U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended November 30, 2013
o 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)
None
Securities registered under Section 12(g) of the Exchange Act:
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 x No o
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 x No o
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 | o | Accelerated filer | o |
Non-accelerated filer | oo | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
There were 100,300,000 shares outstanding of registrant’s common stock, par value $0.001 per share, as of January 10, 2014.
TABLE OF CONTENTS
PART I | ||
Item 1. | Financial Statements | |
Condensed Consolidated Balance Sheets as of November 30, 2013 (unaudited) and May 31, 2013 | 3 | |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months and six months ended November 30, 2013 and 2012 and for the period from November 3, 2010 (date of inception) through November 30, 2013 (unaudited) | 4 | |
Condensed Consolidated Statement of Stockholders’ Equity for the period November 3, 2010 (date of inception) through November 30, 2013 (unaudited) | 5 | |
Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2013 and 2012 and for the period from November 3, 2010 (date of inception) through November 30, 2013 (unaudited) | 6 | |
Notes to Condensed Consolidated Financial Statements (unaudited) | 7 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operation | 22 |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 32 |
Item 4 | Controls and Procedures | 32 |
PART II | ||
Item 1. | Legal Proceedings | 33 |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 33 |
Item 3 | Defaults Upon Senior Securities | 33 |
Item 4. | Mine Safety Disclosures | 33 |
Item 5. | Other Information | 33 |
Item 6. | Exhibits | 34 |
SIGNATURES | 35 |
PART I
ITEM 1. FINANCIAL STATEMENTS
As of | As of | |||||||
November 30, 2013 | May 31, 2013 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 1,367 | $ | 217,037 | ||||
Accounts receivable | 31,260 | - | ||||||
Prepaid development and related expenses - related party | - | 80,518 | ||||||
Prepaid expenses | 35,368 | 10,040 | ||||||
Total current assets | 67,995 | 307,595 | ||||||
Total Assets | $ | 67,995 | $ | 307,595 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 293,654 | $ | 114,532 | ||||
Loan from third parties | 330,776 | - | ||||||
Accrued development and related expenses - related party | 512,542 | - | ||||||
Accrued expenses | 118,193 | 84,561 | ||||||
Convertible note at fair value | 122,575 | - | ||||||
Derivative preferred stock liability | 901,712 | - | ||||||
Total current liabilities | 2,279,452 | 199,093 | ||||||
Other liabilities | ||||||||
Derivative preferred stock liability | - | 3,479,862 | ||||||
Derivative warrant liability | 801,590 | 4,050,278 | ||||||
Convertible note at fair value | 106,509 | - | ||||||
Total Liabilities | 3,187,551 | 7,729,233 | ||||||
Stockholders' Deficit | ||||||||
Preferred stock, par value $.0001 per share, 50,000,000 shares authorized; Series "A" Convertible, 10,000,000 shares authorized; 9,360,000 and 7,710,000 shares issued and outstanding, respectively | - | - | ||||||
Common stock, par value $.0001 per share, 200,000,000 shares authorized; 100,300,000 and 100,000,000 shares issued and outstanding, respectively | 10,030 | 10,000 | ||||||
Common stock, par value $.0001 per share, 2,966,667 and -0- shares subscribed not issued, respectively | 292,044 | - | ||||||
Additional paid-in capital | 133,376 | 64,997 | ||||||
Deficit accumulated during the developmental stage | (3,555,006 | ) | (7,496,635 | ) | ||||
Total Stockholders' Deficit | (3,119,556 | ) | (7,421,638 | ) | ||||
Total Liabilities And Stockholders' Deficit | $ | 67,995 | $ | 307,595 |
See accompanying notes to the condensed consolidated financial statements
3
Yappn Corporation |
(A Development Stage Company) |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
(Unaudited) |
Three Months Ended | Six Months Ended | From November 3, 2010 (Inception) through | ||||||||||||||||||
November 30, | November 30, | November 30, | ||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | ||||||||||||||||
Revenues | $ | 25,500 | $ | - | $ | 31,260 | $ | - | $ | 37,176 | ||||||||||
Cost of goods sold | 6,440 | - | 9,983 | - | 13,107 | |||||||||||||||
Gross profit | 19,060 | - | 21,277 | - | 24,069 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Marketing | 155,658 | - | 266,432 | - | 282,320 | |||||||||||||||
Research and development expenses | 330,760 | - | 668,936 | - | 866,211 | |||||||||||||||
General and administrative expenses | 166,527 | 2,229 | 201,663 | 3,499 | 346,471 | |||||||||||||||
Legal fees | 28,210 | - | 69,497 | - | 171,899 | |||||||||||||||
Consulting and professional fees | 296,264 | 20,624 | 829,566 | 28,514 | 1,011,336 | |||||||||||||||
Total operating expenses | 977,419 | 22,853 | 2,036,094 | 32,013 | 2,678,237 | |||||||||||||||
Loss from operations | (958,359 | ) | (22,853 | ) | (2,014,817 | ) | (32,013 | ) | (2,654,168 | ) | ||||||||||
Other (income) expense: | ||||||||||||||||||||
Interest expense | 20,248 | - | 28,094 | - | 29,094 | |||||||||||||||
Financing expense on issuance of derivative liabilities and convertible notes | 85,546 | - | 2,043,076 | - | 8,504,776 | |||||||||||||||
Change in fair value of derivative liabilities and convertible notes | 155,297 | - | (8,026,438 | ) | - | (7,631,854 | ) | |||||||||||||
Other (income) / expense | 9,156 | - | (1,178 | ) | - | (1,178 | ) | |||||||||||||
Total other (income) expense | 270,247 | - | (5,956,446 | ) | - | 900,838 | ||||||||||||||
Net income (loss) before taxes | (1,228,606 | ) | (22,853 | ) | 3,941,629 | (32,013 | ) | (3,555,006 | ) | |||||||||||
Provision for income taxes | - | - | - | - | - | |||||||||||||||
Net income (loss) and comprehensive income (loss) | $ | (1,228,606 | ) | $ | (22,853 | ) | $ | 3,941,629 | $ | (32,013 | ) | $ | (3,555,006 | ) | ||||||
Net income (loss) per weighted-average shares common stock - basic | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.04 | $ | (0.00 | ) | |||||||||
Net income (loss) per weighted-average shares common stock - diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.03 | $ | (0.00 | ) | |||||||||
Weighted-average number of shares of common stock issued and outstanding - basic | 100,300,000 | 142,500,000 | 100,262,295 | 142,500,000 | ||||||||||||||||
Weighted-average number of shares of common stock issued and outstanding - diluted | 100,300,000 | 142,500,000 | 121,193,378 | 142,500,000 |
See accompanying notes to the condensed consolidated financial statements
4
Yappn Corp. |
(A Development Stage Company) |
Condensed Consolidated Statements of Stockholders' Equity |
For the Periods from November 3, 2010 (Inception) through November 30, 2013 |
(Unaudited) |
Common | Preferred | Additional | Accumulated Deficit during the | |||||||||||||||||||||||||||||||||
Shares Outstanding | Amount | Subscribed Shares | Subscribed Amount | Shares Outstanding | Amount | Paid-in Capital | development stage | Total | ||||||||||||||||||||||||||||
Balance - November 2010 (Inception) | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||
Issuance of common stock - at par value ($0.0001) | 112,500,000 | 11,250 | - | - | - | - | (10,500 | ) | - | 750 | ||||||||||||||||||||||||||
Issuance of common stock - $0.0013 per share | 30,000,000 | 3,000 | - | - | - | - | 37,000 | - | 40,000 | |||||||||||||||||||||||||||
Payment of stock issuance costs | - | - | - | - | - | - | (1,828 | ) | - | (1,828 | ) | |||||||||||||||||||||||||
Net loss for the period from inception to May 31, 2011 | - | - | - | - | - | - | - | (18,392 | ) | (18,392 | ) | |||||||||||||||||||||||||
Balance - May 31, 2011 | 142,500,000 | 14,250 | - | - | - | - | 24,672 | (18,392 | ) | 20,530 | ||||||||||||||||||||||||||
Net loss for the year ended May 31, 2012 | - | - | - | - | - | - | - | (36,606 | ) | (36,606 | ) | |||||||||||||||||||||||||
Balance - May 31, 2012 | 142,500,000 | 14,250 | - | - | - | - | 24,672 | (54,998 | ) | (16,076 | ) | |||||||||||||||||||||||||
Cancellation of common stock | (112,500,000 | ) | (11,250 | ) | - | - | - | - | 11,250 | - | - | |||||||||||||||||||||||||
Issuance of common stock for asset purchase | 70,000,000 | 7,000 | - | - | - | - | (7,000 | ) | - | - | ||||||||||||||||||||||||||
Forgiveness of officers & directors advances and liabilities assumed | - | - | - | - | - | - | 36,075 | - | 36,075 | |||||||||||||||||||||||||||
Issuance of Series A Convertible preferred stock at par value ($0.0001) and warrants | - | - | - | - | 7,710,000 | - | - | - | - | |||||||||||||||||||||||||||
Net loss for the year ended May 31, 2013 | - | - | - | - | - | - | - | (7,441,637 | ) | (7,441,637 | ) | |||||||||||||||||||||||||
Balance - May 31, 2013 | 100,000,000 | 10,000 | - | - | 7,710,000 | - | 64,997 | (7,496,635 | ) | (7,421,638 | ) | |||||||||||||||||||||||||
Issuance of common stock for consulting services | 300,000 | 30 | - | - | - | - | 41,970 | - | 42,000 | |||||||||||||||||||||||||||
Issuance of Series A Convertible preferred stock at par value ($0.0001) and warrants | - | - | - | - | 1,650,000 | - | - | - | - | |||||||||||||||||||||||||||
Stock to be issued under subscription agreement for consulting services | - | - | 1,300,000 | 158,711 | - | - | - | - | 158,711 | |||||||||||||||||||||||||||
Stock to be issued for licensing rights - related party | - | - | 1,666,667 | 133,333 | - | - | - | - | 133,333 | |||||||||||||||||||||||||||
Imputed interest on loan from third party | - | - | - | - | - | - | 26,409 | - | 26,409 | |||||||||||||||||||||||||||
Net income for the period ended November 30, 2013 | - | - | - | - | - | - | - | 3,941,629 | 3,941,629 | |||||||||||||||||||||||||||
Balance - November 30, 2013 | 100,300,000 | $ | 10,030 | 2,966,667 | $ | 292,044 | 9,360,000 | $ | - | $ | 133,376 | $ | (3,555,006 | ) | $ | (3,119,556 | ) |
See accompanying notes to the condensed consolidated financial statements
5
Yappn Corporation |
(A Development Stage Company) |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
Six Months Ended | Six Months Ended | From November 3, 2010 (Inception) through | |||||||||||
November 30, | November 30, | November 30, | |||||||||||
2013 | 2012 | 2013 | |||||||||||
Cash Flows From Operating Activities: | |||||||||||||
Net income (loss) | $ | 3,941,629 | $ | (32,013 | ) | $ | (3,555,006 | ) | |||||
Adjustments to reconcile net income (loss) to cash used in operating activities: | |||||||||||||
Depreciation | - | 339 | 1,498 | ||||||||||
Change in fair value of derivative liabilities and convertible notes | (8,026,438 | ) | - | (7,631,854 | ) | ||||||||
Financing expense on issuance of derivative liabilities and convertible notes | 2,120,184 | - | 8,518,776 | ||||||||||
Stock issuance and subscribed for consulting services | 334,044 | - | 334,044 | ||||||||||
Imputed interest expense on loan from third party | 26,409 | - | 26,409 | ||||||||||
Changes in operating assets and liabilities: | - | ||||||||||||
Accounts receivable | (31,260 | ) | - | (31,260 | ) | ||||||||
Prepaid development and related expenses - related party | 80,518 | - | - | ||||||||||
Prepaid expenses | (25,328 | ) | - | (35,368 | ) | ||||||||
Accounts payable | 179,122 | 10,259 | 383,986 | ||||||||||
