UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September
30, 2015
or
[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________
to ________________
Commission file number: 000-55511
EPIC STORES CORP. |
(Exact name of registrant as specified in its charter) |
|
|
|
Nevada |
|
45-5355653 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
20805 North 19th Avenue, #2, Phoenix, AZ 85027 |
(Address of principal executive offices)(Zip Code) |
|
(855) 636-3742 |
(Registrant’s telephone number, including area code) |
|
Not applicable |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer [ ] |
|
Accelerated filer [ ] |
|
|
|
Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
|
Smaller reporting company [X] |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 23, 2015, there were
34,383,109 shares of the issuer’s common stock, par value $0.0001, outstanding.
EPIC STORES CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2015
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
The accompanying unaudited condensed
consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission (the “SEC”), and should be
read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2014, which were filed
as Exhibit 99.1 to the our current report on Form 8-K as filed with the SEC on June 30, 2015. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results
of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year ending December 31, 2015.
EPIC STORES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS |
September 30, 2015 | |
December 31, 2014 |
Current assets |
| | | |
| | |
Cash |
$ | 57,977 | | |
$ | 157,692 | |
Accounts receivable |
| — | | |
| 20,471 | |
Inventory |
| 149,754 | | |
| 217,109 | |
Deferred rents |
| 28,896 | | |
| — | |
Prepaid expense |
| 3,000 | | |
| 9,362 | |
Total current assets |
| 239,627 | | |
| 404,634 | |
Deposits |
| 56,774 | | |
| 35,258 | |
Fixed assets, net |
| 1,004,971 | | |
| 1,129,151 | |
Tenant improvements, net |
| 886,550 | | |
| 577,781 | |
Total assets |
$ | 2,187,922 | | |
$ | 2,146,824 | |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
| | | |
| | |
Current liabilities |
| | | |
| | |
Accounts payable and accrued liabilities |
$ | 1,644,274 | | |
$ | 910,251 | |
Deferred rents - current portion |
| — | | |
| 123,620 | |
Equipment loan - current portion |
| 46,720 | | |
| 45,052 | |
Notes payable - current portion |
| 422,851 | | |
| — | |
Loans from related parties - current portion |
| 79,537 | | |
| 89,000 | |
Total current liabilities |
| 2,193,382 | | |
| 1,167,923 | |
Deferred rents |
| 1,521,592 | | |
| 820,349 | |
Equipment loan |
| 119,270 | | |
| 127,908 | |
Notes payable to related party |
| — | | |
| 200,000 | |
Notes payable |
| 450,000 | | |
| 700,000 | |
Declared dividends |
| 85,399 | | |
| 96,660 | |
Total liabilities |
| 4,369,643 | | |
| 3,112,840 | |
Stockholders' deficit |
| | | |
| | |
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 and 0 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively |
| — | | |
| — | |
Common stock; $0.0001 par value; 687,500,000 shares authorized; 34,383,109 and 15,903,948 shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively |
| 3,438 | | |
| 1,590 | |
Additional paid-in capital |
| 9,063,091 | | |
| 5,616,294 | |
Accumulated deficit |
| (11,405,190 | ) | |
| (6,498,035 | ) |
Total stockholders' deficit of the Company |
| (2,338,661 | ) | |
| (880,151 | ) |
Non-controlling interest |
| 156,940 | | |
| (85,865 | ) |
Total stockholders' deficit to the Company |
| (2,181,721 | ) | |
| (966,016 | ) |
Total liabilities and stockholders' deficit |
$ | 2,187,922 | | |
$ | 2,146,824 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
EPIC STORES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
Three Months Ended | |
Nine Months Ended |
| |
September 30, 2015 | |
September 30, 2014 | |
September 30, 2015 | |
September 30, 2014 |
Retail revenues | |
$ | 1,563,442 | | |
$ | 1,241,883 | | |
$ | 5,136,854 | | |
$ | 3,597,976 | |
Wholesale revenues | |
| 28,620 | | |
| 267,020 | | |
| 222,198 | | |
| 746,788 | |
Total revenues | |
| 1,592,062 | | |
| 1,508,903 | | |
| 5,359,052 | | |
| 4,344,764 | |
Cost of revenues | |
| (292,299 | ) | |
| (187,912 | ) | |
| (1,176,270 | ) | |
| (831,900 | ) |
Gross profit | |
| 1,299,763 | | |
| 1,320,991 | | |
| 4,182,782 | | |
| 3,512,864 | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Payroll and related expenses | |
| 1,061,353 | | |
| 781,188 | | |
| 3,668,087 | | |
| 2,366,240 | |
General and administrative expenses | |
| 707,153 | | |
| 1,454,143 | | |
| 2,013,659 | | |
| 2,256,069 | |
Rent expense | |
| 776,432 | | |
| 248,158 | | |
| 2,074,759 | | |
| 950,479 | |
Professional fees | |
| 43,069 | | |
| 146,807 | | |
| 511,637 | | |
| 527,201 | |
Depreciation and amortization expense | |
| 89,630 | | |
| 81,255 | | |
| 258,819 | | |
| 175,723 | |
Total operating expenses | |
| 2,677,637 | | |
| 2,711,551 | | |
| 8,526,961 | | |
| 6,275,712 | |
Loss from operations | |
| (1,377,874 | ) | |
| (1,390,560 | ) | |
| (4,344,179 | ) | |
| (2,762,848 | ) |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (93,843 | ) | |
| 741 | | |
| (210,031 | ) | |
| (62,940 | ) |
Other income | |
| 9,967 | | |
| 119,748 | | |
| 33,999 | | |
| 127,651 | |
Total other expense | |
| (83,876 | ) | |
| 120,489 | | |
| (176,032 | ) | |
| 64,711 | |
Net loss | |
$ | (1,461,750 | ) | |
$ | (1,270,071 | ) | |
$ | (4,520,211 | ) | |
$ | (2,698,137 | ) |
Less: Net gain (loss) attributable to non-controlling interest | |
$ | (8,575 | ) | |
$ | 196,150 | | |
$ | 29,255 | | |
$ | 209,174 | |
Net loss attributable to the Company | |
$ | (1,453,175 | ) | |
$ | (1,466,221 | ) | |
$ | (4,549,466 | ) | |
$ | (2,907,311 | ) |
Basic loss per common share | |
$ | (0.04 | ) | |
$ | (0.11 | ) | |
$ | (0.20 | ) | |
$ | (0.22 | ) |
Basic weighted average common | |
