Note 1 – Description of business and basis of presentation
Organization and nature of business
Neohydro Technologies Corp. (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.
We have previously been engaged in the business of acquisition and exploration of mining properties, the industrial waste water business and installing a patented turbo system that was proven to assist an engine to operate more efficiently. We are no longer in any of these businesses.
On July 19, 2013, the corporation 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 NeoHydro Technologies Corp., 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.
The business combination was accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the transaction are presented as a continuation of Couponz. Under reverse acquisition accounting Couponz (subsidiary) is treated as the accounting parent (acquirer) and the Company (parent) is treated as the accounting subsidiary (acquiree). All outstanding shares have been restated to reflect the effect of the business combination.
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.
Couponz Inc has already filed two patents with the US Patent office. US Patent # 13/168,763 filed June 24
th
, 2011 and Patent # 13/404,882 filed on Feb 24
th
, 2012. The first patent (168,763) covers the ability for a mobile application to use the scanning technology within a mobile device to deliver information to our backend and in turn display analytics to the end user (merchants). The second patent (404,882) covers the analytics system of tracking customers who have "shared," the user who has received the "share" and if that user actually redeemed the "share" within the business.
Note 2 - Summary of Significant Accounting Policies
Principal of Consolidation
These consolidated financial statements include the accounts of Neohydro Technologies Corp. and its wholly-owned subsidiary, Couponz, Inc. All intercompany balances and transactions have been eliminated in consolidation.
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
(continued)
Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, debt discounts and common stock issued for assets, services or in settlement of obligations.
Cash and Cash Equivalents
For purposes of reporting within the statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.
Capitalized Software Costs
Software costs incurred internally in creating computer software products are expensed until technological feasibility has been established upon completion of a detailed program design. Thereafter, all software development costs are capitalized until the point that the product is ready for sale, and are subsequently reported at the lower of unamortized cost or net realizable value. The Company periodically reviews capitalized software costs for impairment where the fair value is less than the carrying value. As of December 31, 2013, all capitalized software costs related to the development of the application were expensed because technological feasibility was established.
Trademark and Patent (Intangible assets)
Trademark and patent are recorded at cost. Amortization on trademark and patent are determined by their economic life.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. This typically occurs when customers are invoiced for their monthly membership fee. Participants in the program pay a monthly subscription fee per retail location, at the start of each month, which amount is immediately recorded as revenue. A notice period of 30 days is required to terminate any services with no refunds payable.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. During the years ended December 31, 2013 and 2012, there was no impairment of long-lived assets.
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
(continued)
Allowance for Doubtful Accounts
We establish an allowance for bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of our customers. We do not generally require collateral for our accounts receivable. Our allowance for doubtful accounts was $0 as of December 31, 2013 and 2012.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, receivables, payables, and due to related party. The carrying amount of cash, receivables and payables approximates fair value because of the short-term nature of these items. The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at market interest rates.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
Stock based compensation
We account for stock based compensation in accordance with ASC 718 which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. For stock-based awards granted on or after January 1, 2006, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. In prior years, we accounted for stock-based awards under APB No. 25, “Accounting for Stock Issued to Employees.” We account for non-employee share-based awards in accordance with ASC 505-50.
Loss per Common Share
In accordance with ASC Topic 280 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Reclassification
Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 3 – Going Concern
At December 31, 2013 and 2012, the Company had net losses of $125,233 and $107,973, respectively. 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 2014 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.
Note 4 – Business Combination
On July 19, 2013, the corporation 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 to common shares on the basis of 2.5 shares of common for each 1 share of preferred. Mr. David Gasparine, the sole director of NeoHydro Technologies Corp., 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.
Pursuant to the terms and conditions of the acquisition agreement, we acquired 100% of the issued capital stock, 24,514,319 common shares, of Couponz in exchange for
24,514,319 shares of preferred stock of the Company and $100,000.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed relative to the Parent company operations, at the business combination transaction date:
Cash and cash equivalents
|
|
$
|
1,477
|
|
Advances to Couponz
|
|
|
101,114
|
|
Total identifiable assets
|
|
$
|
102,591
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
58,107
|
|
Loan payable
|
|
|
63,573
|
|
Convertible notes, net of unamortized discount
|
|
|
15,281
|
|
Total identifiable liabilities
|
|
$
|
136,961
|
|
|
|
|
|
|
Net identifiable assets
|
|
$
|
(34,370
|
)
|
Note 5- 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:
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Fair Value Measurements (continued)
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 December 31, 2013 and December 31, 2012:
|
|
Fair value measurements on a recurring
basis
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
As of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock derivative: 5,877,169shares
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
37,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock derivative
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 6- Intangible asset
Couponz Inc has filed two patents with the US Patent office. US Patent # 13/168,763 filed June 24
th
, 2011 and Patent # 13/404,882 filed on Feb 24
th
, 2012. The first patent (168,763) covers the ability for a mobile application to use the scanning technology within a mobile device to deliver information to our backend and in turn display analytics to the end user (merchants). The second patent (404,882) covers the analytics system of tracking customers who have "shared," the user who has received the "share" and if that user actually redeemed the "share" within the business.