Accrued development and related expense - related party | 512,542 | - | 512,542 | ||||||||||
Accrued expenses payable | 33,632 | - | 33,632 | ||||||||||
Net Cash Used in Operating Activities | (854,946 | ) | (21,415 | ) | (1,442,601 | ) | |||||||
Cash Flows From Investing Activities: | |||||||||||||
Capital expenditures | - | - | (2,034 | ) | |||||||||
Net Cash Used in Investing Activities | - | - | (2,034 | ) | |||||||||
Cash Flows From Financing Activities: | |||||||||||||
Proceeds from notes and loans | 474,276 | - | 474,276 | ||||||||||
Net advances from stockholders forgiven | - | 4,960 | 11,045 | ||||||||||
Deferred revenue liability assumed by shareholders and directors | - | 19,795 | 19,795 | ||||||||||
Net proceeds from the issuance of common stock | - | - | 38,922 | ||||||||||
Proceeds from the issuance of preferred stock and warrants | 165,000 | - | 936,000 | ||||||||||
Issuance costs of preferred stock and warrants | - | - | (34,036 | ) | |||||||||
Net Cash Provided by Financing Activities | 639,276 | 24,755 | 1,446,002 | ||||||||||
Net increase (decrease) in cash | (215,670 | ) | 3,340 | 1,367 | |||||||||
Cash, beginning of period | 217,037 | - | - | ||||||||||
Cash, end of period | $ | 1,367 | $ | 3,340 | $ | 1,367 | |||||||
Supplemental Disclosure of NonCash Investing and | |||||||||||||
Financing Activities Information | |||||||||||||
Common stock issued for consulting services | $ | 42,000 | $ | - | $ | 42,000 | |||||||
Common stock shares to be issued for consulting services | $ | 292,044 | $ | - | $ | 292,044 |
See accompanying notes to the condensed consolidated financial statements
6
YAPPN CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2013
(Unaudited)
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 a social media website that will host multi-language conversations based on different topics generating revenues from both corporate sponsorship and access to its analytical platform. The Company has offices in the US and Canada. In March 2013, the Company acquired a concept and technology license from Intertainment Media Inc., a Canadian company, in exchange for 70,000,000 common stock shares of the Company. As a result of this exchange, Intertainment Media Inc. acquired a 70 percent ownership of the Company. The accompanying consolidated financial statements of the Company were prepared from the accounts of the Company under the accrual basis of accounting.
Unaudited Interim Financial Statements
The interim condensed consolidated financial statements of the Company as of November 30, 2013, and for the three months and six months ended November 30, 2013 and 2012, and cumulative from inception, 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, 2013, and the results of its operations and its cash flows for the three months and six months ended November 30, 2013 and cumulative from inception. These results are not necessarily indicative of the results expected for the fiscal year ending May 31, 2014. The accompanying 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 financial statements as of May 31, 2013 filed with the SEC, for additional information including significant accounting policies.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Yappn Acquisition Corp. and Yappn Canada, Inc. All inter-company balances and transactions have been eliminated on consolidation.
Development Stage
The accompanying condensed consolidated financial statements have been prepared in accordance with the FASB Accounting Standards Codification No 915, Development Stage Entities. A development stage enterprise is one in which planned and principal operations have not commenced or, if its operations have commenced, there has been no significant revenue. Development-stage companies report cumulative costs from the enterprise’s inception.
Cash and Cash Equivalents
For purposes of reporting within the condensed consolidated statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Accounts Receivable
Accounts receivable represent trade obligations from customers that are subject to normal trade collection terms, without discount. The Company periodically evaluates the collectability of its accounts receivable and considers the need to record or adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. The Company has not recorded any allowances for doubtful accounts for the periods ended November 30, 2013 and May 31, 2013. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and credit to accounts receivable. Actual amounts could vary from the recorded estimates.
7
Revenue Recognition
The Company recognizes revenues when completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is reasonably assured.
Cost of Revenue
The cost of revenue consists primarily of expenses associated with the delivery and distribution of our products. These include expenses related to the operation of our data centers, salaries, benefits and customer project based costs for certain personnel on our operations teams.
Advertising and Promotion Costs
Advertising and marketing costs are expensed as incurred and totaled and $266,432 and $0 during the six months ended November 30, 2013 and November 30, 2012, respectively, and $282,320 for the period from November 3, 2010 (inception) through November 30, 2013.
Income (Loss) per Common Share
Basic income (loss) per common share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. As of November 30, 2013 the Company issued 9,360,000 units of Series A Convertible Preferred Stock with a conversion feature to common stock at an exercise price of $0.10 and 9,480,000 five year warrants to purchase an additional share of common stock at a per share exercise price of $0.10, which has a dilutive effect on earnings per share when the Company has net income for the period. Additionally, the Company issued convertible notes that are convertible into common stock at the option of the holder and has a dilutive effect on earnings per share when the Company has net income for the period. The conversion formula is based on the value of the debt host at the time of conversion.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Accounting for Income Tax”. It prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result, the Company has applied a more-likely-than-not recognition threshold for all tax uncertainties. The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities. The Company is subject to taxation in the United States. All of the Company’s tax years since inception remain subject to examination by Federal and state jurisdictions.
The Company classifies penalties and interest related to unrecognized tax benefits as income tax expense in the condensed consolidated statements of operations and comprehensive income (loss). There have been no penalties nor interest related to unrecognized tax benefits reflected in the statements of operations and comprehensive loss for the six months ended November 30, 2013 and November 30, 2012 and for the period of November 3, 2010 (inception) through November 30, 2013.
8
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts the Company could realize in a current market exchange.
The Company follows FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. US GAAP establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy are described below:
Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 - Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The Series A Preferred Stock and Warrants (Notes 8 and 9) and the convertible debt instruments (Note 6) are classified as Level 2 liabilities.
As of November 30, 2013 and May 31, 2013, the carrying value of accounts payable and accrued liabilities and loans from related parties approximated fair value due to the short-term nature of these instruments.
Fair Value of Preferred Stock and Warrants Derivative Instruments
The Company entered into subscription agreements whereby it sold Units consisting of one share of Series A Convertible Preferred Stock and one warrant to purchase one share of the Company’s common stock at an exercise price of $0.10. Both the preferred stock and the warrant are treated as liabilities rather than as equity instruments resulting from the variability caused by the favorable terms to the holders. The Series A Preferred Stock and the five year warrants provide the holder with full anti-dilution ratchet provisions that provide the holder with a potential increase in the amount of common stock exchanged or a reduction in the exercise price of the instruments should the Company subsequently issue stock or securities convertible into common stock at a price lower than the stated exercise price of $0.10.
Both instruments are measured at fair value using a binomial lattice valuation methodology and are included in the condensed consolidated balance sheets as derivative liabilities. Both unrealized and realized gains and losses related to the derivatives are recorded based on the changes in the fair values and are reflected as a financing expenses on the condensed consolidated statements of operations and comprehensive income (loss).
Hybrid Financial Instruments
For certain hybrid financial instruments, the Company elected to apply the fair value option to account for these instruments. The Company made an irrevocable election to measure such hybrid financial instruments at fair value in their entirety, with changes in fair value recognized in earnings at each balance sheet date. The election may be made on an instrument by instrument basis.
9
Debt Discount and Amortization of Debt Discount
Debt discount represents the fair value of embedded conversion options of various convertible debt instruments and attached convertible equity instruments issued in connection with debt instruments. The debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component of other expenses in the accompanying statements of operations.
Fair Value of Convertible Notes
On October 9, 2013 and November 15, 2013, the Company issued convertible notes that were convertible into common stock, at the option of the holder, at a conversion prices based on the trading price per share over a period of time. As a result of the variability in the amount of common stock to be issued, these instruments are reflected at fair value. Both instruments are measured at fair value using a binomial lattice valuation methodology and are included in the condensed consolidated balance sheets under the caption “convertible note at fair value”. Any unrealized and realized gains and losses related to the convertible notes are recorded based on the changes in the fair values and are reflected as financing expenses on the condensed consolidated statements of operations and comprehensive loss.
Estimates
The condensed consolidated financial statements are prepared on the basis of accounting principles generally accepted in the United States. The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and revenues and expenses for the periods from November 3, 2010 (inception) through November 30, 2013.
The Company’s significant estimates include the fair value of financial instruments including the underlying assumptions to estimate the fair value of derivative financial instruments and convertible notes, income tax rate, income tax provision and valuation allowance of deferred tax assets.