| | | |
| | | |
| | | |
| | |
shares outstanding | |
| 34,383,109 | | |
| 13,751,276 | | |
| 23,241,142 | | |
| 13,074,298 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
|
Nine Months Ending |
|
September 30, 2015 | |
September 30, 2014 |
Cash Flows from Operating Activities |
| | | |
| | |
Net loss |
$ | (4,520,211 | ) | |
$ | (2,698,137 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
| | | |
| | |
Gain on sale of fixed assets |
| (28,362 | ) | |
| — | |
Shares issued for interest |
| 20,958 | | |
| — | |
Amortization of original issue discount |
| 23,174 | | |
| | |
Depreciation and amortization |
| 258,819 | | |
| 175,723 | |
Changes in assets and liabilities |
| | | |
| | |
Increase in deferred rents |
| 548,727 | | |
| 490,226 | |
Decrease in prepaid expense |
| 6,362 | | |
| (1,000 | ) |
(Increase) in deposits |
| (21,516 | ) | |
| (16,549 | ) |
Decrease in inventory |
| 67,355 | | |
| 19,616 | |
Increase (decrease) in accounts payable and accrued liabilities |
| 734,023 | | |
| 408,209 | |
(Increase) decrease in accounts receivable |
| 20,471 | | |
| (12,294 | ) |
Net cash used in operating activities |
| (2,890,200 | ) | |
| (1,634,206 | ) |
Cash Flows from investing |
| | | |
| | |
Purchase of fixed assets |
| (107,586 | ) | |
| — | |
Proceeds from sale of fixed assets |
| 60,000 | | |
| — | |
Investment in tenant improvements |
| (335,063 | ) | |
| (630,669 | ) |
Net cash used in investing activities |
| (382,649 | ) | |
| (630,669 | ) |
Cash Flows from Financing Activities |
| | | |
| | |
Proceeds from issuance of common stock |
| 2,353,000 | | |
| 2,001,112 | |
Dividends paid to shareholders |
| (369,713 | ) | |
| (312,358 | ) |
Principal payments on note payable |
| (50,323 | ) | |
| | |
Proceeds from notes payable |
| 1,200,000 | | |
| 500,000 | |
Proceeds from related party debts |
| 79,537 | | |
| 52,000 | |
Principal payments on capital leases |
| (39,367 | ) | |
| (22,657 | ) |
Net cash from financing activities |
| 3,173,134 | | |
| 2,218,097 | |
Net increase (decrease) in cash |
| (99,715 | ) | |
| (46,778 | ) |
Beginning cash balance |
| 157,692 | | |
| 250,188 | |
Ending cash balance |
$ | 57,977 | | |
$ | 203,410 | |
Supplemental disclosure of cash flow information |
| | | |
| | |
Cash paid for interest |
$ | 103,858 | | |
$ | 62,940 | |
Cash paid for tax |
$ | — | | |
$ | — | |
Non-Cash investing and financing transactions |
| | | |
| | |
Debt settled with shares |
$ | (1,000,000 | ) | |
$ | — | |
Shares issued to settle dividends payable |
$ | (74,686 | ) | |
$ | — | |
The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
History and Organization
Epic Stores Corp. (the “Company”)
was incorporated under the name “SBOR, Inc.” in the State of Nevada on April 30, 2012. Effective December 20, 2013,
the Company completed a merger with its wholly-owned subsidiary, Be At TV, Inc., a Nevada corporation, which was incorporated solely
to effect a change in its name. As a result, the Company changed its name from “SBOR, Inc.” to “Be At TV,
Inc.”.
On June 24, 2015, the Company entered into,
and closed, a share exchange agreement dated June 24, 2015 (the “Exchange Agreement”) among the Company, Epic
Stores Corp., a private Nevada company (“Epic Corp.”), and the stockholders of Epic Corp., pursuant to which
the Company acquired all of Epic Corp.’s 27,083,493 issued and outstanding shares of common stock from its stockholders in
consideration for the issuance of an aggregate of: (i) 19,959,970 shares of the Company’s common stock (on a post-reverse
split basis), and (ii) 1,151,857 warrants (on a post-reverse split basis), each of which is exercisable into one share of the Company’s
common stock at a price of $1.02 per share until June 24, 2018. As a result of the closing of the Exchange Agreement, Epic Corp.
became a wholly-owned subsidiary of the Company.
In connection with the
closing of the Exchange Agreement, the Company experienced a change of control as four new directors, all of whom were directors
of Epic Corp., were appointed to the Company’s board, all of the Company’s prior management resigned and were replaced
by management nominated by Epic Corp., and former stockholders of Epic Corp. were issued shares of the Company’s common
stock that constituted approximately 58.1% of the Company’s issued and outstanding shares, on an undiluted basis, at the
time of closing of the Exchange Agreement. As a result, the Company determined to treat the acquisition of Epic Corp. as a reverse
merger and recapitalization for accounting purposes, with Epic Corp. as the acquirer for accounting purposes.
Effective August 18, 2015, the Company completed
a merger with its wholly-owned subsidiary, Epic Stores Corp., a Nevada corporation, which was incorporated solely to effect a change
in its name. As a result, the Company changed its name from “Be At TV, Inc.” to “Epic Stores Corp.”. This
name change was effected to reflect the change in the Company’s business resulting from the closing of the Exchange Agreement.
Also effective August
18, 2015, the Company completed a reverse split of its authorized and issued and outstanding shares of common stock, on the basis
of one new share of common stock for each 2.4 shares of authorized, issued and outstanding shares of common stock prior to completion
of the reverse split. In accordance with Staff Accounting Bulletin (“SAB”) Topic 4.C of the Securities and
Exchange Commission, the equity presentation has been retroactively applied to the presentation of these financial statements.
The Company currently has four wholly-owned
subsidiaries, being Epic Stores, LLC, a Nevada limited liability company, Epic Stores 2 LLC, a Nevada limited liability company,
Epic Stores III LLC, a Nevada limited company, and Epic Corp, a Nevada corporation. The Company operates its retail stores through
its wholly-owned subsidiaries.
