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EX-32.2 - CERTIFICATION - YAPPN CORP.f10q1116ex32ii_yappncorp.htm
EX-32.1 - CERTIFICATION - YAPPN CORP.f10q1116ex32i_yappncorp.htm
EX-31.2 - CERTIFICATION - YAPPN CORP.f10q1116ex31ii_yappncorp.htm
EX-31.1 - CERTIFICATION - YAPPN CORP.f10q1116ex31i_yappncorp.htm

 

 

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 November 30, 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 40,322,314 shares outstanding of registrant’s common stock, par value $0.0001 per share, as of January 17, 2017.

 

Transitional Small Business Disclosure Format Yes   No

 

 

  

 

 

 

TABLE OF CONTENTS

 

PART I    
     
Item 1. Financial Statements 1
  Interim Condensed Consolidated Balance Sheets as of November 30, 2016 (unaudited) and May 31, 2016 2
  Interim Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended November 30, 2016 and 2015 (unaudited) 3
  Interim Condensed Consolidated Statement of Stockholders’ Deficit for the six months ended November 30, 2016 (unaudited) and year ended May 31, 2016 4
  Interim Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2016 and 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 31
Item 4. Controls and Procedures 31
     
PART II    
     
Item 1. Legal Proceedings 32
Item 1A. Risk Factors 32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3. Defaults Upon Senior Securities 32
Item 4. Mine Safety Disclosures 32
Item 5. Other Information 32
Item 6. Exhibits 33
SIGNATURES 35

 

 

 

 

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 and six months ended November 30, 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
November 30,
2016
    (audited)
As of
May 31,
2016
 
Assets                
Current assets:                
Cash       $ 441,363     $ 448,575  
Accounts receivable   3     2,250       29,244  
Note receivable   3     -       1,123,289  
Prepaid expenses         124,166       113,262  
Total current assets         567,779       1,714,370  
                     
Equipment, net         14,411       14,632  
Intangible assets   4     4,159,420       4,676,221  
Total Assets       $ 4,741,610     $ 6,405,223  
                     
Liabilities and Stockholders' Deficit                    
Current liabilities:                    
Accounts payable       $ 407,193     $ 533,030  
Accrued expenses         282,339       430,754  
Short term accrued interest         328,267       409,280  
Accrued development and related expenses - related party   12     -       16,654  
Short term loans   5     151,679       284,451  
Convertible promissory notes and debentures   7     910,000       2,454,824  
Total current liabilities         2,079,478       4,128,993  
                     
Other liabilities:                    
Long term accrued interest         980,382       577,231  
Long term loan   8     1,000,000       -  
Long term secured debentures   6     4,550,388       4,550,388  
Convertible secured debentures   8     595,265       375,279  
Total Liabilities         9,205,513       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 40,322,314 issued and outstanding (May 31, 2016 – 30,081,163)   9     16,124       15,100  
Common stock, par value $.0001 per share, 18,988,318 shares subscribed not issued (May 31, 2016 – 20,308,890)   9     2,639,071       3,068,945  
Additional paid-in capital         18,850,335       15,353,712  
Deficit         (25,969,433 )     (21,664,425 )
Total Stockholders' Deficit         (4,463,903 )     (3,226,668 )
Total Liabilities And Stockholders' Deficit       $ 4,741,610     $ 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 (Unaudited)

 

      Three Months Ended
November 30,
   Six Months Ended
November 30,
 
   Note  2016   2015   2016   2015 
                    
Revenues  3  $106,998   $52,222   $207,066   $810,381 
                        
Cost of revenue      44,874    8,464    51,417    136,935 
                        
Gross profit      62,124    43,758    155,649    673,446 
                        
Operating expenses:                       
Marketing      6,972    103,463    17,345    206,248 
Research and development expenses  12   166,368    96,782    286,572    191,852 
General and administrative expenses  12   400,834    414,728    801,349    766,861 
Professional fees      23,024    68,454    108,758    160,023 
Consulting      62,583    101,075    112,308    203,075 
Depreciation      1,407    107    2,432    198 
Amortization  4   265,101    219,950    531,750    219,950 
Stock based compensation  11   335,675    300,875    809,663    413,517 
Total operating expenses      1,261,964    1,305,434    2,670,177    2,161,724 
                        
Loss from operations      (1,199,840)   (1,261,676)   (2,514,528)   (1,488,278)
                        