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, if deemed appropriate, those estimates are adjusted accordingly.
These significant accounting estimates bear the risk of change due to the fact that there are uncertainties attached to those estimates and certain estimates are difficult to measure or value.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to current period presentations with no impact on stockholder’s equity or net income (loss) and comprehensive income (loss).
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the condensed consolidated financial statements upon adoption.
2. Going Concern
The accompanying 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 net losses for the period from November 3, 2010 (inception) to November 30, 2013 of $3,555,006. The Company has funded its activities primarily from equity and debt financings. From March 2013 through June 2013, the Company raised funds totaling approximately $936,000 through the sale of Units consisting of a Series A Convertible Preferred stock and a warrant. In July 2013 the Company received $336,000 from a loan from a third party. In October and November 2013, the Company issued two convertible promissory notes for principal amounts of $78,500, and $65,000, respectively.
10
Implementation of the Company’s business plan will require additional debt or equity financing and there can be no assurance that additional financing can be obtained on acceptable terms. These conditions raise substantial doubt about the Company’s 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.
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. In September 2013, the Company began commercial operations of its web-site, which is expected to generate operating cash flows in the future. Until those cash flows are sufficient the Company will pursue other financing when deemed necessary.
There can be no assurance that the raising of equity 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 material adverse effect on the Company’s ability to continue as a going concern. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition and business prospects will be materially and adversely affected, and the Company may have to cease operations.
3. Concentration of Credit Risk
All of the Company’s sales for the period from November 3, 2010 (inception) through November 30, 2013 are attributed to a small number of customers.
4. Transfer of Assets
On March 28, 2013, the Company purchased a prospective social media platform and related group of assets from Intertainment Media, Inc. for 70,000,000 shares of the Company’s common stock. As a result of this purchase Intertainment Media, Inc. became the majority owner of Yappn Corp. Included in the transfer of assets is a services agreement dated March 21, 2013 by and among Intertainment Media, Inc. and its wholly-owned subsidiaries, collectively “Ortsbo”. The services agreement provides general maintenance and enhancements for the assets provided on a fee and license basis.
The transferred assets are reflected at the historical carrying value of Intertainment Media, Inc. which was Nil.
5. Convertible Promissory Bridge Loan and Loan from Third Party
On February 28, 2013, the Company agreed to a 6% convertible promissory bridge loan in the aggregate principal amount of $200,000 to an accredited investor, with gross proceeds of $200,000. The transfer of the principal did not take place until March 28, 2013, at which time it was exchanged, along with implied accrued interest of $1,000, for the purchase of 4,010,000 Units of Series A Convertible Preferred Stock and attached warrants at a stated value of $0.10 per unit on that date (Note 8).
On July 10, 2013, the Company borrowed $336,000 (Canadian $350,000) from a private individual. The loan has a term of six months and is interest free for the first 120 days and 1% per month for the remainder with a final bullet payment due at the end of the term. As a result of favorable terms to the Company, the fair value of the loan on inception was estimated at $309,313 using an imputed interest rate of 18%. As of November 30, 2013, the fair value of the note was $330,776.
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6. Convertible Promissory Notes
On October 9, 2013 the Company sold an 8% Convertible Note in the principal amount of $78,500 pursuant to a Securities Purchase Agreement, which was executed on October 9, 2013. The 8% Convertible Note matures on July 2, 2014 and has an interest rate of 8% per annum until it becomes due. Any amount of principal or interest which is not paid when due, shall bear interest at the rate of 22% per annum from the due date thereof.
The 8% Convertible Note may be converted into common stock of the Company at any time beginning on the 180th day of the date from issuance. However, it shall not be converted if the conversion would result in beneficial ownership by the holder and its affiliates to own more than 9.99% of the outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the Note holder with not less than 61 days’ prior notice to the Company. The conversion price is 61% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days immediately prior to the conversion date.
On November 15, 2013, the Company executed and issued a Convertible Promissory Note agreement with an investor in the principal amount of $500,000, with a $50,000 original issue discount that shall be ratably applied towards payments made by the investor. The Convertible Promissory Note is due two years from the effective date of each payment. It is interest free if repaid within 90 days and if not paid within 90 days, it bears a one-time interest charge of 12%, which is in addition to the original issue discount. The Company agreed to pay a closing and due diligence fee of 8% of each payment made by the investor which shall be applied to the principal amount of the Convertible Promissory Note. After 90 days from the effective date and until the maturity date the Company may not make further payments on the note without written approval. The principal and any accrued interest are convertible into the Company’s common stock at the lower of $0.075 per share or 60% of the lowest trade price in the 25 days prior to conversion. The note has piggyback registration rights with respect to the shares into which the note is convertible. As of November 30, 2013, the Company had borrowed $65,000 under this agreement.
As a result of the variability in the amount of common stock to be issued, the Company has elected to value these instruments at fair value.
The following is a summary of the convertible notes as of November 30, 2013:
8% Convertible Note | Convertible Promissory Note | Total | ||||||||||
Principal amounts | $ | 78,500 | $ | 65,000 | $ | 143,500 | ||||||
Convertible notes at fair value at commitment date | $ | 100,234 | $ | 142,812 | $ | 243,046 | ||||||
Change in fair value | 22,341 | (36,303 | ) | (13,962 | ) | |||||||
Convertible notes at fair value at November 30, 2013 | $ | 122,575 | $ | 106,509 | $ | 229,084 |
The Company has determined the convertible notes to be a Level 2 fair value measurement and has used the binominal lattice pricing model to calculate the fair value as of the commitment date and November 30, 2013. The Company used the following basic data inputs for the calculation: the exercise or strike price ranging from $0.045 to $0.071, time to expiration ranging from 214 to 730 days, the risk free interest rate of 0.11%, the stock price on the commitment date of $0.07, the current stock price on the reporting date of $0.09, the estimated volatility of the stock price in the future of 150%, and no dividends.
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7. Common Stock
On December 8, 2010, the Company issued 112,500,000 post-split (7,500,000 pre-split) shares of common stock to the officers and directors of the Company for cash proceeds of $750.
During the period from November 3, 2010 (inception) through May 31, 2011 the Company issued 30,000,000 post-split (2,000,000 pre-split) shares of its common stock, par value $0.0001 per share, for $40,000 less issuance costs of $1,828.
On March 11, 2013, the Company authorized a stock dividend, treated as a stock split for accounting purposes, whereby an additional 14 shares of common stock, par value $0.0001 per share, was issued on each one share of common stock outstanding to each holder of record on March 25, 2013. All common stock and per share information has been adjusted retroactively for the stock split.
On March 14, 2013 the Company changed the authorized stock to 200,000,000 shares, par value $0.0001 per share.
On March 28, 2013, immediately following the Asset Purchase, under the terms of an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations, the Company transferred all of its pre-Asset Purchase assets and liabilities to the Company’s wholly-owned subsidiary, Plesk Holdings, Inc., a Delaware corporation. Thereafter, pursuant to a stock purchase agreement, the Company transferred all of the outstanding capital stock of Plesk Holdings, Inc. to certain of the Company’s former shareholders in exchange for cancellation of an aggregate of 112,500,000 shares of our common stock held by such persons.
On June 24, 2013, the Company issued and transferred 300,000 shares of common stock, valued at $42,000 in exchange for business consulting services. The Company will issue an additional 300,000 shares of common stock, valued at $33,000, in exchange for business consulting services over the period ended November 30, 2013.
The Company will issue 500,000 shares of common stock to a provider of consulting services for past consulting obligations and in consideration of arrangements entered into for Intertainment Media, Inc. for prior and future obligations. The Company negotiated a settlement with that same provider of consulting services to only issue an additional 200,000 shares of common stock for services provided instead of the original estimate of 449,261 shares of common stock. The provider will now receive a total of 700,000 shares of common stock for settlement of all current and prior consulting services as of November 30, 2013 with a value of $101,711.
The Company will issue 300,000 share of common stock, valued at $24,000, in addition to cash compensation to a provider of strategic consulting services.
The Company will issue 1,666,667 shares of common stock, valued at $133,333, to Ortsbo for amending the Services Agreement dated March 21, 2013 for an exclusive license to use the Ortsbo property (see Note 12).
8. Preferred Stock and Warrants
On March 14, 2013 the Company authorized 50,000,000 shares of preferred stock, par value $0.0001.
Series A Preferred Stock
On March 28, 2013 the Company was authorized to issue 5,500,000 shares of Series A Preferred Stock with a par value $0.0001 and a stated value of $0.10.
On March 28, 2013, the Company sold an aggregate of 4,010,000 Units at a per unit price of $0.10 on a private placement basis to certain investors for net cash proceeds, including the conversion of $201,000 from the bridge loan (Note 5) including associated interest, for $401,000. Each Unit consisted of (i) one share of the Series A Convertible Preferred Stock, par value $0.0001 per share, convertible into one share of our common stock; and (ii) a five year warrant to purchase an additional share of the Company’s common stock at a per share exercise price of $0.10. At the time of the sale, the market price of the Company’s common stock was $0.50.
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The net cash proceeds from the financing were $401,000. As the instruments are considered derivatives and the assigned fair values were greater than the net cash proceeds from the transaction, the excess was treated as a financing expense on issuance of derivatives for accounting purposes and reported on the Company’s condensed consolidated statements of operations and comprehensive income (loss) below the operating income as an “other expense”.
Accounting allocation of initial proceeds | March 28, 2013 | |||
Gross proceeds | $ | 401,000 | ||
Derivative preferred stock liability fair value | (1,610,015 | ) | ||
Derivative warrant liability fair value | (1,909,161 | ) | ||
Financing expense on issuance of derivative instruments | $ | 3,118,176 |
On May 31, 2013, the Company amended and restated the Certificate of Designation governing the Series A Preferred Stock in order to increase the number of authorized shares of preferred stock designated as Series A Preferred Stock to 10,000,000 shares. Subsequent to the increase, on May 31, 2013, the Company sold an additional 3,700,000 Units to certain accredited investors for an aggregate purchase price of $370,000. Each Unit consisted of (i) one share of the Series A Convertible Preferred Stock, par value $0.0001 per share, convertible into one share of our common stock; and (ii) a five year warrant to purchase an additional share of the Company’s common stock at a per share exercise price of $0.10. At the time of the sale, the market price of the Company’s common stock was $0.55.