Atlas Global LLC (“Atlas”),
an Arizona limited liability company, is a supply and logistics company that specializes in sourcing second hand goods. Atlas is
controlled by the majority shareholders of Epic Corp. and supplies the majority of its goods to Epic Corp. As a result of the common
control and business concentrations as between Atlas and Epic Corp., it is deemed to be a variable interest entity (“VIE”)
of the Company.
The Company, each of its subsidiaries and
Atlas, a VIE, are collectively referred to herein as the “Company”, unless the context otherwise requires.
Description of Business
The Company is a second hand goods retailer
that operates second hand retail stores in the United States. The Company focuses on offering high quality, on-trend second hand
clothing, accessories and household products at affordable prices. Additionally, the Company sells used goods that do not meet
or exceed its strict quality standards through the wholesale market. The Company maintains executive offices in Phoenix, Arizona.
As of September 30, 2015, the Company had 10
operating stores in four states, being Arizona, Nevada, Colorado and Texas. The Company has one additional location under construction
in Texas.
2. BASIS OF PRESENTATION AND GOING CONCERN
The accompanying unaudited interim
condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be
read in conjunction with the audited consolidated financial statements and notes thereto of Epic Corp. for the year
ended December 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of financial position and the results of operations for the interim period presented have been
reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be
expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained
in the audited consolidated financial statements for the most recent fiscal period have been omitted.
Principles of Consolidation –
The condensed consolidated financial statements include the accounts of the Company, its subsidiaries and Atlas. All significant
intercompany balances and transactions have been eliminated.
Going Concern – The accompanying
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred cumulative net losses of $11,405,190 since its inception
and requires additional capital for its contemplated operational and marketing activities to take place. The Company’s ability
to raise additional capital through the future issuance of common stock is unknown. Additional financing, the successful development
of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations,
are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt
about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments
that may result from the outcome of these aforementioned uncertainties.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies
is presented to assist in understanding the Company’s financial statements. The consolidated financial statements and notes
are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied
in the preparation of the financial statements.
Use of Estimates – The process
of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires
the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily
relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results
may differ from estimated amounts.
Cash and Cash Equivalents – For
purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term debt instruments with
original maturities of three months or less to be cash equivalents. There was $57,977 and $157,692 in cash and cash equivalents
as of September 30, 2015 and December 31, 2014, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Concentration of credit risk - The Company
maintains cash balances at financial institutions. Accounts at such institutions are insured by the Federal Deposit Insurance Corporation
up to $250,000. As of September 30, 2015 and December 31, 2014, the Company's uninsured cash balances were approximately $57,977
and $157,692, respectively.
Fair Value of Financial Instruments
– The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective
fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.
As required by the Fair Value
Measurements and Disclosures topic of the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”), fair value is measured based on a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows: Level 1 – observable inputs such as quoted prices
in active markets; Level 2 – inputs, other than the quoted prices in active markets, that are observable either
directly or indirectly; and Level 3 – unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy
are described below:
Level 1: Cash and unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets
that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset
or liability; and
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity).
Variable interest entity – A variable
interest entity (“VIE”) is an entity that either (a) has insufficient equity to permit the entity to finance its
activities without additional subordinated financial support or (b) has equity investors who lack the characteristics of a
controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the
power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb
losses or the right to receive benefits from the entity that could potentially be significant to the VIE. As of September 30, 2015
and December 31, 2014, the Company determined that Atlas fit the description of a VIE, with the Company as the primary beneficiary,
because officers and directors of the Company are the majority shareholders of Atlas and have the ability to direct the activities
of the entity. As a result, Atlas has been consolidated in the Company’s financial statements. If the Company determines
in the future that it does not have operating power over Atlas and the obligation to absorb Atlas’s losses or receive benefits,
such that the Company is no longer the primary beneficiary of Atlas, the Company will not consolidate Atlas for the applicable
financial period.
Earnings (Loss) per Share – The
Company reports earnings (loss) per share in accordance with FASB Standards ASC 260-10 “Earnings Per Share”,
which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes
no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares
outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings
of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common
shares are excluded if their effect is anti-dilutive.
Recently Issued Accounting
Pronouncements –The Company has evaluated all other recent accounting pronouncements through September 30, 2015, and
believes that none of them will have a material effect on the Company’s consolidated financial position, results of
operations or cash flows.
4. VARIABLE INTEREST ENTITY
As of September 30, 2015 and December 31, 2014,
the Company determined that Atlas fit the description of a VIE, with the Company as the primary beneficiary, because officers and
directors of the Company are the majority shareholders of Atlas and have the ability to direct the activities of the entity. Atlas
is also contracted to provide all inventory collected that meets quality standards to the Company at fixed rates. As a result of
the control the Company has over Atlas, the accounts of Atlas have been consolidated with the accounts of the Company in accordance
with ASC 810-10.
The carrying amount and classification of the
assets and liabilities of Atlas that are included in the Company’s consolidated balance sheets are as follows:
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Total current assets |
|
$ |
214,556 |
|
|
$ |
75,652 |
|
Total assets |
|
|
571,817 |
|
|
|
543,500 |
|
Total current liabilities |
|
|
214,538 |
|
|
|
140,365 |
|
Total liabilities |
|
|
414,538 |
|
|
|
629,365 |
|
The amounts shown in the above table
as of September 30, 2015 and December 31, 2014 include intercompany payables and receivables that have been eliminated in consolidating
Atlas with the Company. As of September 30, 2015 and December 31, 2014, $210,981 and $55,532 were payables due to Atlas for inventory
received.
The amounts and classification of income and
expenses of Atlas that are in the Company’s consolidated statements of operations are as follows:
|
|
Three Months Ending |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
Revenues |
|
$ |
92,785 |
|
|
$ |
731,972 |
|
Cost of goods |
|
|
(70,415 |
) |
|
|
(524,032) |
|
Gross margin |
|
|
22,370 |
|
|
|
207,940 |
|
Expenses |
|
|
30,945 |
|
|
|
12,373 |
|
Net income (loss) |
|
$ |
(8,575) |
|
|
$ |
195,567 |
|
The amounts shown in the above table for the
three months ended September 30, 2015 and 2014 include sales and purchases that have been eliminated in consolidating Atlas with
the Company. During the three months ended September 30, 2015 and 2014, the Company purchased inventory from Atlas of $70,415 and
$458,736, respectively.
|
|
Nine Months Ending |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
Revenues |
|
$ |
434,685 |
|
|
$ |
1,837,086 |
|
Cost of goods |
|
|
(250,225 |
) |
|
|
(1,149,197) |
|
Gross margin |
|
|
184,460 |
|
|
|
687,889 |
|
Expenses |
|
|
155,205 |
|
|
|
478,715 |
|
Net income (loss) |
|
$ |
29,255 |
|
|
$ |
209,174 |
|
The amounts shown in the above table for the
nine months ended September 30, 2015 and 2014 include sales and purchases that have been eliminated in consolidating Atlas with
the Company. During the nine months ended September 30, 2015 and 2014, the Company purchased inventory from Atlas of $428,052 and
$1,102,563, respectively.
