Attached files
| file | filename |
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| EX-32.1 - CERTIFICATION - Epoxy, Inc. | ex321.htm |
| EX-31.2 - CERTIFICATION - Epoxy, Inc. | ex312.htm |
| EX-31.1 - CERTIFICATION - Epoxy, Inc. | ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2017
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
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000-53669
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Commission File Number
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EPOXY, INC.
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(Exact name of registrant as specified in its charter)
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Nevada
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N/A
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2518 Anthem Village Drive, Suite 100, Henderson NV
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89052
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(Address of principal executive offices)
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(Zip Code)
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702-350-2449
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last report)
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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.
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Yes [ ] No [X]
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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).
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Yes [ ] No [X]
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ] (Do not check if a smaller reporting company)
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Smaller reporting company [X]
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Emerging growth company [X]
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes [ ] No [X ]
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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.
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Yes [ ] No [ ]
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APPLICABLE ONLY TO CORPORATE ISSUERS
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1,602,995,014 shares of common stock outstanding as of February 20, 2018
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(Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.)
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Page
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PART I – FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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3
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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4
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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8
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Item 4.
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Controls and Procedures
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8
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PART II – OTHER INFORMATION
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Item 1.
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Legal Proceedings
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9
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Item 1A.
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Risk Factors
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9
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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9
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Item 3.
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Defaults Upon Senior Securities
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10
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Item 4.
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Mine Safety Disclosures
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10
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Item 5.
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Other Information
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10
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Item 6.
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Exhibits
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10
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SIGNATURES
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11
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2
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PART I -- FINANCIAL INFORMATIO1
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Page
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Unaudited Consolidated Balance Sheets as of June 30, 2017 and December 31,2016
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F-1
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Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016
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F-2
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Unaudited Consolidated Statement of Cash Flows for the six months ended June 30, 2017 and 2016
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F-3
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Notes to the Unaudited Consolidated Financial Statements
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F-4 to F-13
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3
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June 30,
2017
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December 31,
2016
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ASSETS
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(Unaudited)
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Current
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$
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2,752
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$
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2,662
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Accounts receivable
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700
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-
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Prepaid expenses
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3,970
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970
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Total Current Assets
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7,422
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3,632
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Trademark and Patent
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7,695
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7,695
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Total Assets
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$
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15,117
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$
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11,327
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LIABILITIES
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Current
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Accounts payable and accrued liabilities
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$
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206,073
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$
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169,186
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Accounts payable – related parties
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64,712
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41,300
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Deferred revenue
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72,400
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101,400
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Loans payable
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17,000
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17,000
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Loan payable – related party
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12,000
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12,000
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Derivative liabilities
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206.498
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109,403
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Convertible notes, net of unamortized discounts and deferred financing cost
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174,680
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189,112
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Total Current Liabilities
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639,401
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Total Liabilities
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753,363
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639,401
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STOCKHOLDERS' DEFICIT
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Preferred Stock, $0.00001 par value;
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251
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251
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authorized: 15,000,000 Series B Preferred shares, 1,000,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016
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10
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10
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Common Stock, $0.00001 par value;
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16,030
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5,330
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Additional paid-in capital
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3,826,678
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3,277,438
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Accumulated deficit
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(4,581,215
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(3,911,103
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Total Stockholders' Deficit
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(738,246
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(628,074
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Total Liabilities and Stockholders' Deficit
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$
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15,117
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$
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11,327
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The accompanying notes are an integral part of these unaudited consolidated financial statements
F-1
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Three months ended
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Six months ended
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June 30,
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June 30,
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2017
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2016
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2017
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2016
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$
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20,051
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$
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7,401
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$
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61,104
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$
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13,152
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Operating Expenses
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Depreciation
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-
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2,830
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-
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5,661
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Software research and development
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3,520
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13,870
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6,400
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21,869
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General and administrative expenses
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61,800
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78,740
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126,158
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134,679
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Total operating expenses
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65,320
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95,440
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132,558
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162,209
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Loss from operations
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(45,269
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(88,039
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(71,454
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(149,057
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Other Income (Expenses):
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Gain (loss) on change in fair value of derivative liabilities
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(61,639
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(75,063
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(502,197
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(270,835
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)
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Recovered loss on debt settlement
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-
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-
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-
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9,000
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Interest expenses
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(35,241
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(58,665
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(96,461
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(141,140
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)
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Total other income (expenses)
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(96,880
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(133,728
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(598,658
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(402,975
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)
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Income (loss) before taxes
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$
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(142,149