Other expense/(income):                       
Interest expense      235,239    194,402    522,291    348,387 
Financing expense on issuance of convertible notes and common stock      -    542,760    -    632,250 
Change in fair value of derivative liabilities and convertible notes      123,928    (38,698)   296,188    (840,337)
Prepayment fees on variable notes      -    99,558    -    276,790 
Miscellaneous expense/(income)      (5,562)   (4,039)   3,712    (16,357)
Impairment of note receivable  3   968,289    -    968,289    - 
Total other expense/(income)      1,321,894    793,983    1,790,480    400,733 
                        
Net loss before taxes      (2,521,734)   (2,055,659)   (4,305,008)   (1,889,011)
                        
Provision for income taxes      -    -    -    - 
                        
Net loss and comprehensive loss     $(2,521,734)  $(2,055,659)  $(4,305,008)  $(1,889,011)
                        
Net loss per weighted-average shares of common stock – basic and diluted     $(0.06)  $(0.11)  $(0.12)  $(0.12)
                        
Weighted-average number of shares of common stock issued and outstanding – basic and diluted      39,771,247    18,005,455    35,471,612    15,707,479 

 

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 six months ended November 30, 2016 and year ended May 31, 2016

 

    Common     Additional              
    Shares Outstanding     Amount     Subscribed Shares     Subscribed Amounts     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  
Stock 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     -       -       -       -       759,663       -       759,663  
Issuance of warrants classified as equity     -       -       -       -       77,966       -       77,966  
Common stock associated with Common stock and Warrants financing     1,780,000       178       -       -       253,456       -       253,634  
Warrants associated with Common stock and Warrants financing     -       -       -       -       191,366       -       191,366  
Stock issued on conversion of debt     8,227,822       823       -       -       2,064,007       -       2,064,830  
Stock to be issued for debenture conversion     -       -       (1,221,228 )     (305,307 )     -       -       (305,307 )
Stock to be issued under prior obligation     113,329       11       (99,344 )     (124,567 )     120,177       -       (4,379 )
Stock issued to settle prior obligation     120,000       12       -       -       29,988       -       30,000  
Net loss for the six months ended November 30, 2016     -       -       -       -       -       (4,305,008 )     (4,305,008 )
Balance – November 30, 2016     40,322,314       16,124       18,988,318       2,639,071       18,850,335       (25,969,433 )     (4,463,903 )

    

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 six months ended November 30, 
   2016   2015 
Cash Flows From Operating Activities:        
Net and comprehensive loss  $(4,305,008)  $(1,889,011)
Adjustments to reconcile net loss to cash used in operating activities:          
Depreciation   2,432    198 
Amortization   531,750    219,950 
Stock based compensation   809,663    413,517 
Change in fair value of derivative liabilities and convertible notes   296,188    (840,337)
Financing expense on issuance of convertible promissory notes, and common stock   -    632,250 
Impairment of note receivable   968,289    - 
Unrealized foreign exchange and vendor settlements   10,860    - 
Changes in operating assets and liabilities:          
Accounts receivable   26,994    12,520 
Note receivable   155,000    - 
Prepaid expenses   (10,904)   (81,416)
Accounts payable and accrued liabilities   279,110    554,948 
Accrued development and related expenses - related party   (16,654)   (375,068)
Deferred revenue   -    (12,500)
Net Cash Used in Operating Activities   (1,252,280)   (1,364,949)
           
Cash Flows From Investing Activities:          
    Expenditures on patents   (14,949)   (7,504)
Capital expenditures   (2,211)   (402)
Net Cash Used in Investing Activities   (17,160)   (7,906)
           
Cash Flows From Financing Activities:          
Proceeds from convertible promissory notes and debentures   -    90,750 
Proceeds from line of credit, net   -    (1,055,541)
Proceeds from secured debentures   -    2,080,694 
Repayments of short term loans   (32,772)   (153,778)
Proceeds from short term loans   -    1,201,000 
Proceeds from long term loans   1,000,000    - 
Repayment of convertible promissory notes and debentures   -    (716,056)
Proceeds from common stock private placement   295,000    - 
Net Cash Provided by Financing Activities   1,262,228    1,447,069 
           

Net (decrease)/increase in cash

   (7,212)   74,214
Cash, beginning of period   448,575    19,496 
Cash, end of period  $441,363   $93,710 
           
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   $- 
Conversion of short term loan and line of credit into secured debentures  $-   $419,305 
Common stock issued for acquisition of technology  $-   $1,806,608 
Common stock to be issued for acquisition of technology  $-   $2,639,071 
Common stock issued for prior S1 obligation  $124,567   $- 
Private placement of units in settlement of payables  $50,000   $- 
Common stock issued for conversion of debt  $2,064,830   $- 
Cash paid for interest during the six month period  $12,500   $

67,808

 

 

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

November 30, 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 (a subsidiary of Intertainment Media Inc.) intellectual property. As a result of the acquisition, Intertainment Media Inc.’s ownership was reduced to 37% (currently 28.35%). 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 November 30, 2016, and for the three and six month periods ended November 30, 2016 and 2015 respectively, 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 November 30, 2016 and 2015 respectively, and the results of its operations and its cash flows for the six month period ended November 30, 2016 and 2015 respectively. 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 $25,969,433 through November 30, 2016.