5. INVENTORY
The components of inventories are as follows:
| |
September 30, 2015 | |
December 31, 2014 |
Merchandise goods | |
$ | 149,754 | | |
$ | 217,109 | |
Less reserve for inventory shrinkage and
obsolescence | |
| — | | |
| — | |
Total, net of reserves | |
$ | 149,754 | | |
$ | 217,109 | |
The Company evaluated the need to increase
its market reserves for excess and slow-moving inventories and determined that no reserve was needed for the periods ended September
30, 2015 and December 31, 2014. As part of the Company’s valuation analysis of inventory, the Company also analyzed
its inventory to determine if reserves were needed for inventory shrinkage. At September 30, 2015 and December 31, 2014,
respectively, the Company determined no such reserves were needed.
6. FIXED ASSETS
Fixed assets consist of the following:
| |
September 30, 2015 | |
December 31, 2014 |
Furniture and fixtures | |
$ | 884,232 | | |
$ | 788,735 | |
Donation bins | |
| 604,960 | | |
| 631,047 | |
Capitalized equipment leases | |
| 199,390 | | |
| 179,762 | |
| |
| 1,688,582 | | |
| 1,599,524 | |
Less accumulated depreciation and amortization | |
| (683,612 | ) | |
| (470,393 | ) |
Property and equipment, net | |
$ | 1,004,970 | | |
$ | 1,129,151 | |
Fixed assets are recorded on the basis of cost
and depreciated using a straight-line method over the estimated useful lives of fixed assets. Leasehold improvements are amortized
over the estimated useful life of the assets. Expenditures which significantly improve or extend the life of an asset are capitalized
and depreciated over the asset’s remaining useful life. The Company expenses maintenance and repair costs as incurred.
Depreciation expense for the three months ended
September 30, 2015 and 2014 was $77,915 and $72,260, respectively.
Depreciation expense for the nine months ended
September 30, 2015 and 2014 was $232,525 and $165,088, respectively.
7. TENANT IMPROVEMENTS
Tenant improvements consist of the following
| |
September 30, 2015 | |
December 31, 2014 |
Tenant Improvements | |
$ | 927,258 | | |
$ | 592,195 | |
Less accumulated depreciation and amortization | |
| (40,708 | ) | |
| 14,414 | ) |
Tenant improvements, net | |
$ | 886,550 | | |
$ | 577,781 | |
Leasehold improvements are amortized over the
shorter of the useful life of the assets or the estimated lease term (including probable lease renewals). Expenditures which significantly
improve or extend the life of an asset are capitalized and depreciated over the asset’s remaining useful life. The Company
expenses maintenance and repair costs as incurred.
Depreciation expense for the three
months ended September 30, 2015 and 2014 was $11,715 and $8,995, respectively. Depreciation expense for the nine months ended
September 30, 2015 and 2014 was $26,294 and $10,635, respectively.
8. RELATED PARTY TRANSACTIONS
On May 20, 2015,
the Company and a related party note holder agreed to settle an unsecured promissory note in the principal amount of $200,000.
The entire principal outstanding under the note and the accrued interest thereon were settled in exchange for the issuance of
units of Atlas with a value equivalent to $200,000. The note bore a 16% annual interest rate and was to mature on September 1,
2018. The Company was required to make interest only payments until maturity at which time the note was to be paid in full.
From time to time, members
of the Company have advanced funds to support its operations. On May 19, 2015, the Company and certain debt holders agreed to settle
$89,000 in advances payable in exchange for units of Atlas with a value equivalent to $89,000. As of September 30, 2015 and December
31, 2014, the outstanding balance of advanced funds was $79,537 and $89,000, respectively. The advances were due on demand and
did not bear interest.
During the nine months
ended September 30, 2015, Dynamic Solutions Nevada LLC (“Dynamic”), an entity 90% owned by Brian Davidson, an
officer, director and shareholder of the Company, acted as the general contractor for tenant improvements performed at several
of the Company’s stores. The total billings related to these tenant improvements during the nine months ended September 30,
2015 was $52,535. As of September 30, 2015, $9,000 remained due to Dynamic.
On
January 1, 2015, the Company renegotiated existing consulting agreements with Wayne Riggs, Brian Davidson and Bobby Riggs, all
of whom are officers and directors of the Company. Under these agreements, each officer is to receive compensation of $160,000
annually, a reimbursement for health insurance costs, and is entitled to participate in the Company’s stock option plan,
when and if established.
Effective September 15, 2015, the
Company renegotiated its existing consulting agreement with Wayne Riggs. Under the renegotiated terms, Mr. Riggs will
continue to provide his services as a director of the Company without compensation.
During the nine months
ended September 30, 2015, management consulting fees were paid to the officers in accordance with the terms of the management agreements.
During the three and
nine months ended September 30, 2015, the Company’s Manager, Wayne Riggs, received $26,667 and $116,666, respectively, for
the provision of management and business development services to the Company.
During the three and nine months
ended September 30, 2015, the Company’s Chief Executive Officer, Brian Davidson, received $26,667 and $116,666, respectively,
for the provision of management and business development services to the Company.
During the three and nine months
ended September 30, 2015, the Company’s Chief Operating Officer, Bobby J. Riggs, received $40,000 and $123,333, respectively,
for the provision of management and business development services to the Company.