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$
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(221,767
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)
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$
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(670,112
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)
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$
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(552,032
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)
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Income tax (expense) benefit
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-
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-
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-
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-
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Net income (loss)
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$
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(142,149
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)
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$
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(221,767
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$
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(670,112
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)
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$
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(552,032
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)
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Net income (loss) per share – basic and diluted
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$
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(0.00
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)
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$
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(0.00
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)
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$
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(0.00
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)
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$
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(0.00
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)
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Weighted average shares outstanding – basic and diluted
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1,602,995,014
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426,240,861
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1,390,625,644
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339,407,102
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The accompanying notes are an integral part of these unaudited consolidated financial statements
F-2
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Six months ended
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June 30,
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|||||||
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2017
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2016
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Cash flows from Operating Activities
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Net loss
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$
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(670,112
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)
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$
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(552,032
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)
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Adjustments to reconcile net loss to net cash used in operations:
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Depreciation
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-
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5,661
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Accrued interest converted to shares
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5,704
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13,132
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Transfer agent fees issued by shares
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7,804
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-
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(Gain) loss on change in fair value of derivative liabilities
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502,197
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270,835
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Amortization of discounts on convertible notes
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74,763
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121,585
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Amortization of deferred financing costs
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6,605
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-
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Interest expense due to default on convertible note
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3,680
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-
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Imputed interest
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350
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350
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Changes in operating assets and liabilities:
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||||||||
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Accounts receivable
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(700
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)
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-
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|||||
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Prepaid expenses
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(3,000
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)
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2,975
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Deferred revenue
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(29,000
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)
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53,400
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|||||
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Accounts payable and accrued expenses
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36,887
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10,899
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||||||
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Accounts payable and accrued expenses, related party
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23,412
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-
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||||||
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Net cash used in operating activities
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(41,410
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)
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(73,195
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)
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Cash flows from Financing Activities
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||||||||
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Proceeds from convertible notes
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41,500
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71,500
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Net cash provided by financing activities
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41,500
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71,500
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Net decrease in cash during the period
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90
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(1,695
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)
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Cash, beginning of period
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2,662
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5,883
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Cash, end of period
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$
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2,752
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$
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4,188
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Supplemental disclosure of cash flow information:
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Cash paid for:
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Interest
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$
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-
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$
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-
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Income taxes
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$
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-
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$
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-
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||||
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Supplemental non-cash investing and financing activities:
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Debt principal converted to shares
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$
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91,300
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$ |
242,000
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Accrued interest and transfer agent fees converted to shares
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$ |
9,224
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$ |
13,132
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Derivative liability reclassified as additional paid-in capital
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$ |
475,922
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$ |
579,057
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Derivative liability – debt discount
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$ |
49,680
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$ |
77,604
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Debt issuance financing cost
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$ |
4,500
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$ |
9,500
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The accompanying notes are an integral part of these unaudited consolidated financial statements
F-3
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.
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 with 850,000,000 common and 50,000,000 preferred shares. On September 28, 2016, the Company's board of directors and majority shareholder approved a further increase of the Company's authorized share capital from 850,000,000 common shares to 1,950,000,000 common shares. The Company filed the amendment with the State of Nevada on November 21, 2016. On November 7, 2017, the Company's board of directors and majority shareholder approved a further increase of the Company's authorized share capital from 1,950,000,000 common shares to 4,450,000,000 common shares. The Company filed the amendment with the State of Nevada on January 11, 2018.
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 six months ended June 30, 2017, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017. 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, 2016 as filed with the Securities and Exchange Commission on December 29, 2017.
Note 2 – Going Concern
For the six months ended June 30, 2017, the Company used net cash in operations of $41,410. In addition, the Company had a working capital deficit as of June 30, 2017. 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 2017 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, 2017 and December 31, 2016:
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Fair value measurements on a recurring basis
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|||||||||||
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Level 1
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Level 2
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Level 3
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|||||||||
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As of June 30, 2017:
|
||||||||||||
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Liabilities
|
||||||||||||
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Derivative liabilities
|
$
|
-
|
$
|
-
|
$
|
206,498
|
||||||
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|
||||||||||||
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As of December 31, 2016:
|
||||||||||||
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Liabilities
|
||||||||||||
|
Derivative liabilities
|
$
|
-
|
$
|
-
|
$
|
109,403
|
||||||
Note 4- Loans Payable
The Company has received loans from arms length third parties in prior fiscal years in the gross amount of $32,000, accruing interest at rates of between 5% and 10% with default interest rates of between 10% and $16%. The loans are in default and due on demand as at June 30, 2017 and December 31, 2016:
|
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Note Payable
|
Accrued interest
|
||||||
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Balance, December 31, 2015
|
$ |
32,000
|
$ |
2,825
|
||||
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-
|
7,424
|
|||||||
|
Debt assignment
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(15,000
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)
|
(6,031
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)
|
||||
|
17,000
|
4,218
|
|||||||
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Additions
|
-
|
916
|
||||||
|
Balance, June 30, 2017
|
$
|
17,000
|
$
|
5,134
|
||||
On July 13, 2016, a total of $15,000 in principal and $6,031 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 $21,031 to GW on July 21, 2016. (ref Note 5- Convertible Notes (4))
F-5
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes
|
Convertible notes originally due on November 27, 2015 (CN#1)
|
On November 27, 2012, the Company entered 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. On the date of the agreements, 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 the aforementioned loan agreements. Under the amended terms, a total of $125,000 originally available for conversion into 250,000,000 shares of common stock at $0.0005 per share was amended to reflect a fixed conversion 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 remaining unamortized discount of $88,184 as of the amendment date, was recorded as loss on extinguishment of debt. The Company recalculated the intrinsic value of the embedded beneficial conversion feature of $125,000, which amount was recorded as the discount on the amended convertible notes. The carrying value will be accreted over the term of the convertible notes up to their face value of $125,000.