The net cash proceeds from the financing were $370,000. As the instruments are considered derivatives and the assigned fair values were greater than the net cash proceeds from the transaction, the excess was treated as a financing expense on issuance of derivatives for accounting purposes and reported on the Company’s condensed consolidated statements of operations and comprehensive income (loss) below the operating income as an “other expense”.
Accounting allocation of initial proceeds | May 31, 2013 | |||
Gross proceeds | $ | 370,000 | ||
Derivative preferred stock liability fair value | (1,670,550 | ) | ||
Derivative warrant liability fair value | (1,945,830 | ) | ||
Financing expense on issuance of derivative instruments | $ | 3,246,380 |
On June 7, 2013, the Company sold an additional 1,650,000 Units to certain accredited investors for an aggregate purchase price of $165,000. Each Unit consisted of (i) one share of the Series A Convertible Preferred Stock, par value $0.0001 per share, convertible into one share of our common stock; and (ii) a five year warrant to purchase an additional share of the Company’s common stock at a per share exercise price of $0.10. At the time of the sale, the market price of the Company’s common stock was $0.72.
The net cash proceeds from the financing were $165,000. As the instruments are considered derivatives and the assigned fair values were greater than the net cash proceeds from the transaction, the excess was treated as a financing expense on issuance of derivatives for accounting purposes and reported on the Company’s condensed consolidated statements of operations and comprehensive income (loss) below the operating income as an “other expense”.
Accounting allocation of initial proceeds | June 7, 2013 | |||
Gross proceeds | $ | 165,000 | ||
Derivative preferred stock liability fair value | (1,025,475 | ) | ||
Derivative warrant liability fair value | (1,146,915 | ) | ||
Financing expense on issuance of derivative instruments | $ | 2,007,390 |
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On November 15, 2013, the Company issued 120,000 warrants under the same full ratchet anti-dilution provisions as the other warrants, to a broker as compensation for a portion of the private placement made on May 31, 2013. The broker previously received a cash commission of $34,036 and together with the warrants, valued at $13,248, bringing the total broker fees to $47,284.
The calculation methodologies for the fair values of the derivative preferred stock liability and the derivative warrant liability are described in Note 9 – Derivative Preferred Stock and Warrant Liabilities.
The following is a summary of preferred stock and warrants issued, forfeited or expired and exercised through November 30, 2013:
Preferred Stock | Warrants | |||||||
Outstanding as of May 31, 2012 | - | - | ||||||
Issued on March 28, 2013 | 4,010,000 | 4,010,000 | ||||||
Issued on May 31, 2013 | 3,700,000 | 3,700,000 | ||||||
Exercised and expired | - | - | ||||||
Total – as of May 31, 2013 | 7,710,000 | 7,710,000 | ||||||
Issued on June 7, 2013 | 1,650,000 | 1,650,000 | ||||||
Exercised and expired | - | - | ||||||
Issued on November 15, 2013 | - | 120,000 | ||||||
Total – as of November 30, 2013 | 9,360,000 | 9,480,000 |
The outstanding warrants at May 31, 2013 and November 30, 2013 have a stated average exercise price of $0.10 per share and have an approximate weighted average remaining life ranging from approximately 4.3 years to 5 years.
As a result of the issuance of convertible notes with a conversion formula resulting in a conversion price lower than the strike price for the preferred stock and warrants, the Company has made adjustments to reflect the estimated obligations. As a result of the ratchet provisions, the Company calculated its obligations using a conversion price of 60% discount of the market price on the date of issuance.
For the preferred stock, the Company has estimated its exposure to be approximately $614,430 in a separate calculation, using the same binomial lattice methodology and values for of the underlying preferred stock issuances. Since the provisions for the warrants are different than the preferred stock, the Company adjusted the assumptions used in the binomial lattice valuation to account for the estimated change in the exercise price. Both effects are treated as a change in the fair value of derivative liabilities and convertible notes on the condensed consolidated statement of operations and comprehensive income (loss) and as additions to the derivative liabilities on the condensed consolidated balance sheet (Note 9).
9. Derivative Preferred Stock and Warrant Liabilities
The Company has preferred stock and warrants outstanding with price protection provisions that provide the holder with a potential increase in the amount of common stock exchanged or a reduction in the exercise price of the instruments should the Company subsequently issue stock or securities convertible into common stock at a price lower than the stated exercise price of $0.10. Simultaneously, with any reduction to the exercise price, additional preferred shares will be issued in direct correlation to a reduction in the exercise price and that the conversion price of the warrants will be decreased to the new price. The price protection on the preferred shares is for a twelve month period, while the price protection on the warrants is for the life of the warrants.
Accounting for Derivative Preferred Stock Liability
The Company’s derivative preferred stock instruments have been measured at fair value at November 30, 2013 and May 31, 2013 using the binomial lattice model. The Company recognizes all of its preferred stock with price protection in its condensed consolidated balance sheet as a liability. The liability is revalued at each reporting period and changes in fair value are recognized currently in the condensed consolidated statements of operations and comprehensive income (loss). The initial recognition and subsequent changes in fair value of the derivative preferred stock liability have no effect on the Company’s condensed consolidated cash flows.
The revaluation of the preferred stock at each reporting period resulted in the recognition of a gain of $4,218,055 and a loss of $199,297 within the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the six months ended November 30, 2013 and the year ended May 31, 2013, respectively, and is included in the condensed consolidated statements of operations and comprehensive income (loss) under the caption “Change in fair value of derivative liabilities and convertible notes”. The estimated effect of the ratchet provision is estimated as $614,430 expense for the six month period ended November 30, 2013. The fair value of the preferred stock at November 30, 2013 and May 31, 2013 was $901,712 and $3,479,862, respectively, which is reported on the condensed consolidated balance sheets under the caption “Derivative Preferred Stock Liability”.
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The following is a summary of the derivative preferred stock liability from May 31, 2012 through November 30, 2013:
Value | No. of Preferred Stock Units | |||||||
Balance as of May 31, 2012 | $ | - | - | |||||
Preferred stock issued March 28, 2013 | 1,610,015 | 4,010,000 | ||||||
Preferred stock issued May 31, 2013 | 1,670,550 | 3,700,000 | ||||||
Increase in fair value of derivative preferred stock liability | 199,297 | - | ||||||
Balance as of May 31, 2013 | 3,479,862 | 7,710,000 | ||||||
Preferred stock issued June 7, 2013 | 1,025,475 | 1,650,000 | ||||||
Estimated effect of ratchet provisions | 614,430 | - | ||||||
Decrease in fair value of derivative preferred stock liability | (4,218,055 | ) | - | |||||
Balance as of November 30, 2013 | $ | 901,712 | 9,360,000 |
Fair Value Assumptions Used in Accounting for Derivative Preferred Stock Liability
The Company has determined its derivative preferred stock liability to be a Level 2 fair value measurement and has used the binominal lattice pricing model to calculate the fair value as of November 30, 2013 and May 31, 2013. The binomial lattice model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.
The key inputs used in the March 28, 2013 issuance of 4,010,000 preferred stock shares for determination of fair value calculations were as follows:
March 28, 2013 | May 31, 2013 | November 30, 2013 | ||||||||||
Current stock price | $ | 0.50 | $ | 0.55 | $ | 0.09 | ||||||
Current exercise price | $ | 0.10 | $ | 0.10 | $ | 0.10 | ||||||
Time to expiration - days | 365 | 301 | 118 | |||||||||
Risk free interest rate | 1.48 | % | 1.48 | % | .11 | % | ||||||
Estimated volatility | 100 | % | 100 | % | 150 | % | ||||||
Dividend | - | - | - |
The key inputs used in the May 31, 2013 issuance of 3,700,000 preferred stock shares for determination of fair value calculations were as follows:
May 31, 2013 | November 30, 2013 | |||||||
Current stock price | $ | 0.55 | $ | 0.09 | ||||
Current exercise price | $ | 0.10 | $ | 0.10 | ||||
Time to expiration - days | 365 | 182 | ||||||
Risk free interest rate | 1.48 | % | .11 | % | ||||
Estimated volatility | 100 | % | 150 | % | ||||
Dividend | - | - |
The key inputs used in the June 7, 2013 issuance of 1,650,000 preferred stock shares for determination of fair value calculations were as follows:
June 7, 2013 | November 30, 2013 | |||||||
Current stock price | $ | 0.72 | $ | 0.09 | ||||
Current exercise price | $ | 0.10 | $ | 0.10 | ||||
Time to expiration - days | 365 | 189 | ||||||
Risk free interest rate | 1.48 | % | .11 | % | ||||
Estimated volatility | 100 | % | 150 | % | ||||
Dividend | - | - |
The Company separately calculated the estimated exposure to the ratchet provisions of the preferred stock subscription. The Company estimated the equivalent shares and used the binomial lattice valuation model for the underlying preferred stock issuances to arrive at an estimated exposure of $614,430. This amount is included in the condensed consolidated statements of operations and comprehensive income (loss) under the caption “Change in fair value of derivative liabilities and convertible notes”.
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Accounting for Derivative Warrant Liability
The Company’s derivative warrant instruments have been measured at fair value at November 30, 2013 and May 31, 2013 using the binomial lattice model. The Company recognizes all of its warrants with price protection in its condensed consolidated balance sheets as a liability. The liability is revalued at each reporting period and changes in fair value are recognized currently in the condensed consolidated statements of operations and comprehensive income (loss). The initial recognition and subsequent changes in fair value of the derivative warrant liability have no effect on the Company’s condensed consolidated cash flows.
The revaluation of the warrants at each reporting period resulted in the recognition of a gain of $4,405,239 and a loss of $195,287 within the Company’s condensed consolidated statements of operations and comprehensive loss for the six months ended November 30, 2013 and for the year ended May 31, 2013, respectively, and is included in the condensed consolidated statements of operations and comprehensive income (loss) under the caption “Change in fair value of derivative liabilities and convertible notes”. The fair value of the warrants at November 30, 2013 and May 31, 2013 was $801,590 and $4,050,278, respectively, which is reported on the condensed consolidated balance sheets under the caption “Derivative Warrant Liability”.
