the approval of the Board of Directors of each company, Intertainment Media and Yappn entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo.
The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of approximately $17 Million, which will be paid by the assumption of approximately $1 Million in debt and the issuance of $16 Million worth of our restricted common shares (32 Million shares at $0.50 per share).
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Intertainment Media received Toronto Stock Venture Exchange final approval on September 14, 2015 to proceed with the transaction. On September 15, 2015, the acquisition of Ortsbo Intellectual property by our company was closed.
Our principal executive offices are located at 1001 Avenue of the Americas, 11th Floor, New York, NY 10018 and our telephone number is (888) 859-4441. Our website is http://www.yappn.com (Our website is expressly not incorporated into this filing).
Our Business
Yappn delivers real-time language translation products which enable vendors and consumers to communicate freely with one another, each in their own preferred languages. The result is increased business and customer satisfaction.
Being able to conduct business in multiple languages is essential. As per Common Sense Advisory (a research company specializing in the areas of translation, localization, interpreting, internationalization, globalization, marketing, international strategy, market intelligence, web content, and procurement), Global eCommerce sales continue to increase at a rate of 15 percent per year and more than 72 percent of consumers say they are more likely to purchase online if the experience is in their preferred language.
Breaking down language barriers creates business opportunities and promotes efficiency and effectiveness within organizations. While internet challenges have largely been solved, resolving language barriers remains a costly issue for every company wishing to access global markets.
Through its proprietary innovative language solutions, we believe Yappn has altered the translation paradigm by offering a completely customizable set of tools to engage consumers in up to 67 languages. Yappn’s technology gives people, brands and organizations the power to be social, conduct commerce and communicate freely without a language barrier.
Generic machine translation, which can be found from providers like Google TranslateTM or Microsoft BingTM, employ a “word-for-word” approach. Unfortunately, the translated result does not always reflect the essence of the original text and may not make sense. Context (cultural, political and ethnic), syntax and meaning are simply not captured through generic machine translation methods.
Yappn provides far more than simple word-for-word translation. Yappn translates the words as well as the context and syntax, thereby ensuring that what is written in one language is translated into another in an accurate, meaningful and relevant way. This capability is Yappn’s key differentiator.
Yappn has the ability to detect the online or mobile user’s preferred language and translates the communication into the user’s language in real-time. Yappn provides very “high fidelity” and accurate translation, without the necessity of direct human translation or intervention, with an added option to customize translation settings, making the results simple, elegant and cost effective.
Yappn offers products for eCommerce, customer care, enhanced messaging collaboration (such as intranets, gaming or social platforms), online marketing and custom translation solutions to a variety of verticals including entertainment, retail and marketing.
Continued expansion of our business rollout will likely require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. We are in the early stage of commercialization, and management believes that we have insufficient revenues to cover our operating costs. As such, we have incurred an operating loss since inception. This and other factors raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to meet our obligations, to obtain additional financing as may be required, and ultimately to attain profitability. Our independent auditors have included an explanatory paragraph, in their audit report on our financial statements for the fiscal year ended May 31, 2016 regarding concerns about our ability to continue as a going concern. Footnote 2 to the Notes to this Form 10-Q Report also discusses concerns about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our Strategy
Our management believes that Yappn approaches the challenge of real-time language translation in an entirely unique way. The result is enhanced translations based on the context of the content or discussion, thereby significantly improving the translation result.
To accomplish this, Yappn leverages the power of multiple generic machine translation (MT) providers, recognizing that many of these commodity services specialize and produce substantially better results in some languages over others. This aggregated generic machine translation is then passed through Yappn’s proprietary algorithms and enhancement processes which, in turn, provide the optimal translation for the language requested. Yappn then applies yet another overlay of refinement through ‘lexicons’. Lexicons are essentially custom dictionaries designed to improve the translation by contextualizing the result and making it relevant to the specific commercial requirement. Lexicons can be industry or brand specific or both.
An illustrative example of how Yappn’s lexicons work is reflected in its ability to distinguish between a car transmission versus a radio transmission. Similarly, the system understands that the word “travel” means something different in basketball than it does when planning a trip. Companies use various words in unique ways and Yappn’s lexicons continuously evolve, improve and store these subtle nuances and then apply them to the final output to provide an enhanced and more optimal translation.
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Yappn is not a generic machine translation provider but an enhancement to create better, customized results. Additionally, Yappn is not a Language Service Provider (LSP) simply returning a document in another language; instead Yappn provides tools and solutions to better utilize translation in the course of business.
Yappn’s tools and solutions are built with industry leading technology and hosted on the Microsoft Azure® cloud-based platform which provides Yappn with global reach, dependable presence, and dynamic scalability.
To be certain that translation is highly accurate, Yappn’s services team initially works with the customer to develop an appropriate database of lexicon additions which can be further improved after deployment using Yappn’s professional services or custom tools. The lexicon can be enhanced on an on-going basis by the customer’s staff as-needed when additions and revisions are required.
Yappn can enable an auto update feature that can be used on demand or as a persistent connection that senses updates to the translation source then has each addition either automatically changed or optionally human verified for fidelity, followed by an update to the customer’s lexicon. For example, when a product description is updated; the machine translation will instantly display the change in the store.
The Yappn application suite is designed to provide a competitive advantage to commercial enterprises and power social users to communicate more effectively without a language barrier, fostering and driving a competitive edge in a global marketplace.
Offering an “a la carte” menu of tools to engage consumers, Yappn helps clients improve their customer’s experiences and therefore increase customer satisfaction.
eCommerce Platform Integration: Dynamic translation encompassing the entire eCommerce experience, from online marketing to sales and customer care
● | eCommerce website | |
● | Vendor input manager | |
● | Chat | |
● | Multilingual search |
Customer Care: Real-time translation of chat-based customer care
● | Customer care integration | |
● | Custom help solutions |
Enhanced Messaging: Real-time translation support for messaging platforms
● | Intranet | |
● | Social sharing & messaging | |
● | Business sharing & messaging | |
● | Gaming sharing & messaging |
Marketing: Online marketing, engagement and socialization
● | Social Wall | |
● | Global tweets | |
● | Twitter chats | |
● | Multilingual live captioning & flash social events |
Custom Translation Solutions: Solutions for unique translation requirements
● | Dynamic website translations | |
● | Software localization | |
● | Video closed captioning | |
● | Virtual trade shows |
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eCommerce Platform Integration
Yappn’s technology is, we contend, a game changing solution, providing a set of stand-alone commercial tools for brands to easily implement cost effective globalization solutions that support the entire sales cycle, inclusive of the eCommerce website, shopping cart checkout, marketing, sales and support. No longer is a company constrained to whom they can sell to because of language.
The Yappn eCommerce experience is more than a simple translation of a store. eCommerce applications exist today to translate a copy of a store to another language. However, creating a separate instance of a store in another language is problematic as it can cause several business issues that are difficult to rectify, for example, inventory reconciliation and amalgamated sales reporting would be left to the vendor to handle manually. The Yappn solution of enabling a single store that is presented in the customer’s language of choice is a better business solution as we believe it will negate these issues.
Yappn has made the integration of these services into a store quite simple. Yappn uses standardized web technologies to connect a secondary database of the translations of the text, metadata and keywords on the site. The benefit of the database connection is the ability to call accompanying data such as imagery, (e.g. replacing an English ad with a Spanish ad) and the ability to manage translation without coding expertise. This integration also allows Yappn to access the text components of a secure third party checkout screen, thereby reducing cart abandonment, which, we contend, is unique to Yappn’s services.
Security and privacy is maintained via a variety of solutions such as SSL encryption and the exception of customer/user identification and private information from machine translation services.
Customer Care Platform Integration
Yappn Customer Care allows customers to chat in their language of choice, while our clients can staff their customer care operations in their language of choice.
Chat is quickly becoming the preferred means for companies to communicate with their customers. Chat is replacing voice and e-mail providing a window of opportunity for companies to better serve their customers and to do so more cost effectively.
Using Yappn’s multilingual translation API in conjunction with the client’s existing chat portal, a Customer Service Representative (CSR) can converse with customers in the customer’s language of choice with Yappn’s technology bridging the language gap between the two individuals.
This allows the CSR to think and type in their native language thereby providing better and more accurate service while reducing customer care costs. Employing multilingual CSR staff is expensive and unnecessary with the use of Yappn’s customer care solution.
Enhanced Messaging Platform Integration
Yappn’s proprietary and easily integrated Enhanced Messaging Solution allows for real time communication between languages in a myriad of platforms for social, business and gaming messaging. The translation is contextualized to provide superior translation results.
Much of the communication that transpires on messaging platforms is conducted in a single language. This is not always by choice but instead, is driven by the limitations of the platforms themselves.
Companies that communicate internally but have staff, partners and customers with different languages can communicate more effectively when the barrier of language is removed.
Yappn’s technology can securely integrate into existing chat platforms through a simple API connection to Yappn’s Microsoft Azure® cloud platform, reducing existing workflow disruptions which would require changes to a client work environment.
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Marketing Platform Integration
Yappn has created several tools to support online marketing customized for a global audience.
Social Wall: a fully branded and customized page, which includes the aggregation of a company’s major social media accounts and #hashtags automatically displayed in any of the 67 languages. This allows followers to interact with all their social media accounts, in their language and on the company’s website, giving the company back control of its marketing initiatives. Essentially, a company can present a variety of social media sources on a single page in the language of a customer’s choice, regardless of the original language the social media content was written in.
Multilingual Chat: provides companies, brands, organizations and consumers with the ability to have topical discussions in almost any language. Each user sees the chat experience in their preferred language and communicates to others in that language, allowing every user to have a native experience in their individual language. The chat can be embedded to facilitate commenting on blogs, special event discussions with brand ambassadors or as a standalone program, providing a place to discuss the company’s brand.
Live and Global Events: a tool to promote a company’s brand which embeds our interface directly onto the company’s website where the company can direct their consumers to attend a live Q&A while promoting the company’s brand on social media. The technology allows the company to filter and reply to questions posted on Twitter™ and display them in an easy to read format on the company website, creating a captive audience to market to. Yappn’s easy-to-use backend even allows the company to reply to the attendees in their native language while automatically displaying the entire event in a user’s individual language automatically.
Video Captioning: If video promotion is an element of a company’s marketing strategy, allowing a global audience to watch and understand these videos is a natural complement. Yappn’s translation system provides simple and accurate video sub-titling in up to 67 languages, on a live or pre-recorded video, without disruption to the company’s current broadcast process.
Custom Translation Solutions
Yappn is a consistent agile developer of tools and solutions to address the three important elements of conducting business: online marketing, sales and customer care. We are, however, keenly aware that technologies and trends are evolving almost as fast as we are. For this reason, Yappn publishes its technology via a secured API to enable today’s entrepreneurs to enhance their innovations with language capabilities. This secure credential-enabled connection is available in a SaaS or by way of pay per use models and can be tested in sandbox environments. Each installation comes with full support from our development teams.
Digital Widget Factory
In November 2014, Yappn executed a three-year Master Services Agreement (MSA) and Statement of Work (SOW) with Digital Widget Factory (Belize) (“DWF”) to develop and manage a minimum of 200 multilingual Ecommerce sites which will include multilingual online marketing through traditional online services and social engagement. Contract terms allowed for pre-paid fees in association with the project of a minimum of $700,000 plus ongoing professional fees in addition to 40% net profit on the program for the term duration.
The Global Content Market is an ever growing market, with Ipsos Market Research stating that 7 out of 10 online consumers in 24 countries have indicated that in a month they share some type of content on social media sites, including pictures as well as articles and something recommended, such as a product, service, movie or book. Emarketer.com also points out that global ad spending was estimated at nearly $600 billion worldwide in 2015 with the increase in digital and mobile platforms being the key growth in ad spending.
Yappn, through the program execution intended to provide multilingual online marketing through traditional online services and social engagement with its proprietary patented technology to DWF. Yappn would do so by scheduling and supporting DWF’s revenue programs related to direct and network online advertising, schedule and support DWF’s affiliate and Ecommerce partnerships and also support DWF users to customize their content experience, submit original content and provides tools to incent sharing of content and encourage users to build the membership base. Although Yappn ultimately is not proceeding with the DWF program as originally contemplated, Yappn has provided content support as part of its service to Intelligent Content Enterprises, who acquired the DWF technology, and Yappn is likely to continue to be the vendor of choice pertaining to language translation on a go-forward basis, which more in line with Yappn’s current business model.
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Effective February 29, 2016, DWF sold the technology platform, partially developed by Yappn, in conjunction with DWF’s principals, to Intelligent Content Enterprises Inc. (“ICE”) in exchange for common shares of ICE. As part of the transaction, DWF received ownership and rights to 24 million common shares of ICE for a large minority shareholder position of ICE. During the fourth quarter of fiscal 2016, the Company executed a promissory note from DWF, for the outstanding value of the billings of $2,125,000 (of which $968,289 is recorded as a note receivable at August 31, 2016 and was previously recognized in revenue and a trade receivable). The promissory note is secured by DWF’s ICE stock holdings in the amount of 2,250,000 restricted common shares, which at the market value at the time of execution significantly exceeded the value of the promissory note. The note receivable includes monthly payments of differing amounts with the final payment scheduled by November 30, 2016. The note receivable is past due on contractual payments by $807,500 as at August 31, 2016.
Additionally, the Company received stock options for the purchase of shares of common stock of ICE from DWF. The first option entitles Yappn to subscribe for purchase from DWF up to 1,000,000 fully paid and nonassessable shares of ICE’s common stock at a purchase price of $0.55 per share exercisable until $987,500 remains outstanding on the note receivable, of which the price of the option is offset against $550,000 of the remaining note receivable. DWF can elect to buy out the option at any time at a price of $0.75 per each underlying share of the option agreement. For each missed payment (not the remedy period per the promissory note, but any payment not made on the exact due date), the buyout price will increase by $0.05 per underlying share for each payment date missed starting with the payment due on June 30, 2016 per promissory note. The second option entitles Yappn to subscribe for purchase from DWF up to 1,250,000 fully paid and nonassessable shares of ICE’s common stock at a purchase price of $0.35 per share until $437,500 is remaining on the note receivable. DWF can elect to buy out the option at any time at a price of $0.50 per each underlying share of the option agreement. For each missed payment (not the remedy period per the promissory note, but any payment not made on the exact due date), the buyout price will increase by $0.05 per underlying share for each payment date missed starting with the payment due on June 30, 2016 per promissory note. The value of these options is not recognized in the interim condensed consolidated financial statements, as the maximum value recorded is limited to what has previously been recorded as revenue as at August 31, 2016.