Concurrently, in August 2014, the conversion features in respect to these notes became tainted upon the issuance of other variable rate convertible debt. Accordingly, we accounted for the conversion options in respect to these notes as derivative liabilities.
On July 16, 2015, the Company again amended the terms of the convertible loan agreements for a total of $125,000 to extend the maturity date from November 27, 2015 to April 16, 2016. Subsequently, the parties agreed the notes would mature on January 1, 2017. The notes were further modified whereby they do not become convertible until maturity.
Upon the change to the terms of the convertible notes, the Company analyzed the conversion feature for derivative accounting consideration under FASB ASC 470 and determined that the conversion feature would not create embedded derivatives until maturity, January 1, 2017.
Further upon maturity, and due to the continuing existence of other variable rate convertible debt, we accounted for the conversion options in respect to these notes as derivative liabilities. As a result on January 1, 2017 we recorded a loss on derivative liabilities of $21,140. At the six months ended June 30, 2017 we revalued the derivative liabilities and recorded a gain of $6,548.
The carrying value of these convertible notes is as follows:
|
|
|||||||||
|
|
June 30,
2017
|
December 31,
2016
|
December 31,
2015
|
||||||
|
Face value of certain convertible notes
|
125,000
|
125,000
|
125,000
|
||||||
|
Less: unamortized discount
|
-
|
-
|
-
|
||||||
|
Carrying value
|
125,000
|
125,000
|
125,000
|
||||||
As at June 30, 2017 and December 31, 2016, the carrying values of the convertible debenture was $125,000. During the three and six months ended June 30, 2017, accrued convertible interest thereon were $3,115 and $6,233, respectively.
The notes came due on January 1, 2017 and are currently in default.
F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes (continued)
|
(2)
|
Convertible note due on January 25, 2017 (CN#2)
|
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 December 31, 2016, the balance payable on CN #2 includes $35,000 in principal from convertible notes and $2,616 in accrued interest payable.
The following table reflects the details of the issuance of 290,187,136 shares in respect of Conversion Notices received for a total of $35,000 in principal and $2,792 in accrued interest from CN#2 with $3,520 in transfer agent fees during the three months ended March 31, 2017. There were no further conversions in the current three months ended June 30, 2017.
|
Conversion Date
|
Original Principal Amount
($)
|
Accrued interest payable
($)
|
Transfer
Agent
Fees
($)
|
Conversion Price
($)
|
Number of shares issued
|
|||||||||||||||
|
5,000
|
-
|
$
|
-
|
16,025,641
|
||||||||||||||||
|
January 9, 2017
|
6,660
|
-
|
440
|
0.000260
|
27,307,692
|
|||||||||||||||
|
January 12, 2017
|
4,458
|
-
|
440
|
0.000156
|
31,397,436
|
|||||||||||||||
|
January 17, 2017
|
4,702
|
-
|
440
|
32,961,538
|
||||||||||||||||
|
January 18, 2017
|
4,959
|
-
|
440
|
0.000156
|
34,608,974
|
|||||||||||||||
|
January 19, 2017
|
3,272
|
-
|
440
|
35,692,308
|
||||||||||||||||
|
3,396
|
-
|
440
|
0.0000936
|
40,980,235
|
||||||||||||||||
|
January 24, 2017
|
1,553
|
2,033
|
440
|
0.0000936
|
43,015,491
|
|||||||||||||||
|
January 26, 2017
|
1,000
|
759
|
440
|
0.00007799
|
28,197,821
|
|||||||||||||||
|
Total
|
35,000
|
2,792
|
3,520
|
290,187,136
|
||||||||||||||||
As of June 30, 2017, the principal amount and all accrued interest payable with respect to the aforementioned convertible notes was paid in full with issuance of common stock.
|
Convertible note due on May 24, 2017 (CN#3)
|
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 24, 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.
The following table reflects the details of the issuance of 726,933,349 shares in respect of Conversion Notices received for a total of $46,000 in principal and $2,625 in accrued interest from CN#3 during the three months ended March 31, 2017. There were no further conversions in the current three months ended June 30, 2017.