8. RELATED PARTY TRANSACTIONS (continued)
On March 3, 2015, Epic Corp. appointed Zachary
Bradford to serve as the Chief Financial Officer (“CFO”) of Epic Corp., and Mr. Bradford subsequently became
the Chief Financial Officer of the Company upon closing of the Exchange Agreement on June 24, 2015. In connection with this appointment,
the Company entered into a consulting agreement with Mr. Bradford, pursuant to which the Company agreed to pay Mr. Bradford a consulting
fee of $5,500 per month, plus expenses incurred. The Company also entered into certain agreements with Bluechip Advisors LLC (“Bluechip”),
a company in which Mr. Bradford holds a 50 percent interest, having a term from March 1, 2015 through February 28, 2016, pursuant
to which Bluechip agreed to provide controller and accounting services for base fee compensation of $8,000 per month, plus expenses,
plus an additional fee of $200 per month for each operating store over five open during the month of service. The Company also
entered into a further agreement with Bluechip pursuant to which Bluechip agreed to provide services to the Company in connection
with the preparation of financial statements and other public filings in connection with the closing of the Exchange Agreement,
as further described in Note 1, for fees of $55,000. The Company also entered into a further agreement with Bluechip pursuant to
which Bluechip agreed to provide services to the Company in connection with the preparation of financial statements and other public
filings subsequent to the Exchange agreement for $2,000 a month.
9. NOTES PAYABLE
Epic Corp.
On August 15, 2014, Epic
Corp. issued two unsecured promissory notes to two investors, each in the principal amount of $250,000. The notes bear a 16% annual
interest rate, maturing at the earlier of the sale of Epic Corp. or December 31, 2018. The notes also carry provisions that allow
the holder to call the balance prior to maturity subject to early withdrawal penalties as follows: 12% if called in 2015, 8% if
called in 2016 and 4% if called in 2017. On May 20, 2015, the Company and the noteholders agreed to settle 50% of the noteholders’
respective balances outstanding under the notes in consideration for the issuance of an aggregate of 233,791 shares of the common
stock of Epic Corp. to each of the note holders.
On January 15, 2015,
Epic Corp. issued an unsecured promissory note to an investor in the principal amount of $100,000. The note bears no interest and
is due upon demand.
On March 2, 2015, the
Company entered into a letter of intent with Epic Corp. pursuant to which the Company agreed to acquire all of the outstanding
securities of Epic Corp. In connection with the entry into the letter of intent, on March 18, 2015, Epic Corp. entered into a loan
agreement with a third party lender, pursuant to which the lender agreed to make a loan in the principal amount of $750,000 to
Epic Corp. The loan bore interest at the rate of 12% per annum, and had a maturity date of September 18, 2015. As security for
the secured convertible note, Epic Corp. provided the lender with security over all of its assets pursuant to the terms of a general
security agreement made by Epic Corp. in favor of the lender. In connection with the closing of the Exchange Agreement on June
24, 2015, the principal amount outstanding under the March 18, 2015 note, and accrued interest thereon, totaling $770,959, was
converted into units of the Company at a deemed conversion price of $0.882 per unit. Each unit consisted of one share of common
stock in the capital of the Company and one warrant, each of which is exercisable into one share of common stock of the Company
at a price of $1.02 until June 24, 2018.
On April 16, 2015, Epic Corp. issued a secured
convertible promissory note to an investor in the principal amount of $200,000. The note bears a 23% annual interest rate and matured
on June 30, 2015. The note was convertible into one Class B Unit of Epic LLC. The note is secured by all assets of Epic Corp. At
the time of issuance, the Company evaluated the conversion feature and determined that the value associated with the conversion
feature was $0.
In connection with the contribution of
all of the assets of Epic LLC to Epic Corp., the Company offer the noteholder the opportunity to convert the note into
352,941 shares of Epic Corp.’s common stock, which represented the pro rata value provided to each Class B Unit holder
at the time of the contribution. The note holder did not accept the proposed terms and as a result the note was not
converted.
9. NOTES PAYABLE (continued)
The note carries a break-up
provision which states that the parties shall use commercially reasonable efforts to negotiate future financing and convert the
then outstanding principal and interest of the note into securities of Epic Corp. The note provided that, in the event the parties
were unable to agree on mutually agreeable terms on or prior to June 30, 2015, the Company was to pay the noteholder, in addition
to any other amounts due and owing under the note, a break-up fee in an amount equal to $50,000. The contingent balance of $50,000
has been accrued as of September 30, 2015. As the parties were unable to finalize the negotiation of a future financing by June
30, 2015, this contingent fee became contractually due to the note holder as of July 1, 2015.. As of the date of this filing, the
Company has only made interest payments and the note is in default. The Company and the note holder continue to negotiate
the final terms of settlement.
On August 13, 2015, Epic Corp. issued a secured
promissory note to an investor in the principal amount of $195,000. The note carried an original issue discount of $45,000, therefore
$150,000 was received by the Company, net of the discount. The loan will be repaid over 126 equal payments of $1,547 over the six
month term and is secured by all assets of the Company. The original issue discount was recorded as a reduction of the principal
balance and is being amortized over the life of term of the note.
The balance of the note and unamortized debt
discount are as follows:
| |
September 30, 2015 |
Tenant Improvements | |
$ | 143,929 | |
Less accumulated depreciation and amortization | |
| (31,909 | ) |
Tenant improvements, net | |
$ | 112,020 | |
During the three months ended September 30,
2015, the Company paid $51,071 in principal and interest. The aggregate original issue discount
feature has been accreted and charged to interest expense in the amount of $13,091 during the three months ended September 30,
2015.
Atlas
On April 4, 2012, Atlas
issued an unsecured promissory note to an investor in the principal amount of $100,000. The note bears a 16% annual interest rate
and matures five years from the date of issuance. Atlas is required to make interest only payments until maturity, at which time
the note is to be paid in full.
On August 7, 2012, Atlas
issued an unsecured promissory note to an investor in the principal amount of $100,000. The note bears a 16% annual interest rate
and matures five years from the date of issuance. Atlas is required to make interest only payments until maturity at which time
the note is to be paid in full.
10. STOCKHOLDERS’ DEFICIT
Effective August 18, 2015, the Company completed
a reverse split of the Company’s authorized, issued and outstanding common stock on the basis of one new share of common
stock for each 2.4 shares of authorized, issued and outstanding common stock prior to completion of the reverse split. In
accordance with SAB Topic 4.C, the equity presentation has been retroactively applied to the presentation of these financial statements.