The Services Agreement
We acquired the rights to use the technology and management and development support services under the Services Agreement, dated March 21, 2013 and amended October 2013, between Intertainment Media, Inc. (“IMI”), and IMI’s wholly owned Ortsbo subsidiaries. Pursuant to the terms of the Services Agreement, Ortsbo made available to us its representational state transfer application programming interface (the “Ortsbo API”), which provides multi-language real-time translation as a cloud service. The Services Agreement also provides that Ortsbo makes its “Live and Global” product offering, which enables a cross language experience for a live, video streaming production, available to us as a service for marketing and promoting the Yappn product in the marketplace (the “Services”). The Services do not include the “chat” technology itself and we shall be solely responsible for creating, securing or otherwise building out our website and any mobile applications to include chat functionality, user forums, user feedback, and related functionality within which the Ortsbo API can be utilized to enable multi-language use. Under the initial agreement, no intellectual property owned by Ortsbo would be transferred to us except to the extent set forth in the Services Agreement as described in “Intellectual Property” set forth below.
In October 2013, we amended the Services Agreement. Under the terms of the amendment to the Services Agreement, we have the first right of refusal to purchase the Ortsbo platform and all its assets and operations for a period of two years; increasing the use of Ortsbo's technology for business to consumer social programs at a purchase price to be negotiated at the time we exercise our right. We would also have a right to purchase a copy of the source code only applicable to Yappn programs for $2,000,000 which may be paid in cash or restricted shares of our common stock at a per share price of $1.50 per share. As part of the agreement, we issued Ortsbo 166,667 shares of our restricted common stock. On April 28, 2014, we exercised our right to purchase a copy of the source code for the Ortsbo property in exchange for 1,333,333 shares of restricted common stock for a value of $2,000,000.
On July 6, 2015, we entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo which closed on September 15, 2015. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of approximately $17 Million, which was paid by the assumption of approximately $1 Million in debt and the issuance of $16 Million worth of our restricted common shares (32 Million shares at $0.50 per share). Upon the completion of the transaction on September 15, 2015 the amended Services Agreement was terminated.
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Competition
Our business relating to and arising from the development of our assets is characterized by innovation, rapid change, patented, proprietary, and disruptive technologies. We may face significant competition, including from companies that provide translation, tools to facilitate the sharing of information, that enable marketers to display advertising and that provide users with multilingual real-time translation of Ecommerce, events and proprietary social media and chat platforms. These may include:
● | Companies that offer full-featured products that provide a similar range of communications and related capabilities that we provide. | |
● | Companies that provide web and mobile-based information and entertainment products and services that are designed to engage users. | |
● | Companies that offer Ecommerce solutions with built in language support. | |
● | Traditional and online businesses that offer corporate sponsorship opportunities and provide media for marketers to reach their audiences and/or develop tools and systems for managing and optimizing advertising campaigns. |
Competitors, in some cases, may have access to significantly more resources than Yappn.
We anticipate that we will compete to attract, engage, and retain clients and users, to attract and retain marketers, to attract and retain corporate sponsorship opportunities, and to attract and retain highly talented individuals, especially software engineers, designers, and product managers. As we introduce new features to the Yappn platform, as the platform evolves, or as other companies introduce new platforms and new features to their existing platforms, we may become subject to additional competition. We believe that our ability to quickly adapt to a changing marketplace, and our experienced management team, will enable us to compete effectively in the market.
Intellectual Property
We own (i) the yappn.com domain name (which website is expressly not incorporated into this filing) and (ii) the Yappn name and all trademarks, service marks, trade dress and copyrights associated with the Yappn name, logo and graphic art. We may prepare several patent filings in the future. Upon payment of the applicable fees pursuant to the Services Agreement, we became the exclusive owner of copyright in the literary works or other works of authorship delivered by Ortsbo to us as part of the Services provided under the Services Agreement (the “Deliverables”). All such rights shall not be subject to rescission upon termination of the Services Agreement. Also as set forth in the Services Agreement, we shall grant to Ortsbo (i) a non-exclusive (subject to certain limitations) license to use the Deliverables for the sole purpose of developing its technology, (ii) a non-exclusive license to use, solely in connection with the provision of the Services, any intellectual property owned or developed by us or on our behalf and necessary to enable Ortsbo to provide the Services and (iii) a license to use intellectual property obtained by us from third parties and necessary to enable Ortsbo to provide the Services. All such licenses shall expire upon termination of the Services Agreement.
On April 28, 2014, we purchased a copy of the source code for the Ortsbo property and all the rights associated with it.
On July 16, 2015, we entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo which closed on September 15, 2015. The purchased assets include US No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how (Proprietary lexicons and linguistic databases that integrate into our language services platform). Upon completion of the transaction on September 15, 2015 the amended Services Agreement was terminated.
We continue to engage in activities to maintain and further build differentiated technologies that increase our intellectual properties.
Government Regulation
We are subject to a number of U.S. federal and state, and foreign laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and being tested in courts, and could be interpreted in ways that could harm our business. These may involve user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation and online payment services. In particular, we are subject to federal, state, and foreign laws regarding privacy and protection of user data. Foreign data protection, privacy, and other laws and regulations are often more restrictive than those in the United States. U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly-evolving industry in which we operate. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies, and foreign governments concerning data protection which could affect us. For example, a revision to the 1995 European Union Data Protection Directive is currently being considered by legislative bodies that may include more stringent operational requirements for data processors and significant penalties for non-compliance.
Legal Proceedings
None.
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Registration Statement
On October 3, 2016, we filed a request to withdraw our previously filed Registration Statement on Form S-1 (File No. 333-207292), with the Securities and Exchange Commission (the “SEC”). On October 3, 2016 the Company filed a new Registration Statement on Form S-1 (File No.333-213947) (the “Registration Statement”) with the Securities and Exchange Commission for up to 14,840,964 shares of our Company’s $0.0001 par value per share common stock (the "Common Stock") issuable to certain selling stockholders that are issued and outstanding upon conversion of promissory notes, related past due accrued interest and penalties and/or warrants currently held by those selling stockholders, specifically (i) 8,227,821 shares of Common Stock issued and outstanding (ii) 907,200 shares of Common Stock issuable to them upon exercise of promissory notes (iii) 273,272 shares of Common Stock issuable underlying past due accrued interest and penalties and (iv) 5,432,671 shares of Common Stock issuable to them upon exercise of warrants. The warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). The Registration Statement has not yet been declared effective.
RESULTS OF OPERATIONS
Three months ended August 31, 2016
Revenues
We are in the process of commercialization of our various product offerings. We had revenues of $100,068 and $758,159 for the three months ended August 31, 2016 and August 31, 2015, respectively. $53,390 of revenue for the three months ended August 31, 2016 related to professional services provided for Intelligent Content Enterprises Inc. (“ICE”). We billed ICE $59,681 for three months ended August 31, 2016, that has not been recorded as revenue in our financial statements. Our company has received acknowledgment and acceptance of the services performed during the three months ended August 31, 2016. $59,390 of revenue recognized from ICE is based on payments received against the outstanding billings. Comparative period revenues resulted from the professional services related to the Digital Widget Factory (Belize) (“DWF”) program. The DWF assets were acquired by ICE effective February 29, 2016 and thus no further billings were made to DWF since that date. Billings as part of professional and language services for the program subsequent to February 29, 2016 were through ICE, and were expected and have been lower than the average billings to DWF. Our management has focused on developing relationships with large commercial partners and influencers, which has delayed revenue realization from prospective customers in recent quarters.
Cost of revenue
We incurred costs of revenues of $6,543 and $128,471, for the three months ended August 31, 2016 and August 31, 2015, respectively. These costs were directly attributable to the revenues generated in the applicable periods and resulted in a gross profit of $93,525 and $629,688, for the three months ended August 31, 2016 and 2015, respectively.
Total operating expenses
During the three months ended August 31, 2016 and 2015, total operating expenses were $1,408,214 and $856,290, respectively.
For the three months ended August 31, 2016, the operating expenses consisted of marketing expense of $10,372, research and development expenses of $120,204, general and administrative expenses of $400,516, professional fees of $85,734, consulting fees of $49,726, depreciation of $1,025, amortization of $266,649, and stock based compensation of $473,988. For the comparable three months ended August 31, 2015 the operating expenses consisted of marketing expenses of $102,785, research and development expenses of $95,070, general and administrative expenses of $352,133, professional fees of $91,569, consulting fees of $102,000, depreciation of $91, amortization of $nil and stock based compensation of $112,642.
Marketing Expenses
The reduction in marketing expenses of $92,413 or 90% is due mainly to a realignment of spending by the company. In the three months period ending August 31, 2015 we incurred higher costs as a result of promoting the Yappn brand through consultants and various promotional expenses. In three months ending August 31, 2016, we substantially reduced the spending on consultants engaged in marketing activities and focused our efforts on operationalizing the current products based on more direct sales channels.
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Research and Development
Research and development expenses increased by $25,134 or 26% in the three months ended August 31, 2016 over the three months ended August 31, 2015. Our research and development costs in the comparative period are partially for fees to technology consultants from Intertainment Media and Ortsbo, with higher weighting on our own employees and arm’s length third party consultants. There were no research and development costs from Intertainment Media and Ortsbo in fiscal 2017. There were significant costs incurred in development of the various technologies supporting the business towards the commencement of commercialization. Many of these costs will not continue into the future, however there will continue to be maintenance and ongoing development customization to ensure our technology solutions meet required standards for our current and prospective customers.
General and administrative expenses
General and administrative expenses increased by $ 48,383 or 14% in the three months ended August 31, 2016 over the three months ended August 31, 2015 including executive and office salaries, administrative services accounting and finance as well as general office expenses or costs. These costs have increased mainly due to employee related expenses with the hiring of senior management personnel in late fiscal 2016 even though the overall headcount has decreased. Certain other costs have been reduced or eliminated such as billings from Intertainment Media under the services agreement and employee headcount in the US office. Billings from Intertainment Media ceased due to the acquisition of the Intellectual Property and assets from Ortsbo on September 15, 2015 and the subsequent cancellation of the Services Agreement. We anticipate that costs in fiscal 2017 will be relatively consistent period over period as we continue to work to develop a customer base and meet the needs of investors to finance our operation. Upon further significant increases in revenue, management will continue to hire qualified personnel, but the growth of this cost, we believe, will be far less than the impact to Net Loss.
Professional fees
Professional fees decreased by $5,835 or 6% three months ended August 31, 2016 over the three months ended August 31, 2015 and includes audit and audit related services pertaining to the year-end audits, and legal fees related to both ongoing operational compliance for the business and for financing closings. Although audit related fees have generally stayed consistent, the comparative period had less audit expense due to timing of billing and the offsetting higher legal fees were a result of our fees various financings that closed during fiscal 2016.
Consulting fees
Consulting fees went down by $52,274 or 51% and are mainly due to a significant reduction in spending on consultants. In the comparative period, Company had six different consultants engaged whereas in the current three month period, Company has only two consultants engaged. This is expected to be consistent in the near term due to the Company’s overall realignment of spending.
Amortization of Intangible Assets
Amortization of $266,649 relates entirely to Technology and Intellectual Property purchased during prior fiscal 2016 which we are amortizing over 5 years on a straight-line basis. On September 15, 2015, we finalized our purchase of Intellectual property assets of Ortsbo, Inc. pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015.
Stock based compensation
Stock based compensation increased by $361,346 or 321%. This increase is due to the issuances of certain awards in the three month period ended August 31, 2016, for issuance of stock options, issuance of warrants to a new advisory board member, as well as continued vesting of existing options. Overall values ascribed will be different for each period based on the underlying assumptions used at the time of each grant. The stock options expense is determined using the acceptable binomial tree valuation method, which is an acceptable method under US GAAP.
Total other income and expenses
Other (income) expenses totaled $468,582 and $(393,250), for the three months ended August 31, 2016 and August 31, 2015, respectively. The change of $861,832 is primarily due to interest expense, change in fair value of derivative liabilities and convertible notes, and miscellaneous (income)/expense. During the three months ended August 31, 2016, total other (income)/expense consisted of interest expense of $287,053, financing expense on issuance of convertible promissory notes and common stock totaling $nil, a loss resulting from the change in fair value of the derivative liabilities and convertible notes of $172,260, prepayment fees on convertible notes with floating strike prices of $nil, and other miscellaneous expense of $9,269. During the three months ended August 31, 2015, total other (income)/expense consisted of interest expense of $153,985 and financing expenses on the issuance of convertible promissory notes and common stock totaling $89,490, a gain resulting from the change in the fair value of the derivative liabilities and convertible notes of $(801,639), prepayment fees on variable notes of $177,232, and miscellaneous other income of $(12,318).
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Interest Expense
Interest expense increased by $133,068 or 86% for the three months ended August 31, 2016 over the three months ended August 31, 2015. The significant increase is mainly due to additional financings closed in fiscal 2016. We closed multiple secured debenture financings totaling approximately $6.7 million, most of which is new debt for the Company. Additionally, we incurred a higher penalty interest on convertible debentures from fiscal 2014 that reached maturity in late fiscal 2016.
Financing expense on issuance of convertible promissory notes and common stock
Financing expense decreased by $89,490 or 100% as we did not fund the Company through variables rate notes in fiscal 2016 whereas there was still a minor financing completed on a variable rate convertible note in the three month period ended August 31, 2015. The expense is a function of the underlying assumptions at the time of the grant. It is mainly driven by the strike price of the instrument and the stock price at the time of the grant. As this is a non-cash expense, based on financings and model outputs it is hard to estimate variability for this account.
Change in fair value of convertible promissory notes and convertible secured debentures
Change in fair value of derivative liabilities and convertible promissory notes expense was a loss resulting in incremental change in the recognized gain/loss by $973,899 in the three months ended August 31, 2016 over three months ended August 31, 2015 as the existing debt instruments continued to have fair value adjustments in addition to the new secured debentures that were issued during the current fiscal year. The total fair value change is a gain in the comparative period due to the revaluations on the variable conversion priced notes and the underlying assumptions used to value them using the binomial tree valuation method which includes elapsed time, and market price decreases.