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes (continued)
|
(3)
|
Convertible note due on May 24, 2017 (CN#3) (cont'd)
|
|
Conversion Date
|
Original Principal Amount
($)
|
Accrued interest payable
($)
|
Conversion Price
($)
|
Number of shares issued
|
||||||||||||
|
2,500
|
126
|
0.00012
|
21,883,561
|
|||||||||||||
|
January 18, 2017
|
2,700
|
140
|
0.00008
|
35,495,753
|
||||||||||||
|
3,250
|
172
|
|||||||||||||||
|
2,750
|
150
|
48,334,703
|
||||||||||||||
|
2,900
|
159
|
50,981,735
|
||||||||||||||
|
February 2, 2017
|
2,900
|
160
|
0.00006
|
50,992,328
|
||||||||||||
|
2,900
|
160
|
51,002,922
|
||||||||||||||
|
February 7, 2017
|
3,300
|
185
|
0.00006
|
58,086,027
|
||||||||||||
|
February 9, 2017
|
3,300
|
186
|
0.00006
|
58,110,136
|
||||||||||||
|
February 10, 2017
|
3,650
|
207
|
0.00006
|
64,286,666
|
||||||||||||
|
February 15, 2017
|
3,825
|
221
|
0.00006
|
67,438,767
|
||||||||||||
|
4,025
|
235
|
0.00006
|
70,9943,83
|
|||||||||||||
|
March 21, 2017
|
5,250
|
343
|
0.00008
|
69,911,301
|
||||||||||||
|
March 23, 2017
|
2,750
|
181
|
0.00008
|
36,635,273
|
||||||||||||
|
46,000
|
2,625
|
726,933,349
|
||||||||||||||
As of June 30, 2017, the principal amount and all accrued interest payable with respect to the aforementioned convertible notes was paid in full with issuance of common stock.
On January 11, 2017, the Company received net proceeds of $41,500 with respect to the backend feature of this Convertible Note. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of the backend note which bears interest at 8% per annum and is due on May 24, 2017. During the quarter ended June 30, 2017 the convertible note fell into default due to the Company failure to be current in its filings with the Securities and Exchange Commission. Upon an event of default the interest rate is increased to 24% per annum. On May 24, 2017, this Note remained unpaid at maturity, and the outstanding principal due under this Note was increased by 8%, or $3,680.
As at June 30, 2017 the carrying values of the back-end convertible debenture and accrued convertible interest thereon were $49,680 and $3,094, respectively.
|
Convertible note due on July 13, 2017 (CN#4)
|
On July 13, 2016 a total of $15,000 in principal and $6,031 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 $21,031 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.
The following table reflects the issuance of 49,290,170 shares in respect of Conversion Notices received for a total of $10,731 in principal and $137 in accrued interest during the year ended December 31, 2016 and the issuance 52,933,533 shares in respect of Conversion Notices received for a total of $10,300 in principal and $278 in accrued interest during the three months ended March 31, 2017. There were no further conversions in the current three months ended June 30, 2017.
F-8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes (continued)
|
(4)
|
Convertible note due on July 13, 2017 (CN#4) (cont'd)
|
|
Original Principal Amount
($)
|
Accrued interest payable
($)
|
Conversion Price
($)
|
Number of shares issued
|
|||||||||||||
|
September 7, 2016
|
4,800
|
5
|
0.00020
|
24,026,301
|
||||||||||||
|
5,931
|
133
|
0.00024
|
25,263,869
|
|||||||||||||
|
5,150
|
141
|
0.00020
|
26,455,479
|
|||||||||||||
|
January 11, 2017
|
5,150
|
146
|
0.00020
|
26,478,054
|
||||||||||||
|
Total
|
21,031
|
425
|
102,223,703
|
|||||||||||||
During the first quarter of fiscal 2017, the principal amount and all accrued interest payable with respect to the aforementioned convertible notes was paid in full with issuance of common stock.
In our evaluation of the aforementioned financing arrangements, 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)
The carrying value of certain convertible notes (CN#2, CN#3, CN#4) are as follows:
|
|
CN#2
|
CN#3
|
CN#4
|
Total
|
||||||||||||
|
Carrying value, December 31, 2016
|
$
|
32,699
|
$
|
27,853
|
$
|
5,665
|
$
|
64,112
|
||||||||
|
|
||||||||||||||||
|
Face value of certain convertible notes
|
35,000
|
46,000
|
21,031
|
102,031
|
||||||||||||
|
Add: Face value of certain convertible notes
|
-
|
46,000
|
-
|
46,000
|
||||||||||||
|
Face value due to default
|
-
|
3,680
|
-
|
3,680
|
||||||||||||
|
Less: Face value converted to shares
|
(35,000
|
)
|
(46,000
|
)
|
(21,031
|
)
|
(102,031
|
)
|
||||||||
|
-
|
-
|
-
|
-
|
|||||||||||||
|
Less: deferred financing costs
|
-
|
-
|
-
|
-
|
||||||||||||
|
$
|
-
|
$
|
49,680
|
$
|
-
|
$
|
49,680
|
|||||||||
Amortization of the discount over the three and six months ended June 30, 2017 totaled $23,239 and $74,763, respectively. Amortization of the discount over the three and six months ended June 30, 2016 totaled $39,844 and $109,340, respectively.
Amortization of deferred financing costs over the three months and six months ended June 30, 2017 totaled $1,913 and $6,605, respectively. Amortization of deferred financing costs over the three and six months ended June 30, 2016 totaled $6,693 and $12,245, respectively.
Note 6 – Common Stock and Stock-Based Compensation
On November 7, 2017 the Board of Directors and majority shareholders approved the authorization of an increase of the authorized shares of the Company to an aggregate number of Four and a Half Billion (4,500,000,000) of which 4,450,000,000 will be common stock, with a par value of $0.00001 per share, and Fifty Million (50,000,000) shares will be preferred stock, with a par value of $0.00001 per share. The Amendment has been affected as of the date of the filing of this report.