 

As of November 30, 2016, the Company had a working capital deficit of $1,511,699. During the six months ended November 30, 2016, net cash used in operating activities was $1,252,280. 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 its ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet its 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 six months ended November 30, 2016, the Company raised $1,262,228 through various financial instruments, net of repayments.

 

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 and Note Receivable

 

All of the Company’s revenues are attributed to a small number of customers. One former customer now comprises 0% of the revenue recorded for the six months ended November 30, 2016 and had comprised 93% of the revenue for the six months ended November 30, 2015. Intelligent Content Enterprises (“ICE”) comprises 33% and 43% of revenue recorded for the three and six months ended November 30, 2016. 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 (the ICE Transaction”). 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. 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 principal payments by $1,870,000 as at November 30, 2016. Additionally, the Company received stock options for the purchase of shares of common stock of ICE from DWF. 

 

The Company has not received any payments from DWF during the second quarter, and the secured note final payment date was contracted to be fully paid by November 30, 2016. While management continues to work with DWF on a resolution, current conditions result in a much greater uncertainty around collection of the note receivable. During the second quarter of fiscal 2017 as at November 30, 2016, management has recorded a full impairment on the remaining $968,289 recorded in its financial statements.

 7 

 

 

4. Intangible Assets

 

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 November 30, 2016 and are reserved but not issued pending instructions from the recipients. 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 and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo. This value was $5,421,067 on September 15, 2015.

 

Intangible Assets  Technology   Pending 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   -    14,949    -    14,949 

Reclassification

   -    (23,250)   23,250    - 

Amortization

   (527,880)   -    (3,870)   (531,750)
Balance, November 30, 2016  $4,003,063   $136,977   $19,380   $4,159,420 

 

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 first quarter of fiscal 2017. As at November 30, 2016, the loan had a value of $88,476 ($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 first quarter of fiscal 2017. As at November 30, 2016, the loan had a value of $63,203 ($84,875 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 
Fair value adjustments   (1,926)   (1,464)   -    (3,390)
Conversions   -    -    (100,000)   (100,000)
Repayments   (15,483)   (13,899)   -    (29,382)
Fair value at November 30, 2016  $88,476   $63,203   $-   $151,679 

 

 8 

 

 

6. Non-Convertible Secured Debentures

 

Yappn closed the first tranche of secured debentures (secured by general security of the Company’s assets) 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 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. The secured debentures balance as at November 30, 2016, was $4,550,388 (Note 12). Interest expense for the three and six month period ended November 30, 2016 was $136,512 and $273,023 respectively ($130,378 and $194,183 for the three and six months ended November 30, 2015).

 

7. Unsecured Convertible Promissory Notes and Debentures

 

The following is a summary of the unsecured convertible promissory notes and debentures as of November 30, 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    (299,000)   170,000 
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   $1,784,000   $910,000 
                
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             (20,824)
Conversions             (1,524,000)
Balance at November 30, 2016            $910,000 

 

 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. The Units consist of (i) one unsecured 6% convertible promissory note, $100 par value, convertible into shares of the Company’s common stock; (ii) a common stock purchase 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 common stock purchase 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 matured 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 $1.00 per share. 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. 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. 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. During the six month period ended November 30, 2016, $299,000 in principal value of debenture holders exercised conversion rights but only the Series A warrants were repriced (Notes 9 and 10). The holders of $299,000 in principal converted have the right to an additional issuance of shares if the Company closes a financing below $0.25 per common share for a six month period to a floor of $0.20 per common share. In addition, 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. The Company accounted for the extension as a debt modification as opposed to a debt extinguishment. Interest expense for the three and six month period ended November 30, 2016 was $20,420 and $64,181 respectively ($17,487 and $35,166 for the three and six months ended November 30, 2015).

