Attached files

file filename
EX-31.2 - CERTIFICATION - Epoxy, Inc.ex312.htm
EX-32.1 - CERTIFICATION - Epoxy, Inc.ex321.htm
EX-31.1 - CERTIFICATION - Epoxy, Inc.ex311.htm
EX-10.16 - FORM OF REPLACEMENT NOTE ISSUED TO GW HOLDINGS GROUP LLC. - Epoxy, Inc.ex1016.htm
EX-10.15 - FORM OF NOTE EXTENSION - Epoxy, Inc.ex1015.htm
EX-10.14 - FORM OF SPA AND 8% CONVERTIBLE NOTE GW HOLDINGS GROUP LLC. - Epoxy, Inc.ex1014.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended June 30, 2016
   
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from __________ to __________

000-53669
Commission File Number
 
EPOXY, INC.
(Exact name of registrant as specified in its charter)
   
Nevada
N/A
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
2518 Anthem Village Drive, Suite 100, Henderson NV
89052
(Address of principal executive offices)
(Zip Code)
 
702-350-2449
(Registrant’s  telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [  ]

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 
Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
[  ]
Accelerated filer
[  ]
       
Non-accelerated filer
[  ]
Smaller reporting company
[X]
(Do not check if a smaller reporting company)
     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 
Yes [  ]  No [X ]
 
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 
Yes [  ]  No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS
 
483,650,826  shares of common stock outstanding as of August 12, 2016
(Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.)

 
 

 

EPOXY, INC.
TABLE OF CONTENTS

   
Page
 
PART I – FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements
   3
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   4
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
   9
     
Item 4.
Controls and Procedures
   9
     
 
PART II – OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
   10
     
Item 1A.
Risk Factors
   10
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   10
     
Item 3.
Defaults Upon Senior Securities
   11
     
Item 4.
Mine Safety Disclosures
   11
     
Item 5.
Other Information
   11
     
Item 6.
Exhibits
   12
     
 
SIGNATURES
   13

 
2

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PART I -- FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS

 
Page
Unaudited Consolidated Balance Sheets as of June 30, 2016 and December 31,2015
F-1
Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015
F-2
Unaudited Consolidated Statement of Cash Flows for the six months ended June 30, 2016 and 2015
F-3
Notes to the Unaudited Consolidated Financial Statements
F-4 to F-15


 

 
3

 

EPOXY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
June 30,
2016
   
December 31,
2015
 
 ASSETS
           
Current
           
Cash
 
$
4,188
   
$
5,883
 
Accounts receivable
   
880
     
880
 
Prepaid expenses
   
1,583
     
4,558
 
Total Current Assets
   
6,651
     
11,321
 
                 
Vehicle
   
3,774
     
9,436
 
Trademark and Patent
   
7,695
     
7,695
 
                 
Total Assets
 
$
18,120
   
$
28,452
 
                 
LIABILITIES
               
Current
               
Accounts payable and accrued liabilities
 
157,333
   
146,433
 
Deferred revenue
   
53,400
     
-
 
Loans payable
   
32,000
     
32,000
 
Derivative liabilities
   
65,472
     
296,090
 
Convertible notes, net of unamortized discounts and deferred financing cost
   
141,098
     
267,617
 
Total Current Liabilities
   
449,303
     
742,140
 
                 
Total Liabilities
   
449,303
     
742,140
 
                 
STOCKHOLDERS’ DEFICIT
               
Preferred Stock, $0.00001 par value;
               
authorized: 35,000,000 Series A Preferred shares, 25,080,985 issued and outstanding as of June 30, 2016 and December 31, 2015
   
251
     
251
 
authorized: 15,000,000 Series B Preferred shares, 1,000,000 shares issued and outstanding as of June 30, 2016 and December 31, 2015
   
10
     
10
 
Common Stock, $0.00001 par value;
               
authorized: 850,000,000 shares, 483,650,826 and 226,253,317 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
   
4,836
     
2,263
 
Additional paid-in capital
   
3,229,910
     
2,397,946
 
Accumulated deficit
   
(3,666,190
)
   
(3,114,158
)
Total Stockholders’ Deficit
   
(431,183
)
   
(713,688
)
Total Liabilities and Stockholders’ Deficit
 
$
18,120
   
$
28,452
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements
 

 

 
F-1

 

EPOXY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three month ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
                         
Revenue
 
$
7,401
   
$
7,330
   
$
13,152
   
$
15,645
 
                                 
Operating Expenses
                               
Depreciation
   
2,830
     
2,830
     
5,661
     
5,661
 
Software research and development
   
13,870
     
31,757
     
21,869
     
47,145
 
General and administrative expenses
   
78,740
     
133,913
     
134,679
     
210,661
 
Total operating expenses
   
95,440
     
168,500
     
162,209
     
263,467
 
                                 
Loss from operations
   
(88,039
)
   
(161,170
)
   
(149,057
)
   
(247,822
)
                                 
Other Income (Expenses):
                               
Gain (loss) on change in fair value of derivative liabilities
   
(75,063
)
   
887,305
     
(270,835
)
   
320,971
 
Recovered loss on debt settlement
   
-
     
-
     
9,000
     
-
 
Interest expenses
   
(58,665
)
   
(166,079
)
   
(141,140
)
   
(319,189
)
Total other income (expenses)
   
(133,728
)
   
721,226
     
(402,975
)
   
1,782
 
                                 
Net income (loss)
 
$
(221,767
)
 
 $
560,056
   
$
(552,032
)
 
$
(246,040)
 
                                 
Net income (loss) per share – basic
 
$
(0.00
)
 
 $
0.00
   
$
(0.00
)
 
$
(0.00
)
Net income (loss) per share – diluted
   
(0.00
)
   
0.00
     
(0.00
)
   
(0.00
)
                                 
Weighted average shares outstanding – basic
   
426,240,861
     
190,657,897
     
339,407,102
     
183,892,494
 
Weighted average shares outstanding – diluted
   
426,240,861
     
284,567,214
     
339,407,102
     
183,892,494
 


The accompanying notes are an integral part of these unaudited consolidated financial statements
 

 
F-2

 

EPOXY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
       
   
Six months ended
 
   
June 30,
 
   
2016
   
2015
 
Cash flows from Operating Activities
           
Net loss
 
$
(552,032
)
 
$
(246,040)
 
Adjustments to reconcile net loss to net cash used in operations:
               
Depreciation
   
5,661
     
5,661
 
Share issuance for services
   
-
     
40,917
 
(Gain) loss on change in fair value of derivative liabilities
   
270,835
     
(320,971
)
Amortization of discounts on convertible notes
   
121,585
     
300,301
 
Imputed interest
   
350
     
350
 
Changes in operating assets and liabilities:
               
Prepaid expenses
   
2,975
     
(8,000
)
Deferred revenue
   
53,400
     
-
 
Accounts payable and accrued expenses
   
24,031
     
37,361
 
Net cash used in operating activities
   
(73,195
)
   
(190,421
)
                 
Cash flows from Financing Activities
               
Proceeds from convertible notes
   
71,500
     
170,000
 
Net cash provided by financing activities
   
71,500
     
170,000
 
                 
Net decrease in cash during the period
   
(1,695
)
   