F-9
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 6 – Common Stock and Stock-Based Compensation (continued)
Common stock
The following shares of common stock were issued in the six months ended June 30, 2017
|
Issuances Date
|
|
Conversion Price/FMV
($)
|
Number of shares
issued
|
Amount
($)
|
|||||||||
|
0.000312
|
16,025,641
|
5,000
|
|||||||||||
|
January 10, 2017
|
Conversion of debt
|
0.00020
|
26,455,479
|
5,291
|
|||||||||
|
January 11, 2017
|
Conversion of debt
|
0.00020
|
26,478,054
|
5,296
|
|||||||||
|
January 11, 2017
|
Conversion of debt
|
0.000260
|
27,307,692
|
7,100
|
|||||||||
|
January 13, 2017
|
Conversion of debt
|
0.000156
|
31,397,436
|
4,898
|
|||||||||
|
January 17, 2017
|
0.000156
|
32,961,538
|
5,142
|
||||||||||
|
January 18, 2017
|
Conversion of debt
|
0.00012
|
21,883,561
|
2,626
|
|||||||||
|
January 19, 2017
|
Conversion of debt
|
0.00008
|
35,495,753
|
2,840
|
|||||||||
|
January 19, 2017
|
Conversion of debt
|
0.000156
|
34,608,974
|
5,399
|
|||||||||
|
January 20, 2017
|
Conversion of debt
|
0.000104
|
35,692,308
|
3,712
|
|||||||||
|
January 23, 2017
|
Conversion of debt
|
0.0000936
|
40,980,235
|
3,836
|
|||||||||
|
January 26, 2017
|
Conversion of debt
|
0.0000936
|
43,015,491
|
4,026
|
|||||||||
|
January 26, 2017
|
Conversion of debt
|
0.00008
|
42,779,794
|
3,422
|
|||||||||
|
January 27, 2017
|
Conversion of debt
|
0.00007799
|
28,197,821
|
2,199
|
|||||||||
|
January 31, 2017
|
Conversion of debt
|
0.00006
|
48,334,703
|
2,900
|
|||||||||
|
February 3, 2017
|
Conversion of debt
|
0.00006
|
50,981,735
|
3,059
|
|||||||||
|
February 3, 2017
|
Conversion of debt
|
0.00006
|
50,992,328
|
3,060
|
|||||||||
|
February 6, 2017
|
Conversion of debt
|
0.00006
|
51,002,922
|
3,060
|
|||||||||
|
February 8, 2017
|
Conversion of debt
|
0.00006
|
58,086,027
|
3,485
|
|||||||||
|
February 10, 2017
|
Conversion of debt
|
0.00006
|
58,110,136
|
3,486
|
|||||||||
|
February 13, 2017
|
Conversion of debt
|
0.00006
|
64,286,666
|
3,857
|
|||||||||
|
February 16, 2017
|
Conversion of debt
|
0.00006
|
67,438,767
|
4,046
|
|||||||||
|
February 21, 2017
|
Conversion of debt
|
0.00006
|
70,9943,83
|
4,260
|
|||||||||
|
March 24, 2017
|
Conversion of debt
|
0.00008
|
69,911,301
|
5,593
|
|||||||||
|
March 27, 2017
|
Conversion of debt
|
0.00008
|
36,635,273
|
2,931
|
|||||||||
|
Total
|
1,070,054,018
|
100,524
|
|||||||||||
Included in above table are shares issued to reimburse transfer agent fees paid by the note holders in respect to shares issued upon receipt of conversion notices, in the cummulative amount of $3,520. The cummulative loss recorded based on the fair market value of the shares issued to settle transfer agent fees was $4,284 which amount as been expensed as transfer agent fees.
Series A Preferred Shares
As at June 30, 2017 and December 31, 2016 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.
F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 6 – Common Stock and Stock-Based Compensation (continued)
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.
On August 22, 2014, the Company entered into a convertible loan agreement with an investor (the "CN#1") which the Company concluded that these are tainted due to the variable conversion rate of the below 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.
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.
On May 24, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds of $41,500 from total loan proceeds of $46,000, which bears interest at 8% per annum and is due on May 24, 2017. During the period ended March 31, 2017 the Company received a further $41,500 ($46,000 gross proceeds) in respect of a backend note forming part of the original convertible loan agreement which allowed for additional funds to be advanced under the same terms as the original note at a subsequent date to the original loan agreement. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of each 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 13, 2016 a total of $15,000 in principal and $6,031 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 $21,031 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.
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.
F-11
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 7 - Derivative Liabilities (continued)
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.