Payment fees on variable conversion priced notes
Payment fees on variable conversion priced notes is significantly lower by $177,232 or 100% in three months ended August 31, 2016 over three months ended August 31, 2015 as we repaid the variable conversion priced notes in the prior fiscal year. As of August 31, 2016, we do not have any further variable conversion priced notes.
Miscellaneous expense/(income)
Miscellaneous expense/(income) was a loss resulting in incremental change in the recognized gain/loss by $21,587 in three months ended August 31, 2016 over three months ended August 31, 2015. The expense/(income) is largely a function of foreign exchange expense/(income) and write-off of payables that Company does not expect to pay either due to a settlement or management has concluded the obligations are barred by the statute of limitations. A small portion of the foreign exchange is a cash expense in bank spread for currency variance conversion between the US dollar and the Canadian dollar. The remaining foreign exchange expense/ (income) was incurred on changes in the foreign exchange and the foreign denominated liabilities.
During the three months ended August 31, 2016, we raised $70,848 through private placement financing of common stock and warrants. During the three months ended August 31, 2015, we raised $486,179, in net cash from short term notes payable, line of credit, convertible notes, secured notes and debentures through normal channels, and private placements of common stock and warrants. For accounting purposes, since certain financial instruments had convertible provisions they are treated as derivatives liabilities and are valued using a binomial lattice fair value model upon inception and where applicable adjusted accordingly to market at the close of the period. The financing expense associated with the capital raises and prior obligations were $nil and $89,490 for three months ended August 31, 2016 and August 31, 2015, respectively.
For the three months ended August 31, 2016, the gain from fair value adjustment largely relates to accretion fair value changes on various convertible notes. In the comparative period in 2015, there was a significant decline in the market price compared to those prices that were in effect at the time of the original issuance of these convertible instruments. The changes in market value of our common stock coupled with the other parameters used in the binomial lattice model for all instruments marked to market, resulted in an expense of $172,260 for the three months ended August 31, 2016 in contrast to a gain of $801,639 for the three months ended August 31, 2015, for a change of $973,899.
Net loss and comprehensive loss
During the three months ended August 31, 2016 and August 31, 2015, we had net loss/(income) and comprehensive loss/(income) of $1,783,271 and $(166,648) respectively.
Liquidity and Capital Resources
As of August 31, 2016, we had a cash balance of $38,914, which is a decrease of $409,661 from the ending cash balance of $448,575 as of May 31, 2016. We do not have sufficient funds to fund our operations over the next twelve months. There can be no assurance that additional capital will be available to us. Since we have no other financial arrangements currently in effect, our inability to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable going concern.
To fund our operations, we raised $70,848 through private placement financing of common stock and warrants in the three months ended August 31, 2016. During the three months ended August 31, 2015 we issued secured debentures, and convertible debt instruments for gross cash receipts of $486,179.
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We have used this financing for funding operations and replacing short term high cost debt instruments with lower cost longer term financial instruments where the economics made sense.
We estimate we will need additional capital to cover our ongoing expenses and to successfully market our product offerings. This is only an estimate and may change as we receive feedback from customers and have a better understanding of the demand for our application and the ability to generate revenues from our new products. Both of these factors may change and we may not be able to raise the necessary capital and if we are able to, that it may not be at favorable rates.
On July 15, 2015, we completed a secured debt financing of $4.5 Million of 12% Secured Debentures. The Secured Debentures had an original maturity date of December 31, 2015. Subsequent to the end of the second quarter of fiscal 2016, the holders of the Secured Debentures (the “Holders”) agreed to extend the maturity date of the Secured Debentures from December 31, 2015 to July 15, 2020, and were provided with the right to amend the Secured Debenture such that a Holder shall have the right, at any time after the earlier of (i) six (6) months from the date of first issuance of any subsequent Debentures; and (ii) June 30, 2016, to require the Company to satisfy the outstanding obligations underlying the Secured Debenture; provided, however, that at least two thirds (66.67%) of the Holders of the principal amount of the Secured Debentures consent to a put of their Secured Debentures to our company.
We received $2.5 million of this financing in the form of cash and cash commitments, including conversion of the short term loans obtained on May 11, 2015 and June 19, 2015. $2,000,000 of the $4.5 million financing is conversion of a portion of our existing debt that remained in the secured debenture. $925,000 was repaid out of the secured debenture, in the form of cash in the amount of $465,000 with the remainder in the form of the release of secured deposit that was applied against accounts receivable. On September 15, 2015, we closed the acquisition of intellectual property from Ortsbo Inc., and as part of this closing, assumed debt and non-controlling equity interests from Ortsbo in the amount of $975,388 that was immediately subscribed to a second tranche of secured debentures. The secured debentures balance as at August 31, 2016, was $4,550,388.
On December 30, 2015, we completed a secured debenture and warrant financing for $2,040,000 through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments and having an exercise price of $0.01 per share. The units were sold at $1.00 per unit. This closing includes conversion of $1,201,000 in short term loans advanced during the quarter prior to the closing of this secured debenture. On May 1, 2015 the Company closed a final tranche of this financing for $370,468 which includes $170,468 in cash and $200,000 in settlement of a consultant obligation. The $200,000 debenture did not include the attached warrants as they were waived by the consultant.
During the three months ended August 31, 2015, we raised $90,750 via various convertible promissory notes and debentures, and $1,830,695 from secured debentures. The Company also repaid $340,846 of various convertible promissory notes and debentures, $942,025 of line of credit, and $152,395 of short term loans.
Going Concern Consideration
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. We experienced negative cash flows from operations since inception and have incurred a deficit of $23,447,696 through August 31, 2016.
As of August 31, 2016, we had a working capital deficit of $1,407,491. During the three months ended August 31, 2016, net cash used in operating activities was $471,341. Management expects to have similar cash needs for the next twelve months. At the present time, we do not have sufficient funds to fund operations over the next twelve months.
Implementation of our business plan will require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. We have realized limited revenues to cover our operating costs. As such, we have incurred an operating loss since inception. This and other factors raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to meet our obligations, to obtain additional financing as may be required and ultimately to attain profitability. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management plans to meet its operating cash flow requirements from financing activities until the future operating activities become sufficient to support the business to enable us to continue as a going concern. Management continues to work on generating operating cash flows from the commercialization of its business. Until those cash flows are sufficient, we will pursue other financing when deemed necessary.
Management is pursuing a number of different financing opportunities in order to execute our business plan. These include, short term debt arrangements, convertible debt arrangements, common share equity financings, either through a private placement or through the public markets. During the three months ended August 31, 2016, we raised $70,848 through various financial instruments, net of repayments. Subsequent to the three months ended August 31, 2016, we raised $200,000 in cash proceeds.
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There can be no assurance that the raising of future equity or debt will be successful or that our anticipated financing will be available in the future, at terms satisfactory to us. Failure to achieve the equity and financing at satisfactory terms and amounts could have a materially adverse effect on our ability to continue as a going concern. If we cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations.
Off-Balance Sheet Arrangements
We do not have any 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, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports it files or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports it files or submitted under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Because of inherent limitations, disclosure controls and procedures, as well as internal control over financial reporting, may not prevent or detect all inaccurate statements or omissions.
Our management, with the supervision and participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of May 31, 2016 were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(b) Changes In Internal Control Over Financial Reporting
During the three months ended August 31, 2016, there were no changes in our internal controls over financial reporting that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.
28 |
PART II
ITEM 1. LEGAL PROCEEDINGS
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of August 31, 2016, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our unaudited consolidated financial statements.
ITEM 1A. RISK FACTORS
Not required under Regulation S-K for “smaller reporting companies”.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the three month period ended August 31, 2016.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
There is no information with respect to which information is not otherwise called for by this form.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “Commission”). Our Commission filings are available to the public over the Internet at the Commission’s website at http://www.sec.gov. The public may also read and copy any document we file with the Commission at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. We maintain a website at http://www. yappn.com (which website is expressly not incorporated by reference into this filing). Information contained on our website is not part of this report on Form 10-Q.
29 |
ITEM 6. EXHIBITS
Index to Exhibits
Exhibit No. | Description | |
2.1
|
Asset Purchase Agreement by and among Yappn Corp., Yappn Acquisition Sub., Inc. and Intertainment Media, Inc., dated March 28, 2013 (2) | |
2.2 | Asset Purchase Agreement between the Company, Ortsbo Inc., Intertainment Media, Inc., and Winterberry Investments Inc. dated July 6, 2015 (17) | |
3.1 | Amended and Restated Certificate of Incorporation filed on March 14, 2013. (1) | |
3.2 | Amended and Restated Bylaws. (1) | |
3.3 | Amended and Restated Certificate of Designation and Preferences of Series A Convertible Preferred Stock, filed with the Secretary of State of Delaware on May 31, 2013 (3) | |
3.4 | Amended Certificate of Incorporation filed on December 31, 2014 (18) | |
3.5 | Amended Certificate of Incorporation filed on September 9, 2015 (18) | |
4.1 | Convertible Promissory Note (4) | |
4.2 | Convertible Promissory Note Issued in Favor of JMJ Financial (6) | |
4.3 | 8% Convertible Note (7) | |
4.4 | Form of 8% Convertible Note (8) | |
4.5 | Form of 6% Convertible Promissory Note (9) (10) (12) | |
4.6 | Form of Promissory Note (13) | |
4.7 | Common Stock Purchase Warrant (13) | |
10.1 | Lock-Up Agreement by and between Yappn Corp. and Intertainment Media, Inc. (2) | |
10.2 | Form of Warrant (2) | |
10.3 | Form of Subscription Agreement (2) | |
10.4 | Form of Registration Rights Agreement (2) | |
10.5 | Form of Note Purchase Agreement (2) | |
10.6 | Form of Note (2) | |
10.7 | Form of First Amendment to Note Purchase Agreement (2) | |
10.8 | Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (2) | |
10.9 | Stock Purchase Agreement (2) | |
10.10 | 2013 Equity Incentive Plan (2) | |
10.11 | Bill of Sale dated March 28, 2013 (2) | |
10.12 | Services Agreement by and between Ortsbo, Inc., Ortsbo USA, Inc. and Intertainment Media, Inc. dated March 21, 2013 (2) | |
10.13 | Form of Indemnification Agreement (2) | |
10.14 | Securities Purchase Agreement (4) | |
10.15 | Amendment to Services Agreement (5) | |
10.16 | Amendment Agreement to Convertible Promissory Note Issued in Favor of JMJ Financial (6) | |
10.17 | Securities Purchase Agreement (7) | |
10.18 | Securities Purchase Agreement between Yappn Corp. and GEL Properties LLC (8) | |
10.19 | Securities Purchase Agreement between Yappn Corp. and LG Capital Funding LLC (8) | |
10.20 | Form of Securities Purchase Agreement (9) (10) (12) | |
10.21 | Form of Registration Rights Agreement (9) (10) (12) | |
10.22 | Form of Series A Warrant (9) (10) (12) | |
10.23 | Form of Series B Warrant (9) (10) (12) |
30 |
Exhibit No. | Description | |
10.24 | Amendment Agreement to Convertible Promissory Note issued in favor of JMJ Financial (11) | |
10.25 | Loan Agreement (13) | |
10.26 | General Security Agreement between Yappn Corp. and Toronto Tree Top Holdings Ltd. (13) | |
10.27 | General Security Agreement (Yappn Canada Inc.) (13) | |
10.28 | General Security Agreement (Intertainment Media Inc.) (13) | |
10.29 | Guaranty and Indemnity (Yappn Canada Inc.) (13) | |
10.30 | Guaranty and Indemnity (Intertainment Media Inc.) (13) | |
10.31 | Assignment of Monies and Debt Due Arrangement (13) | |
10.32 | Employment Agreement between Yappn Corp. and Mr. David Lucatch dated June 1, 2014. (14) | |
10.33 | Form of Series C Warrant (15) | |
10.34 | Form of Series D Warrant (15) | |
10.35 | Amendment to the Employment Agreement between Yappn Corp. and Mr. David Lucatch dated September 2, 2014. (16) | |
10.36 | Form of Master Services Agreement between Yappn Corp. and Digital Widget Factory, dated November 6, 2014. (16) | |
10.37 | Form of 12% Secured Debentures(17) | |
10.38 | Form of Security Agreement, dated July 15, 2015 (17). | |
10.39 | Form of 12% Secured Debenture (19) | |
10.40 | Form of Common Stock Purchase Warrant (19) | |
14.1 | Code of Ethics and Conduct (14) | |
31.1 | Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer.* | |
31.2 | Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer.* | |
32.1 | Section 1350 Certifications of Principal Executive Officer * | |
32.2 | Section 1350 Certifications of Principal Financial Officer * | |
101.INS | XBRL Instance Document * | |
101.SCH | XBRL Taxonomy Extension Schema Document * | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase * | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase * | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase * | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase * |
(1) | Incorporated by reference to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2013. |
(2) | Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on April 3, 2013. |
(3) | Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on June 3, 2013. |
(4) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 15, 2013. |
(5) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 29, 2013. |
(6) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on November 21, 2013. |
(7) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on December 18, 2013. |
(8) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on December 20, 2013. |
(9) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on January 30, 2014. |
(10) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on February 27, 2014. |
(11) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on March 4, 2014. |
(12) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 1, 2014. |
(13) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 11, 2014. |
(14) | Incorporated by reference to the Company’s Annual Report on Form 10-K, filed with the SEC on August 29, 2014. |
(15) | Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on October 24, 2014. |
(16) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on January 13, 2015. |
(17) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on July 6, 2015. |
(18) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on October 15, 2015. |
(19) | Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on January 6, 2016. |
* | Filed herewith. |
31 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 17th day of October 2016.
YAPPN CORP. | ||
By: | /s/ Ed Karthaus | |
Ed Kaurthaus | ||
Chief Executive Officer | ||
By: | /s/ Craig McCannell | |
Craig McCannell | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
32
Exhibit 31.1
Certification
of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 and 906 of the
Sarbanes-Oxley Act of 2002.
I, Edward Karthaus, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Yappn Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Issuer’s internal control over financial reporting that occurred during the Registrant’s fiscal quarter ending August 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Issuer’s internal control over financial reporting.