(20,421
)
Cash, beginning of period
   
5,883
     
63,953
 
Cash, end of period
 
$
4,188
   
$
43,532
 
                 
Supplemental disclosure of cash flow information:
               
Cash paid for:
               
    Interest
 
$
-
   
$
  -
 
    Income taxes
 
$
-
   
$
  -
 
                 
Supplemental non-cash investing activities:
               
Debt principal converted to shares
 
242,000
     
298,000
 
Accrued interest converted to shares
   
13,132
     
13,565
 
Derivative liability reclassified as additional paid-in capital
   
579,057
     
995,240
 
Derivative liability – debt discount
   
77,604
     
200,000
 
Debt issuance financing cost
   
9,500
     
-
 

The accompanying notes are an integral part of these unaudited consolidated financial statements
 
 


 

 
F-3

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

 
Note 1 – Description of business and basis of presentation

Organization and nature of business

Epoxy, Inc. (the “Company”) was incorporated in the State of Nevada on November 13, 2007 as Rioridge Resources Corp. On July 22, 2008, the Company changed its name to Neohydro Technologies Corp.

On August 1, 2014, the Company’s name changed from Neohydro Technologies Corp. to Epoxy, Inc.  in furtherance of actions taken on May 23, 2014, when the Board of Directors of the Company (the “Board”) approved, and recommended to the Majority Stockholders that they approve the name change. On May 27, 2014, the Majority Stockholders approved the name change by written consent in lieu of a meeting, in accordance with Nevada law. On August 4, 2014, the Company submitted the name change to FINRA for their review and approval, as well as the approval of a symbol change from NHYT to EPXY.   The Company filed an amendment to our Articles of Incorporation with the Secretary of State of Nevada changing our name to Epoxy, Inc. effective on August 1, 2014.

The Company, through its wholly owned subsidiary, Couponz, Inc., is the developer of Epoxy app, an application or "app" for iPhone iOS and Android operating systems. Epoxy is an innovative smart phone application designed and created to conveniently connect business owners and consumers in order to ease marketing frustrations. The mobile app gives loyal customers the ease of keeping track of rewards and punch cards all in one place while also giving opportunities to review and share businesses with friends. In turn, Epoxy provides businesses the ability to reward customers, share offers, and deliver information about special events with their customers.

Financial Statements Presented

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  All such adjustments are of a normal recurring nature.  Operating results for the three and six months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.  For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 14, 2016.

Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.

Note 2 – Going Concern
 
For the six months ended June 30, 2016, the Company used net cash in operations of $73,195. In addition, the Company had a working capital deficit as of June 30, 2016. The Company believes that its existing capital resources may not be adequate to enable it to execute its business plan. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company estimates that it will require additional cash resources during 2016 based on its current operating plan and condition. The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue and a decrease in certain operating expenses, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.



 
F-4

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 3- Fair Value Measurements

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:

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.

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 of input that is significant to the fair value measurement of the instrument.

The following table provides a summary of the fair value of our derivative liabilities as of June 30, 2016 and December 31, 2015:
   
Fair value measurements on a recurring basis
 
   
Level 1
   
Level 2
   
Level 3
 
As of June 30, 2016:
                       
Liabilities
                       
Derivative liabilities
 
$
-
   
$
-
   
$
65,472
 
                         
As of December 31, 2015:
                       
Liabilities
                       
Derivative liabilities
 
$
-
   
$
-
   
$
296,090
 

Note 4- Loans Payable

   
Loan #1
   
Loan #2
   
Loan #3
   
Loan #4
 
                                 
Principal
  $ 5,000     $ 7,000     $ 10,000     $ 10,000  
Issued Date
 
August 9, 2013
   
September 11, 2013
   
June 30, 2014
   
July 25, 2014
 
Due Date
 
August 8, 2014
   
On demand
   
June 30, 2015
   
July 25, 2015
 
Interest Rate
    10 %     N/A       5 %     5 %
Default Interest Rate
    16 %     N/A       11 %     11 %
                                 
Principal:
                               
Balance, June 30, 2016 and December 31, 2015
  $ 5,000     $ 7,000     $ 10,000     $ 10,000  
Accrued Interest:
                               
Balance, December 31, 2015
  $ 1,200    
Nil
    $ 625     $ 1,000  
Balance, June 30, 2016
  $ 2,896    
Nil
    $ 3,403     $ 3,287  


 
F-5

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 5- Convertible Notes

(1)  
Convertible notes originally due on November 27, 2015:

On November 27, 2012, the Company entered into certain convertible loan agreements with four (4) investors. The Company received a total of $125,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $125,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000.

On August 1, 2014 the Company successfully amended the terms of certain convertible loan agreements with four (4) investors for a total of $125,000 due and payable on November 27, 2015.  Under the amended terms, a total of $125,000 originally available for conversion into a total of 250,000,000 shares of common stock at $0.0005 per share has been amended to reflect a price of $0.005 per share for a total of 25,000,000 shares of common stock, if converted.

The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification and as such the unamortized discount of $88,184 was recorded as loss on extinguishment of debt. The Company recalculated the intrinsic value of the embedded beneficial conversion feature of $125,000 this has been recorded at the discount on the convertible note. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000.

During August 2014, the conversion options in these notes became tainted upon the issuance of other variable rate convertible debt. Accordingly, the conversion options in these notes were accounted for as derivative liabilities.

On July 16, 2015, the Company amended the terms of the certain convertible loan agreements with four investors for a total of $125,000 due and payable on April 16, 2016. Under the amended terms, a total of $125,000 in convertible notes which come due and payable on November 27, 2015 were first extended to mature on April 16, 2016, and then subsequently extended to mature on January 1, 2017.  In addition, the notes were modified whereby they do not become convertible until maturity.

The Company analyzed the conversion feature of above Convertible Notes for derivative accounting consideration under FASB ASC 470 and determined that the conversion feature did not create embedded derivatives.

The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification and as such the unamortized discount of $79,103 was recorded as loss on extinguishment of debt. In addition, the fair value of the derivative liabilities associated with the pre modification conversion option in these notes of $591,496 was extinguished resulting in a gain of $591,496. The net gain on extinguishment of liabilities during the year ended December 31, 2015 resulting from this substantial modification was $512,393.

The carrying value of these convertible notes is as follows:

                         
   
August 1, 2014
Recalculation
   
December 31, 
2014
   
December 31,
2015
   
June 30,
2016
 
Face value of certain convertible notes
   
125,000
     
125,000
     
125,000
     
125,000
 
Less: unamortized discount
   
(125,000
)
   
(116,702
)
   
-
     
-
 
Carrying value
   
-
     
8,298
     
125,000
     
125,000
 

 
F-6

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 5- Convertible Notes (continued)

(1)  
Convertible notes originally due on November 27, 2015: (continued)

As at December 31 2015, the carrying values of the convertible debenture and accrued convertible interest thereon were $125,000 and $12,500, respectively. Amortization of the discounts associated with these notes was $37,599 during the year ended December 31, 2015.