Analytics System and Method for Monitoring Consumer Interaction with Merchant Promotional Activities Application Serial No. 13/168,763 was abandoned on March 27, 2013.
Analytics System and Method for Monitoring and Facilitating Promotion Distribution Application Serial No. 13/404,882 was pending awaiting examination.
.
Capitalized costs for the aforementioned patents as at December 31, 2013 totaled $7,695.
Note 7 - Loans Payable
At December 31, 2013, the Company is indebted to unrelated third parties in the amount of $51,573 (December 31, 2012 - $nil). The loan is non-interest bearing and is due on demand.
At December 31, 2013, the Company is indebted to a shareholder totaling $5,000. The loan is due on August 8, 2014 and bears interest at 10%. During the year ended December 31, 2013, the company recorded imputed interest of $994 (2012 - $nil).
At December 31, 2013, the Company is indebted to a unrelated third party in the amount of $7,000 (December 31, 210- $nil). The loan is non-interest bearing and due on demand.
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Convertible Notes
|
a
|
)
|
On November 27, 2012, the Company entered into a convertible loan agreement. The Company received $25,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $25,000 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 debenture up to its face value of $25,000. At December 31, 2013 , the carrying values of the convertible debenture and accrued convertible interest thereon were $3,942 and $2,733, respectively.
|
|
b
|
)
|
On November 27, 2012, the Company entered into a convertible loan agreement. The Company received $25,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $25,000 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 debenture up to its face value of $25,000. As at December 31, 2013, the carrying values of the convertible debenture and accrued convertible interest thereon were $3,942 and $2,733, respectively.
|
|
c
|
)
|
On November 27, 2012, the Company entered into a convertible loan agreement. The Company received $40,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $40,000 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 debenture up to its face value of $40,000. As at December 31, 2013, the carrying values of the convertible debenture and accrued convertible interest thereon were $6,308 and $4,373, respectively.
|
|
d
|
)
|
On November 27, 2012, the Company entered into a convertible loan agreement. The Company received $35,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $35,000 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 debenture up to its face value of $35,000. As at December 31, 2013, the carrying values of the convertible debenture and accrued convertible interest thereon were $4,998 and $3,826, respectively.
|
These convertible notes were assumed in the business combination (see note 4).
The Company analyzed the conversion feature of above Convertible Notes for derivative accounting consideration under FASB ASC 470 and determined that the conversion feature did not create embedded derivatives.
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9- Equity
We are authorized to issue 35,000,000 Series
A
Convertible Preferred stock with $0.00001 par value.
The preferred shares issued are designated as each share of preferred to carry 15 shares of common voting rights and to be convertible to common shares on the basis of 2.5 shares of common for each 1 share of preferred.
We are authorized to issue 15,000,000 Series
B
Convertible Preferred stock with $0.00001 par value.
On July 19, 2013, we entered into an acquisition agreement with Couponz, Inc. (“Couponz”). Under the term of the acquisition agreement, the Company acquired all of the issued and outstanding shares of Couponz in exchange for the issuance of 24,514,319 shares of
Series A Convertible Preferred
of the Company. On November 1, 2013, the Company completed this transaction.
During the year ended December 31, 2013, the Company issued a further 333,333 shares of Series A Convertible Preferred from private placements in the amount of $10,000. The Company also had 233,333 preferred shares issued as part of the reverse merger transaction. The Company also agreed to issue a one-year warrant entitling the holder to acquire an additional 533,333 preferred shares at the rate of $0.03 per share.
As of December 31, 2013, the total issued and outstanding shares of Series A Convertible Preferred Stock totaled 25,080,985.
We are authorized to issue 480,000,000 shares of common stock with $0.00001 par value.
During the year ended December 31, 2013, the Company accepted stock subscriptions for 1,666,666 shares of common stock at $0.03 per share for cash proceeds of $50,000
from a single subscriber
.
The Company also agreed to issue 2-year warrants entitling the holder to acquire an additional 2,449,999 and 566,667 shares of common stock at an exercise price of $0.30 and $0.03 per share respectively.
The Company also had
167,158,040
common shares issued as part of the reverse merger transaction.