 

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 (then Canadian $100,000) in the loan originated on January 7, 2014 and $50,000 in settlement of trade payables. The Units 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 common stock purchase 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% (with certain other penalties on overdue interest when debt is past due) per annum payable in arrears on the earlier of a default date or the maturity date. The debentures may be converted at any time after the original issuance date at the election of their holders, who may convert all or part of the outstanding and unpaid principal amount and accrued interest at a conversion price of $1.50 per share. The common stock purchase warrants may be exercised in whole or in part.

 

During the six month period ended November 30, 2016, $1,225,000 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 $1,225,000 in principal converted have the right to an additional issuance of shares if the 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 are the same as before. Interest expense for the three and six month period ended November 30, 2016 was $960 and $29,838 respectively ($22,812 and $45,875 for the three and six months ended November 30, 2015).

 

8. Convertible Secured Debentures and Long-term Loan

 

On December 30, 2015, the Company completed a secured debenture (secured by general security of the Company’s assets) 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 (secured by general security of the Company’s assets) 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 November 30, 2016 is $375,379 for the December 30, 2015 closing and $19,886 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   204,447    15,539    219,986 
Convertible secured debenture at fair value at November 30, 2016  $375,379   $19,886   $395,265 

 

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 and six month period ended November 30, 2016 was $72,314 and $144,628 respectively ($nil for the three and six months ended November 30, 2015).

 

During the second quarter of fiscal 2017, Company received a subscription for $1.0 million in bridge financing. The Company expects to close this in the third quarter of fiscal 2017. The financing is expected to have the same terms as the secured debenture above. This loan is classified as a long term loan until the closing date.

 

9. Common Stock

 

On August 31, 2015, the Company issued 11,667 shares of common stock in the form of a cashless exercise common stock purchase 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 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 and the Company, the value of the intangible assets acquired from Ortsbo was recorded at the carrying value in the financial records of Ortsbo. This value was $5,421,067 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) and subject to issuance based on the instructions from the recipients. 

 

 11 

 

 

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 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, 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%. 

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, 2016, the Company issued 780,000 shares of common stock for $195,000 cash received against the fourth tranche of a private placement of units, at a purchase price of $0.25 per unit, each unit consisting of one share of common stock at $0.25 per share and one common stock purchase warrant with an exercise price of $0.25 per share (Note 10). 80,000 of the shares from the fourth tranche for $20,000 were issued to a member of the advisory board (Note 12). These common stock purchase 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. The Company completed a relative fair value calculation to allocate the proceeds between common stock and warrants for $112,327 and $82,673 respectively. The assumptions used for valuation were: Volatility 200%, expected life of five years, risk free interest rate of 1.16%, and dividend rate of 0%. 

On September 23, 2016 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 7. 

On September 30, 2016, the Company issued 120,000 shares of common stock as settlement against prior accounts payables with a fair value of $30,000. 

On November 15, 2016, the Company issued 88,844 shares of common stock in association with the timing of filing its Registration Statement as part of the contractual rights of certain existing convertible debenture holders. 

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.

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 common stock purchase warrants. The common stock purchase 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.

 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 November 30, 2016 and May 31, 2016.

   

Warrants

 

The following is a summary of common stock purchase warrants issued, exercised and expired through November 30, 2016:

 

   Shares
Issuable
Under
Warrants
   Equity
Value
   Exercise
Price
   Expiration 
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  
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  
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  
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  
Issued warrants for private placement on September 23, 2016   780,000    82,673   $0.25       September 23, 2021  
Issued warrants to consultant on November 10, 2016   100,000    8,440   $0.25       November 10, 2020  
                     
Total – as of November 30, 2016   41,275,346    8,373,653           

 

As at November 30, 2016, vested and exercisable common stock purchase warrants have a weighted average price of approximately $0.86 (May 31, 2016 - $0.87) and have a weighted-average remaining contractual term of 0.6 years (May 31, 2016 – 0.71 years). It is expected the 32,299,347 unvested warrants will ultimately vest. The unvested warrants have a weighted average exercise price of $0.09 (May 31, 2016 - $0.07) per share and a weighted average remaining term of 3.30 years (May 31, 2016 – 3.62 years).

 

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 interim condensed consolidated 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 common stock purchase 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 common stock purchase 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 common stock purchase 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 common stock purchase 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 common stock purchase 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 common stock purchase 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%.