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditor and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: October 17, 2016 | /s/ Edward Karthaus |
Edward Karthaus, | |
Chief Executive Officer |
Exhibit 31.2
Certification
of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 and 906 of the
Sarbanes-Oxley Act of 2002.
I, Craig McCannell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Yappn Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Issuer’s internal control over financial reporting that occurred during the Registrant’s fiscal quarter ending August 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Issuer’s internal control over financial reporting.
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditor and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: October 17, 2016 | /s/ Craig McCannell |
Craig McCannell, Chief Financial Officer (Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the quarterly report of Yappn Corp. (the "Company") on Form 10-Q for the period ending August 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward Karthaus, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: October 17, 2016 | /s/ Edward Karthaus |
Edward Karthaus, | |
Chief Executive Officer |
Exhibit 32.2
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the quarterly report of Yappn Corp. (the "Company") on Form 10-Q for the period ending August 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Craig McCannell, Chief Financial Officer (Principal Accounting Officer) of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: October 17, 2016 | /s/ Craig McCannell |
Craig McCannell, | |
Chief Financial Officer | |
(Principal Accounting Officer) |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Aug. 31, 2016 |
Oct. 17, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | YAPPN CORP. | |
Entity Central Index Key | 0001511735 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --05-31 | |
Document Type | 10-Q | |
Document Period End Date | Aug. 31, 2016 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2017 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 40,208,985 |
Interim Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) - $ / shares |
Aug. 31, 2016 |
May 31, 2016 |
---|---|---|
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 400,000,000 | 400,000,000 |
Common stock, shares issued | 38,258,617 | 30,081,163 |
Common stock, shares outstanding | 38,258,617 | 30,081,163 |
Common stock, par value of shares subscribed not issued | $ 0.0001 | $ 0.0001 |
Common stock, shares subscribed not issued | 19,077,162 | 20,308,890 |
Series A Convertible preferred stock [Member] | ||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding |
Summary of Significant Accounting Policies |
3 Months Ended |
---|---|
Aug. 31, 2016 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies
Basis of Presentation and Organization
Yappn Corp., formerly “Plesk Corp.”, (the “Company”) was incorporated under the laws of the State of Delaware on November 3, 2010. The business plan of the Company is to provide effective unique and proprietary tools and services that create dynamic solutions that enhance a brand’s messaging, media, e-commerce and support platforms. The Company has offices in the United States and Canada. In March 2013, the Company acquired a concept and technology license from Intertainment Media Inc., a Canadian company, in exchange for 7,000,000 shares of common stock of the Company. As a result of this exchange, Intertainment Media Inc. acquired, at that time, a seventy percent (70%) ownership of the Company. On September 15, 2015, the Company closed the acquisition of Ortsbo Inc.’s (subsidiary of Intertainment Media Inc.) intellectual property. As a result of the acquisition, Intertainment Media Inc.’s ownership was reduced to 37%. The accompanying interim condensed consolidated financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.
Unaudited Interim Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements of the Company as of August 31, 2016, and for the three month periods ended August 31, 2016 and August 31, 2015, are unaudited. However, in the opinion of management, the interim condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position as of August 31, 2016 and August 31, 2015, and the results of its operations and its cash flows for the three month period ended August 31, 2016 and August 31, 2015. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2017. The accompanying interim condensed consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States. Refer to the Company’s audited consolidated financial statements as of May 31, 2016 filed with the Securities and Exchange Commission, for additional information including significant accounting policies.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 which was amended in August 2015 by Update No 2015-14: Revenue from Contracts with Customers. The standard outlines a five-step model for revenue recognition with the core principle being that a company should recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Companies can choose to apply the standard using either the full retrospective approach or a modified retrospective approach. Under the modified approach, financial statements will be prepared for the year of adoption using the new standard but prior periods presented will not be adjusted. Instead, companies will recognize a cumulative catch-up adjustment to the opening balance of retained earnings. This new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company has not yet made a determination as to the method of application (full retrospective or modified retrospective). It is too early to assess whether the impact of the adoption of this new guidance will have a material impact on the Company's results of operations or financial position.
On August 27, 2014 the FASB issued a new financial accounting standard on going concern, Update 2014-15, “Presentation of Financial Statements – Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The amendments in this update apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted. The Company is currently evaluating the impact of this accounting standard.
In November 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.” The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivatives feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years beginning after December 15, 2015 and interim periods beginning after December 15, 2016. The Company has determined there is no material impact to the accounting treatment of its hybrid financial instruments based on this new standard. |
Going Concern |
3 Months Ended |
---|---|
Aug. 31, 2016 | |
Going Concern [Abstract] | |
Going Concern | 2. Going Concern
The accompanying interim condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced negative cash flows from operations since inception and has incurred a deficit of $23,447,696 through August 31, 2016.
As of August 31, 2016, the Company had a working capital deficit of $1,407,491. During the three months ended August 31, 2016, net cash used in operating activities was $471,341. The Company expects to have similar cash needs for the next twelve months. At the present time, the Company does not have sufficient funds to fund operations over the next twelve months.
Implementation of the Company business plan will require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. The Company has realized limited revenues to cover its operating costs. As such, the Company has incurred an operating loss since inception. This and other factors raise substantial doubt about their ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet their obligations, to obtain additional financing as may be required, and ultimately to attain profitability. The interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management plans to meet its operating cash flow requirements from financing activities until the future operating activities become sufficient to support the business to enable the Company to continue as a going concern. The Company continues to work on generating operating cash flows from the commercialization of its business. Until those cash flows are sufficient the Company will pursue other financing when deemed necessary.
The Company is pursuing a number of different financing opportunities in order to execute its business plan. These include, short term debt arrangements, convertible debt arrangements, common share equity financings, either through a private placement or through the public markets. During the three months ended August 31, 2016, the Company raised $70,848 through various financial instruments, net of repayments. Subsequent to the three month ended August 31, 2016, the Company raised $500,000 in cash proceeds (Note 13).
There can be no assurance that the raising of future equity or debt will be successful or that the Company’s anticipated financing will be available in the future, at terms satisfactory to the Company. Failure to achieve the equity and financing at satisfactory terms and amounts could have a materially adverse effect on the Company’s ability to continue as a going concern. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and the Company may have to cease operations. |
Concentration of Credit Risk |
3 Months Ended |
---|---|
Aug. 31, 2016 | |
Concentration of Credit Risk [Abstract] | |
Concentration of Credit Risk | 3. Concentration of Credit Risk
All of the Company’s revenues are attributed to a small number of customers. One former customer comprises 100% of the note receivable balance as at August 31, 2016 and 0% of the revenue recorded for the three months ended August 31, 2016 and 100% of the revenue for the three months ended August 31, 2015. Intelligent Content Enterprises (“ICE”) comprises 53% of revenue recorded for the three months ended August 31, 2016. The Company billed ICE $59,681 for the three month ended August 31, 2016, none of which has been recorded as part of the accounts receivable or revenue. Due to the long period without payment, the Company has determined the revenue recognition criteria starting at the beginning of the Company’s second quarter of fiscal 2016 for Digital Widget Factory (Belize) (“DWF”) was not met and further revenues in fiscal 2017 will not be recorded until reasonable assurance over collectability has been established.
Effective February 29, 2016, DWF sold the technology platform, partially developed by Yappn, in conjunction with DWF’s principals, to ICE in exchange for common shares of ICE. As part of the transaction, DWF received ownership and rights to 24 million common shares of ICE for a large minority shareholder position of ICE. During the fourth quarter of fiscal 2016, the Company executed a promissory note from DWF, for the outstanding value of the billings of $2,125,000 (of which $968,289 is recorded as a note receivable at August 31, 2016 and was previously recognized in revenue and a trade receivable). The promissory note is secured by DWF’s ICE stock holdings in the amount of 2,250,000 restricted common shares, which at the market value at the time of execution significantly exceeded the value of the promissory note. The note receivable includes monthly payments of differing amounts with the final payment scheduled by November 30, 2016. The note receivable is past due on contractual payments by $807,500 as at August 31, 2016.
Additionally, the Company received stock options for the purchase of shares of common stock of ICE from DWF. The first option entitles Yappn to subscribe for purchase from DWF up to 1,000,000 fully paid and nonassessable shares of ICE’s common stock at a purchase price of $0.55 per share exercisable until $987,500 remains outstanding on the note receivable, of which the price of the option is offset against $550,000 of the remaining note receivable. DWF can elect to buy out the option at any time at a price of $0.75 per each underlying share of the option agreement. For each missed payment (not the remedy period per the promissory note, but any payment not made on the exact due date), the buyout price will increase by $0.05 per underlying share for each payment date missed starting with the payment due on June 30, 2016 per promissory note. The second option entitles Yappn to subscribe for purchase from DWF up to 1,250,000 fully paid and nonassessable shares of ICE’s common stock at a purchase price of $0.35 per share until $437,500 is remaining on the note receivable. DWF can elect to buy out the option at any time at a price of $0.50 per each underlying share of the option agreement. For each missed payment (not the remedy period per the promissory note, but any payment not made on the exact due date), the buyout price will increase by $0.05 per underlying share for each payment date missed starting with the payment due on June 30, 2016 per promissory note. The value of these options is not recognized in the interim condensed consolidated financial statements, as the maximum value recorded is limited to what has previously been recorded as revenue as at August 31, 2016. |
Acquisition of Intellectual Property |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Acquisition of Intellectual Property [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of Intellectual Property | 4. Acquisition of Intellectual Property
On September 15, 2015, the Company finalized its purchase of intellectual property assets of Ortsbo, Inc. (“Ortsbo”) pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015. With this closing, the Company had an obligation to issue 31,987,000 shares of common stock of Yappn to Ortsbo or its designees. During the second quarter of fiscal 2016, from the share issuance obligations from the purchase of the Ortsbo intellectual property assets, 12,998,682 shares were issued comprising 8,312,500 to Ortsbo and 4,686,182 to the former debt and minority shareholders of Ortsbo, which were valued at $1,806,608 leaving 18,988,318 shares to be issued which remain outstanding as at August 31, 2016. Yappn also assumed $975,388 of debt as part of the transaction. This assumed debt was immediately subscribed as part of the secured debenture in Yappn (Note 6). The fair value for the agreed upon consideration for the acquisition of intellectual property from Ortsbo was $16,968,888, however, due to the common control of Ortsbo Inc. and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo Inc. This value was $5,421,067 on September 15, 2015.
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Short Term Loans |
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Convertible Promissory Notes and Debentures/Convertible Secured Debentures/Short Term Loans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short Term Loans | 5. Short Term Loans
The Company has a past due term loan originated on April 1, 2014 with an interest rate of 1% per month. The Company repaid $15,483 (Canadian $20,000) during the three months ended August 31, 2016. As at August 31, 2016, the loan had a value of $90,588 ($118,815 Canadian).
The Company has a past due term loan originated on January 7, 2014 with an interest rate of 1% per month. The Company repaid $13,899 (Canadian $18,125) during the three months ended August 31, 2016. As at August 31, 2016, the loan had a value of $64,711 ($75,000 Canadian).
During the fourth quarter of fiscal 2016, the Company received $100,000 from a director as an intended subscription in anticipation of a third closing of a private placement of units consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. The Company completed this closing on August 31, 2016 and the loan was applied against the private placement (Note 9).
The following is a summary of Short Term Loans:
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Line of Credit Arrangement and Secured Debentures |
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Line of Credit Arrangement and Secured Debentures [Abstract] | |
Line of Credit Arrangement and Secured Debentures | 6. Line of Credit Arrangement and Secured Debentures
On April 7, 2014, the Company finalized its line of credit arrangement whereby the Company could borrow up to $3,000,000 from a third party lender. The loan agreement was for an initial two year term subject to the lender’s right to demand repayment of the outstanding balance. It carried an interest rate of 12% per annum and a 1% draw down fee on each draw.
During fiscal 2016, the Company borrowed $150,000 against the line of credit and converted $2,000,000 to secured debentures. The facility is no longer available to the Company and the outstanding obligation was $nil at August 31, 2016.
Yappn closed the first tranche of secured debentures in the amount of $4.5 million. The secured debentures carry an annual interest rate of 12% payable at maturity. Maturity was initially the earlier of the date proceeds are available from a public offering or December 31, 2015. During the third quarter of fiscal 2016, the holders of the Secured Debentures (the “Holders”) agreed to extend the maturity date of the Secured Debentures from December 31, 2015 to July 15, 2020, and were provided with the right to amend the Secured Debenture such that a Holder shall have the right, at any time after the earlier of (i) six (6) months from the date of first issuance of any subsequent Debentures; and (ii) June 30, 2016, to require the Company to satisfy the outstanding obligations underlying the Secured Debenture; provided, however, that at least two thirds (66.67%) of the Holders of the principal amount of the Secured Debentures consent to a put of their Secured Debentures to the Company. Yappn executed a non-binding letter of intent with Winterberry Investments Inc. ("Winterberry"), a private company led by Mr. David Berry, a current director, pursuant to which Winterberry will facilitate and manage the financing transaction as well as to advise on Yappn's future capital programs. The Company received $2.5 million of this financing in the form of cash and cash commitments, including conversion of the short term loans obtained on May 11, 2015 and June 19, 2015. $2,000,000 of the $4.5 million financing is conversion of a portion of the Company’s existing debt that remained in the secured debenture. $925,000 was repaid out of the secured debenture, in the form of cash in the amount of $465,000 with the remainder in the form of the release of secured deposit that was applied against accounts receivable. On September 15, 2015, the Company closed the acquisition of intellectual property from Ortsbo, and as part of this closing, assumed debt and non-controlling equity interests from Ortsbo in the amount of $975,388 that was immediately subscribed to a second tranche of secured debentures. The secured debentures balance as at August 31, 2016, was $4,550,388 (Note 12). Interest expense for the three month period ended August 31, 2016 was $136,512 ($63,805 for the three months ended August 31, 2015). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet. |
Convertible Promissory Notes and Debentures |
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Convertible Promissory Notes and Debentures/Convertible Secured Debentures/Short Term Loans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes and Debentures | 7. Convertible Promissory Notes and Debentures
The following is a summary of the convertible promissory notes and debentures as of August 31, 2016:
Convertible Debentures with Series A and B Warrants
On January 29, 2014, February 27, 2014, and April 1, 2014, the Company issued 395, 305, and 469 Units for $395,000, $305,000, and $469,000 respectively, to accredited investors under subscription agreements. The Units, as defined in the subscription agreements, consist of (i) one unsecured 6% convertible promissory note, $100 par value, convertible into shares of the Company’s common stock; (ii) a warrant entitling the holder thereof to purchase 1,000 shares of common stock (individually Series A Warrant) at an exercise price of $1.50; and, (iii) a warrant entitling the holder thereof to purchase 1,000 shares of common stock (individually Series B Warrant) at an exercise price of $2.00 (Note 10). The purchase price for each Unit was $1,000 and resulted in a funding total of $1,069,000 in cash and the retirement of $100,000 debt obligation to a private investor.