The following is a summary of the derivative warrant liability from May 31, 2012 through November 30, 2013:
Value | No. of Warrants | |||||||
Balance as of May 31, 2012 | $ | - | - | |||||
Warrants issued March 28, 2013 | 1,909,161 | 4,010,000 | ||||||
Warrants issued May 31, 2013 | 1,945,830 | 3,700,000 | ||||||
Increase in fair value of derivative warrant liability | 195,287 | - | ||||||
Balance as of May 31, 2013 | 4,050,278 | 7,710,000 | ||||||
Warrants issued June 7, 2013 | 1,146,915 | 1,650,000 | ||||||
Warrants issued November 15, 2013 | 9,636 | 120,000 | ||||||
Decrease in fair value of derivative warrant liability | (4,405,239 | ) | - | |||||
Balance as of November 30, 2013 | $ | 801,590 | 9,480,000 |
Fair Value Assumptions Used in Accounting for Derivative Warrant Liability
The Company has determined its derivative warrant liability to be a Level 2 fair value measurement and has used the binominal lattice pricing model to calculate the fair value as of November 30, 2013 and May 31, 2013. The binomial lattice model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. The data inputs are reflective of adjustments for any ratchet provisions that need to be considered.
The key inputs used in the March 28, 2013 issuance of 4,010,000 warrants for determination of fair value calculations were as follows:
March 28, 2013 | May 31, 2013 | November 30, 2013 | ||||||||||
Current stock price | $ | 0.50 | $ | 0.55 | $ | 0.09 | ||||||
Current exercise price | $ | 0.10 | $ | 0.10 | $ | 0.03 | ||||||
Time to expiration - days | 1,826 | 1,762 | 1,670 | |||||||||
Risk free interest rate | 1.48 | % | 1.48 | % | 1.37 | % | ||||||
Estimated volatility | 150 | % | 150 | % | 150 | % | ||||||
Dividend | - | - | - |
The key inputs used in the May 31, 2013 issuance of 3,700,000 warrants for determination of fair value calculations were as follows:
May 31, 2013 | November 30, 2013 | |||||||
Current stock price | $ | 0.55 | $ | 0.09 | ||||
Current exercise price | $ | 0.10 | $ | 0.03 | ||||
Time to expiration - days | 1,826 | 1,734 | ||||||
Risk free interest rate | 1.48 | % | 1.37 | % | ||||
Estimated volatility | 150 | % | 150 | % | ||||
Dividend | - | - |
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The key inputs used in the June 7, 2013 issuance of 1,650,000 warrants for determination of fair value calculations were as follows:
June 7, 2013 | November 30, 2013 | |||||||
Current stock price | $ | 0.72 | $ | 0.09 | ||||
Current exercise price | $ | 0.10 | $ | 0.03 | ||||
Time to expiration - days | 1,826 | 1,741 | ||||||
Risk free interest rate | 1.48 | % | 1.37 | % | ||||
Estimated volatility | 150 | % | 150 | % | ||||
Dividend | - | - |
In connection with a portion of the private placement on May 31, 2013, the broker was eligible for 120,000 warrants having the same full ratchet anti-dilution provisions as the other warrants, as part of the broker’s commission. These warrants were estimated using the same valuation techniques and reflected as an accrued liability until issued on November 15, 2013 at a value of $9,636. Any prior accruals of approximately $53,000 for these warrants were adjusted in the condensed consolidated statements of operations and comprehensive income (loss) under the caption “Change in fair value of derivative liabilities and convertible notes”.
The key inputs used in the November 15, 2013 issuance of 120,000 warrants for determination of fair value calculations were as follows:
November 15, 2013 | November 30, 2013 | |||||||
Current stock price | $ | 0.08 | $ | 0.09 | ||||
Current exercise price | $ | 0.10 | $ | 0.03 | ||||
Time to expiration - days | 1,826 | 1,811 | ||||||
Risk free interest rate | 1.37 | % | 1.37 | % | ||||
Estimated volatility | 150 | % | 150 | % | ||||
Dividend | - | - |
10. Employee Benefit and Incentive Plans
On March 28, 2013, the Company adopted an equity incentive plan pursuant to which 10,000,000 shares of common stock may be issued as incentive awards to officers, directors, employees, consultants and other qualified persons. As of May 31, 2013 and November 30, 2013 no shares have been issued under this plan.
11. Income Taxes
The provision for income taxes for the six months ended November 30, 2013 and November 30, 2012 consisted of the following:
November 30, 2013 | November 30, 2012 | |||||||
Current | $ | - | $ | - | ||||
Deferred | 714,607 | 10,884 | ||||||
Change in valuation allowance | (714,607 | ) | (10,884 | ) | ||||
$ | - | $ | - |
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The Company’s income tax rate computed at the statutory federal rate of 35% differs from its effective tax rate primarily due to permanent items, state taxes and the change in the deferred tax asset valuation allowance.
November 30, 2013 | November 30, 2012 | |||||||
Income tax at statutory rate | 35.00 | % | 34.00 | % | ||||
Permanent difference | (53.00 | ) | - | |||||
Change in valuation allowance | 18.00 | (34.00 | ) | |||||
Total | 0.00 | % | 0.00 | % |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management evaluates whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on Management’s evaluation, the net deferred tax asset was offset by a full valuation allowance. The Company’s deferred tax asset valuation allowance will be reversed if and when the Company generates sufficient taxable income in the future to utilize the tax benefits of the related deferred tax assets.
The tax effects of temporary differences that give rise to the Company’s deferred tax asset as of November 30, 2013 and May 31, 2013 are as follows:
November 30, 2013 | May 31, 2013 | |||||||
Net operating loss | $ | 950,642 | $ | 236,035 | ||||
Less: valuation allowance | (950,642 | ) | (236,035 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
As of November 30, 2013 and May 31, 2013 the Company had a net operating loss carry-forward of approximately $2,716,121 and $674,387, respectively, which may be used to offset future taxable income and begins to expire in 2033.
12. Related Party Balances and Transactions
On December 8, 2010, the Company issued 112,500,000 shares of common stock (post stock split) to the officers and directors of the Company for cash proceeds of $750.
During the period from November 3, 2010 (inception) through May 31, 2011, a stockholder advanced $13,525 to the Company for working capital purposes. These amounts were non-interest bearing, due on demand, and were repaid during the year ended May 31, 2011.
During the year ended May 31, 2012, the Company’s officer and director advanced $6,359 to the Company for working capital purposes.
On April 25, 2012, the Company’s previous officer and director agreed to lend the Company up to $100,000 over the next two years provided that at no time can the principal amount outstanding exceed $25,000. No interest accrued on the outstanding principal under the terms of this note. As of the resignation of the officer in March 2013, there was no outstanding balance. There were no obligations outstanding as of May 31, 2013.
In February 2013, a stockholder assumed the Company’s obligation to fulfill a sale of product from which the Company previously received $19,795. These amounts were offset against the stockholders advances.
During the year ended May 31, 2013 a previous officer advanced $4,686 for working capital purposes, assumed liabilities of $5,771 for the Company, and purchased a computer for $536 from the Company for which proceeds were netted against amounts owed to him. There were no further advances provided by that officer prior to his resigning. All obligations were settled as of March 28, 2013.
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Total stockholder account forgiven was $36,075. No amounts are due to the stockholder as of May 31, 2013.
From inception until March 28, 2013, a former officer and director of the Company provided office space and other office administrative resources at no cost. Subsequent to March 28, 2013, the Company utilizes office space from Intertainment Media, Inc., when necessary.
On March 28, 2013, the Company purchased the Yappn assets from Intertainment Media, Inc. in consideration for 70,000,000 shares of common stock for a controlling 70 percent interest in the Company, The Chief Executive Officer and director of the Company, David Lucatch, and a Director of the Company, Herb Willer, are also Chief Executive Officer and directors of Intertainment Media, Inc.
On March 28, 2013, as part of the assets purchased the Company also assumed a technology services agreement with Ortsbo, a wholly-owned subsidiary of Intertainment Media, Inc. Mr. Lucatch is also the president and a member of the Board of Directors of Ortsbo, Inc. (he was Chief Executive of Ortsbo, Inc. from 2010 through 2012). Mr. Lucatch is also a member of the Board of Directors of Ortsbo USA, Inc. The service agreement requires the Company to pay cost plus thirty percent (30%) for actual cost incurred by Ortsbo in providing technology services. In addition, the Company shall pay to Ortsbo an ongoing revenue share which shall equal seven percent (7%) of the gross revenue generated by the Company’s activities utilizing the technology.
In April and May 2013, the Company paid for general development and managerial services performed by its parent, Intertainment Media, Inc., and prepaid for such services for the subsequent months. The Company also prepaid expenses for the CEO, David Lucatch. Services provided by Intertainment Media, Inc. personnel are 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. for third party purchases are invoiced at cost. Related party fees incurred and paid under this arrangement totaled $233,400 for the year end May 31, 2013 and a remaining related party prepaid balance totaling $80,518 existed as of May 31, 2013.
For the six months ended November 30, 2013, the Company paid for general development and managerial services performed by its parent, Intertainment Media, Inc. Related party fees incurred and paid and accrued under this arrangement totaled $778,727 for the six months ended November 30, 2013 and a remaining related party liability balance totaling $512,543 existed as of November 30, 2013.
The Company agreed to issue 500,000 shares of common stock, valued at $75,000, to a provider of consulting services for past consulting obligations and in consideration of arrangements entered into for Intertainment Media, Inc. for prior and future obligations. The Company has reflected this transaction in stockholder’s equity as a subscription of the common stock and established a receivable due from Intertainment Media, Inc. which is reflected as a prepaid development and related expense of a related party on the balance sheet. As of November 30, 2013 no commons stock has been issued.
On October 23, 2013, the Company and Ortsbo, a wholly owned subsidiary of Intertainment Media, Inc., entered into an amendment to the Services Agreement dated March 21, 2013 for an exclusive license to use the Ortsbo property in exchange for 1,666,667 shares of common stock of the Company. The shares were valued at the market price on the date of the agreement for a value of $133,333.
13. Commitments and Contingencies
None.