As at June 30, 2016, the carrying values of the convertible debenture and accrued convertible interest thereon were $125,000 and $6,233, respectively.

 (2)  
Convertible note due on January 13, 2016

On January 13, 2015 the Company entered into a Securities Purchase Agreement (“SPA”) with Adar Bays, LLC (“Adar”) a Florida Limited Liability company where under the Company has issued two 8% convertible redeemable notes in the aggregate principal amount of $150,000 with the first note being $75,000 and the second note being $75,000, convertible into shares of the Company’s common stock with a maturity date one year after issuance or January 13, 2016.  The first of the two notes (the “First Note”) shall be paid for by Adar upon execution of the SPA, and the second note (the “Second Note”) shall initially be paid for by the issuance of an offsetting $75,000 secured note issued to the Company by Adar (“Buyer Note”), provided that prior to conversion of the Second Note, Adar must have paid off the Buyer Note in cash. Under the terms of the First Note, at any time after 180 days, the holder may elect to convert all or part of the face value of the note into shares of the Company’s common stock without restrictive legend at a price (“Conversion Price”) for each share of Common Stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company.   If the shares are not delivered in 3 business days, to the holder, the Notice of Conversion may be rescinded. Under the terms of the Second Note, the holder is entitles at its option, after the expiration of the requisite Rule 144 holding period and after full cash payment for the promissory note issued by the holder to the Company simultaneously with the issuance by the Company of this note (the “Holder Issued Note”) to convert all or part of the Note then outstanding into shares of the Company’s common stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company.   If the shares are not delivered in 3 business days, to the holder, the Notice of Conversion may be rescinded.  With respect to the First and Second Notes, in the event that the Company experiences a DTC “Chill” on its shares the conversion price shall be decreased to 42% instead of 52% while the “Chill” is in effect, and in no event shall the holder be allowed to effect a conversion, if such conversion, along with other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company.  Further, with respect to the Second note, in the event the Company is not “Current” in its SEC filings at the time the note is cash funded, the discount shall be decreased to 40% instead of 52%.  In respect of the First and Second notes interest on any unpaid principal balance of the Notes shall be paid by the Company in common stock (the “Interest Shares”).  The Holder may at any time send a Notice of Conversion for Interest Shares based on the aforementioned formula for all or part of interest payable.

During the first 180 days the Company may redeem the First Note by paying to the holder an amount as follows: (i) if the redemption is in the first 90 days the note is in effect an amount equal to 125% of the unpaid principal amount of the note along with accrued interest; (ii) if the redemption is after the 91st day the note is in effect then the
Company may redeem the note in an amount equal to 135% of unpaid principal and interest.  The note is not redeemable after 180 days.
 
The Second Note may not be prepaid, except that if the First Note is redeemed by the Company within 6 months of the issuance date of such note, the obligations of the Company under the Second Note will be automatically deemed satisfied and the Second Note and the Holder Note will be deemed canceled and of no further force or effect.


 
F-7

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 5- Convertible Notes (continued)

(2)  
Convertible note due on January 13, 2016
 
On January 15, 2015 the Company received net proceeds from Adar totaling $63,750 with respect to the First Note in the total gross amount of $75,000.   Financing fees of $7,500 and legal fees of $3,750 were paid.

As of December 31, 2015, the principal amount and all accrued interest payable with respect to this convertible note was paid in full with the issuance of 18,902,736 shares of common stock.
 
On December 1, 2015, upon receipt of a conversion notice from one of its convertible note holders, the Company issued 2,489,435 shares of common stock to the Note holder.  Subsequent to the fiscal year end the Company advised the note holder of an error in their calculations and it was agreed the Note holder would provide additional cash proceeds of $9,000 in respect of the purchase price of the shares. As a result of the error during fiscal 2015, the Company recorded a loss on debt settlement in the amount of $16,183 in respect to this over issuance of shares.
 
On March 8, 2016, the Company received $9,000 from an investor in order to acquire 2,489,435 and recorded as gain on recovered loss on debt settlement for the six months ended June 30, 2016.

 (3)  
Convertible note due on January 14, 2016 (CN#1)

On July 14, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $90,000 from total loan proceeds of $102,000, which bears interest at 8% per annum and is due on January 14, 2016. Financing fees of $10,000 and legal fees of $2,000 were paid in respect of the note.  Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of June 30, 2016, the outstanding principal balance under this note was all converted to shares (December 31, 2015 -$102,000).

The following table reflects the details of the issuance of 96,876,179 shares in respect of Conversion Notices received for a total of 102,000 in principal and $5,498 in accrued interest from CN#1 during the six months ended June 30, 2016:

Conversion Date
 
Original Principal Amount
($)
   
Accrued interest payable
($)
   
Conversion Price
($)
   
Number of shares issued
 
January 22, 2016
   
19,471
     
-
     
0.00185
     
10,524,653
 
February 26, 2016
   
14,997
     
-
     
0.001425
     
10,524,653
 
March 7, 2016
   
13,507
     
-
     
0.0012833
     
10,524,653
 
March 28, 2016
   
12,488
     
-
     
0.00088
     
14,150,943
 
April 13, 2016
   
11,707
     
-
     
0.000825
     
14,190,567
 
April 29, 2016
   
15,639
     
-
     
0.000822
     
19,022,419
 
May 10, 2016
   
14,191
     
5,498
     
0.0011
     
17,898,667
 
Total
   
102,000
     
5,498
             
96,876,179
 

 
F-8

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 5- Convertible Notes (continued)

(4)  
Convertible note due on July 29, 2016 (CN#2)

On July 29, 2015 the Company entered into a convertible loan agreement with an investor. The Company received new proceeds totaling $75,000 from total loan proceeds of $84,000 which bears interest at 8% per annum and is due on July 29, 2016.  An original issue discount of $6,000 and legal fees of $3,000 were paid in respect of the note.  Interest shall accrue from the advancement date and shall be payable on maturity.  Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at 58% multiplied by the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding the applicable Conversion, provided that if at any time the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the then-current Conversion Factor shall be reduced by 5% for all future Conversions. As of June 30, 2016, the outstanding principal balance under this note was converted to shares (December 31, 2015 - $84,000).

The following table reflects the details of the issuance of 98,107,486 shares in respect of Conversion Notices received for a total of 84,000 in principal and $4,580 in accrued interest from CN#5 during the six months ended June 30, 2016:

Conversion Date
 
Original Principal Amount
($)
   
Accrued interest payable
($)
   
Conversion Price
($)
   
Number of shares issued
 
February 11, 2016
   
15,000
     
-
     
0.00212
     
7,075,472
 
March 7, 2016
   
15,000
     
-
     
0.00106
     
14,150,943
 
March 31, 2016
   
14,000
     
-
     
0.000795
     
17,610,063
 
April 18, 2016
   
22,500
        -      
0.000795
     
28,301,887
 
May 12, 2016
   
17,000
        -      
0.000795
     
21,383,649
 
June 23, 2016
   
500
     
4,580
     
0.00053
     
9,585,472
 
Total
   
84,000
     
4,580
             
98,107,485
 

(5)  
Convertible note due on August 3, 2016 (CN#3)

On August 3, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $50,000 from total loan proceeds of $56,000, which bears interest at 8% per annum and is due on August 3, 2016. Financing fees of $3,500 and legal fees of $2,500 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of June 30, 2016, the outstanding principal balance under this note was converted to shares (December 31, 2015 - $56,000).