10. STOCKHOLDERS’ DEFICIT (continued)
Description of Share Capital
Preferred Stock
The Company is authorized to issue 10,000,000
shares of preferred stock having a par value of $0.0001 per share. The Company had no issued and outstanding shares of preferred
stock as of September 30, 2015 and December 31, 2014, respectively. The Company’s board of directors has the ability to designate
rights to its preferred stock. As of the date of these financial statements, the board has made no such designation.
Common Stock
The Company is authorized to issue 687,500,000
shares of common stock having a par value of $0.0001 per share. The Company had 34,383,109 and 15,903,948 issued and outstanding
shares of common stock as of September 30, 2015 and December 31, 2014, respectively.
Investment in Epic Corp.
During the nine months ended September 30,
2015, Epic Corp. received $803,000 from 10 investors to purchase 4,737,670 shares of Epic Corp.’s common stock. These were
subsequently exchanged for 3,491,564 shares of the Company’s common stock in connection with the closing of the Exchange
Agreement.
During the nine months ended September 30,
2015, Epic Corp. settled a total of $250,000 notes payable by issued 634,458 shares of Epic Corp.’s common stock. These were
subsequently exchanged for 467,582 shares of the Company’s common stock in connection with the closing of the Exchange Agreement.
See Note 8 - NOTES PAYABLE for additional details.
Investment in Epic Stores Corp.
On June 24,
2015, in connection with the closing of the Exchange Agreement, the Company received $1,550,000 from 12 investors in exchange
for the issuance of 1,757,370 units of the Company. Each unit consisted of one share of common stock in the capital of the
Company and one warrant, each of which is exercisable into one share of common stock of the Company at a price of $1.02 until
June 24, 2018.
On June 24, 2015, in
connection with the closing of the Exchange Agreement, the principal amount outstanding under the March 18, 2015 note, and accrued
interest thereon, totaling $770,959, was converted into 874,103 units of the Company at a deemed conversion price of $0.882 per
unit. Each unit consisted of one share of common stock in the capital of the Company and one warrant, each of which is exercisable
into one share of common stock of the Company at a price of $1.02 until June 24, 2018.
Dividends Paid and Declared
During the nine months ended September 30,
2015, the Company declared $357,688 in dividends and paid $369,713 in dividends to shareholders. On May 21, 2015, the Company had
declared and unpaid dividends totaling $74,687 due to former Class C Unit holders of Epic LLC. These unpaid dividends were settled
through the issuance of an aggregate of 131,449 shares of common stock of Epic Corp. in connection with the contribution of the
assets of Epic LLC to Epic Corp. These were subsequently exchanged for 96,875 shares of the Company’s common stock in connection
with the closing of the Exchange Agreement
Atlas Global, LLC
The interest of each member of Atlas is in
the form of units. Atlas has a class of units designated as Class A Units, which represent capital interests. Each Class A Unit
is subject to a resale restriction requiring that the member hold the unit for a minimum of one calendar year from the date of
original issue. Atlas had 103 units issued and outstanding as of September 30, 2015 and December 31, 2014.
11. STOCK OPTIONS AND WARRANTS
The following is a summary of warrant activity
during the nine months ended September 30, 2015.
|
Number of Warrant Shares | |
Weighted Average Exercise Price |
Balance, December 31, 2014 |
| 104,167 | | |
$ | 0.24 | |
|
| | | |
| | |
Warrants granted and assumed |
| 3,679,162 | | |
| 1.02 | |
Warrants expired |
| — | | |
| — | |
Warrants cancelled |
| 104,164 | | |
| — | |
Warrants exercised |
| — | | |
| — | |
|
| | | |
| | |
Balance, September 30, 2015 |
| 3,679,162 | | |
$ | 1.02 | |
All warrants outstanding as of September 30, 2015 are exercisable.
All warrants granted during the nine months
ending September 30, 2015 were granted in connection with the closing of the Exchange Agreement on June 24, 2015. See Note 1 -
ORGANIZATION AND DESCRIPTION OF BUSINESS and Note 9 – STOCKHOLDERS’ DEFICIT for additional details.
12. COMMITMENTS AND CONTINGENCIES
The Company does not
have any off-balance sheet transactions.
Contractual Obligations
The following illustrates the Company’s
contractual obligations as of September 30, 2015 and the respective future commitments related to same:
| |
| |
Year 1 | |
Year 2 | |
Year 3 | |
Year 4 | |
Year 5 | |
|
| |
Total | |
December 2015 | |
December 2016 | |
December 2017 | |
December 2018 | |
December 2019 | |
Thereafter |
Long-Term Debt Obligations | |
$ | 450,000 | | |
$ | — | | |
$ | — | | |
| 450,000 | | |
$ | — | | |
$ | — | | |
$ | — | |
Current Debt Obligations | |
$ | 502,388 | | |
$ | 480,529 | | |
$ | 42,936 | | |
| — | | |
$ | — | | |
$ | — | | |
$ | — | |
Capital Leases | |
$ | 165,990 | | |
$ | 10,993 | | |
$ | 47,046 | | |
| 47,996 | | |
$ | 34,886 | | |
$ | 17,287 | | |
$ | 7,782 | |
Operating Lease Obligations | |
$ | 16,805,674 | | |
$ | 583,301 | | |
$ | 2,145,105 | | |
| 2,160,884 | | |
$ | 2,137,230 | | |
$ | 1,837,408 | | |
$ | 7,941,746 | |
Total | |
$ | 17,924,052 | | |
$ | 1,074,823 | | |
$ | 2,235,087 | | |
| 2,658,880 | | |
$ | 2,172,116 | | |
$ | 1,854,695 | | |
$ | 7,949,528 | |
Property Lease Obligations. The Company
has entered into various operating lease agreements with terms ranging from 5 to 10 years that expire between March 2016 and June
2025. In almost all cases the rent agreements provide for annual rent escalations and abatements. In accordance with ASC 840, the
Company has recorded all of the leases on a straight-line basis over the respective lease term. The difference between the rent
recorded under ASC 840 and actual lease payments is reflected as deferred rent in the accompanying financial statements. The Company
has recorded deferred rent of $1,492,696 as of September 30, 2015 and rent expense of $2,074,759 and $950,479 for the nine months
ended September 30, 2015 and 2014, respectively, and $776,432 and $248,158 for the three months ended September 30, 2015 and
2014, respectively.