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14. Subsequent Events
On December 12, 2013 the Company, sold an 8% Convertible Note in the principal amount of $42,500 pursuant to a Securities Purchase Agreement, which was executed on December 4, 2013. The 8% Convertible Note matures on September 6, 2014 and has an interest rate of 8% per annum until it becomes due. Any amount of principal or interest which is not paid when due, shall bear interest at the rate of 22% per annum from the due date thereof.
The 8% Convertible Note may be converted into common stock of the Company at any time beginning on the 180th day of the date from issuance. However, it shall not be converted if the conversion would result in beneficial ownership by the holder and its affiliates to own more than 9.99% of the outstanding shares of the Company’s common stock. Such limitations on conversion may be waived by the Note holder with not less than 61 days’ prior notice to the Company. The conversion price is 61% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days immediately prior to the conversion date.
On December 17, 2013, the Company sold two (2) 8% convertible promissory note in the amount of $25,000 each for a total of $50,000 before deductions of banking fees of $2,500 and legal expenses of $1,500 for each note resulting in a net cash received of $42,000. The notes mature on September 13, 2014. The note may be converted into common stock of the Company at any time beginning on the 180th day of the date of the note at a conversion price of 55% of the average prices of the lowest two closing prices on the 10 days prior to conversion pursuant to the requirements of the note.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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 undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this Quarterly Report or the date of documents incorporated by reference herein that include forward-looking statements.
Business History
We were originally incorporated under the laws of the State of Delaware on November 3, 2010 under the name of “Plesk Corp.” Our initial business plan was to import consumer electronics, home appliances and plastic house wares. In March 2013, we changed our name to YAPPN Corp. and entered into an asset purchase agreement to acquire a prospective social media platform. We have abandoned our original business plan and will operate a social media platform that will host multi-language conversations based on different topics, such as interests, brands, and activities, in an environment that incentivizes user engagement through rewards and other gamification features.
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 70,000,000 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”). IMI, as a result of this transaction has a controlling interest in Yappn. 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 will be a significant component of the Yappn business opportunity. Additionally, on March 28, 2013, we sold an aggregate of 4,010,000 units in a private placement to certain investors. $401,000 of the units were sold at a per unit price of $0.10. Additionally, and included in the foregoing unit total, an aggregate of $200,000 of our bridge notes (plus $1,000 in accrued but unpaid interest on such bridge notes) converted into the private placement at a per unit price of $0.10. Each unit consisted of (i) one share of our newly designated Series A Convertible Preferred Stock, par value $0.0001 per share, which is convertible into one share of our common stock and (ii) a five year warrant to purchase an additional share of our common stock at a per share exercise price of $0.10. On May 31, 2013 and June 7, 2013, we sold to certain accredited investors additional 3,700,000 units and 1,650,000 units for an aggregate purchase price of $370,000 and $165,000, respectively.
We have abandoned our plan to import consumer electronics, home appliances and plastic house wares. Immediately following the Asset Purchase, under the terms of an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations, we transferred all of our pre-Asset Purchase assets and liabilities to our wholly owned subsidiary, Plesk Holdings, Inc., a Delaware corporation. Thereafter, pursuant to a stock purchase agreement, we transferred all of the outstanding capital stock of Plesk Holdings, Inc. to certain of our former shareholders in exchange for cancellation of an aggregate of 112,500,000 shares of our common stock held by such persons.
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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 Business
Upon the closing of the Asset Purchase, we acquired the following assets from IMI: (i) the Yappn name and all associated trademark, service mark, trade dress and copyrights associated with the Yappn name, logo and graphic art, (ii) the yappn.com domain name, (iii) the Services Agreement between IMI and Ortsbo, the owner of certain multi-language real-time translation intellectual property that will be a significant component of the Yappn business opportunity, (iv) the Yappn business concept and (v) other Yappn related assets the parties may mutually identify and agree shall be included as part of the purchased assets. Specifically excluded from the purchased assets are any assets not listed as purchased assets and any assets and other intellectual property owned by Ortsbo except to the extent set forth in the Services Agreement.
Yappn will be a social media website at www.yappn.com that will host multi-language conversations based on different topics, such as interests, brands, and activities, in an environment that incentivizes user engagement through rewards and other gamification features. Our goal is to create, through Yappn, an online social community where people can meet, chat, engage and consume content in multiple languages simultaneously. The contents of this site are not incorporated into this report. The Yappn platform will include instant chat capabilities, message boards and gamification features, each of which will be translated in real time into the user’s native language, including the following:
· | Meet and Chat. The Yappn platform will enable users to meet people from all over the world without any language barriers and to interact with them through online chatting and forums by providing access to topical discussion boards in almost 70 languages. This will permit real-time multiple language conversations to co-exist without the “fracturing” that comes as a result of many people posting in multiple languages to a single chat area or splintering the audience by segregating posts by language. We intend that users will be able to connect to other social networks and to interact with friends and followers on Facebook, Yahoo!, Twitter and other social media. | |
· | Engage and Consume. Unlike many social media sites, Yappn will not be primarily “friend” focused, but instead will be a “topic” or “interest” focused site bringing people together to discuss current events, celebrities, technology, sports, entertainment and other popular areas of conversation. Yappn will have an extensive “gamification” system that will reward users for their engagement through virtual “trophies”, “badges”, and “medals” for participation in selected events. |
Yappn redefines global social marketing by also providing a set of stand-alone commercial tools for brands providing easy to implement and cost effective globalization solutions complimenting Twitter, Facebook, Pinterest, Instagram, Flickr and YouTube, web, mobile, online broadcasting, private networks and event virtualization.
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 are in the development stage, and have 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 financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our Strategy
The initial Yappn website was launched in September 2013. Since that time, we have made improvements and enhancements to the site and the tool set. As of November 2013, we have successfully completed the first phase of the rollout of its global chat platform and are now focused on the second phase of the rollout, including the launch of its updated chat platform and the launch of its revenue driven commercial tool set programs.
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Our business model is to partner with brands and work on a percentage of revenue ranging from 12% to 15% of the value of the base transaction, plus professional services. We provide services on a fee for services basis, and in some cases on a CPM (cost per thousand) or as a percentage of revenue to online advertising and monetization events. We plan to offer opportunities for corporate sponsorship of message boards, contests and surveys and to provide marketers with access to an analytics platform. We anticipate that the majority of our revenues will come from corporate sponsorships and the analytic platform, not from the sale of advertising space.
The Yappn chat platform (www.chat.yappn.com) allows users to create and moderate discussion rooms based on interest topics where users can view content and chat in their native language in real time. Each user's experience is individualized to their native language allowing for a global free flow of communication without a language barrier. Revenue in the chat platform is driven by sponsorship programs, private chat boards and other upcoming upgrades in the future.
The Yappn tool set (www.tools.yappn.com) provides brands with a series of technology add-ons to complement their current social media activities and allows them to reach a global audience by instantly providing key messaging in almost 70 languages. The tools are a "build once and deploy everywhere" arrangement allowing brands to embed key social media like Twitter, Facebook, YouTube, Instagram, Pinterest, Flickr and Tumblr and mobile into existing platforms. Yappn tools have been effectively tested and commercially deployed through a number of entertainment, sports and commercial brands and they are now available to agencies to enhance their client's domestic and global outreach plans. The programs are available on a servicing contractual basis and we have begun to receive contractual commitments from various brands for the use of its tool sets.
We continue to develop and plan the launch of additional revenue driven feature sets. Each new feature set is built on a prime revenue driver for our business as it continues to work with clients and their agencies to develop new deployment tools and programs to reach an expanding global audience.
The Services Agreement
We acquired the rights under the Services Agreement dated March 21, 2013 between IMI and IMI’s wholly owned Ortsbo subsidiaries upon the closing of the Asset Purchase. The services provided by Ortsbo under the Services Agreement will be integral to our new business focus relating to the Yappn assets. Pursuant to the terms of the Services Agreement, Ortsbo will make available to us its representational state transfer application programming interface (the “Ortsbo API”), which provides multi-language real-time translation as a cloud service. We have the right to incorporate the Ortsbo API service in our Yappn social media platform, including enabling multi-language translation of all web content, forums, user comments, sponsor advertisements, and any other text based language pertaining to the Yappn experience, whether viewed on the yappn.com domain or pursuant to a mobile app or other form of digital delivery to the end user (collectively, the “API Services”). The Services Agreement also provides that Ortsbo makes its “Live and Global” product offering (the “Video Service” and, together with the API Services, the “Services”), 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 do not include the “chat” technology itself and we shall be solely responsible for creating, securing or otherwise building out our website and any mobile applications to include chat functionality, user forums, user feedback, and related functionality within which the Ortsbo API can be utilized to enable multi-language use. No intellectual property owned by Ortsbo will be transferred to us except to the extent set forth in the Services Agreement as described in “Intellectual Property” set forth below.
For all ongoing services provided under the Services Agreement, we shall pay Ortsbo an amount equal to the actual cost incurred by Ortsbo in providing the Services, plus thirty percent (30%). In addition, we shall pay to Ortsbo an ongoing revenue share which shall equal seven percent (7%) of the gross revenue generated by our activities utilizing the Services. If we are earning revenue without use of the Services because, for example, all communications are taking place in English, then no revenue share shall be owing to Ortsbo with respect thereto. If there is a blend of multi-language and English-English communications, then the parties shall do their best to pro rate or apportion the revenues appropriately in order to compensate Ortsbo for the portion of our revenues enabled by use of the Services from Ortsbo. The Services Agreement may be terminated by either party with 60 days notice and both parties may not, for the term of the Agreement and a period of two years thereafter, (i) directly or indirectly assist any business that is competitive with the other party’s business, (ii) solicit any person to leave employment with the other and (iii) solicit or encourage any customer to terminate or otherwise modify adversely its business relationship with the other.
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In October 2013 amended the Services Agreement. Under the terms of the amendment to the services agreement, we will have the first right of refusal to purchase the Ortsbo platform and all its assets and operations for a period of two years; increasing its use of Ortsbo's technology for business to consumer social programs at a purchase price to be negotiated at the time the Company exercises its right. We will also have a right to purchase a copy of the source code only applicable to Yappn programs for $2 Million USD which may be paid in cash or restricted shares of the Company's common stock at a per share price of $.15. As part of the enhancement agreement, we issued Ortsbo 1,666,667 shares of our restricted common stock, subject to all necessary approvals.