The following table reflects the details of the issuance of 62,413,844 shares in respect of Conversion Notices received for a total of $56,000 in principal and $3,114 in accrued interest from CN#5 during the six months ended June 30, 2016:

 
F-9

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 5- Convertible Notes (continued)

(5)  
Convertible note due on August 3, 2016 (CN#3) (continued)

Conversion Date
 
Original Principal Amount
($)
   
Accrued interest payable
($)
   
Conversion Price
($)
   
Number of shares issued
 
February 8, 2016
   
5,000
     
203
     
0.00275
     
1,891,905
 
February 23, 2016
   
5,000
     
219
     
0.00165
     
3,163,138
 
March 7, 2016
   
5,000
     
233
     
0.0011
     
4,757,658
 
April 15, 2016
   
6,000
     
331
     
0.000825
     
7,674,420
 
April 19, 2016
   
13,000
     
792
     
0.000825
     
16,641,726
 
May 9, 2016
   
15,500
     
938
     
0.000825
     
19,924,416
 
May 12, 2016
   
6,500
     
398
     
0.000825
     
8,360,581
 
Total
   
56,000
     
3,114
             
62,413,844
 

(6)  
Convertible note due on January 25, 2017 (CN#4)

On January 25, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion. As of June 30, 2016, the outstanding principal balance under this note was $35,000 (December 31, 2015 - $nil).

(7)  
Convertible note due on May 20, 2017 (CN#5)

On May 20, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $46,000 from total loan proceeds of $41,500, which bears interest at 8% per annum and is due on May 20, 2017. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of June 30, 2016, the outstanding principal balance under this note was $46,000 (December 31, 2015 - $nil).

In our evaluation of the financing arrangement, we concluded that the conversion features were not afforded the exemption as a conventional convertible instrument and it did not otherwise meet the conditions set forth in current accounting standards for equity classification. Accordingly, they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities. (See footnote 7 for derivative disclosure)

Additionally, the Company evaluated the convertible notes in note 5 (1) above and concluded that these were tainted due to the variable conversion rate of the above the convertible notes and as such they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities. They were removed from the derivative liabilities upon their substantial modification and extinguishment. (See footnote 7 for derivative disclosure)


 
F-10

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 5- Convertible Notes (continued)

The carrying value of certain convertible notes (CN#1, CN#2, CN#3, CN#4 and CN#5) are as follows:
 
   
CN#1
   
CN#2
   
CN#3
   
CN#4
   
CN#5
   
Total
 
Carrying value, December 31, 2015
  $ 92,822     $ 30,385     $ 19,410     $ -     $ -     $ 142,617  
                                                 
Face  value of certain convertible notes
    102,000       84,000       56,000       -       -       242,000  
Add: Face value of certain convertible notes
    -       -       -       35,000       46,000       81,000  
Less: Face value converted to shares
    (102,000 )     (84,000 )     (56,000 )     -       -       (242,000 )
Less: unamortized discount
    -       -               (22,917 )     (41,985 )     (64,902 )
Carrying value, June 30, 2016
    -       -       -       12,083       4,015       16,098  
                                                 

Amortization of the discount over the three and six months ended June 30, 2016 totaled $46,537 and $121,585, respectively, which amount has been recorded as interest expense.  The unamortized discount of $65,246 associated with above notes (CN#4 and CN#5) will be expensed in future periods.

Note 6 – Common Stock and Stock-Based Compensation

On March 16, 2016 pursuant to approval by the Board of Directors and shareholders, the Company filed an Amendment to its Articles of Incorporation increasing the authorized shares to 900,000,000 consisting of 850,000,000 common and 50,000,000 preferred shares of which 35,000,000 shares have been designated Series A Preferred Stock and 15,000,000 have been designated Series B Preferred Stock all with par value of $0.00001 per share.   This action has been retroactively applied in the body of these financial statements.

Common stock

The following shares of common stock were issued in the six months ended June 30, 2016
 
 
Issuances Date
   
Conversion Price/FMV
($)
   
Number of shares
issued
   
Amount
($)
 
January 22, 2016
Conversion of debt
   
0.00185
     
10,524,653
     
19,471
 
February 8, 2016
Conversion of debt
   
0.00275
     
1,891,905
     
5,203
 
February 11, 2016
Conversion of debt
   
0.00212
     
7,075,472
     
15,000
 
February 23, 2016
Conversion of debt
   
0.00165
     
3,163,138
     
5,219
 
February 26, 2016
Conversion of debt
   
0.001425
     
10,524,653
     
14,997
 
March 7, 2016
Conversion of debt
   
0.0011
     
4,757,658
     
5,233
 
March 7, 2016
Conversion of debt
   
0.0012833
     
10,524,653
     
13,507
 
March 7, 2016
Conversion of debt
   
0.00106
     
14,150,943
     
15,000
 
March 28, 2016
Conversion of debt
   
0.00088
     
14,190,567
     
12,488
 
March 31, 2016
Conversion of debt
   
0.000795
     
17,610,630
     
14,000
 
April 13, 2016
Conversion of debt
   
0.000825
     
14,190,567
     
11,707
 
April 15, 2016
Conversion of debt
   
0.000825
     
7,674,420
     
6,331
 
April 18, 2016
Conversion of debt
   
0.000795
     
28,301,887
     
22,500
 
April 19, 2016
Conversion of debt
   
0.000825
     
16,641,726
     
13,792
 
April 29, 2016
Conversion of debt
   
0.0008255
     
19,022,419
     
15,639
 
May 9, 2016
Conversion of debt
   
0.000825
     
19,924,416
     
16,438
 
May 10, 2016
Conversion of debt
   
0.0011
     
17,898,667
     
19,689
 
May 12, 2016
Conversion of debt
   
0.000825
     
8,360,581
     
6,898
 
May 12, 2016
Conversion of debt
   
0.000795
     
21,383,649
     
17,000
 
June 23, 2016
Conversion of debt
   
0.00053
     
9,585,472
     
5,080
 
 
Total
           
257,397,509
     
255, 192
 


 
F-11

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 6 – Common Stock and Stock-Based Compensation (continued)

Series A Preferred Shares

As at June 30, 2016 and December 31, 2015 the Company had 25,080,985 Series A Preferred Shares issued and outstanding each carrying conversion rights of 2.5 common shares to each 1 share of Series A Preferred Stock and voting rights of 15 to 1, compared to common stock.

Series B Preferred shares

On September 16, 2015 pursuant to approval by the Board of Directors, the registrant filed a Certificate of Designation for its Class B preferred shares under which it was designated that there should be 15,000,000 Class B preferred shares with par value of $0.00001 each of which shall have voting rights of 1,000 to 1 as compared to common stock but no conversion rights.   
 