 

The Company issued common stock purchase warrants to a consultant in the amount of 100,000 included in consulting expense on November 10, 2016 at an exercise price of $0.25 with expiry date of November 10, 2020. The assumptions used for valuation were: Volatility 215%, expected life of approximately four years, risk free interest rate of 1.17%, 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 shares reserved pursuant to the 2014 Stock Option Plan 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 November 30, 2016   13,205,000   $0.25 
Options exercisable at November 30, 2016   4,069,167   $0.25 
Fair value of options vested as at November 30, 2016  $1,826,217   $- 

 

As at November 30, 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 $0.25 per share and a weighted average remaining term of 4.40 years. The aggregate intrinsic value of options represents the total pre-tax intrinsic value, the difference between our closing stock price as at November 30, 2016 and the option’s exercise price, for all options that are in the money. This value was $nil as at November 30, 2016.

 

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As at November 30, 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 vesting period of 1.4 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, 2016 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 options exercising 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. There were no services provided by Intertainment Media, Inc. to Yappn for the three and six month period ended November 30, 2016.

 

On September 15, 2015, the Company closed an agreement with Ortsbo 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. 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 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 (currently reserved for issuance) to be issued at November 30, 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 and are subject to instructions from the recipients. 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. This value was $5,421,067 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. As at November 30, 2016, there is no obligation to Intertainment Media, Inc.

 

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 (Note 6). Significant investments made by directors include Luis Vasquez-Senties (a current member of the Board of Directors) subscribed for $500,000 from the secured debenture offering that closed in September 2015, David Berry (a current member of the Board of Directors) subscribed for $733,526 from the secured debenture offering that closed in September 2015, and Winterberry Investments Inc. (an entity controlled by David Berry, a current member of the Board of Directors) subscribed for $500,000 from the secured debenture offering that closed in September 2015.

 

Directors also subscribed for $1,075,000 of the $2,040,000 convertible secured debentures issued on December 30, 2015 (Note 8). Significant investments made by directors include Luis Vasquez-Senties (a current member of the Board of Directors) subscribed for $500,000 from the secured debenture offering that closed in December 2015, David Berry (a current member of the Board of Directors) through a related entity in which he does not control subscribed for $500,000 from the secured debenture offering that closed in December 2015.

 

David Berry (a current member of the Board of Directors) through a related entity in which he does not control 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 common stock purchase 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 common stock purchase 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 common stock purchase 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 a 12% secured convertible debenture with a maturity date of five years from issuance convertible at $0.25 per common. This closing was a conversion of $200,000 in consulting expense. The Company also issued 4,000,000 common stock purchase 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 prior to May 1, 2016 due directly or indirectly to the former CEO of Yappn including $294,906 in cash obligations as an employee and $18,200 as a consultant, 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 members of the Board of Directors. Significant investments made by Directors include Luis Vasquez-Senties (a current member of the Board of Directors) who advanced $200,000 to the Company (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 members of the board of directors. Significant investments made by Directors include Winterberry Investments Inc. (an entity controlled by David Berry, a current member of the Board of Directors) who advanced $100,000 to the Company (Note 9).

 

80,000 of the shares from the 4th tranche of common stock private placement at $0.25 per unit totaling $195,000 in cash proceeds were issued to a member of the advisory board (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. 

 

During the second quarter of fiscal 2017, two directors provided a total of $1,000,000 as an advance to the Company that will be part of a longer term financing with terms remaining to be finalized.

 

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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, we 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 our company 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 was paid by the assumption of approximately $1 Million in debt and the obligation to issue $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. 

 

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Effective February 29, 2016, DWF sold the technology platform, partially developed by our company, in conjunction with DWF’s principals, to Intelligent Content Enterprises Inc. (“ICE”) in exchange for common shares of ICE (the “Transaction”). As part of the transaction, DWF received ownership and rights to twenty four 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 $1,870,000 as at November 30, 2016. Subsequently, the Transaction was unwound and the shares are intended to be returned.

 

We have not received any payments from DWF during the second quarter, and the secured note last payment date was contracted to be fully paid by November 30, 2016. While management continues to work with DWF on a resolution there is much greater uncertainty around collection of the note receivable as a result of the unwinding of the Transaction as described above. As a result management has recorded full impairment on the remaining recorded amount previously recorded in its financial statements, of $968,289 and the related impairment expense during the three and six months ended November 30, 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 did not include the “chat” technology itself and we weresolely 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 could 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 had 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 had 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 and 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 described above, 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. We are also monitoring the consequences on our industry as a result of the new administration commencing January 20, 2017.