Competition
Our new business focus relating to and arising from the development of the Yappn assets is characterized by innovation, rapid change, and disruptive technologies. We will face significant competition in every aspect of this business, including from companies that provide tools to facilitate the sharing of information, that enable marketers to display personalized advertising and that provide users with multi-language real-time translation of social media platforms. We will compete with the following, many of whom have significantly greater resources than we do:
· | Companies that offer full-featured products that provide a similar range of communications and related capabilities that we provide. These offerings include, for example, Facebook, LinkedIn, Craigslist, Google+, which Google has integrated with certain of its products, including search and Android, as well as other, largely regional, social networks that have strong positions in particular countries, such as Mixi in Japan and vKontakte and Odnoklassniki in Russia. | |
· | Companies that provide web- and mobile-based information and entertainment products and services that are designed to engage users. | |
· | Companies that offer platforms for game developers to reach broad audiences with free-to-play games including Facebook and Apple's iOS and Google's Android mobile platforms. | |
· | 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. |
We anticipate that we will compete to attract, engage, and retain 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. Further, we believe that our focus on encouraging user engagement based on topics and interests, rather than on “friends” or connections, will differentiate us from much of the competition.
Intellectual Property
We own (i) the yappn.com domain name and (ii) the Yappn name and all trademarks, service marks, trade dress and copyrights associated with the Yappn name, logo and graphic art. We may prepare several patent filings in the future. Upon payment of the applicable fees pursuant to the Services Agreement, we will become 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.
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Marketing
We intend that the Yappn community will grow virally with users inviting their friends to connect with them, supported by internal efforts to stimulate user awareness and interest. In addition, we plan to invest in marketing its services to build its brand and user base around the world and to regularly host online events and conferences to engage with developers, marketers and online consumers.
Government Regulation
We are subject to a number of U.S. federal and state, and foreign laws and regulations that affect companies conducting business on the Internet, many of which are still evolving and being tested in courts, and could be interpreted in ways that could harm our business. These may involve user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation and online payment services. In particular, we are subject to federal, state, and foreign laws regarding privacy and protection of user data. Foreign data protection, privacy, and other laws and regulations are often more restrictive than those in the United States. U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly-evolving industry in which we operate. There are also a number of legislative proposals pending before the U.S. Congress, various state legislative bodies, and foreign governments concerning data protection which could affect us. For example, a revision to the 1995 European Union Data Protection Directive is currently being considered by legislative bodies that may include more stringent operational requirements for data processors and significant penalties for non-compliance.
Legal Proceedings
None.
RESULTS OF OPERATIONS
Three Months Ended November 30, 2013 and November 30, 2012
Three Months Ended | ||||||||
November 30, | November 30, | |||||||
2013 | 2012 | |||||||
Revenues | $ | 25,500 | $ | - | ||||
Cost of revenues | 6,440 | - | ||||||
Gross profit | 19,060 | - | ||||||
Operating Expenses | ||||||||
Marketing | 155,658 | - | ||||||
Research and development | 330,760 | - | ||||||
General and administrative | 166,527 | 2,229 | ||||||
Legal fees | 28,210 | - | ||||||
Consulting and professional fees | 296,264 | 20,624 | ||||||
Loss from Operations | (958,359 | ) | (22,853 | ) | ||||
Interest expense | 20,248 | - | ||||||
Financing expense of issuance of derivative liabilities and convertible notes | 85,546 | - | ||||||
Change in fair value of derivative liabilities and convertible notes | 155,297 | - | ||||||
Other (income) / expense | 9,156 | - | ||||||
Net loss | $ | (1,228,606 | ) | $ | (22,853 | ) |
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Revenues
We are presently in the process of commercializing our multi-language platform. We had revenues of $25,500 and $0 for the three months ended November 30, 2013 and November 30, 2012, respectively. Revenues resulted from services provided for a few individual customer events both prior to launch of the platform and after the platform was operating.
Cost of Sales
We had costs of $6,440 and $0 for the three months ended November 30, 2013 and November 30, 2012, respectively. Costs are directly associated with the services provided and appropriate allocation of other resources related to the computer operations and databases utilized.
Total operating expenses
During the three months ended November 30, 2013, total operating expenses were $977,419. The operating expenses consisted of marketing of $155,658, research and development expenses of $330,760, general and administrative expenses of $166,527, legal fees of $28,210 and consulting and professional fees of $296,264.
Our operating expenses have increased in the three months ended November 30, 2013 as we have changed our business plan to developing and launching our multi-language platform. Research and development expenses are for consulting fees of technology consultants working on the social media platform. General and administrative expenses include CEO and communications consulting services. General and administrative expenses also include an expense for $133,333 related to the October 23, 2013 amendment to the Ortsbo services agreement for the exclusive right to use the software platform and the right of first refusal to acquire the software in the event Ortsbo desires to sell the software. Legal expenses were incurred primarily related to general legal matters and assistance with a private placements and issuance of convertible notes. Consulting and professional fees were primarily consulting service costs for sales development and marketing of the product and accounting and auditing fees.
During the three months ended November 30, 2012, total operating expenses were $22,853. The operating expenses consisted of general and administrative expenses of $2,229 and consulting and professional fees of $20,624.
Total other income and expenses
During the three months ended November 30, 2013, total other income and expenses resulted in expense of $270,247. The other expenses consisted of interest expense of $20,248, financing expense related to the issuance of convertible notes of $85,546, an increase in the fair value of the derivative liabilities and convertible notes resulting in expense of $155,297 and miscellaneous other expense of $9,156.
The financing expenses related to the issuance of the convertible notes for the three months ended November 30, 2013 related primarily to the issuance of two convertible debt instruments for total proceeds of $143,500. As a result of the variability in the amount of common stock to be issued upon conversion, these convertible notes are reflected at fair value. They are valued using a binomial fair value model upon inception and adjusted accordingly to market at the close of the period. The accounting for the convertible notes at fair value are recorded as a financing expense on the condensed consolidated statements of operations and comprehensive income (loss) and their fair value is adjusted each reporting period.
As of November 30, 2013 we adjusted the fair value of the derivatives instruments related to the sale of 9,360,000 units of preferred stock and 9,480,000 warrants previously issued and the convertible notes issued. Included in this adjustment were estimates and changes in assumptions to reflect the ratchet provisions that were triggered by the issuance of convertible notes. The market price of the common shares declined from an August 31, 2013 share price of $0.12 to a November 30, 2013 share price of $0.09. As a result of the revaluation of the derivative instruments and convertible notes on November 30, 2013, the related derivative liabilities and convertible notes at fair value were increased on an aggregate basis, resulting in other expense of $155,297 for the three months ended November 30, 2013.
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Net income (loss) and comprehensive income (loss)
During the three months ended November 30, 2013 and 2012, we had net loss and comprehensive loss of $1,228,606 and $22,853, respectively.
Six Months Ended November 30, 2013 and November 30, 2012
Six Months Ended | ||||||||
November 30, | November 30, | |||||||
2013 | 2012 | |||||||
Revenues | $ | 31,260 | $ | - | ||||
Cost of revenues | 9,983 | - | ||||||
Gross profit | 21,277 | - | ||||||
Operating Expenses | ||||||||
Marketing | 266,432 | - | ||||||
Research and development | 668,936 | - | ||||||
General and administrative | 201,663 | 3,399 | ||||||
Legal fees | 69,497 | - | ||||||
Consulting and professional fees | 829,566 | 28,514 | ||||||
Income (loss) from Operations | (2,014,817 | ) | (32,013 | ) | ||||
Interest expense | 28,094 | - | ||||||
Financing expense of issuance of derivative liabilities and convertible notes | 2,043,076 | - | ||||||
Change in fair value of derivative liabilities and convertible notes | (8,026,438 | ) | - | |||||
Other (income) / expense | (1,178 | ) | - | |||||
Net income (loss) | $ | 3,941,629 | $ | (32,013 | ) |
Revenues
During the six months ended November 30, 2013, we have been in the process of commercializing our multi-language platform with various features. We had revenues of $31,260 and $0 for the six months ended November 30, 2013 and November 30, 2012, respectively. Revenues resulted from services provided for a few individual customer events both prior to launch of the platform and after the platform was operating.
Cost of Sales
We had costs of $9,983 and $0 for the six months ended November 30, 2013 and November 30, 2012, respectively. Costs are directly associated with the services provided and appropriate allocation of other resources related to the computer operations and databases utilized.
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Total operating expenses
During the six months ended November 30, 2013, total operating expenses were $2,036,094. The operating expenses consisted of marketing of $266,432, research and development expenses of $668,936, general and administrative expenses of $201,663, legal fees of $69,497 and consulting and professional fees of $829,566.
Our operating expenses have increased in the six months ended November 30, 2013 as after we changed our business plan we have been utilizing resources to fully develop, launching and commercialize our multi-language platform. Research and development expenses are for consulting fees of technology consultants working on the social media platform. General and administrative expenses include CEO and communications consulting services. General and administrative expenses also include an expense for $133,333 related to the October 23, 2013 amendment to the Ortsbo services agreement for the exclusive right to use the software platform and the right of first refusal to acquire the software in the event Ortsbo desires to sell the software. Legal expenses were incurred primarily related to general legal matters and assistance with a private placements and convertible notes. Consulting and professional fees were primarily consulting service costs for sales development and marketing of the product and accounting and auditing fees.
During the six months ended November 30, 2012, total operating expenses were $32,013. The operating expenses consisted of general and administrative expenses of $3,499 and consulting and professional fees of $28,514.
Total other income and expenses
During the six months ended November 30, 2013, total other income and expenses resulted in income of $5,956,446. The other expenses consisted of interest expense of $28,094 and financing expenses on the issuance of derivative liabilities and convertible notes of $2,043,076. The financing expenses consisted of a financing costs related to the issuance of the preferred stock, warrants and convertible notes. Other income consisted of the net decrease in the fair value of the derivative liabilities and convertible notes resulting in income of $8,026,438 and miscellaneous other income of $1,178.