Note 10 - Share Purchase Warrants
As at December 31, 2013, the following common share purchase warrants were outstanding:
|
Warrants
|
Weighted Average Exercise Price
|
Outstanding - December 31, 2012
|
-
|
-
|
Granted
|
3,016,666
|
0.25
|
Forfeited/Canceled
|
-
|
|
Exercised
|
-
|
-
|
Outstanding – December 31, 2013
|
3,016,666
|
0.25
|
Exercisable – December 31, 2013
|
3,016,666
|
0.25
|
The intrinsic value of these warrants was $0 at December 31, 2013.
During the year ended December 31, 2013, the Company issued a 2-year warrant entitling the holder to acquire an additional 50,000 shares of common stock at an exercise price of $0.30 per share as part of a share subscription agreement described above in Note 9.
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Share Purchase Warrants (continued)
During the year ended December 31, 2013, the Company issued a 2-year warrant entitling the holders to acquire an additional 2,966,666 shares of common stock at an exercise price of $0.30 per share as part of a share subscription agreement described above in Note 9.
As of December 31, 2013, the following preferred share purchase warrants were outstanding:
|
Warrants
|
Weighted Average Exercise Price
|
Outstanding - December 31, 2012
|
-
|
-
|
Granted
|
533,333
|
0.03
|
Forfeited/Canceled
|
-
|
-
|
Exercised
|
-
|
-
|
Outstanding – December 31, 2013
|
533,333
|
0.03
|
Exercisable – December 31, 2013
|
533,333
|
0.03
|
The intrinsic value of these warrants was $0 at December 31, 2013.
During the period ended December 31, 2013 the Company agreed to issue a one-year warrant entitling the holder to acquire an additional 533,333 preferred shares of Series A Convertible Preferred at the rate of $0.03 per share as part of a share subscription agreement described above in Note 9.
Note 11 - Derivative Liabilities
As of December 31, 2013, we have determined that we currently have (i) the following shares of common stock issued, and (ii) outstanding instruments which are convertible into the shares of common stock indicated below in connection with warrants, convertible notes and preferred shares previously issued by the Company or agreements with the Company:
|
168,824,706
|
|
Common Stock Issued and Outstanding
|
|
|
|
|
|
3,016,667
|
|
Common Shares exercised from warrants (3,016,666 warrants outstanding)
|
|
250,000,000
|
|
Common Shares convertible from convertible notes ($125,000 converted at $0.0005 per share )
|
|
62,702,463
|
|
Common Shares convertible from Preferred Series A (25,080,985 shares outstanding)
|
|
1,333,333
|
|
Common Shares convertible from Preferred Series A warrants (533,333 warratns outstanding)
|
|
485,877,169
|
|
Total Common Shares Outstanding and Accounted For/Reserved
|
Accordingly, given the fact that the Company currently has 480,000,000 shares of common stock authorized, the Company could exceed its authorized shares of common stock by approximately 5,877,169 shares if all of the financial instruments described in the table above were exercised or converted into shares of common stock. 5,877,169 of these shares were in excess of the authorized shares and were accounted for as a derivative liability. The fair value of these 5,877,169 common shares was determined to be $37,614 as of December 31, 2013 using the closing price of Neohydro’s common stock.
We have evaluated our convertible cumulative preferred stock under the guidance set out in FASB ASC 470-20 and have accordingly classified these shares as temporary equity in the consolidated balance sheets.
NEOHYDRO TECHNOLOGIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - Commitments
On June 17, 2013, the Company entered into a Funding Agreement whereby an investor agreed to purchase $100,000 worth of shares of common stock of the Company at $0.03 per share within 90 days (which may be extended by consent of both parties to 120 days) and receive a 2-year warrant for an additional $100,000 worth of shares at $0.30 per share. As of December 31, 2013, the Company has received $72,000 under the Funding Agreement towards the committed purchase value.
On July 16, 2013 the Company entered into a second Funding Agreement whereby an investor agreed to purchase $17,000 worth of shares of common stock of the Company at $0.03 per share and receive a 2-year warrant for an additional $17,000 worth of shares at $0.03 per share. As of December 31, 2013, the Company has received $17,000 under the Funding Agreement but had not yet issued the shares.
Note 13 – Related Party Transactions
The Company’s office services and office space are provided without charge by the sole officer of the Company.
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2013 and 2012, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $271,089 at December 31, 2013, and will begin to expire in the year 2031.
The Company had deferred income tax assets as of December 31, 2013, and 2012 as follows:
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Loss carryforwards
|
|
$
|
92,170
|
|
|
$
|
51.932
|
|
Less - valuation allowance
|
|
|
(92,170
|
)
|
|
|
(51.932
|
)
|
Total net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|