12. COMMITMENTS AND CONTINGENCIES
(continued)
The remaining aggregate lease payments under
the operating leases for the Company’s facilities as of September 30, 2015 are as follows:
2015 |
|
$ |
583,301 |
|
2016 |
|
|
2,145,105 |
|
2017 |
|
|
2,160,884 |
|
2018 |
|
|
2,137,230 |
|
2019 |
|
|
1,837,408 |
|
Thereafter |
|
|
7,941,746 |
|
|
|
$ |
16,805,674 |
|
13. INCENTIVES FROM LESSORS
The Company received $372,969 from landlords
as construction contributions pursuant to agreed-upon terms of certain lease agreements during the nine months ended September
30, 2015.
Landlord construction contributions usually
take the form of up-front cash reimbursements for tenant improvements. Depending on the specifics of the leased space and the lease
agreement, amounts paid for structural components are recorded during the construction period as leasehold improvements and the
landlord construction contributions are recorded as an incentive from lessor. The incentive from lessor is amortized over the life
of the lease and netted against rent expense.
Amortization of the incentives from lessors
was $13,351 and $27,401 for the three and nine months ended September 30, 2015.
14. SUBSEQUENT EVENTS
On November 3, 2015, Epic Corp. issued a secured
promissory note to an investor in the principal amount of $217,500. The note carried an original issue discount of $117,000, therefore
$150,000 was received by the Company, net of the discount. The loan will be repaid over 126 equal payments of $1,726 and is secured
by all assets of the Company. The original issue discount was recorded as a reduction of the principal balance and will be amortized
over the life of term of the agreement.
On November 4, 2015, Epic Corp. issued a secured
promissory note to an investor in the principal amount of $180,461. The note carried an original issue discount of $30,461, therefore
$150,000 was received by the Company, net of the discount. The loan will be repaid over 187 equal payments of $968 and is secured
by all assets of the Company. The original issue discount was recorded as a reduction of the principal balance and will be amortized
over the life of term of the agreement.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Except for historical information, this
report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among
other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking
statements include, among others, those statements including the words “expects,” “anticipates,” “intends,”
“believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking
statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein
as well as in the “Description of Business – Risk Factors” section in our current report on Form 8-K as filed
with the SEC on June 30, 2015. You should carefully review the risks described in such current report and in other documents we
file from time to time with the SEC. You are cautioned not to place undue reliance on the forward-looking statements, which speak
only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document.
Although we believe that the expectations
reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties
that could cause actual results to differ materially from such forward-looking statements.
All references in this Form 10-Q
to “Epic,” “we,” “us,” or “our” are to Epic
Stores Corp. and our subsidiaries.
Our unaudited financial statements are
stated in United States Dollars and are prepared in accordance with United States generally accepted accounting principles.
Current Business
As further, described below, we are
a second hand goods retailer that operates retail stores in the United States.
We were incorporated in the State of
Nevada on April 30, 2012 under the name “SBOR, Inc”. Effective December 20, 2013, we completed a merger with our wholly-owned
subsidiary, Be At TV, Inc., a Nevada corporation, which was incorporated solely to effect a change in our name. As a result,
we changed our name from “SBOR, Inc.” to “Be At TV, Inc.”. Also effective December 20, 2013, we effected
a 16.5 to 1 forward stock split of our authorized and issued and outstanding common stock. As a result, our authorized capital
of common stock increased from 100,000,000 shares of common stock with a par value of $0.0001 per share to 1,650,000,000 shares
of common stock with a par value of $0.0001 per share, and our previously outstanding 3,700,000 shares of common stock increased
to 61,050,000 shares of common stock outstanding. Our authorized preferred stock was not affected by the forward split of common
stock and continues to be comprised of 10,000,000 shares of preferred stock having a par value of $0.0001 per share, of which no
shares of preferred stock are currently outstanding.
On June 24, 2015, we completed the
acquisition of Epic Stores Corp., a private Nevada corporation (“Epic Corp.”), pursuant to the terms of a share
exchange agreement dated June 24, 2015 (the “Exchange Agreement”) among our company, Epic Corp., and the shareholders
of Epic Corp. As a result of our acquisition of Epic Corp., we ceased to be a “shell company” as defined in Rule 12b-2
of the Securities Exchange Act of 1934, as amended. For additional information with respect to our acquisition of Epic
Corp, see our current report on Form 8-K, as filed with the SEC on June 30, 2015.
Effective August 18, 2015, we completed
a merger with our wholly-owned subsidiary, Epic Stores Corp., a Nevada corporation, which was incorporated solely to effect a change
in our name. As a result, we changed our name from “Be At TV, Inc.” to “Epic Stores Corp.”.
Also effective August 18, 2015, we effected a reverse stock split of our authorized and issued and outstanding common stock, on
the basis of one new share of common stock for each 2.4 old shares of common stock. As a result, our authorized capital of common
stock decreased from 1,650,000,000 shares of common stock with a par value of $0.0001 per share to 687,500,000 shares of common
stock with a par value of $0.0001 per share, and our previously outstanding 82,519,461 shares of common stock decreased to 34,383,109
shares of common stock outstanding. Our authorized preferred stock was not affected by the reverse split of common stock and continues
to be comprised of 10,000,000 shares of preferred stock having a par value of $0.0001 per share, of which no shares of preferred
stock are currently outstanding.
As a result of the closing of the
Exchange Agreement, the business of Epic Corp., being that of a second hand goods retailer that operates second hand retail
stores in the United States, became our business. We offer high quality, on-trend second hand clothing, accessories and
household products at affordable prices. We are based in Phoenix, Arizona. We commenced operations in 2010. In 2011, we
opened our first retail store in Phoenix, Arizona. Since 2011, we have opened stores in Arizona, Nevada, Colorado, and Texas.
All of our retail stores sell our products directly to consumers. We also operate a leading wholesale business that supplies
used shoes, books and clothing to distributors.
Incorporation of Subsidiaries
Epic Stores, L.L.C. (“Epic
1”) was incorporated on December 2, 2010 as an Arizona limited liability company. Epic 1 opened its first store
in Phoenix, Arizona in 2011. It then formed a company, Epic Stores 2 LLC (“Epic 2”), a Nevada limited liability
company, on September 20, 2011 to open its second retail location in Las Vegas, Nevada. On February 16, 2012, a second company,
Epic Stores III LLC (“Epic 3”), a Nevada limited liability company, was formed to open the third retail location
in Las Vegas, Nevada. After opening the third store, Epic 1 determined that its growth plans would be more efficiently reached
if all the stores were operated under the same limited liability company. As a result, Epic 1 opened three locations in 2013 and
five additional locations in 2014. Effective January 1, 2015, the sole member of each of Epic 2 and Epic 3 assigned all of its
membership interest in Epic 2 and Epic to Epic 1 pursuant to the terms of an assignment and assumption of membership interests
agreement.