The financing expenses related to the issuance of derivative liabilities increased for the six months ended November 30, 2013 related to our raising capital by issuing 1,650,000 units of preferred stock and warrants and issuance of two convertible notes. For accounting purposes, since the preferred stock and warrants have provisions to protect the holder by including full ratchet anti-dilution measures, they are treated as derivatives liabilities and are valued using a binomial fair value model upon inception and adjusted accordingly to market at the close of the period. In this same period we issued two convertible notes for total proceeds of $143,500. As a result of the variability in the amount of common stock to be issued upon conversion, these convertible notes are reflected at fair value. They are valued using a binomial fair value model upon inception and adjusted accordingly to market at the close of the period. The accounting for the derivative liabilities and the convertible notes at fair value are recorded as a financing expense on the condensed consolidated statements of operations and comprehensive income (loss) and their fair value is adjusted each reporting period.
As of November 30, 2013 we adjusted the fair value of the derivatives instruments related to the sale of 9,360,000 units of preferred stock, 9,480,000 warrants previously issued and the convertible notes. Included in this adjustment were estimates and changes in assumptions to reflect the ratchet provisions that were triggered by the issuance of convertible notes. The market price of the common shares declined from a May 31, 2013 share price of $0.55 to a November 30, 2013 share price of $0.09. As a result of the revaluation of the derivative instruments and the convertible notes at fair value on November 30, 2013, the related derivative liabilities and convertible notes at fair value were reduced in aggregate, resulting in other income of $8,026,438 for the six months ended November 30, 2013.
Net income (loss) and comprehensive income (loss)
During the six months ended November 30, 2013 and 2012, we had net income and comprehensive income of $3,941,629 and net loss and comprehensive loss of $32,013, respectively.
For the Period from November 3, 2010 (inception) to November 30, 2013
Revenues
We had $37,176 of revenues for the period from November 3, 2010 (inception) through November 30, 2013.
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Cost of Sales
We had costs of $13,107 for the period from November 3, 2010 (inception) through November 30, 2013 directly associated with the services provided and appropriate allocation of other resources related to the computer operations and databases utilized.
Total operating expenses
During the period from November 3, 2010 (inception) through November 30, 2013, total operating expenses were $2,678,237, resulting in a loss from operations of $2,654,168. The operating expenses consisted of marketing of $282,320, research and development expenses of $866,211, general and administrative expenses of $346,471, legal fees of $171,899 and consulting and professional fees of $1,011,336.
Since March 2013, our operating expenses have increased as we have changed our business plan to developing and launching our multi-language platform. Research and development expenses are for consulting fees of technology consultants working on the social media platform. General and administrative expenses include CEO and communications consulting services. General and administrative expenses also include an expense for $133,333 related to the October 23, 2013 amendment to the Ortsbo services agreement for the exclusive right to use the software platform and the right of first refusal to acquire the software in the event Ortsbo desires to sell the software. Legal expenses were incurred primarily related to structuring the asset transaction on March 28, 2013 and for costs for subsequent private placements and issuance of convertible notes. Consulting and professional fees were primarily consulting service costs for sales development and marketing of the product and accounting and auditing fees.
Total other income and expenses
During the period from November 3, 2010 (inception) though November 30, 2013, total other income and expenses resulted in expense of $900,838. The other expenses consisted of interest expense of $29,094 and financing expenses on the issuance derivative liabilities and convertible notes of $8,504,776. The financing expenses consisted of financing expenses on the issuance of derivative preferred stock and warrant liabilities, financing expenses paid for private placement assistance and the issuance of convertible notes. Other income consisted of the change in fair value of the derivative liabilities and convertible notes at fair value resulting in income of $7,631,854 and other miscellaneous income of $1,178.
Our other income and expenses changed significantly as a result of our raising capital by issuing 9,360,000 units of preferred stock and 9,480,000 warrants that, for accounting purposes, are treated as derivatives. For accounting purposes, since the preferred stock and warrants have provisions that protect the holder by including full ratchet anti-dilution measures, they are treated as derivatives liabilities and are valued using a binomial fair value model upon inception and adjusted accordingly to market at the close of the period. We issued two convertible notes for total proceeds of $143,500. As a result of the variability in the amount of common stock to be issued upon conversion, these convertible notes are reflected at fair value. They are valued using a binomial fair value model upon inception and adjusted accordingly to market at the close of the period. The accounting for the derivative liabilities and convertible notes at fair value are recorded as a financing expense on the condensed consolidated statements of operations and comprehensive income (loss) and their fair value is adjusted each reporting period.
As of November 30, 2013 the fair value of the derivatives instruments related to the sale of 9,360,000 units of preferred stock and 9,480,000 warrants and the convertible notes previously issued were adjusted to reflect current market conditions. Included in this adjustment were estimates and changes in assumptions to reflect the ratchet provisions that were triggered by the issuance of convertible notes. The market price of the common shares declined from the initial sale of the instruments in during 2013 to a November 30, 2013 share price of $0.09. As a result of the revaluation of the derivative instruments and convertible notes at fair value on November 30, 2013, the changes in the fair value of derivative liabilities and convertible notes at fair value totaled $7,631,854 for the period of November 3, 2010 (inception) through November 30, 2013.
Net loss and comprehensive loss
During the period from November 3, 2010 (inception) through November 30, 2013, we had a net loss and comprehensive loss of $3,555,006.
Liquidity and Capital Resources
As of November 30, 2013, we had a cash balance of $1,367. We do not have sufficient funds to fund our expenses 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 or plans 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.
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Going Concern Consideration
We incurred net losses and comprehensive losses totaling $3,555,006 for the period from November 3, 2010 (inception) through November 30, 2013.
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 are in the development stage, and have 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 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. In September 2013, the Company began commercial operations of its web-site, which is expected to generate operating cash flows in the future. 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 and has engaged a number of investment brokers to assist management in achieving its financing objectives.
On June 7, 2013 we sold an aggregate of 1,650,000 units to certain accredited investors for an aggregate purchase price of $165,000. The units were sold at a per unit price of $0.10. Each unit consisted of (i) one share of our designated Series A Convertible Preferred Stock, par value $0.0001 per share, which is convertible into one share of our common stock and (ii) a five year warrant to purchase an additional share of our common stock at a per share exercise price of $0.10.
On July 10, 2013, the Company borrowed $336,000 (Canadian $350,000) from a private individual. The loan has a term of six months and is interest free for the first 120 days and 1% per month for the remainder with a final bullet payment due at the end of the term.
On October 9, 2013, the Company sold an 8% convertible promissory note in the amount of $78,500. The note matures on July 2, 2014. The note may be converted into common stock of the Company at any time beginning on the 180th day of the date of the note at a conversion price of 61% of the average prices of the lowest three closing prices on the 10 days prior to conversion pursuant to the requirements of the note.
On November 15, 2013, the Company issued a original interest discount promissory note with a principal sum of $500,000 plus accrued or unpaid interest and fees and received $65,000.
On December 12, 2013, the Company sold an 8% convertible promissory note in the amount of $42,500. The note matures on September 6, 2014. The note may be converted into common stock of the Company at any time beginning on the 180th day of the date of the note at a conversion price of 61% of the average prices of the lowest three closing prices on the 10 days prior to conversion pursuant to the requirements of the note. As a result of the variability in the amount of common stock to be issued, these instruments are reflected at fair value using a binomial lattice valuation methodology and are included in the condensed consolidated balance sheets under the caption “convertible note at fair value”.
On December 17, 2013, the Company sold two (2) 8% convertible promissory note in the amount of $25,000 each for a total of $50,000 before deductions of banking fees of $2,500 and legal expenses of $1,500 for each note resulting in a net cash received of $42,000. The notes mature on September 13, 2014. The note may be converted into common stock of the Company at any time beginning on the 180th day of the date of the note at a conversion price of 55% of the average prices of the lowest two closing prices on the 10 days prior to conversion pursuant to the requirements of the note. As a result of the variability in the amount of common stock to be issued, these instruments are reflected at fair value using a binomial lattice valuation methodology and are included in the condensed consolidated balance sheets under the caption “convertible note at fair value”.
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There can be no assurance that the raising of 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 material 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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure 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 submits 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 submits 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”)) as November 30, 2013. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of November 30, 2013 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 quarter ended November 30, 2013, 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, 2013, 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
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ITEM 6. EXHIBITS
Index to Exhibits
3.1 | 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 (2) | |
4.1 | Convertible Promissory Note (3) | |
4.2 | Convertible Promissory Note Issued in Favor of JMJ Financial (5) | |
4.3 | 8% Convertible Note (6) | |
4.4 | Form of 8% Convertible Note (7) | |
10.1 | Form of Subscription Agreement (1) | |
10.2 | Form of Warrant (1) | |
10.3 | Form of Registration Rights Agreement (1) | |
10.4 | Securities Purchase Agreement (3) | |
10.5 | Amendment to Services Agreement (4) | |
10.6 | Amendment Agreement to Convertible Promissory Note Issued in Favor of JMJ Financial (5) | |
10.7 | Securities Purchase Agreement (6) | |
10.8 | Securities Purchase Agreement between Yappn Corp. and GEL Properties LLC (7) | |
10.9 | Securities Purchase Agreement between Yappn Corp. and LG Capital Funding LLC (7) | |
31.1 | Certification of Chief Executive Officer under Rule 13(a) — 14(a) of the Exchange Act. | |
31.2 | Certification of Chief Financial Officer under Rule 13(a) — 14(a) of the Exchange Act. | |
32 | Certification of CEO and CFO under 18 U.S.C. Section 1350 | |
EX-101.INS** | XBRL Instance Document | |
EX-101.SCH** | XBRL Taxonomy Extension Schema Document | |
EX-101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |
EX-101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |
EX-101.LAB** | XBRL Taxonomy Extension Label Linkbase Document | |
EX-101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
__________
(1) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on April 3, 2013.
(2) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on June 3, 2013.
(3) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 15, 2013.
(4) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on October 29, 2013.
(5) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on November 21, 2013.
(6) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on December 18, 2013.
(7) Incorporated by reference to the Company’s Current Report on Form 8-K, filed with the SEC on December 27, 2013.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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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 15th day of January 2014.
YAPPN CORP. | ||
By: | /s/ David Lucatch | |
DAVID LUCATCH | ||
Chief Executive Officer |
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