 

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 common stock purchase warrants. The common stock purchase 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 November 30, 2016

 

Revenues

 

We are in the process of the commercialization of our various product offerings. We had revenues of $106,998 and $52,222 for the three months ended November 30, 2016 and 2015, respectively. $35,000 of revenue for the three months ended November 30, 2016 related to professional services provided for Intelligent Content Enterprises Inc. (“ICE”). $35,000 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 as expected 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 $44,874 and $8,464, for the three months ended November 30, 2016 and 2015, respectively. These costs were directly attributable to the revenues generated in the applicable periods and resulted in a gross profit of $62,124 and $43,758, for the three months ended November 30, 2016 and 2015, respectively.

 

Total operating expenses

 

During the three months ended November 30, 2016 and 2015, total operating expenses were $1,261,963 and $1,305,434, respectively.

 

For the three months ended November 30, 2016, the operating expenses consisted of marketing expense of $6,972, research and development expenses of $166,369, general and administrative expenses of $400,834, professional fees of $23,024, consulting fees of $62,583, depreciation of $1,407, amortization of $265,101, and stock based compensation of $335,675. For the comparable three months ended November 30, 2015 the operating expenses consisted of marketing expenses of $103,463, research and development expenses of $96,782, general and administrative expenses of $414,728, professional fees of $68,454, consulting fees of $101,075, depreciation of $107, amortization of $219,950 and stock based compensation of $300,875.

 

Marketing Expenses

 

The reduction in marketing expenses of $96,491 or 93% is due mainly to a realignment of spending by the company. In the three months period ending November 30, 2015 we incurred higher costs as a result of promoting the Yappn brand through consultants and various promotional expenses. In three months ending November 30, 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 $69,586 or 72% in the three months ended November 30, 2016 over the three months ended November 30, 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 decreased by $13,894 or 3% in the three months ended November 30, 2016 over the three months ended November 30, 2015 including executive and office salaries, administrative services accounting and finance as well as general office expenses or costs. These costs have relatively remained consistent due to a combination of factors. The overall headcount has decreased but employee costs are higher due to the addition of two senior level executives between the periods. 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 $45,430 or 66% for the three months ended November 30, 2016 over the three months ended November 30, 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 fees relating to various financings that closed during fiscal 2016.

 

Consulting fees

 

Consulting fees went down by $38,492 or 38% 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 $265,101 relates entirely to Technology and Intellectual Property purchased during prior fiscal 2016 which we are amortizing over 5 years on a straight-line basis. The difference of $45,151 or 20% increase over the comparative period is due to the purchase taking place part way into the quarter in the prior fiscal year. On September 15, 2015, we finalized our purchase of Intellectual property assets of Ortsbo pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015.

 

Stock based compensation

 

Stock based compensation increased by $34,800 or 12%. This increase is due continued vesting of existing options that were granted in late fiscal 2016 and early fiscal 2017. 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 expenses totaled $1,321,894 and $793,983, for the three months ended November 30, 2016 and 2015, respectively. The change of $527,911 is partly due to interest expense, change in fair value of derivative liabilities and convertible notes, prepayment fees on variable notes, impairment of note receivable and miscellaneous (income)/expense. During the three months ended November 30, 2016, total other (income)/expense consisted of interest expense of $235,239, 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 $123,928, prepayment fees on convertible notes with floating strike prices of $nil, other miscellaneous income of $(5,562), and Impairment of note receivable of $968,289. During the three months ended November 30, 2015, total other (income)/expense consisted of interest expense of $194,402 and financing expenses on the issuance of convertible promissory notes and common stock totaling $542,760, a gain resulting from the change in the fair value of the derivative liabilities and convertible notes of $(38,698), prepayment fees on variable notes of $99,558, and miscellaneous other income of $(4,039).

 

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Interest Expense

 

Interest expense increased by $40,837 or 21% for the three months ended November 30, 2016 over the three months ended November 30, 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 was new debt for us at the time. Additionally, we incurred a higher penalty interest on convertible debentures from fiscal 2014 that reached maturity in late fiscal 2016 and early fiscal 2017.

 

Financing expense on issuance of convertible promissory notes and common stock

 

Financing expense decreased by $542,760 or 100% as we did not fund our company through variable rate notes or grant warrants relating to financing arrangements in fiscal 2017 whereas there were common stock purchase warrants granted to financiers in the comparative period ended November 30, 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 $162,626 in the three months ended November 30, 2016 over three months ended November 30, 2015 as the existing debt instruments continued to have fair value adjustments in addition to the new secured debentures that were issued during the prior 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 promissory notes is significantly lower by $99,588 or 100% in three months ended November 30, 2016 over three months ended November 30, 2015, as we repaid the variable conversion priced notes in the prior fiscal year. As of November 30, 2016, we do not have any further variable conversion priced promissory notes.