The notes mature 24 months from the issuance date and has an interest rate of 6% per annum payable in arrears on the earlier of a default date or the maturity date. The notes may be converted at any time after the original issuance date at the election of their holders to convert all or part of the outstanding and unpaid principal amount and accrued interest at a conversion price of $1.00 per share repriced from $1.50 due to a breach to previously contracted price protection clauses which have expired. Any amount of principal or interest which is not paid when due, shall bear interest at the rate of 16% per annum from the date it is due. The Series B warrants do not provide any price protection provisions and therefore are treated as equity instruments at the commitment date and thereafter. Both the Series A and Series B warrants have a five year life.
The convertible debentures due on January 29, February 27, 2016, and April 1, 2016 respectively were not repaid or converted into common shares of the Company by the maturity dates. Non-repayment of the debentures triggered a penalty interest rate whereby the stated interest rate goes up to 16% from the original 6%. The Company management is diligently working with the debenture holders on either extension terms or conversion into common shares as the Company does not currently have the ability to repay these debtholders in cash. In fiscal 2016, $260,000 in principal value of debenture holders took the offer for additional investment and repricing of both warrants (Note 9). During the three month period ended August 31, 2016, $175,000 in principal value of debenture holders took conversion but only the Series A warrants were repriced (Notes 9 and 10). The holders of $175,000 in principal converted have the right to an additional issuance of shares if Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share. Interest expense for the three month period ended August 31, 2016 was $43,760 ($17,679 for the three months ended August 31, 2015). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet.
Convertible Debentures with Series C or Series D Warrants
During late fiscal 2014, and early fiscal 2015 the Company authorized and issued 1,050 Units for $1,050,000 to private investors, and 475 Units for $475,000 to seven independent accredited investors respectively. The 475 Units were issued in exchange for $300,000 in cash and release of $90,777 (Canadian $100,000) in the loan originated on January 7, 2014 and $50,000 in settlement of trade payables. The Units, as defined in the subscription agreement, consist of (i) one unsecured 6% convertible debenture, $100 par value convertible into shares of the Company’s common stock at a conversion price of $1.50 per share; and (ii) a warrant entitling the holder thereof to purchase 700,000 shares of common stock (Series C Warrant) and 316,666 shares of common stock (Series D Warrant) at a purchase price of $2.20 per share that expires in 5 years (Note 10).
The debentures mature 24 months from the issuance date and have an interest rate of 6% per annum payable in arrears on the earlier of a default date or the maturity date. The notes may be converted at any time after the original issuance date at the election of their holders to convert all or part of the outstanding and unpaid principal amount and accrued interest at a conversion price of $1.50 per share. The warrants may be exercised in whole or in part.
During the fourth quarter of fiscal 2016 and first quarter of fiscal 2017 $1,125,000 in principal value of debenture holders converted their outstanding debentures and accrued interest into common stock of the company as well as received amendments to their warrants price of $0.25 (Notes 9 and 10). The holders of $1,125,000 in principal converted have the right to an additional issuance of shares if Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share. All remaining term and conditions still same as before. Interest expense for the three month period ended August 31, 2016 was $28,878 ($23,063 for the three months ended August 31, 2015). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet. |
Convertible Secured Debentures |
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Convertible Promissory Notes and Debentures/Convertible Secured Debentures/Short Term Loans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Secured Debentures | 8. Convertible Secured Debentures
On December 30, 2015, the Company completed a secured debenture and warrant financing of $2,040,000 ($1,075,000 from directors of the Company) through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested in one year, 1/3 to be vested in two years and 1/3 to be vested in three years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit.
Values were allocated for this private placement between the debt, equity warrants, and the beneficial conversion feature. The valuation approach involved determining a fair value for the debt and warrants and then using the relative fair value method to allocate value to these components. Based on relative fair values, the present value method was used to determine the fair values of the debt and the binomial tree option pricing model was used to determine the fair value of the warrants. The value of the interest and principal payments of the debentures resulted in a value of $459,020 for the debentures and the binomial model resulted in a value for warrants for $1,580,980. The assumptions used for the binomial model are: Volatility 177%, expected life of five years, risk free interest rate of 1.80%, and dividend rate of 0%. Additionally, this convertible secured debenture instrument includes a beneficial conversion feature as the effective conversion price is less than the Company’s market price of common stock on the commitment date. The value of this beneficial conversion feature is $459,020. The resulting fair value of the debt is $nil, with $1,580,980 allocated to equity warrants (Note 10) and $459,020 to the beneficial conversion feature, both which are recorded as components of additional paid in capital.
On May 1, 2016, the Company closed a secured debenture and warrant financing through conversion of a short term loan of $170,468 from a director of the Company that was otherwise payable on demand in cash. The offering of units was by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested immediately, 1/3 to be vested in one year and 1/3 to be vested in two years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit.
Values were allocated for this private placement between debt, equity warrants, and the beneficial conversion feature similar to the secured debenture and warrant financing of $2,040,000 closed in the third quarter of fiscal 2016 (see above). The value of the interest and principal payments of the debentures resulted in a value of $51,396 for the debentures and the binomial model resulted in a value for warrants for $119,072. The assumptions used for the binomial model are: Volatility 180%, expected life of five years, risk free interest rate of 1.28%, and dividend rate of 0%. Additionally, this convertible secured debenture instrument includes a beneficial conversion feature as the effective conversion price is less than the Company’s market price of common stock on the commitment date. The value of this beneficial conversion feature is $51,396. The resulting fair value of the debt is $nil, with $119,072 allocated to equity warrants (Note 10) and $51,396 to the beneficial conversion feature, both which are recorded as components of additional paid in capital.
The difference between the fair value and face value of the debentures is to be accreted up to face value over the term to maturity using the effective interest method. The carrying value of the debenture liability as at August 31, 2016 is $273,714 for the December 30, 2015 closing and $11,390 for the May 1, 2016 closing.
The following table summarizes the fair values of the components of the convertible secured debentures, including the debt, warrants, and the beneficial conversion feature.
On May 1, 2016, the Company completed a secured debenture financing with a consultant in settlement of $200,000 in obligations with similar terms as the above private placement with no warrant financing, through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. The $200,000 debenture was accounted for as a single debt instrument.
Interest expense for the three month period ended August 31, 2016 was $72,314 ($nil for the three months ended August 31, 2016). Interest expense is recorded in accrued expenses on the interim condensed consolidated balance sheet. |
Common Stock |
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Common Stock [Abstract] | |
Common Stock | 9. Common Stock
On August 31, 2015 the Company issued 11,667 shares of common stock in the form of a cashless exercise of warrants with a previous allocation to equity of $37,100 in full settlement of warrants issued to a variable note holder that was extinguished in fiscal 2016.
On September 15, 2015, the Company closed an agreement with Ortsbo Inc. to acquire all of its intellectual property assets. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of $16,968,888, which was paid by the assumption of $975,388 in debt and the issuance of $15,993,500 worth of Yappn restricted common shares (32 Million shares at $0.50 per share), however, due to the common control of Ortsbo Inc. and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo Inc. This value was $5,421,068 on September 15, 2015. During the second quarter, 12,998,682 shares were issued at a value of $1,806,609 with obligations incurred to issue the remaining 18,988,318 shares when signed registration forms are all obtained by the Company. As at the filing date, the 18,988,318 shares at a value of $2,639,071 remain reserved but not issued (Note 4).
On April 18, 2016, the Company issued 1,008,000 shares of common stock for $252,000 cash received against the first tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. These warrants will vest in increments of thirds with the first 1/3 being vested on April 17, 2017, second increment of 1/3 on April 17, 2018, and last 1/3 on April 17, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $157,046 and $94,854 respectively. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.24%, and dividend rate of 0%.
On May 17, 2016, the Company issued 2,640,000 shares of common stock for $660,000 cash received against the second tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. (Note 10) 1,200,000 of the shares from the second tranche for $300,000 were issued to two members of the board of directors. (Note 12) These warrants will vest in increments of thirds with the first 1/3 being vested on May 16, 2017, second increment of 1/3 on May 16, 2018, and last 1/3 on May 16, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $411,515 and $248,221 respectively. The assumptions used for valuation were: Volatility 179%, expected life of five years, risk free interest rate of 1.29%, and dividend rate of 0%.
On August 31, 2016, the Company issued 1,000,000 shares of common stock for $200,000 cash received and settlement of $50,000 in prior obligations against the third tranche of a private placement of units, at a purchase price of $0.25 per unit, consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share (Note 10). All of the shares from the third tranche were issued to four members of the board of directors. (Note 12) These warrants will vest in increments of thirds with the first 1/3 being vested on August 31, 2017, second increment of 1/3 on August 31, 2018, and last 1/3 on August 31, 2019. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $141,307 and $108,693 respectively. The assumptions used for valuation were: Volatility 191%, expected life of five years, risk free interest rate of 1.19%, and dividend rate of 0%.
The Company closed a fourth tranche of the same private placement as above subsequent to quarter end (Note 13).
On June 13, 2016, principal and interest totaling $305,307 was converted into 1,221,228 of common shares as part of the conversion of convertible debt as described in Note 7. The common shares to be issued were recorded as an obligation as at May 17, 2016 however the issuance did not occur until June 13, 2016
On August 31, 2016, principal and interest totaling $1,489,057 was converted into 5,956,226 of common shares as part of the conversion of convertible debt as described in Note 7.
On September 23, principal and interest totaling $262,592 was converted into 1,050,368 of common shares as part of the conversion of convertible debt as described in Note 13.
Registration Statement
The Company filed a Registration Statement on Form S-1 (File No. 333-199569) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) for up to 7,592,667 shares of Yappn Corp.’s $0.0001 par value per share common stock (the "Common Stock") issuable to certain selling stockholders upon conversion of promissory notes and/or warrants currently held by those selling stockholders, specifically (i) 1,844,000 shares of Common Stock issuable to them upon exercise of promissory notes and (ii) 4,588,000 shares of Common Stock issuable to them upon exercise of warrants. The warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). The Registration Statement covering the above noted shares was declared effective under the Securities Act of 1933 on November 17, 2014. On October 5, 2015, the Company filed a continuing registration statement in part to update to this S-1 filing, and subsequently filed an amendment to this filing. This registration statement was withdrawn and a new registration statement filed (Note 13). |
Preferred Stock and Warrants |
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Preferred Stock and Warrants [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock and Warrants | 10. Preferred Stock and Warrants
Series A Preferred Stock
The Company has an authorized limit of 50,000,000 shares of preferred stock, par value $0.0001 with none issued and outstanding as at August 31, 2016 and May 31, 2016.
Warrants
The following is a summary of warrants issued, exercised and expired through August 31, 2016:
The outstanding warrants at August 31, 2016 and May 31, 2016 have a weighted average exercise price of approximately $0.26 and $0.31 respectively and have an approximate weighted average remaining life of 4.1 and 4.3 years, respectively.
Warrants vesting terms and repricing related to Convertible debentures, Secured Converted Debentures, and Common Stock Private Placement are described in Notes 7, 8, and Note 9. All warrants not described in other notes to the financial statements, vested immediately upon issuance. Warrants issued to consultants in fiscal 2016 and to the advisory board are described below.
The Company issued 300,000 warrants on September 28, 2015 to new advisors in advance of their appointment to the Board of Directors at an exercise price of $1.00 with expiry of five years from September 1, 2015. These were expensed as stock based compensation. The warrants exercise price was repriced on March 21, 2016 to $0.25 and a nominal expense was recorded. The assumptions used for initial and repricing valuation are: Volatility 178-180%, expected life of five years, risk free interest rate of 1.38%-1.42%, and dividend rate of 0%.
The Company issued 1,700,000 warrants to the line of credit holder included in financing expense in contemplation of taking a pari passu security position and allowing Winterberry to act as collateral agent for the secured debenture financing. These warrants were issued November 5, 2015 have an exercise price of $1.00 with expiry date of April 7, 2019. The assumptions used for valuation were: Volatility 178%, expected life of five years, risk free interest rate of 1.65%, and dividend rate of 0%.
The Company issued warrants to a consultant in the amount of 100,000 included in financing expense on November 5, 2015 at an exercise price of $1.00 with expiry date of October 16, 2017. The assumptions used for valuation were: Volatility 178%, expected life of approximately two years, risk free interest rate of 0.85%, and dividend rate of 0%.
The Company issued 1,750,000 warrants on March 21, 2016 to new the advisory board at an exercise price of $0.25 with expiry date of March 21, 2021. These were expensed as stock based compensation. These warrants will vest in increments of 1/3 with the first 1/3 being vested on March 21, 2017, second increment of 1/3 on March 21, 2018, and last 1/3 on March 21, 2019. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.38%, and dividend rate of 0%.
On May 1, 2016 the Company issued 4,000,000 warrants to an entity, Imagination 7 Ventures, LLC controlled by the former CEO at an exercise price of $0.25 included in consulting expense with an expiry of May 1, 2021. The assumptions used for valuation were: Volatility 180%, expected life of five years, risk free interest rate of 1.28%, and dividend rate of 0%.
The Company issued 250,000 warrants on August 25, 2016 to a new advisory board member at an exercise price of $0.25 with expiry date of August 25, 2021. These were expensed as stock based compensation. These warrants will vest in increments of 1/3 with the first 1/3 being vested on August 25, 2017, second increment of 1/3 on August 25, 2018, and last 1/3 on August 25, 2019. The assumptions used for valuation were: Volatility 191%, expected life of five years, risk free interest rate of 1.13%, and dividend rate of 0%. |
Employee Benefit and Incentive Plans |
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Employee Benefit and Incentive Plans | 11. Employee Benefit and Incentive Plans
On August 14, 2014, the Board of Directors approved the adoption of the 2014 Stock Option Plan, which was ratified by the shareholders on December 22, 2014. On August 21, 2015, the Company amended its 2014 Stock Option Plan to increase the number of options available to 25,000,000.