On October 6, 2015, the Board of Directors authorized the issuance of 1,000,000 Class B preferred shares to David Gasparine, the CEO, for services rendered to the corporation.  The shares issued to David Gasparine are not registered under the Securities Act. These shares will be issued relying upon the exemption from the registration requirements provided under Sections 4(a) or 3(b) of the Securities Act.

The Company obtained a third party valuation of the preferred stock and recorded stock-based compensation of $866,100 during the year ended December 31, 2015. The third party valuation report was based on the following inputs as at October 6, 2015: (1) price per share of common stock of $0.0179; (2) market capitalization based on 212,481,148 common shares outstanding; no “in the money” warrants; 25,080,985 Series A Preferred shares (converts at 2.5 to 1 and voting rights of 15 to1); and the new issuance of 1,000,000 Series B Preferred shares with voting rights of 1,000 to 1; (3) a 17.58% premium for the voting preference; (4) 1,588,695,923 total voting shares/rights on valuation date and based on management’s 240,000,000 Series A and 1,000,000,000 Series B rights which cumulatively represented 78.051% of the total voting rights at valuation date; (5) the conversion value is $0 as there are no rights of conversion associated with the Series B preferred shares.

Stock award and stock option

Stock Option

The following tables summarize information concerning stock options outstanding as of June 30, 2016 and December 31, 2015
 
 
June 30, 2016
 
December 31, 2015
 
 
Shares
 
Weighted Average Exercise Price
$
 
Shares
 
Weighted Average Exercise Price
$
 
Outstanding at beginning of the year
500,000
   
 0.03
 
500,000
   
0.03
 
   Granted
-
   
-
 
-
   
-
 
   Exercised
-
   
-
 
-
   
-
 
   Expired or cancelled
-
   
-
 
-
   
-
 
Outstanding at the period
500,000
   
0.03
 
500,000
   
0.03
 



 

 
F-12

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 6 – Common Stock and Stock-Based Compensation (continued)

Stock award and stock option (continued)

 Exercise Price
   
Number Outstanding
   
Weighted Average Remaining Contractual Life
 
Number Subject to Exercise
$
0.03
     
500,000
     
0.30
 
500,000

Share Purchase Warrants

During the year ended December 31, 2014 the Company issued a 2-year warrant entitling the holders to acquire an additional 93,333 shares of common stock at an exercise price of $0.30 per share.

As June 30, 2016 and December 31, 2015, the following share purchase warrants were outstanding:
 
   
Warrants
   
Weighted Average Exercise Price
 
Outstanding – December 31, 2014
   
950,000
     
0.14
 
Forfeited/Canceled/Expired
   
(950,000
)
   
0.12
 
Exercised
   
-
     
-
 
Outstanding – December 31, 2015
   
93,333
     
0.30
 
Forfeited/Canceled/Expired
   
(93,333
)
   
0.30
 
Exercised
   
-
     
-
 
Exercisable – June 30, 2016
   
-
     
-
 

All 93,333 warranted expired unexercised during the period ended June 30, 2016.

Note 7 - Derivative Liabilities

(1)  
Derivative liabilities from convertible notes

On July 14, 2015, the Company entered into a convertible loan agreement with an investor (the “CN#1”). The Company received net proceeds totaling $90,000 from total loan proceeds of $102,000, which bears interest at 8% per annum and is due on January 14, 2016. Financing fees of $10,000 and legal fees of $2,000 were paid in respect of the note.  Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
 
On July 29, 2015 the Company entered into a convertible loan agreement with an investor (the “CN#2”). The Company received cash proceeds of $75,000 from total loan proceeds of $84,000 which bears interest at 8% per annum and is due on July 29, 2016.  An original issue discount of $6,000 and legal fees of $3,000 were paid in respect of the note.  Interest shall accrue from the advancement date and shall be payable on maturity.  Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at 58% multiplied by the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding the applicable Conversion, provided that if at any time the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the then-current Conversion Factor shall be reduced by 5% for all future Conversions.

 
F-13

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 7 - Derivative Liabilities (continued)

(1)  
Derivative liabilities from convertible notes (continued)

On August 3, 2015, the Company entered into a convertible loan agreement with an investor (the “CN#3”). The Company received net proceeds totaling $50,000 from total loan proceeds of $56,000, which bears interest at 8% per annum and is due on August 3, 2016. Financing fees of $3,500 and legal fees of $2,500 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.

On January 25, 2016, the Company entered into a convertible loan agreement with an investor (the “CN#4”). The Company received net proceeds totaling $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion.

On May 20, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $46,000 from total loan proceeds of $41,500, which bears interest at 8% per annum and is due on May 20, 2017. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.

Since equity classification is not available for the conversion feature, we were required to bifurcate the embedded conversion feature and carry it as a derivative liability, at fair value. Derivative financial instruments are carried initially and subsequently at their fair values.
 
We estimated the fair value of the derivative on the inception dates, and subsequently, using the Black-Scholes Merton valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk free rates) that are necessary to fair value complex derivate instruments.
 
(2)  
Derivative liabilities from share purchase warrants

On August 22, 2014, the Company entered into a convertible loan agreement with an investor  which the Company concluded was tainted due to the variable conversion rate of the share purchase warrants (ref Note 6) and as such they did not meet the conditions necessary to obtain equity classification and therefore all convertible notes are required to be carried as derivative liabilities. 

As a result of the application of ASC No. 815 in six months ended June 30, 2016 the fair value of the conversion feature associated with the convertible loans is summarized as follows:

Balance at December 31, 2015
   
296,090
 
Derivative additions associated with convertible notes
   
77,604
 
Derivative liability reclassified as additional paid-in capital associated with conversion of debt
   
(579,057
)
Loss on change in fair value during the period
   
270,835
 
Balance at June 30, 2016
 
 $
65,472
 

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of June 30, 2016 and commitment date:

   
Commitment
Date
   
June 30,
2016
   
December 31,
2015
 
Expected dividends
    0       0       0  
Expected volatility
 
196.14 ~ 260.38 %
   
162.43%~257.10%
   
265~ 268 %
 
Expected term
 
0.59 ~ 1 years
   
0.00~0.82 years
   
0.04~0.59
 
Risk free interest rate
 
0.10~0.44 %
   
0.21~0.38%
   
0.14 ~ 0.48 %
 
                         


 
F-14

 

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 8 - Commitments

 
Office Lease

On April 16, 2015 the Company entered into a six-month lease commencing April 1, 2015 with certain other third parties in respect of a shared office and residential premises located in San Diego, California.   The Company’s obligation under the terms of the lease was $875 per month plus utilities.  The Company paid a security deposit of $875 and the first month’s rent totaling $1,750 upon signing of the contract.   During the fiscal year ended December 31, 2015 the Company renewed the lease so that the termination date was March 1, 2016, and agreed to a rent increase to $925 per month plus utilities.  During the most recent quarter the Company did not enter into a formal renewal agreement and the lease is now operating on a month to month basis.