 

Miscellaneous expense/(income)

 

Miscellaneous expense/(income) was a gain of $5,562 for the three months ended November 30, 2016, compared to a gain of $4,039 for the three months ended November 30, 2015 resulting in incremental change in the recognized gain/loss by $1,523. 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 rate and the foreign denominated liabilities.

 

For the three months ended November 30, 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 $123,928 for the three months ended November 30, 2016 in contrast to a gain of $38,698 for the three months ended November 30, 2015, for a change of $162,626.

 

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Impairment of note receivable

 

We have not received any payments from DWF during the second quarter of fiscal 2017 and the secured promissory note final payment date was contracted to be fully paid by November 30, 2016. While management continues to work with DWF on a resolution, the current conditions result in a much greater uncertainty around collection of the promissory note receivable. Management has recorded full impairment on the remaining recorded amount previously recorded in its financial statements, of $968,289 and $nil and the related impairment expense during the three months ended November 30, 2016 and 2015.

 

Net loss and comprehensive loss

 

During the three months ended November 30, 2016 and 2015, we had net loss and comprehensive loss of $2,521,734 and $2,055,659 respectively.

 

Six months ended November 30, 2016

 

Revenues

 

We are in the process of the commercialization of our various product offerings. We had revenues of $207,066 and $810,381 for the six months ended November 30, 2016 and 2015, respectively. $88,390 of revenue for the six months ended November 30, 2016 related to professional services provided for Intelligent Content Enterprises Inc. (“ICE”). $88,390 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 $51,417 and $136,935, for the six months ended November 30, 2016 and 2015, respectively. These costs were directly attributable to the revenues generated in the applicable periods and resulted in a gross profit of $155,649 and $673,446, for the six months ended November 30, 2016 and 2015, respectively.

 

Total operating expenses

 

During the six months ended November 30, 2016 and 2015, total operating expenses were $2,670,176 and $2,161,724, respectively.

 

For the six months ended November 30, 2016, the operating expenses consisted of marketing expense of $17,345, research and development expenses of $286,572, general and administrative expenses of $801,349, professional fees of $108,758, consulting fees of $112,308, depreciation of $2,432, amortization of $531,750, and stock based compensation of $809,663. For the comparable six months ended November 30, 2015 the operating expenses consisted of marketing expenses of $206,248, research and development expenses of $191,852, general and administrative expenses of $766,861, professional fees of $160,023, consulting fees of $203,075, depreciation of $198, amortization of $219,950 and stock based compensation of $413,517.

 

Marketing Expenses

 

The reduction in marketing expenses of $188,903 or 92% is due mainly to a realignment of spending by the company. In the six months period ending November 30, 2015 we incurred higher costs as a result of promoting the Yappn brand through consultants and various promotional expenses. In the six months ending November 30, 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 $94,720 or 49% in the six months ended November 30, 2016 over the six months ended November 30, 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 $34,488 or 4% in the six months ended November 30, 2016 over the six months ended November 30, 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 $51,265 or 32% for the six months ended November 30, 2016 over the six months ended November 30, 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 higher legal fees as a result of our various financings that closed during fiscal 2016.

 

Consulting fees

 

Consulting fees went down by $90,767 or 45% and are mainly due to a significant reduction in spending on consultants. In the comparative period, the Company had nine different consultants engaged at least at some point whereas in the current six month period, the Company has only had three 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 $531,750 relates entirely to Technology and Intellectual Property purchased during fiscal 2016 which we are amortizing over 5 years on a straight-line basis as well as a patent that was granted in late fiscal 2016. The difference of $311,800 or 142%% increase over the comparative period is due to the purchase taking place beginning of the second quarter in the prior fiscal year. On September 15, 2015, we finalized our purchase of Intellectual property assets of Ortsbo pursuant to an Asset Purchase Agreement executed and closed on July 15, 2015.

 

Stock based compensation

 

Stock based compensation increased by $396,146 or 96%. This increase is due to the issuances of certain awards in the six month period ended November 30, 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 expenses totaled $1,790,480 and $400,733, for the six months ended November 30, 2016 and 2015, respectively. The change of $1,389,747 is primarily due to interest expense, change in fair value of derivative liabilities and convertible notes, change in fair value of derivative liabilities and convertible notes, prepayment fees on variable notes, miscellaneous (income)/expense, and Impairment of note receivable. During the six months ended November 30, 2016, total other (income)/expense consisted of interest expense of $522,291, 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 $296,188, prepayment fees on convertible notes with floating strike prices of $nil, other miscellaneous expense of $3,712, and Impairment of note receivable of $968,289. During the six months ended November 30, 2015, total other (income)/expense consisted of interest expense of $348,387 and financing expenses on the issuance of convertible promissory notes and common stock totaling $632,250, a gain resulting from the change in the fair value of the derivative liabilities and convertible notes of $(840,337), prepayment fees on variable notes of $276,790, and miscellaneous other income of $(16,357).