The following table outlines the options granted and related disclosures:
As at August 31, 2016, vested and exercisable options do not have any intrinsic value and have a weighted-average remaining contractual term of 4.0 years. It is expected the 9,135,833 unvested options will ultimately vest. These options have a weighted average exercise price of $0.26 per share and a weighted average remaining term of 4.58 years. The aggregate intrinsic value of options represents the total pre-tax intrinsic value, the difference between our closing stock price as at August 31, 2016 and the option’s exercise price, for all options that are in the money. This value was $nil as at August 31, 2016.
As at August 31, 2016, there is $1,800,919 of unearned stock based compensation cost related to stock options granted that have not yet vested (9,135,833 options). This cost is expected to be recognized over a remaining weighted average period of 1.6 years.
710,000 and 520,000 of the stock options granted on August 14, 2014 and March 2, 2015 respectively vest 1/3 immediately, 1/3 after one year and 1/3 after two years. The remaining options have immediate vesting terms or have been cancelled or expired. 8,750,000 and 3,200,000 of the stock options granted on March 21, 2016 and August 25, 2016 respectively vest 1/4 immediately, 1/4 after one year, 1/4 after two years, and 1/4 after three years. The remaining 25,000 options issued on March 21, 2106 have immediate vesting terms.
The estimated fair value of options granted is measured using the binomial model using the following assumptions:
The assumptions used in the stock based compensation binomial models are consistent with the methodology used in valuing the Company’s other derivatives debt and warrant financings. Due to a lack of history, the Company has assumed the expected life of the options is the contractual life of the options. |
Related Party Balances and Transactions |
3 Months Ended |
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Aug. 31, 2016 | |
Related Party Balances and Transactions [Abstract] | |
Related Party Balances and Transactions | 12. Related Party Balances and Transactions
Services provided by Intertainment Media, Inc. personnel in the prior fiscal year were invoiced on a per hour basis at a market rate per hour as determined by the type of activity and the skill set provided. Costs incurred by Intertainment Media, Inc. on behalf of the Company for third party purchases are invoiced at cost.
On September 15, 2015, the Company closed an agreement with Ortsbo Inc. to acquire all of its intellectual property assets. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know. With this closing, the Company had an obligation to issue 31,987,000 shares of common stock of Yappn. During the fiscal year 2016, 12,998,682 shares were issued comprising of 8,312,500 to Ortsbo Inc. and 4,686,182 to the former debt and minority shareholders of Ortsbo, which were valued at $1,806,608, leaving 18,988,318 shares to be issued at May 31, 2016 comprising 17,687,500 to Winterberry and 1,300,818 to a former holder of Ortsbo stock. As of the filing date, these aforementioned shares remain to be issued. Yappn also assumed $975,388 of debt as part of the transaction. This assumed debt was immediately subscribed as part of the secured debenture in Yappn (Note 8). The fair value for the agreed upon consideration for the acquisition of Intellectual property from Ortsbo was $16,968,888. This transaction was completed on September 15, 2015. Due to the common control of Ortsbo Inc. and Yappn Corp at the time of the acquisition, the value of the Intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo Inc. This value was $5,421,068 on September 15, 2015 (Note 4).
For the year ended May 31, 2016, related party fees incurred and paid for general development and managerial services performed by Intertainment Media, Inc. and its subsidiary totaled $146,982. $92,589 is related to managerial services and $54,393 related to development. As of May 31, 2016, the related party liability balance totaled $16,654. Payment to Intertainment Media was satisfied in full during the first quarter ending August 31, 2016.
Directors subscribed for $1,783,526 of $4,550,388 from the secured debenture that closed in September 2015 at which time they were not directors. Directors also subscribed for $1,075,000 of the $2,086,000 convertible secured debentures issued on December 30, 2015 (Note 8). A director also advanced $170,468 to the Company on an anticipated second closing of the same convertible secured debenture financing closed on December 30, 2015 (Note 8). This $170,468 closing occurred on May 1, 2016.
The Company issued 300,000 warrants on September 28, 2015 to advisors prior to their appointment as members of the Board of Directors at an exercise price of $1.00 with expiry of five years from September 1, 2015. These were expensed as stock based compensation. These warrants were repriced to $0.25 on March 21, 2016 and are valued at $233,490.
The Company issued 1,750,000 warrants on March 21, 2016 to members of the Company’s Advisory Board at an exercise price of $0.25 with expiry date of March 21, 2021. These were expensed as stock based compensation.
The Company issued 250,000 warrants on August 25, 2016 to a recently appointed Advisory Board member at an exercise price of $0.25 with expiry date of August 25, 2021. These were expensed as stock based compensation.
On May 1, 2016, the Company completed secured debenture financing with a consultant, whose principal is the former CEO of the Company, for $200,000 with no warrant financing, through the offering of units by way of private placement, with each unit consisting of (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. This closing includes conversion of $200,000 in consulting expense. The Company also issued 4,000,000 warrants at an exercise price of $0.25 included in consulting expense with an expiry of May 1, 2021. Consultant was also granted a $100,000 signing bonus payable in cash. All obligations due to the former CEO of Yappn including $294,906 in cash obligations as an employee and $18,200 as a consultant prior to May 1, 2016, have been forgiven. All obligations being forgiven were recorded as general and administrative expenses within fiscal 2016 and were reversed out from general and administrative expenses.
1,200,000 of the shares from the 2nd tranche of common stock private placement at $0.25 per unit totaling $300,000 in cash proceeds were issued to two members of the board of directors (Note 9).
1,000,000 of the shares from the 3rd tranche of common stock private placement at $0.25 per unit totaling $250,000 in cash proceeds and compensation for consulting work were issued to four members of the board of directors (Note 9).
On March 21, 2016, the Board of Directors passed a resolution for a contingent common stock award in line with the metrics used in the CEO’s targets for additional bonus compensation. The award would see the members of the Board of Directors as well as the Advisory Board receive common shares for the Company reaching revenue milestones. Per the resolution, 500,000 common shares for each member of the Board of Directors and 250,000 for each Advisory Board member would be issued when the following milestones are met: (i) $3.5 million in new revenue generated and realized within 12 months of the start date of the CEO which was February 22, 2016 and minimum of 5 new recurring revenue contracts being signed within 12 months of the start date; or (ii) $5 million of new revenue generated and realized within 24 months of the start date and minimum of 5 new recurring revenue contracts being signed within 12 months of the start date.
On August 25, 2016 a recently appointed Advisory Board member received the same contingent common stock award of 250,000 common shares as described above for the March 21, 2016 award to Advisory Board members. |
Subsequent Events |
3 Months Ended |
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Aug. 31, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | 13. Subsequent Events
On September 21, 2016, $224,000 in principal value of debenture holders converted their outstanding debentures and accrued interest into common stock of the company as well as received amendments to their Series A, C or D warrants as applicable to a price of $0.25. The holders of $224,000 in principal converted have the right to an additional issuance of shares if Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share (Note 10). All remaining terms and conditions remain the same.
On September 21, 2016, a debenture holder with a principal value of $100,000 agreed to extend the outstanding debenture to May 31, 2017 with no penalty interest from default date to May 31, 2017 in exchange for both Series A and B warrants repriced to $0.35.
On September 23, 2016, the Company issued 780,000 shares of common stock for $195,000 cash received against the fourth tranche and final closing of a private placement of units consisting of one common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share. These warrants will vest in increments of thirds with the first 1/3 being vested on September 23, 2017, second increment of 1/3 on September 23, 2018, and last 1/3 on September 23, 2019.
On September 30, 2016, the Company issued 120,000 shares of common stock as settlement against prior accounts payables.
On October 3, 2016, the Company filed a request to withdraw is previously filed Registration Statement on Form S-1 (File No. 333-207292), with the Securities and Exchange Commission (the “SEC”). On October 3, 2016 the Company filed a new Registration Statement on Form S-1 (File No. 333-213947) (the “Registration Statement”) with the Securities and Exchange Commission for up to 14,840,964 shares of Yappn Corp.’s $0.0001 par value per share common stock (the "Common Stock") issuable to certain selling stockholders that are issued and outstanding and upon conversion of promissory notes, related past due accrued interest and penalties and/or warrants currently held by those selling stockholders, specifically (i) 8,227,821 shares of Common Stock issued and outstanding (ii) 907,200 shares of Common Stock issuable to them upon exercise of promissory notes (iii) 273,272 shares of Common Stock issuable underlying past due accrued interest and penalties and (iv) 5,432,671 shares of Common Stock issuable to them upon exercise of warrants. The warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). The Registration Statement has not yet been declared effective.
On various dates in October 2016, a director advanced the Company $500,000 to be subscribed as a part of a future secured debt financing in which the Company is currently finalizing the definitive agreements which will be followed by a formal approval by its Board of Directors of the definitive agreements and the total dollar amount approved. |
Summary of Significant Accounting Policies (Policies) |
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Aug. 31, 2016 | |
Summary of Significant Accounting Policies [Abstract] | |
Basis of Presentation and Organization | Basis of Presentation and Organization
Yappn Corp., formerly “Plesk Corp.”, (the “Company”) was incorporated under the laws of the State of Delaware on November 3, 2010. The business plan of the Company is to provide effective unique and proprietary tools and services that create dynamic solutions that enhance a brand’s messaging, media, e-commerce and support platforms. The Company has offices in the United States and Canada. In March 2013, the Company acquired a concept and technology license from Intertainment Media Inc., a Canadian company, in exchange for 7,000,000 shares of common stock of the Company. As a result of this exchange, Intertainment Media Inc. acquired, at that time, a seventy percent (70%) ownership of the Company. On September 15, 2015, the Company closed the acquisition of Ortsbo Inc.’s (subsidiary of Intertainment Media Inc.) intellectual property. As a result of the acquisition, Intertainment Media Inc.’s ownership was reduced to 37%. The accompanying interim condensed consolidated financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting. |
Unaudited Interim Condensed Consolidated Financial Statements | Unaudited Interim Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements of the Company as of August 31, 2016, and for the three month periods ended August 31, 2016 and August 31, 2015, are unaudited. However, in the opinion of management, the interim condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position as of August 31, 2016 and August 31, 2015, and the results of its operations and its cash flows for the three month period ended August 31, 2016 and August 31, 2015. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2017. The accompanying interim condensed consolidated financial statements and notes thereto do not reflect all disclosures required under accounting principles generally accepted in the United States. Refer to the Company’s audited consolidated financial statements as of May 31, 2016 filed with the Securities and Exchange Commission, for additional information including significant accounting policies. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 which was amended in August 2015 by Update No 2015-14: Revenue from Contracts with Customers. The standard outlines a five-step model for revenue recognition with the core principle being that a company should recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. Companies can choose to apply the standard using either the full retrospective approach or a modified retrospective approach. Under the modified approach, financial statements will be prepared for the year of adoption using the new standard but prior periods presented will not be adjusted. Instead, companies will recognize a cumulative catch-up adjustment to the opening balance of retained earnings. This new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company has not yet made a determination as to the method of application (full retrospective or modified retrospective). It is too early to assess whether the impact of the adoption of this new guidance will have a material impact on the Company's results of operations or financial position.
On August 27, 2014 the FASB issued a new financial accounting standard on going concern, Update 2014-15, “Presentation of Financial Statements – Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The standard provides guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The amendments in this update apply to all companies. They become effective in the annual period ending after December 15, 2016, with early application permitted. The Company is currently evaluating the impact of this accounting standard.