As a result of the application of ASC No. 815 in period ended June 30, 2017 and December 31, 2016, the fair value of the conversion feature associated with the convertible loans is summarized as follows:
|
Balance at December 31, 2016
|
$ |
109,403
|
||
|
Recognition of derivative associated with tainted instruments
|
21,140
|
|||
|
Derivative additions associated with convertible notes
|
49,680
|
|||
|
Derivative liability reclassified as additional paid-in capital associated with conversion of debt
|
(475,922
|
)
|
||
|
Loss on change in fair value during the period
|
502,197
|
|||
|
Balance at June 30, 2017
|
$
|
206,498
|
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, 2017, December 31, 2016 and commitment date:
|
|
|
Commitment
Date
|
|
|
December 31,
2016
|
|
|
June 30,
2017
|
|
|||
|
Expected dividends
|
|
|
0
|
|
|
|
0
|
|
|
|
-
|
|
|
Expected volatility
|
|
319.13 %
|
|
|
286.05%~361.56%
|
|
|
-
|
|
|||
|
Expected term
|
|
0 ~ 0.35 years
|
|
|
0.07~0.53 years
|
|
|
-
|
|
|||
|
Risk free interest rate
|
|
0.55 %
|
|
|
0.44~0.62%
|
|
|
-
|
|
|||
Note 8 - Commitments
|
(1)
|
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 two months rent totaling $1,750 upon signing of the contract. Effective November 1, 2015, the Company agreed to a rent increase to $925 per month plus utilities. The Company did not enter into a formal renewal agreement and the lease is now operating on a month to month basis.
|
(2)
|
Vehicle Lease
|
On July 29, 2016 the Company entered into a closed end motor vehicle lease for a 36 months term with an initial deposit of $1,200 and a monthly payment of $897, due on the first of each month. The lease does not meet the criteria of a capital lease and therefore the amounts are expended on a monthly basis and included in operating expenses. The lease was personally guarantees by our President, Mr. David Gasparine. At the end of the term, the vehicle may be purchased for $35,568.
Future minimum payments under the terms of the aforementioned lease are as follows:
2017 - $5,380
2018 - $10,761
2019 - $6,277
F-12
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 9 – Related Party Transactions
Transactions with David Gasparine
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 three and six months ended June 30, 2017, the Company accrued fees of $36,000 and $18,000, respectively. The Company paid $10,325 to Mr. Gasparine, leaving $63,755 on the balance sheets as accounts payable and accrued liabilities.
Transactions with Mary Gasparine
On September 12, 2016 the Company received proceeds of $12,000 secured by a promissory note from Mary Gasparine, the mother of our CEO, President and a director. The loan bears interest at 12% per annum and matures on September 12, 2017. As at June 30, 2017 a total of $957 has been accrued as interest expense in respect to the aforementioned loan.
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 December 31, 2016 and June 30, 2017, the amounts received remain in deferred revenue as the Company has not yet concluded the unwinding of the agreement. At the date this report, executive management of the Client has not responded to management requests to complete the formal unwinding of the agreement.
|
|
(b)
|
On March 31, 2016 the Company entered into an agreement with a third party to develop a customized EPOXY app for gift and loyalty cards for each client. Under the terms of the agreement Epoxy will receive a development fee of $49,000 which amounts were paid as to $30,000 on signing of the agreement, and $19,000 upon official launch of the pilot program, which occurred during the year ended December 31, 2016. All proceeds have been received under the contract and recorded as deferred revenue. These amounts are expected to be realized as income upon completion of the pilot program. However, as at the date of this report, executive management of the third party has not confirmed the program is complete.
|
|
|
|
|
(c)
|
On October 11, 2016 the Company entered into an agreement with a third party to develop a customized EPOXY app for gift and loyalty cards for each client. Under the terms of the agreement Epoxy will receive a development fee of $10,500 which amounts were paid on signing of the agreement. In addition to the development fees, Epoxy will receive monthly fee of $25 per location if locations between 50-500 or less if the locations are over 500. The parties agreed to a mutual termination of the original agreement effective February 28, 2017 and all amounts were realized as income during the six months ended June 30, 2017.
|
|
|
|
|
(d)
|
On November 9, 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 $18,500 in the first phase which amounts were paid on signing of the agreement, and $42,750 in the second phase. In addition to the development fees in phase 1 and phase 2, Epoxy will receive monthly fee of $700 if locations between 1-50 or more if the locations are over 50. These amounts will be realized as income upon completion of the pilot program in fiscal 2017. As at the date of this report this contract has moved from the "Pilot" phase into "Full Production" and is now live in the Canadian market under monthly pricing as agreed between the parties.
During the six months ended June 30, 2017, $18,500 deferred revenue was transferred to income.
|
Note 11 – Subsequent events
On September 12, 2017 a loan payable to a related party secured by a promissory note in the principal amount of $12,000 came due and payable, including all accrued interest thereon. This loan is presently in default.
On November 7, 2017 the Board of Directors of the Company amended the rights of its Class B Preferred shares from voting rights of 1,000 to 1 as compared to common stock with no conversion rights, so that holders of the Class B Preferred shares shall be entitled to 80% of the total votes on any matters brought to a vote of the holders of the Company's common stock. Class B Preferred shares continue to carry no conversion rights.
On November 7, 2017, the Company's board of directors and majority shareholder approved a further increase of the Company's authorized share capital from 1,950,000,000 common shares to 4,450,000,000 common shares. The Company filed the amendment with the State of Nevada on January 11, 2018.
F-13
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, 2016, as filed with the Securities and Exchange Commission on December 29, 2017, 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.