Note 9 – Related Party Transactions

On August 28, 2014, the Company entered into an employment agreement with David Gasparine, president of the Company, for management services. The employment agreement became effective as of September 1, 2014. Under the employment agreement, the base salary is of $36,000 per annum, paid monthly. The amount of base salary shall be determined by the Board of Directors and may be increased, but not decreased, from time to time by the Board of Directors of the Company. In addition to the base salary, Mr. Gasparine shall be eligible for periodic bonuses in amounts to be determined by the Board of Directors.  In January 2015 the board agreed to increase Mr. Gasparine’s salary to $57,600 per year, with a further salary increase to $72,000 per annum effective October 1, 2015.

During the six months ended June 30, 2016, the Company accrued fees of $36,000 (June 30, 2015 - $28,800) and paid $23,462 to Mr. Gasparine, leaving $12,537 on the balance sheets on the accounts payable and accrued liabilities.

Note 10 – Deferred Revenue

(a)  
During the three months ended March 31, 2016 the Company entered into various agreements with a telephone service provider (the “Client”) for the launch of the Epoxy App at its corporate and franchise locations. Under the terms of the agreement, Epoxy would offer training to the corporate location and the term would run twelve months from the launch of the Epoxy App.  As consideration the Company would receive fees from certain locations in advance, totaling $23,400.  Subsequent to the execution of the agreements the Client revised its corporate focus.  As a result, the Company has recorded the entire fee remitted as deferred revenue until such time as a formal unwinding of the agreement is complete. As at June 30, 2016 the amounts received remain in deferred revenue as the Company has not yet concluded the unwinding of the agreement.
(b)  
On March 31, 2016 the Company entered into an agreement with a third party for the development of a customized Epoxy app pilot program and branded corporate implementation. Under the terms of the agreement Epoxy will receive a development fee of $49,000 to be paid as to $30,000 on signing of the agreement, and $19,000 upon official launch of the pilot program.  Revenue under this contract will initially recorded as deferred revenue and realized upon completion of each scope of work. As at June 30, 2016 amounts received under this contract remain in deferred revenue as the pilot program is not yet complete.

Note 11 – Subsequent events

On July 13, 2016 a total of $15,000 in principal and $6,030.74 in accrued interest payable to Andara Investments Limited (formerly known as Adam’s Ale) was acquired by GW Holdings Group LLC.  The Company issued a replacement note in the principal amount of $21,030.74 to GW on July 21, 2016 which convertible note bears interest at 8% per annum and is due on July 13, 2017. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 52% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.

 
F-15

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This current report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events or circumstances or to reflect the occurrence of unanticipated events.

In this report unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares of our capital stock.

The management’s discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the fiscal year ended December 31, 2015, as filed with the Securities and Exchange Commission on April 14, 2016, along with the accompanying notes.  As used in this quarterly report, the terms "we", "us", "our", and the "Company" means Epoxy, Inc. and its wholly owned subsidiary Couponz, Inc.

Current Business

On July 19, 2013, the Company entered into an agreement to purchase Couponz, Inc. (“Couponz”), a company incorporated in the State of Nevada.  Under the agreement, the Company had the right to acquire 100% of the ownership of Couponz, Inc. in exchange for the issuance of 24,514,319 shares of preferred stock of the Company and $100,000. The agreement provided for the preferred shares issued to be designated as 1 share of preferred to carry 15 shares of common voting rights and to be convertible into common shares on the basis of 2.5 shares of common for each 1 share of preferred. Mr. David Gasparine, the sole director of Epoxy Inc., is also the controlling shareholder of Couponz, Inc., and, as such, the transaction is considered to be non-arm’s length.  Mr. Gasparine became the controlling shareholder of the Company concurrent with the completion of the transaction.
 
On November 1, 2013, the Company completed the aforementioned transaction and Couponz, Inc. became a wholly owned subsidiary of the Company.

Couponz Inc. is the developer of Epoxy app, an application or "app" for iPhone iOS and Android operating systems. Epoxy is an innovative smart phone application designed and created to conveniently connect business owners and consumers in order to ease marketing frustrations. The mobile app gives loyal customers the ease of keeping track of rewards and punch cards all in one place while also giving opportunities to review and share businesses with friends. In turn, Epoxy provides businesses the ability to reward customers, share offers, and deliver information about special events with their customers. Epoxy designers are dedicated to providing a superior and easy-to-use product for business owners to reward loyal customers.

Our goal is to provide a simple and easy to use platform for consumers to find business information, including but not limited to product and service descriptions, promotions, loyalty programs, and customer reviews, as well as to provide business owners a simple and easy to use platform to promote their businesses to mobile app users. Through the use of research and development we will be able to continue evolving our platform and features provided for our users.
 
Epoxy, Couponz’s mobile app, is a “two-part” system that has a server that both a website and a mobile application access. The mobile app allows users to find local businesses that have an Epoxy membership. An app user can navigate to an individual business several ways. App users can find a specific business by searching for the specific name of the business, the category of the business or by the App users location and listed results on a Map View. App users can then filter the results of the businesses in the Map View by category. Once a business is chosen the app user is presented with a Business Landing Page or “BLP”. The BLP displays information about that specific business that the business owner has input including operating hours, locations, menus, phone numbers as well as marketing such as digital loyalty cards and coupons. Within the BLP app users can also create reviews or “Sticky Notes” about that individual business and review other Sticky Notes that have been previously created. When an app user opens a loyalty card or offer the app has a built in scanner that allows the staff to “punch” or “redeem” either offer. A loyalty card is scanned multiple times and once completely filled is valid for a specified offer from the business owner. The app user can collect or “save” filled loyalty cards to redeem at a later time. A coupon is a one-time use offer that once redeemed will disappear from the device and become de-active. A business needs no equipment as the scanner is built into the Epoxy application that is required to scan each unique QR code. Epoxy provides each business with their own unique code that is used to track each loyalty card and offer. Each time an app user redeems an offer or digitally receives a punch the system tracks that information and displays it on a website administration panel for the business owner to track.

The website serves as a merchant login where merchants can access an administration panel that allows them to create their BLP and add digital punch cards, offers, events a and send out direct messages to individuals or groups in real-time. The admin panel also will provide the merchants with analytics such as the number of recipients for these direct messages, the number of punch cards and offers that have been used as well as the individual customers who are recommending that particular business (the referral system is a pending patent). This will allow the merchant to distinguish between different levels of consumers and compensate accordingly. This also adds a level of security and accuracy to the loyalty and coupon program that is not practical with a paper system.
 
Our pricing for merchants is a simple flat membership fee of $50 a month, without any contracts. The mobile app is free for consumers to download, and is available on both Android and Apple platform.
 
We plan to expand geographically in stages.  We have already obtained various customers beyond the Las Vegas market and into certain Southwestern United States. Our initial target for expansion has been focused on Southern California. By December 2017 we plan to expand into the Midwest, and By December 2019 we plan to expand nationally by adding customers with a national presence to our portfolio. As we experience each stage of growth, we plan to increase our staff primarily through commission-based sales people, as opposed to salaried or hourly wage employees, thus minimizing the financial burden of each stage of expansion. We believe that this plan for expansion will also minimize the need for additional outside financing, as we plan to fund our growth primarily through the growth of our paying customer base. In addition, as we move from single customer locations to larger corporate bodies with numerous franchise or store front locations we will adjust the per location pricing of our program to suit our customer’s budget and needs.  In addition we offer training, customized development and product support where applicable for a one time development fee.
 