In November 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.” The ASU clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivatives feature being evaluated for bifurcation, in evaluating the nature of a host contract. The ASU is effective for fiscal years beginning after December 15, 2015 and interim periods beginning after December 15, 2016. The Company has determined there is no material impact to the accounting treatment of its hybrid financial instruments based on this new standard. |
Acquisition of Intellectual Property (Tables) |
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Schedule of intangible assets |
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Short Term Loans (Tables) |
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Aug. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes and Debentures/Convertible Secured Debentures/Short Term Loans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of short term loans |
|
Convertible Promissory Notes and Debentures (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes and Debentures/Convertible Secured Debentures/Short Term Loans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of convertible notes and debentures |
|
Convertible Secured Debentures (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Promissory Notes and Debentures/Convertible Secured Debentures/Short Term Loans [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of fair values of the components of convertible secured debentures |
|
Preferred Stock and Warrants (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock and Warrants [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of warrants |
|
Employee Benefit and Incentive Plans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Benefit and Incentive Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the options granted and related disclosures |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of estimated fair value of options granted |
|
Summary of Significant Accounting Policies (Details) - Intertainment Media Inc [Member] - shares |
Sep. 15, 2015 |
Mar. 31, 2013 |
---|---|---|
Subsidiary or Equity Method Investee [Line Items] | ||
Exchange of common stock shares | 7,000,000 | |
Ownership percentage of Company | 70.00% | |
Ownership percentage reduced | 37.00% |
Going Concern (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Aug. 31, 2016 |
Aug. 31, 2015 |
May 31, 2016 |
|
Going Concern (Textual) | |||
Deficit | $ (23,447,696) | $ (21,664,425) | |
Working capital deficit | 1,407,491 | ||
Net cash used in operating activities | (471,341) | $ (499,878) | |
Amount raised through various financial instruments | 70,848 | ||
Cash proceeds subsequent to period end | $ 500,000 |
Acquisition of Intellectual Property (Details Textual) - USD ($) |
3 Months Ended | |
---|---|---|
Sep. 15, 2015 |
Aug. 31, 2016 |
|
Former Debt [Member] | ||
Acquisition of Intellectual Property (Textual) | ||
Number of shares issued during acquisitions, shares | 4,686,182 | |
Ortsbo Inc [Member] | ||
Acquisition of Intellectual Property (Textual) | ||
Issuance of common stock shares | 31,987,000 | |
Stock issued during period acquisitions value | $ 1,806,608 | |
Number of shares issued during acquisitions, shares | 8,312,500 | |
Number of shares to be issued during acquisitions, shares | 18,988,318 | |
Business acquisition equity interest issued, number of shares | 12,998,682 | |
Secured debt | $ 975,388 | |
Value of the intangible assets acquired | 5,421,067 | |
Fair value for acquisition of Intellectual property | $ 16,968,888 |
Short Term Loans (Details Textual) |
3 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2016
USD ($)
$ / shares
|
Aug. 31, 2016
CAD
|
Aug. 31, 2016
CAD
|
Aug. 25, 2016
$ / shares
|
May 31, 2016
USD ($)
$ / shares
|
Mar. 21, 2016
$ / shares
|
Nov. 05, 2015
$ / shares
|
Apr. 01, 2014 |
Jan. 07, 2014 |
|
Short Term Loans (Textual) | |||||||||
Interest rate percent | 1.00% | 1.00% | |||||||
Common stock, par value | $ 0.0001 | $ 0.0001 | |||||||
Exercise price, warrants | $ 0.25 | $ 0.25 | $ 0.25 | $ 1.00 | |||||
Short term loans | $ | $ 155,299 | $ 284,451 | |||||||
Director [Member] | Private Placement [Member] | |||||||||
Short Term Loans (Textual) | |||||||||
Common stock, par value | $ 0.25 | ||||||||
Short term loans | $ | $ 100,000 | ||||||||
April 1, 2014 Term Loan [Member] | |||||||||
Short Term Loans (Textual) | |||||||||
Repayment of principle | 15,483 | CAD 20,000 | |||||||
Loan value | 90,588 | CAD 118,815 | |||||||
January 7, 2014 Term Loan [Member] | |||||||||
Short Term Loans (Textual) | |||||||||
Repayment of principle | 13,899 | CAD 18,125 | |||||||
Loan value | $ 64,711 | CAD 75,000 |
Line of Credit Arrangement and Secured Debentures (Details) - USD ($) |
1 Months Ended | 3 Months Ended | ||||
---|---|---|---|---|---|---|
Apr. 07, 2014 |
Jun. 19, 2015 |
Aug. 31, 2016 |
Aug. 31, 2015 |
May 31, 2016 |
Sep. 15, 2015 |
|
Line of Credit Arrangement and Secured Debentures (Textual) | ||||||
Line of credit maximum borrowing capacity | $ 3,000,000 | |||||
Line of credit facility, interest rate at end | 12.00% | |||||
Interest rate during period | 1.00% | |||||
Line of credit | ||||||
Secured debentures | $ 2,000,000 | |||||
Cash received | 2,500,000 | |||||
Amount of debt conversion | $ 2,000,000 | |||||
Existing debt | $ 4,500,000 | |||||
Secured debt repayment | 925,000 | |||||
Cash repayment | $ 465,000 | |||||
Line of credit facility agreement term | 2 years | |||||
Line of credit borrowed | $ 150,000 | |||||
Annual interest rate | 12.00% | |||||
First Tranche of Secured Debentures [Member] | ||||||
Line of Credit Arrangement and Secured Debentures (Textual) | ||||||
Secured debentures | $ 4,500,000 | |||||
Maturity date description | Extend the maturity date of the Secured Debentures from December 31, 2015 to July 15, 2020. | |||||
Secured debentures payment terms | At any time after the earlier of (i) six (6) months from the date of first issuance of any subsequent Debentures; and (ii) June 30, 2016, to require the Company to satisfy the outstanding obligations underlying the Secured Debenture; provided, however, that at least two thirds (66.67%) of the Holders of the principal amount of the Secured Debentures consent to a put of their Secured Debentures to the Company. | |||||
Ortsbo [Member] | ||||||
Line of Credit Arrangement and Secured Debentures (Textual) | ||||||
Secured debentures | $ 4,550,388 | |||||
Interest expense | $ 136,512 | $ 63,805 | ||||
Ortsbo [Member] | First Tranche of Secured Debentures [Member] | ||||||
Line of Credit Arrangement and Secured Debentures (Textual) | ||||||
Assumed debt | $ 975,388 |
Convertible Secured Debentures (Details) - USD ($) |
1 Months Ended | 3 Months Ended | ||
---|---|---|---|---|
May 01, 2016 |
Dec. 30, 2015 |
Aug. 31, 2016 |
Aug. 31, 2015 |
|
Debt Instrument [Line Items] | ||||
Gross proceeds | $ 100,000 | |||
Convertible secured debentures [Member] | ||||
Debt Instrument [Line Items] | ||||
Gross proceeds | $ 170,468 | $ 2,040,000 | 2,210,468 | |
Fair value of the convertible secured debt | ||||
Fair value of equity warrants (Note 10) | (119,072) | (1,580,980) | (1,700,052) | |
Beneficial conversion feature | (51,396) | (459,020) | (510,416) | |
Change in fair value (from commitment date) | 4,347 | 170,932 | 175,279 | |
Convertible notes and debt at fair value | 4,347 | 170,932 | 175,279 | |
Change in fair value | 7,043 | 102,782 | 109,825 | |
Convertible notes and debt at fair value | $ 11,390 | $ 273,714 | $ 285,104 |
Convertible Secured Debentures (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|---|
May 01, 2016 |
Dec. 30, 2015 |
Sep. 30, 2015 |
Aug. 31, 2016 |
Aug. 31, 2015 |
May 31, 2016 |
May 31, 2015 |
Nov. 30, 2015 |
|
Short-term Debt [Line Items] | ||||||||
Gross proceeds from private placement | $ 100,000 | |||||||
Subscription receivable | $ 46,000 | |||||||
Volatility rate | 191.00% | 180.00% | 150.00% | |||||
Dividend rate | ||||||||
Warrants associated with a secured convertible debenture | $ 1,700,052 | |||||||
Convertible secured debentures [Member] | ||||||||
Short-term Debt [Line Items] | ||||||||
Gross proceeds from private placement | $ 2,086,000 | $ 4,550,388 | ||||||
Convertible secured debentures, description | (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested immediately, 1/3 to be vested in one year and 1/3 to be vested in two years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit. | |||||||
Value for warrants by binomial model | $ 119,072 | |||||||
Volatility rate | 180.00% | |||||||
Expected life | 5 years | |||||||
Risk free interest rate | 1.28% | |||||||
Dividend rate | 0.00% | |||||||
Carrying value of the debenture liability | $ 11,390 | 69,687 | $ 273,714 | |||||
Beneficial conversion feature | 51,396 | 459,020 | ||||||
Warrants associated with a secured convertible debenture | 1,580,980 | |||||||
Net of subscription receivable written off | 2,040,000 | |||||||
Interest expense | 72,314 | |||||||
Additional Paid-in Capital [Member] | ||||||||
Short-term Debt [Line Items] | ||||||||
Beneficial conversion feature | $ 459,020 | |||||||
Warrants associated with a secured convertible debenture | $ 1,700,052 | |||||||
Director [Member] | ||||||||
Short-term Debt [Line Items] | ||||||||
Gross proceeds from private placement | $ 1,783,526 | |||||||
Conversion of secured debenture | 170,468 | |||||||
Director [Member] | Convertible secured debentures [Member] | ||||||||
Short-term Debt [Line Items] | ||||||||
Gross proceeds from private placement | $ 1,075,000 | |||||||
Convertible secured debentures, description | (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common stock and (ii) ten (10) five year common share purchase warrants, vesting in 1/3 increments with 1/3 vested in one year, 1/3 to be vested in two years and 1/3 to be vested in three years and having an exercise price of $0.01 per share (Note 10). The units were sold at $1.00 per unit. | |||||||
Volatility rate | 177.00% | |||||||
Expected life | 5 years | |||||||
Risk free interest rate | 1.80% | |||||||
Dividend rate | 0.00% | |||||||
Net of subscription receivable written off | $ 2,040,000 | |||||||
Consultant [Member] | ||||||||
Short-term Debt [Line Items] | ||||||||
Gross proceeds from private placement | $ 200,000 | |||||||
Convertible secured debentures, description | (i) a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. | |||||||
Debenture was accounted for as a single debt instrument | $ 200,000 |
Preferred Stock and Warrants (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 25, 2016 |
Jul. 06, 2016 |
Apr. 18, 2016 |
Mar. 21, 2016 |
Nov. 05, 2015 |
Feb. 04, 2015 |
Oct. 06, 2014 |
Sep. 02, 2014 |
May 30, 2014 |
Apr. 23, 2014 |
Apr. 01, 2014 |
Jun. 07, 2013 |
May 17, 2016 |
May 01, 2016 |
Dec. 30, 2015 |
Sep. 28, 2015 |
Oct. 27, 2014 |
Jun. 27, 2014 |
Feb. 27, 2014 |
Jan. 29, 2014 |
Nov. 15, 2013 |
May 31, 2013 |
Mar. 31, 2013 |
Aug. 31, 2016 |
Aug. 31, 2015 |
May 31, 2016 |
May 31, 2015 |
May 31, 2014 |
Apr. 07, 2014 |
|
Beginning balance, Outstanding | 771,000 | 4,786,000 | 40,395,346 | 4,786,000 | 4,786,000 | 4,786,000 | 771,000 | ||||||||||||||||||||||
Issued | 250,000 | 1,750,000 | 100,000 | 39,055,346 | |||||||||||||||||||||||||
Exercised and expired, shares | |||||||||||||||||||||||||||||
Exercised and expired | |||||||||||||||||||||||||||||
Exercised Warrants, shares | (70,000) | ||||||||||||||||||||||||||||
Exercised Warrants | $ 1.00 | ||||||||||||||||||||||||||||
Ending balance, Outstanding | 771,000 | 28,412,666 | 40,395,346 | 4,786,000 | 4,786,000 | ||||||||||||||||||||||||
Issued to Lender - Line of Credit | 1,801,520 | ||||||||||||||||||||||||||||
Exercise Price | $ 0.25 | $ 0.25 | $ 1.00 | $ 0.25 | |||||||||||||||||||||||||
Expiration | Apr. 07, 2019 | ||||||||||||||||||||||||||||
Equity Value | $ 23,240 | $ 1,460,617 | $ 8,282,540 | $ 8,150,788 | $ 4,515,520 | $ 4,273,403 | |||||||||||||||||||||||
Line of Credit [Member] | |||||||||||||||||||||||||||||
Issued | 800,000 | ||||||||||||||||||||||||||||
Exercise Price | $ 1.00 | $ 1.00 | |||||||||||||||||||||||||||
Expiration | Apr. 07, 2019 | Apr. 07, 2019 | |||||||||||||||||||||||||||
Shares issued of repriced | 1,700,000 | ||||||||||||||||||||||||||||
Equity Value | $ 1,495,200 | ||||||||||||||||||||||||||||
Series A warrants [Member] | |||||||||||||||||||||||||||||
Beginning balance, Outstanding | 11,690,000 | 11,690,000 | 11,690,000 | 11,690,000 | 11,690,000 | ||||||||||||||||||||||||
Issued | 294,000 | 305,000 | 135,000 | ||||||||||||||||||||||||||
Ending balance, Outstanding | 11,690,000 | 11,690,000 | 11,690,000 | ||||||||||||||||||||||||||
Exercise Price | $ 1.00 | $ 1.00 | $ 1.00 | ||||||||||||||||||||||||||
Expiration | Apr. 01, 2019 | Feb. 27, 2019 | |||||||||||||||||||||||||||
Shares issued of repriced | 175,000 | 260,000 | |||||||||||||||||||||||||||
Equity value of repriced | $ 93,660,000 | $ 268,770 | |||||||||||||||||||||||||||
Expiration date of repriced | Apr. 01, 2019 | Jan. 29, 2019 | |||||||||||||||||||||||||||
Exercise Price of repriced | $ 0.25 | $ 0.25 | |||||||||||||||||||||||||||
Equity Value | $ 147,294 | $ 224,135 | $ 135,989 | ||||||||||||||||||||||||||
Series B warrants [Member] | |||||||||||||||||||||||||||||
Issued | 469,000 | 469,000 | 135,000 | ||||||||||||||||||||||||||
Exercise Price | $ 2.00 | $ 2.00 | $ 2.00 | ||||||||||||||||||||||||||
Expiration | Apr. 01, 2019 | Feb. 27, 2019 | |||||||||||||||||||||||||||
Shares issued of repriced | 260,000 | ||||||||||||||||||||||||||||
Equity value of repriced | $ 9,022 | ||||||||||||||||||||||||||||