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, as well as client accounts in Canada. Our initial target for expansion was focused on Southern California but we have been expanding to new markets as the opportunity presents itself. As of 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.
4
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.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016.
Our net (loss) for the three month periods ended June 30, 2017 and 2016 is as follows:
|
Three months ended June 30,
|
||||||||
|
2017
|
2016
|
|||||||
|
Revenue
|
$ |
20,051
|
$ |
7,401
|
||||
|
Operating Expenses
|
||||||||
|
Depreciation
|
-
|
2,830
|
||||||
|
Software research and development
|
3,520
|
13,870
|
||||||
|
General and administrative expenses
|
61,800
|
78,740
|
||||||
|
Total operating expenses
|
65,320
|
95,440
|
||||||
|
Loss from operations
|
(45,269
|
)
|
(88,039
|
)
|
||||
|
Other Income (Expenses):
|
||||||||
|
Gain (loss) on change in fair value of derivative liabilities
|
(61,639
|
)
|
(75,063
|
)
|
||||
|
Recovered loss on debt settlement
|
-
|
-
|
||||||
|
Interest expenses
|
(35,241
|
)
|
(58,665
|
)
|
||||
|
Total other income (expenses)
|
(96,880
|
)
|
(133,728
|
)
|
||||
|
Net income (loss)
|
$ |
(142,149
|
)
|
$ |
(221,767
|
)
|
||
During the comparative three month periods ended June 30, 2017 and 2016 the Company experienced a substantial increase to revenue as certain customer contracts transitioned from development phase to commercial operation with an increased number of participating locations. The Company experienced a decrease to operating expenses as software development costs and general and administrative expenses were substantially reduced. . Despite an increase to revenues, we are still not able to meet all our operational overhead as it comes due and during this time the Company has been actively seeking additional capital by way of loans and equity financings in order to meet operational shortfalls.
5
Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2017.
Our net (loss) for the six month periods ended June 30, 2017 and 2016 is as follows:
|
Six months ended June 30,
|
||||||||
|
2017
|
2016
|
|||||||
|
Revenue
|
$ |
61,104
|
$ |
13,152
|
||||
|
Operating Expenses
|
||||||||
|
Depreciation
|
-
|
5,661
|
||||||
|
Software research and development
|
6,400
|
21,869
|
||||||
|
General and administrative expenses
|
126,158
|
134,679
|
||||||
|
Total operating expenses
|
132,558
|
162,209
|
||||||
|
Loss from operations
|
(71,454
|
)
|
(149,057
|
)
|
||||
|
Other Income (Expenses):
|
||||||||
|
Gain (loss) on change in fair value of derivative liabilities
|
(502,197
|
)
|
(270,835
|
)
|
||||
|
Recovered loss on debt settlement
|
-
|
9,000
|
||||||
|
Interest expenses
|
(96,461
|
)
|
(141,140
|
)
|
||||
|
Total other income (expenses)
|
(598,658
|
)
|
(402,975
|
)
|
||||
|
Net income (loss)
|
$ |
(670,112
|
)
|
$ |
(552,032
|
)
|
||
During the comparative six month periods ended June 30, 2017 and 2016 the Company experienced a substantial increase to revenue as we were able to bring certainly deferred revenue into income in the period, and certain customer contracts transitioned from development phase to commercial operation with an increased number of participating locations. The Company experienced a decrease to operating expenses as software development costs and general and administrative expenses were substantially reduced. Despite an increase to revenues, we are still not able to meet all our operational overhead as it comes due and during this time the Company has been actively seeking additional capital by way of loans and equity financings in order to meet operational shortfalls.
6
Liquidity and Financial Condition
Working Capital
|
|
At
June 30, 2017
|
At
December 31, 2016
|
||||
|
Current Assets
|
$
|
7,422
|
$
|
2,662
|
||
|
Current Liabilities
|
$
|
753,363
|
$
|
639,401
|
||
|
Working Capital (Deficit)
|
$
|
(745,941
|
)
|
$
|
(636,739
|
)
|
Cash Flows
|
|
Six month periods ended June 30,
|
|||||
|
|
2017
|
2016
|
||||
|
Net cash used in operating activities
|
$
|
(41,410
|
)
|
$
|
(73,195
|
)
|
|
Net cash provided by financing activities
|
$
|
41,500
|
$
|
71,500
|
||
|
Net increase (decrease) in cash during period
|
$
|
90
|
$
|
(1,695
|
)
|
|
Operating Activities
Net cash used in operating activities was $41,410 for the six-month period ended June 30, 2017 compared with cash used in operating activities of $73,195 in the same period in 2016.The increase 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. We were able to reduce the deferred revenue at fiscal year end by $29,000, but recorded increases to accounts payable and related party payables in the current 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, 2017 and 2016.
Financing Activities
Net cash provided by financing activities was $41,500 for the six-month period ended June 30, 2017 compared to $71,500 of cash provided in the same period in 2016.