Our primary philosophy is to provide excellent customer service to both app users and merchants, while utilizing feedback through our events, website and mobile app. The mobile application platform gives us an opportunity to seamlessly receive feedback while providing a service. Once feedback has been provided we can then study and then apply this to the system. We believe if you keep the marketing simple, to the point and clean people will be willing to listen and convert. Once a customer is willing to listen, they can be turned into more valuable, loyal customers.
 
Couponz’s product is marketed to Mobile App Users as well as Business owners.


 
4

 

RESULTS OF OPERATIONS

Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015.

Our net (loss) for the three month periods ended June 30, 2016 and 2015 is as follows:

   
Three month ended
 
   
June 30,
 
   
2016
   
2015
 
Revenue
 
$
7,401
   
$
7,330
 
                 
Operating Expenses
               
Depreciation
   
2,830
     
2,830
 
Software research and development
   
13,870
     
31,757
 
General and administrative expenses
   
78,740
     
133,913
 
Total operating expenses
   
95,440
     
168,500
 
                 
Loss from operations
   
(88,039
)
   
(161,170
)
                 
Other Income (Expenses):
               
Gain (loss) on change in fair value of derivative liabilities
   
(75,063
)
   
887,305
 
Recovered loss on debt settlement
   
-
     
-
 
Interest expenses
   
(58,665
)
   
(166,079
)
Total other income (expenses)
   
(133,728
)
   
721,226
 
                 
Net income (loss)
 
$
(221,767
)
 
 $
560,056
 

During the comparative three month periods ended June 30, 2016 and 2015 the Company experienced a decrease to software development costs and general and administrative expenses as we completed certain major improvements to our app prior to the close of fiscal 2015 and made efforts to reduce our operational overhead while we seek additional customers for our improved software offerings.  During this time the Company has been actively seeking additional capital by way of loans and equity financings in order to meet operational shortfalls.  Management has deferred full salary payments during the current three-month period as the Company secures additional contracts for our services. Interest expenses are reduced period over period as the Company has successfully retired various convertible loans.

 
5

 
Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015.

   
Six months ended
 
   
June 30,
 
   
2016
   
2015
 
Revenue
 
$
13,152
   
$
15,645
 
                 
Operating Expenses
               
Depreciation
   
5,661
     
5,661
 
Software research and development
   
21,869
     
47,145
 
General and administrative expenses
   
134,679
     
210,661
 
Total operating expenses
   
162,209
     
263,467
 
                 
Loss from operations
   
(149,057
)
   
(247,822
)
                 
Other Income (Expenses):
               
Gain (loss) on change in fair value of derivative liabilities
   
(270,835
)
   
320,971
 
Recovered loss on debt settlement
   
9,000
     
-
 
Interest expenses
   
(141,140
)
   
(319,189
)
Total other income (expenses)
   
(402,975
)
   
1,782
 
                 
Net income (loss)
 
$
(552,032
)
 
$
(246,040)
 

During the comparative six month periods ended June 30, 2016 and 2015 the Company experienced a decrease to software development costs and general and administrative expenses as we completed certain major improvements to our app prior to the close of fiscal 2015 and made efforts to reduce our operational overhead while we seek additional customers for our improved software offerings.  In particular, the Company limited consulting fees paid to third parties in the current 6 months ended June 30, 2016 which allowed for a substantive reduction to general and administrative expenses. During this time the Company has been actively seeking additional capital by way of loans and equity financings in order to meet operational shortfalls.  Management has deferred full salary payments during the current three-month period as the Company secures additional contracts for our services. Interest expenses are reduced period over period as the Company has successfully retired various convertible loans.

 
6

 
Liquidity and Financial Condition

Working Capital
   
At
June 30, 2016
   
At
December 31,
2015
 
Current Assets
 
$
6,651
   
$
11,321
 
Current Liabilities
 
$
449,303
   
$
742,140
 
Working Capital (Deficit)
 
$
(442,652
)
 
$
(730,819
)
 
Cash Flows
   
Six month periods ended June 30,
 
   
2016
   
2015
 
Net cash used in operating activities
 
$
(73,195
)
 
$
(190,421
)
Net cash provided by financing activities
 
$
71,500
   
$
170,000
 
Net increase in cash during period
 
$
(1,695
)
 
$
(20,421
)

Operating Activities
 
Net cash used in operating activities was $73,195 for the six-month period ended June 30, 2016 compared with cash used in operating activities of $190,421 in the same period in 2015. The decrease in cash used in operating activities is predominantly attributable to various non-cash reconciliation adjustments including accretion of debt discount on convertible notes and the change in the fair value of our derivative liabilities, as well as decreases to accounts payable and accrued expenses period over period as we were not able to retire our obligations as they became due.
 
Investing Activities
 
There were no investing activities during the six-month period ended June 30, 2016 and 2015.
 
Financing Activities
 
Net cash provided by financing activities was $71,500 for the six-month period ended June 30, 2016 compared to $170,000 of cash provided in the same period in 2015.

 
7

 
Going Concern
 
We believe that presently we have sufficient funds to operate for the coming 12 months. While our cash on hand presently falls short of our currently anticipated operating expenses, we believe any shortfall can be addressed by the anticipated increase to our revenues, the exercise of outstanding warrants or new loans and equity financing opportunities. We have no assurance that future financing will be available to us in the future on satisfactory terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our activities. Equity financing could result in additional dilution to existing shareholders.
 
Our Company has generated revenues of $13,152 and $15,645 in the six month periods ended June 30, 2016 and 2015, respectively, which amounts are not presently sufficient to cover our ongoing quarterly operating expenses. We have never paid dividends and it is unlikely we will generate sufficient earnings in the immediate or foreseeable future to meet our operational overhead. The continuation of our Company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at June 30, 2016, we had a working capital deficit of $442,652 and have an accumulated deficit of $3,666,190. These factors raise substantial doubt regarding our company’s ability to continue as a going concern. The financial statements included herein do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should our Company be unable to continue as a going concern.

During the next twelve months we expect to expend approximately $50,000 for operations of the Company in regard to the filing of reports with the requisite regulatory authorities and $125,000, including costs for advertising and marketing, as required with respect the operations of wholly-owned subsidiary, Couponz, Inc., including salaries, advertising and marketing, and any ongoing software development expenses. 

We may require additional working capital to fund our business objectives.  There can be no assurance that any additional financing will be available or accessible on reasonable terms, either by way of an equity financing or debt. If we cannot raise any additional funding we may either have to suspend operations until we do raise the cash, or cease operations entirely.
 
Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements that will have a current or future effect on our financial condition and changes in financial condition.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements.  Refer to Note 2 of the Financial Statements included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 14, 2016.
 