Expiration date of repriced | Jan. 29, 2019 | ||||||||||||||||||||||||||||
Exercise Price of repriced | $ 0.25 | ||||||||||||||||||||||||||||
Equity Value | |||||||||||||||||||||||||||||
Series C warrants [Member] | |||||||||||||||||||||||||||||
Issued | 83,333 | 33,333 | |||||||||||||||||||||||||||
Exercise Price | $ 2.20 | ||||||||||||||||||||||||||||
Expiration | Sep. 02, 2019 | Apr. 23, 2019 | |||||||||||||||||||||||||||
Shares issued of repriced | 666,667 | ||||||||||||||||||||||||||||
Equity value of repriced | $ 214,212 | ||||||||||||||||||||||||||||
Expiration date of repriced | May 30, 2019 | ||||||||||||||||||||||||||||
Exercise Price of repriced | $ 0.25 | ||||||||||||||||||||||||||||
Equity Value | $ 38,584 | $ 9,395 | |||||||||||||||||||||||||||
Series D warrants [Member] | |||||||||||||||||||||||||||||
Issued | 33,333 | 33,333 | 166,667 | ||||||||||||||||||||||||||
Exercise Price | $ 2.20 | $ 2.20 | $ 2.20 | ||||||||||||||||||||||||||
Expiration | Oct. 06, 2019 | Oct. 27, 2019 | Jun. 27, 2019 | ||||||||||||||||||||||||||
Shares issued of repriced | 83,333 | ||||||||||||||||||||||||||||
Equity value of repriced | $ 41,593 | ||||||||||||||||||||||||||||
Expiration date of repriced | Sep. 02, 2019 | ||||||||||||||||||||||||||||
Exercise Price of repriced | $ 0.25 | ||||||||||||||||||||||||||||
Equity Value | $ 15,567 | $ 15,667 | |||||||||||||||||||||||||||
Warrant [Member] | |||||||||||||||||||||||||||||
Issued | 100,000 | 70,000 | 130,000 | 165,000 | 1,704,680 | 20,400,000 | 300,000 | 370,000 | 401,000 | 20,000 | 5,522,666 | ||||||||||||||||||
Exercised and expired | |||||||||||||||||||||||||||||
Ending balance, Outstanding | 12,000 | ||||||||||||||||||||||||||||
Exercise Price | $ 0.25 | $ 1.00 | $ 1.00 | $ 1.50 | $ 0.54 | $ 0.01 | $ 0.01 | $ 1.00 | $ 0.54 | $ 1.00 | $ 0.26 | $ 0.31 | $ 1.00 | ||||||||||||||||
Expiration | Mar. 21, 2021 | Oct. 16, 2017 | Feb. 04, 2020 | May 30, 2019 | Jun. 07, 2018 | May 01, 2021 | Dec. 29, 2020 | Nov. 15, 2018 | May 31, 2018 | Mar. 28, 2018 | |||||||||||||||||||
Shares issued of repriced | 1,750,000 | ||||||||||||||||||||||||||||
Equity Value | $ 519,520 | $ 211,365 | $ 119,072 | $ 1,580,980 | $ 227,100 | $ 3,744 | $ 543,530 | $ 917,087 | $ 3,960 | ||||||||||||||||||||
Warrant [Member] | Private Placement [Member] | |||||||||||||||||||||||||||||
Issued | 1,008,000 | 2,640,000 | 1,000,000 | ||||||||||||||||||||||||||
Exercised and expired, shares | |||||||||||||||||||||||||||||
Exercised and expired | |||||||||||||||||||||||||||||
Exercise Price | $ 0.25 | $ 0.25 | $ 0.25 | ||||||||||||||||||||||||||
Expiration | Apr. 18, 2021 | May 17, 2021 | Aug. 31, 2021 | ||||||||||||||||||||||||||
Equity Value | $ 94,854 | $ 248,221 | $ 108,693 | ||||||||||||||||||||||||||
Warrant [Member] | Consultant [Member] | |||||||||||||||||||||||||||||
Issued | 90,000 | 330,000 | |||||||||||||||||||||||||||
Exercise Price | $ 0.25 | $ 1 | $ 1.50 | ||||||||||||||||||||||||||
Expiration | Jul. 06, 2018 | Oct. 16, 2017 | May 30, 2019 | ||||||||||||||||||||||||||
Shares issued of repriced | 100,000 | ||||||||||||||||||||||||||||
Equity Value | $ 22,500 | $ 165,330 | |||||||||||||||||||||||||||
Warrant [Member] | Consultant One [Member] | |||||||||||||||||||||||||||||
Issued | 5,000 | ||||||||||||||||||||||||||||
Exercise Price | $ 1.00 | ||||||||||||||||||||||||||||
Expiration | May 31, 2017 | ||||||||||||||||||||||||||||
Equity Value | $ 990 | ||||||||||||||||||||||||||||
Warrant [Member] | Advisory Board [Member] | |||||||||||||||||||||||||||||
Issued | 250,000 | 1,750,000 | 300,000 | ||||||||||||||||||||||||||
Exercise Price | $ 0.25 | $ 0.25 | $ 0.25 | ||||||||||||||||||||||||||
Expiration | Aug. 25, 2021 | Mar. 21, 2021 | Aug. 31, 2020 | ||||||||||||||||||||||||||
Equity Value | $ 559 | $ 94,691 | $ 233,490 | ||||||||||||||||||||||||||
Warrant [Member] | Consultant Two [Member] | |||||||||||||||||||||||||||||
Issued | 100,000 | 4,000,000 | 15,000 | 1,500 | |||||||||||||||||||||||||
Exercise Price | $ 1.00 | $ 0.25 | $ 1.50 | $ 1.50 | |||||||||||||||||||||||||
Expiration | Oct. 16, 2017 | May 01, 2021 | May 31, 2017 | ||||||||||||||||||||||||||
Equity Value | $ 23,240 | $ 721,200 | $ 2,970 | ||||||||||||||||||||||||||
Warrant [Member] | Line of Credit [Member] | |||||||||||||||||||||||||||||
Issued | 1,700,000 | ||||||||||||||||||||||||||||
Expiration | Apr. 07, 2019 | ||||||||||||||||||||||||||||
Equity Value | $ 519,520 |
Preferred Stock and Warrants (Details Textual) - $ / shares |
1 Months Ended | 3 Months Ended | 12 Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 25, 2016 |
Jul. 06, 2016 |
Mar. 21, 2016 |
Nov. 05, 2015 |
Feb. 04, 2015 |
Oct. 06, 2014 |
Apr. 01, 2014 |
Jun. 07, 2013 |
May 01, 2016 |
Dec. 30, 2015 |
Feb. 27, 2014 |
Jan. 29, 2014 |
Nov. 15, 2013 |
May 31, 2013 |
Mar. 31, 2013 |
Aug. 31, 2016 |
May 31, 2016 |
May 31, 2015 |
May 31, 2014 |
Sep. 28, 2015 |
Apr. 07, 2014 |
|
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Preferred stock, shares authorized | 50,000,000 | 50,000,000 | |||||||||||||||||||
Preferred stock, par value | $ 0.0001 | $ 0.0001 | |||||||||||||||||||
Warrants exercise price | $ 0.25 | $ 0.25 | $ 1.00 | $ 0.25 | |||||||||||||||||
Expiration | Apr. 07, 2019 | ||||||||||||||||||||
Volatility rate | 191.00% | 180.00% | 150.00% | ||||||||||||||||||
Expected term | 1 year 7 months 6 days | ||||||||||||||||||||
Dividend rate | |||||||||||||||||||||
Line of Credit [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Warrants issued to purchase common stock | 1,700,000 | ||||||||||||||||||||
Warrants exercise price | $ 1.00 | $ 1.00 | |||||||||||||||||||
Expiration | Apr. 07, 2019 | Apr. 07, 2019 | |||||||||||||||||||
Volatility rate | 178.00% | ||||||||||||||||||||
Risk free interest rate | 1.65% | ||||||||||||||||||||
Expected term | 5 years | ||||||||||||||||||||
Dividend rate | 0.00% | ||||||||||||||||||||
Minimum [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Warrants exercise price | $ 1.00 | ||||||||||||||||||||
Volatility rate | 178.00% | ||||||||||||||||||||
Risk free interest rate | 1.38% | ||||||||||||||||||||
Maximum [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Warrants exercise price | 2.20 | ||||||||||||||||||||
Volatility rate | 180.00% | ||||||||||||||||||||
Risk free interest rate | 1.42% | ||||||||||||||||||||
Warrant [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Warrants issued to purchase common stock | 1,750,000 | ||||||||||||||||||||
Warrants exercise price | $ 0.25 | $ 1.00 | $ 1.00 | $ 1.50 | $ 0.54 | $ 0.01 | $ 0.01 | $ 1.00 | $ 0.54 | $ 1.00 | $ 0.26 | $ 0.31 | $ 1.00 | ||||||||
Expiration | Mar. 21, 2021 | Oct. 16, 2017 | Feb. 04, 2020 | May 30, 2019 | Jun. 07, 2018 | May 01, 2021 | Dec. 29, 2020 | Nov. 15, 2018 | May 31, 2018 | Mar. 28, 2018 | |||||||||||
Term of warrant | 5 years | 5 years | 5 years | ||||||||||||||||||
Volatility rate | 180.00% | ||||||||||||||||||||
Risk free interest rate | 1.38% | 1.74% | 1.51% | 1.52% | |||||||||||||||||
Expected term | 5 years | ||||||||||||||||||||
Dividend rate | 0.00% | ||||||||||||||||||||
Warrants, description | These warrants will vest in increments of 1/3 with the first 1/3 being vested on March 21, 2017, second increment of 1/3 on March 21, 2018, and last 1/3 on March 21, 2019. | Each warrant entitles the holder thereof to purchase shares of common stock for a purchase price of $0.01 per share for up to a maximum of 10 shares for every $1 of subscription. These shares will vest in increments of 1/3 with the first 1/3 being vested on December 29, 2016, second increment of 1/3 on December 29, 2017, and last 1/3 on December 29, 2018. | |||||||||||||||||||
Warrant [Member] | Line of Credit [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Expiration | Apr. 07, 2019 | ||||||||||||||||||||
Warrant [Member] | Chief Executive Officer [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Warrants issued to purchase common stock | 4,000,000 | ||||||||||||||||||||
Warrants exercise price | $ 0.25 | ||||||||||||||||||||
Expiration | May 01, 2021 | ||||||||||||||||||||
Volatility rate | 180.00% | ||||||||||||||||||||
Risk free interest rate | 1.28% | ||||||||||||||||||||
Expected term | 5 years | ||||||||||||||||||||
Dividend rate | 0.00% | ||||||||||||||||||||
Warrant [Member] | Consultant [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Warrants issued to purchase common stock | 100,000 | ||||||||||||||||||||
Warrants exercise price | $ 0.25 | $ 1 | $ 1.50 | ||||||||||||||||||
Expiration | Jul. 06, 2018 | Oct. 16, 2017 | May 30, 2019 | ||||||||||||||||||
Volatility rate | 178.00% | ||||||||||||||||||||
Risk free interest rate | 0.85% | ||||||||||||||||||||
Expected term | 2 years | ||||||||||||||||||||
Dividend rate | 0.00% | ||||||||||||||||||||
Warrant [Member] | Board of Directors Chairman [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Warrants issued to purchase common stock | 250,000 | 300,000 | |||||||||||||||||||
Warrants exercise price | $ 0.25 | $ 0.25 | $ 1.00 | ||||||||||||||||||
Expiration | Aug. 25, 2021 | ||||||||||||||||||||
Volatility rate | 191.00% | ||||||||||||||||||||
Risk free interest rate | 1.13% | ||||||||||||||||||||
Expected term | 5 years | ||||||||||||||||||||
Dividend rate | 0.00% | ||||||||||||||||||||
Warrants, description | These warrants will vest in increments of 1/3 with the first 1/3 being vested on August 25, 2017, second increment of 1/3 on August 25, 2018, and last 1/3 on August 25, 2019. | 0 | |||||||||||||||||||
Series A Preferred Stock [Member] | |||||||||||||||||||||
Preferred Stock and Warrants (Textual) | |||||||||||||||||||||
Term of warrant | 5 years | 5 years | 5 years |
Employee Benefit and Incentive Plans (Details Textual) - USD ($) |
3 Months Ended | 12 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Aug. 25, 2016 |
Mar. 21, 2016 |
Mar. 01, 2015 |
Aug. 14, 2014 |
Aug. 31, 2016 |
May 31, 2016 |
Aug. 21, 2015 |
May 31, 2015 |
|
Employee Benefit and Incentive Plans (Textual) | ||||||||
Increase in number of options | 25,000,000 | |||||||
Vested weighted-average remaining contractual term | 4 years | |||||||
Unvested options expected shares | 9,135,833 | |||||||
Weighted Average Exercise Price Per share, Outstanding | $ 0.26 | |||||||
Unvested weighted average remaining term | 4 years 6 months 29 days | |||||||
Unearned stock based compensation | $ 1,800,919 | |||||||
Weighted average period | 1 year 7 months 6 days | |||||||
Stock Options [Member] | ||||||||
Employee Benefit and Incentive Plans (Textual) | ||||||||
Weighted Average Exercise Price Per share, Outstanding | $ 0.25 | $ 0.28 | $ 1.00 | |||||
Employee benefit plans non vested and vested, description | Stock options granted on March 21, 2016 and August 25, 2016 respectively vest 1/4 immediately, 1/4 after one year, 1/4 after two years, and 1/4 after three years. | Stock options granted on March 21, 2016 and August 25, 2016 respectively vest 1/4 immediately, 1/4 after one year, 1/4 after two years, and 1/4 after three years. | Stock options granted on August 14, 2014 and March 2, 2015 respectively vest 1/3 immediately, 1/3 after one year and 1/3 after two years. | Stock options granted on August 14, 2014 and March 2, 2015 respectively vest 1/3 immediately, 1/3 after one year and 1/3 after two years. | ||||
Stock options granted | 3,200,000 | 8,750,000 | 520,000 | 710,000 | 3,200,000 | 8,775,000 | ||
Options vesting terms, description | The remaining 25,000 options issued on March 21, 2016 have immediate vesting terms. |
Subsequent Events (Details) - Subsequent Event [Member] - USD ($) |
1 Months Ended | |||||
---|---|---|---|---|---|---|
Oct. 03, 2016 |
Sep. 30, 2016 |
Sep. 23, 2016 |
May 31, 2017 |
Oct. 07, 2016 |
Sep. 21, 2016 |
|
Subsequent events (Textual) | ||||||
Principal amount of convertible promissory note | $ 224,000 | |||||
Principal value of debenture | $ 100,000 | |||||
Shares of common stock | 120,000 | 780,000 | ||||
Price for per share | $ 0.25 | |||||
Common stock of warrant exercise price | $ 0.25 | |||||
Common stock value | $ 195,000 | |||||
Warrants, description | These warrants will vest in increments of thirds with the first 1/3 being vested on September 23, 2017, second increment of 1/3 on September 23, 2018, and last 1/3 on September 23, 2019. | |||||
Advance from director | $ 500,000 | |||||
Series A warrants [Member] | ||||||
Subsequent events (Textual) | ||||||
Warrants exercise price per share | $ 0.350 | $ 0.25 | ||||
Series B warrants [Member] | ||||||
Subsequent events (Textual) | ||||||
Warrants exercise price per share | $ 0.350 | |||||
Series C warrants [Member] | ||||||
Subsequent events (Textual) | ||||||
Warrants exercise price per share | 0.25 | |||||
Series D warrants [Member] | ||||||
Subsequent events (Textual) | ||||||
Warrants exercise price per share | 0.25 | |||||
Minimum [Member] | ||||||
Subsequent events (Textual) | ||||||
Price for per share | 0.20 | |||||
Maximum [Member] | ||||||
Subsequent events (Textual) | ||||||
Price for per share | $ 0.25 | |||||
Yappn Corp [Member] | ||||||
Subsequent events (Textual) | ||||||
Shares of common stock | 14,840,964 | |||||
Price for per share | $ 0.0001 | |||||
Warrants, description | (i) 8,227,821 shares of Common Stock issued and outstanding (ii) 907,200 shares of Common Stock issuable to them upon exercise of promissory notes (iii) 273,272 shares of Common Stock issuable underlying past due accrued interest and penalties and (iv) 5,432,671 shares of Common Stock issuable to them upon exercise of warrants. The warrants have an exercise price varying from $0.25 to $2.20 per share (subject to adjustment). |
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