 

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Interest Expense

 

Interest expense increased by $173,904 or 50% for the six months ended November 30, 2016 over the six months ended November 30, 2015. The significant increase is mainly due to additional financings closed in fiscal 2016. Yappn closed multiple secured debenture financings totaling approximately $6.7 million, most of which was new debt for us at that time. Additionally, Yappn 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 $632,250 or 100% as we did not fund our company through variables rate promissory notes in fiscal 2017 whereas there was still a minor financing completed on a variable rate convertible promissory note in the six month period ended November 30, 2015 as well as common stock purchase warrants issued. 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 $1,136,525 in the six months ended November 30, 2016 over six months ended November 30, 2015 as the existing debt instruments continued to have fair value adjustments in addition to the new secured debentures that were issued during the prior 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.

 

For the six months ended November 30, 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 $296,188 for the six months ended November 30, 2016 in contrast to a gain of $840,337 for the six months ended November 30, 2015, for a change of $1,136,525.

 

Payment fees on variable conversion priced notes

 

Payment fees on variable conversion priced promissory notes is significantly lower by $276,790 or 100% in six months ended November 30, 2016 over six months ended November 30, 2015 as we repaid the variable conversion priced promissory notes in the prior fiscal year. As of November 30, 2016, we do not have any further variable conversion priced promissory notes.

 

Miscellaneous expense/(income)

 

Miscellaneous expense/(income) was an expense of $3,712 for the six months ended November 30, 2016 compared to a gain of $16,357 for the six months ended November 30, 2015 resulting in incremental change in the recognized gain/loss by $20,069. 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 rate and the foreign denominated liabilities.

 

During the six months ended November 30, 2016, we raised $1,262,228 through private placement financing of common stock and warrants. During the six months ended November 30, 2015, we raised $1,447,069, 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 $632,250 for six months ended November 30, 2016 and November 30, 2015, respectively.

 

Impairment of note receivable

 

We have not received any payments from DWF during the second quarter, and the secured note final payment date was contracted to be fully paid by November 30, 2016. While management continues to work with DWF on a resolution, the current conditions result in a much greater uncertainty around collection of the note receivable. Management has recorded full impairment on the remaining recorded amount previously recorded in its financial statements, of $968,289 and $nil and the related impairment expense during the six months ended November 30, 2016 and 2015.

 

Net loss and comprehensive loss

 

During the six months ended November 30, 2016 and 2015, we had net loss and comprehensive loss of $4,305,008 and $1,889,011 respectively.

 

Liquidity and Capital Resources

 

As of November 30, 2016, we had a cash balance of $441,363, which is a decrease of $7,212 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 $1,262,228 through private placement financing of common stock and warrants as well as proceeds from a long term loan expected to be subscribed to a convertible secured debenture in the six months ended November 30, 2016. During the six months ended November 30, 2015, we issued secured debentures, and convertible debt instruments for gross cash receipts of $1,447,069. 

 

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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 us 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 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 November 30, 2016, was $4,550,388.

 

On December 30, 2015, we completed a secured debenture and common stock purchase 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 we 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 six months ended November 30, 2015, we raised $90,750 via various convertible promissory notes and debentures, $2,080,694 from secured debentures, and $1,201,000 from short term loans. We also repaid $716,056 of various convertible promissory notes and debentures, $1,055,541 of line of credit, and $153,778 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 $25,969,433 through November 30, 2016.

 

As of November 30, 2016, we had a working capital deficit of $1,511,699. During the six months ended November 30, 2016, net cash used in operating activities was $1,252,280. 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 six months ended November 30, 2016, we raised $1,262,228 through various financial instruments, net of repayments. Subsequent to the six months ended November 30, 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 six months ended November 30, 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.

 

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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 November 30, 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 six month period ended November 30, 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.

 

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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)

 

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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.

 

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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 January 2017.

 

  YAPPN CORP.
     
  By: /s/ Ed Karthaus
    Ed Kaurthaus
    Chief Executive Officer
     
  By: /s/ Craig McCannell
    Craig McCannell
    Chief Financial Officer
    (Principal Financial Officer)

 

 

 

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