Going Concern
For the six months ended June 30, 2017, the Company used net cash in operations of $41,410. In addition, the Company had a working capital deficit as of June 30, 2017. The Company believes that its existing capital resources may not be adequate to enable it to fully execute its business plan, and while we are increasing our revenues period over period, we still do not have sufficient income to meet our operational costs as they come due. These conditions raise substantial doubt as to the Company's ability to reach profitable operations and continue as a going concern. The Company estimates that it will require additional cash resources during 2017 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.
7
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 onDecember 29, 2017.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business" with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted. This guidance will be applied prospectively to any transactions occurring within the period of adoption.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment" that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit's carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. This guidance will be adopted on a prospective basis.
In March 2017, the FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities" that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance will be adopted using a modified retrospective transition approach. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The accounting standard update will be effective for The Company beginning January 1, 2018 on a prospective basis, and early adoption is permitted. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
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.
8
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, 2017
|
Issuances Date
|
|
Conversion Price/FMV
($)
|
Number of shares
issued
|
Amount
($)
|
|||||||||
|
January 6, 2017
|
Conversion of debt
|
0.000312
|
16,025,641
|
5,000
|
|||||||||
|
January 10, 2017
|
Conversion of debt
|
0.00020
|
26,455,479
|
5,291
|
|||||||||
|
January 11, 2017
|
Conversion of debt
|
0.00020
|
26,478,054
|
5,296
|
|||||||||
|
January 11, 2017
|
Conversion of debt
|
0.000260
|
27,307,692
|
7,100
|
|||||||||
|
January 13, 2017
|
Conversion of debt
|
0.000156
|
31,397,436
|
4,898
|
|||||||||
|
January 17, 2017
|
Conversion of debt
|
0.000156
|
32,961,538
|
5,142
|
|||||||||
|
January 18, 2017
|
Conversion of debt
|
0.00012
|
21,883,561
|
2,626
|
|||||||||
|
January 19, 2017
|
Conversion of debt
|
0.00008
|
35,495,753
|
2,840
|
|||||||||
|
January 19, 2017
|
Conversion of debt
|
0.000156
|
34,608,974
|
5,399
|
|||||||||
|
January 20, 2017
|
Conversion of debt
|
0.000104
|
35,692,308
|
3,712
|
|||||||||
|
January 23, 2017
|
Conversion of debt
|
0.0000936
|
40,980,235
|
3,836
|
|||||||||
|
January 26, 2017
|
Conversion of debt
|
0.0000936
|
43,015,491
|
4,026
|
|||||||||
|
January 26, 2017
|
Conversion of debt
|
0.00008
|
42,779,794
|
3,422
|
|||||||||
|
January 27, 2017
|
Conversion of debt
|
0.00007799
|
28,197,821
|
2,199
|
|||||||||
|
January 31, 2017
|
Conversion of debt
|
0.00006
|
48,334,703
|
2,900
|
|||||||||
|
February 3, 2017
|
Conversion of debt
|
0.00006
|
50,981,735
|
3,059
|
|||||||||
|
February 3, 2017
|
Conversion of debt
|
0.00006
|
50,992,328
|
3,060
|
|||||||||
|
February 6, 2017
|
Conversion of debt
|
0.00006
|
51,002,922
|
3,060
|
|||||||||
|
February 8, 2017
|
Conversion of debt
|
0.00006
|
58,086,027
|
3,485
|
|||||||||
|
February 10, 2017
|
Conversion of debt
|
0.00006
|
58,110,136
|
3,486
|
|||||||||
|
February 13, 2017
|
Conversion of debt
|
0.00006
|
64,286,666
|
3,857
|
|||||||||
|
February 16, 2017
|
Conversion of debt
|
0.00006
|
67,438,767
|
4,046
|
|||||||||
|
February 21, 2017
|
Conversion of debt
|
0.00006
|
70,9943,83
|
4,260
|
|||||||||
|
March 24, 2017
|
Conversion of debt
|
0.00008
|
69,911,301
|
5,593
|
|||||||||
|
March 27, 2017
|
Conversion of debt
|
0.00008
|
36,635,273
|
2,931
|
|||||||||
|
Total
|
1,070,054,018
|
100,524
|
|||||||||||
Included in above table are shares issued to reimburse transfer agent fees paid by the note holders in respect to shares issued upon receipt of conversion notices, in the cummulative amount of $3,520. The cummulative loss recorded based on the fair market value of the shares issued to settle transfer agent fees was $4,284 which amount as been expensed as transfer agent fees.
9
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.
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.
Item 6. Exhibits
|
Exhibit Description
|
Filed herewith
|
Form
|
Exhibit
|
Incorporated by reference
Filing Date
|
|
|
X
|
|
31.1
|
|
|
|
|
X
|
|
31.2
|
|
|
|
|
X
|
|
32.1
|
|
|
|
|
Interactive Data files (1)
|
|
|
101
|
|
|
(1) To be filed by amendment
10
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: February 26, 2018
|
By:
|
/s/ David Gasparine
|
|
|
|
Name:
|
David Gasparine
|
|
|
|
Title:
|
Chief Executive Officer (Principal Executive Officer), Treasurer, (Principal Financial Officer) Secretary, and Director
|
|
11