Recent Accounting Pronouncements
 
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early application permitted. This standard is not expected to have a material impact on our financial position, results of operations or statement of cash flows upon adoption.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The new guidance will change how companies account for certain aspects of share-based payments to employees. Under existing accounting guidance, tax benefits and certain tax deficiencies arising from the vesting of share-based payments are recorded in additional paid-in-capital. The new guidance will require such benefits or deficiencies to be recognized as income tax benefits or expenses in the statement of operations.  Companies are required to apply the new guidance prospectively. The new standard is effective for fiscal years beginning after December 15, 2016.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further, the lease requires a finance lease to recognize both an interest expense and an amortization of the associated expense. Operating leases generally recognize the associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and adoption beginning on January 1, 2019.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard provides guidance on how entities measure certain equity investments and present changes in the fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. ASU 2016-01 is effective for fiscal years beginning after December 31, 2017.

The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.

 
8

 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide this information.
  
ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.
 
As of the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.
 
Changes in Internal Control over Financial Reporting
 
During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
 
 

 
9

 

PART II – OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings and is not aware of any pending legal proceedings as of the date of this Form 10-Q.

ITEM 1A. RISK FACTORS

The Company is a smaller reporting company and is not required to provide this information.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following shares of common stock were issued in the six months ended June 30, 2016 and up to and including the date of this report:

 
Issuances Date
   
Conversion Price/FMV
($)
   
Number of shares
issued
   
Amount
($)
 
January 22, 2016
Conversion of debt
   
0.00185
     
10,524,653
     
19,471
 
February 8, 2016
Conversion of debt
   
0.00275
     
1,891,905
     
5,203
 
February 11, 2016
Conversion of debt
   
0.00212
     
7,075,472
     
15,000
 
February 23, 2016
Conversion of debt
   
0.00165
     
3,163,138
     
5,219
 
February 26, 2016
Conversion of debt
   
0.001425
     
10,524,653
     
14,997
 
March 7, 2016
Conversion of debt
   
0.0011
     
4,757,658
     
5,233
 
March 7, 2016
Conversion of debt
   
0.0012833
     
10,524,653
     
13,507
 
March 7, 2016
Conversion of debt
   
0.00106
     
14,150,943
     
15,000
 
March 28, 2016
Conversion of debt
   
0.00088
     
14,190,567
     
12,488
 
March 31, 2016
Conversion of debt
   
0.000795
     
17,610,063
     
14,000
 
April 13, 2016
Conversion of debt
   
0.000825
     
14,190,567
     
11,707
 
April 14, 2016
Conversion of debt
   
  0.000825
     
7,674,420
     
  6,331
 
April 19, 2016
Conversion of debt
   
0.000825
     
16,641,726
     
13,729
 
April 22, 2016
Conversion of debt
   
  0.000795
     
28,301,887
     
  22,500
 
May 4, 2016
Conversion of debt
   
0.000825
     
19,022,419
     
15,639
 
May 9, 2016
Conversion of debt
   
0.000825
     
19,924,416
     
16,438
 
May 10, 2016
Conversion of debt
   
0.001100
     
17,898,667
     
19,689
 
May 12, 2016
Conversion of debt
   
0.000825
     
8,360,581
     
6,898
 
May 12, 2016
Conversion of debt
   
0.000795
     
21,383,648
     
17,000
 
June 23, 2016
Conversion of debt
   
0.00053
     
9,585,472
     
5,080
 
 
Total
           
257,397,509
     
255,192
 

 
 
10

 
In respect of the aforementioned shares issued to an investor the Company will claim an exemption from the registration requirements of the Securities Act of 1933, as amended, for the issuance of the shares pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder since, among other things, the transaction does not involve a public offering, the purchasers are “accredited investors” and/or qualified institutional buyers, the purchasers have access to information about the Company and its purchase, the purchasers will take the securities for investment and not resale.

Further, on July 12, 2016 the Company received confirmation from 4 holders of a total of $125,000 in convertible debt originally due and payable on April 16, 2016, of an extension of the maturity date to January 1, 2017.

On July 13, 2016 a total of $15,000 in principal and $6,030.74 in accrued interest payable to Andara Investments Limited (formerly known as Adam’s Ale) was acquired by GW Holdings Group LLC.  The Company issued a replacement note in the principal amount of $21,030.74 to GW on July 21, 2016 which convertible note bears interest at 8% per annum and is due on July 13, 2017. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 52% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.

Other than as disclosed above, there were no unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company does not have any senior securities as of the date of this Form 10-Q.
  
ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable
 
ITEM 5. OTHER INFORMATION

 None .
 

 
11

 

ITEM 6. EXHIBITS

Exhibit Description
Filed herewith
Form
Exhibit
Incorporated by reference
Filing Date
 
Articles of Incorporation
 
S-1
3.1
03/18/08
 
Amendment to Articles of Incorporation
 
8-K
3.1
03/16/2016
 
Certificate of Designation
 
8-K
3.1
10/15/2015
 
By-laws as currently in effect
 
S-1
3.2
03/18/08
 
Agency Agreement with Carter, Terry & Company executed August 8, 2014
 
 10-Q
   10.1
08/14/2014
 
Form of Addendum between the Company and certain investors with convertible loans expiring November 27, 2015
 
 10-Q
   10.2
11/19/2014
 
August 22, 2014 letter agreement between the Company and Quarry Bay Equity Inc.
 
 10-Q
   10.3
11/19/2014
 
Form of employment agreement between the Company and David Gasparine
 
 10-Q
   10.4
11/19/2014
 
2014 Stock Option and Award Plan
 
 10-Q
   10.5
11/19/2014
 
Form of Stock Option Agreement
 
 10-Q
   10.6
11/19/2014
 
Form of Stock Award Agreement
 
 10-Q
   10.7
11/19/2014
 
Form of Note - LG Capital Funding LLC 
 
 10-Q
   10.8
11/19/2014
 
Form of Note - JSJ Investments Inc.
 
 10-Q
   10.9
11/19/2014
 
Form of SPA and 8% Convertible Redeemable Notes entered into between the Company and Adar Bays LLC.
 
8-K
   10.1
02/17/2015
 
Form of Services Agreement between the Company and Wheat Creative LLC
 
8-K
  10.3
02/17/2015
 
Form of SPA and 8% Convertible Note - JSJ Investments Inc.
 
  10-Q 
  10.10
08/19/2015
 
Form of SPA and 8% Convertible Note – St. George Investments LLC
 
10-Q
  10.11
08/19/2015
 
Form of SPA and 8% Convertible Note – GW Holdings Group LLC
 
10-Q
  10.12
08/19/2015
 
Form of SPA and 8% Convertible Note – Adar Bays, LLC
 
10-K
  10.13
4/14/2016
 
Form of SPA and 8% Convertible Note – GW Holdings Group LLC.
X
 
10.14
   
Form of Note extension
X
 
10.15
   
Form of Replacement Note issued to GW Holdings Group LLC.
X
 
10.16
   
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
X
 
   31.1
   
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
X
 
   31.2
   
Certification of Principal Executive and Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act
 X 
 
   32.1
   
Interactive Data files
X
 
  101
   

 

 
12

 

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, there unto duly authorized.

 
EPOXY, INC.
 
       
Date: August 19, 2016
By:
/s/ David Gasparine
 
 
Name:
David Gasparine
 
 
Title:
Chief Executive Officer (Principal Executive Officer), Treasurer, (Principal Financial Officer) Secretary, and Director
 

 


 
13