On February 11, 2015, Epic Stores LLC
(“Epic LLC”), a Nevada limited liability company, was formed. On February 11, 2015, Epic 1 merged with and into
Epic LLC, with Epic LLC as the surviving corporation, for the purposes of changing its jurisdiction of formation from Arizona to
Nevada. On May 4, 2015, Epic Corp. was incorporated under the laws of the State of Nevada. Pursuant to a contribution agreement
dated May 12, 2015, Epic LLC contributed all of its assets, including all of the membership interests in Epic 2 and Epic 3, to
Epic Corp. On May 21, 2015, Epic LLC and its members executed a conversion and liquidation agreement converting all units of Epic
LLC into Class A Units of Epic LLC, which in turn were converted into an aggregate of 24,083,493 shares of common stock
of Epic Corp., which were all exchanged for shares of our common stock in connection with the closing of the Exchange Agreement.
Upon execution of the conversion and liquidation agreement, the members of Epic LLC authorized its manager to take action as needed
to dissolve Epic LLC. As at the date hereof, Epic LLC has not yet been dissolved and continues to be a wholly-owned subsidiary
of Epic.
Results of Operations
Our financial statements have been prepared
assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and
realization of assets and classification of liabilities that might be necessary should we be unable to continue operating. We
expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through,
among other things, the sale of equity or debt securities.
Results of Operations for the Three
Months Ended September 30, 2015 and 2014
The following table provides our results of operations for
the three months ended September 30, 2015 and 2014:
|
|
Three Months Ended
September 30 |
|
|
2015 |
|
|
2014 |
Retail revenue |
|
$ |
1,563,442 |
|
|
$ |
1,241,883 |
Wholesale revenue |
|
$ |
28,620 |
|
|
$ |
267,020 |
Cost of revenue |
|
$ |
(292,299) |
|
|
$ |
(187,912) |
Gross profit |
|
$ |
1,299,763 |
|
|
$ |
1,320,991 |
Operating expenses |
|
$ |
2,677,637 |
|
|
$ |
2,711,551 |
Loss from operations |
|
$ |
(1,377,874) |
|
|
$ |
(1,390,560) |
Interest expenses |
|
$ |
(93,843) |
|
|
$ |
- |
Other income |
|
$ |
9,967 |
|
|
$ |
120,489 |
Net loss |
|
$ |
(1,461,750) |
|
|
$ |
(1,270,071) |
Revenues
Our retail revenue increased by $321,559, or 20.6%, in the three months ended September 30, 2015, as compared to
the three months ended September 30, 2014, from $1,241,883 to $1,563,442. The increase was primarily due to increased sales
in existing stores due to increased consumer awareness and the opening of additional locations in 2015.
Our wholesale revenue
decreased by $238,400, or 89.2%, in the three months ended September 30, 2015, as compared to the three months ended September
30, 2014, from $267,020 in 2014 to $28,620 in 2015. The decrease was primarily due to a decrease in market price for wholesale
goods, which is attributed to decreased demand in export markets and the current strength of the U.S. dollar. The wholesale
market is driven by export to foreign markets. Buyers pay by the pound for wholesale product, typically on the expectation
that they will be able to sell overseas for a profit. If such markets are experiencing a slowdown, it has a negative impact
on our wholesale business.
Gross profit as a percentage of total revenues for the three months ended September 30, 2015 was
34.1% as compared to 58.1% for the three months ended September 30, 2014.
Cost of Goods Sold
Cost of revenue increased by
$104,387, or 29.2%, in the three months ended September 30, 2015, as compared to the three months ended September 30, 2014,
from $187,912 in 2014 to $292,299 in 2015. The increase in cost of revenue was primarily due to the increased volume of product
utilized. It was further impacted by periodic needs to rapidly increase regional inventory supply from new vendors at premium
costs.
Operating Expenses
During the three months ended September 30, 2015, we incurred general and administrative expenses of approximately $707,153,
payroll and related expenses of $1,061,353, rent expense of $776,432, professional fees of $43,069 and depreciation and amortization
expenses of $89,630, compared to general and administrative expenses of $1,454,143, payroll and related expenses of $781,188,
rent expense of $248,158, professional fees of $146,807 and depreciation expense of $81,255 during the three months
ended September 30, 2014. The decrease of $33,914 in operating expenses incurred during the three month period ended September
30, 2015, as compared to the three month period ended September 30, 2014, was mainly related to a decrease in general
and administrative expenses of $746,990 and professional fees of $103,738, offset by an increase in payroll of $280,165, rent
expense of $528,274, professional fees of $154,065 and depreciation and amortization expense of $8,375. The decreases
were mainly the result of reduced spending due to budget cuts during the quarter ending September 30, 20152015, while the
increases were primarily related to the additional cost of staffing and rent expense as a result of having 12 locations
open during the three months ended September 30, 2015 as compared to having seven stores in operation for
the three months ended September 30, 2014.
Interest
Interest expense increased from $nil in the three months ended September 30, 2014 to ($93,843) in the three months
ended September 30, 2015. The increase of $94,584 was due to the issuance of additional interest bearing notes payable.
Other Income
Other income decreased from $119,748 in the three months ended September 30, 2014 to $9,967 in the three months ended
September 30, 2015. The decrease of $109,781 was due to the company selling fewer fixed assets during the period ended September
30, 2015.
Results of Operations for the
Nine Months Ended September 30, 2015 and 2014
The following table provides the results
of operations for the nine months ended September 30, 2015:
|
|
Nine Months Ended
September 30 |
|
|
2015 |
|
|
2014 |
Retail revenue |
|
$ |
5,136,854 |
|
|
$ |
3,597,976 |
Wholesale revenue |
|
$ |
222,198 |
|
|
$ |
746,788 |
Cost of revenue |
|
$ |
(1,176,270) |
|
|
$ |
(831,900) |
Gross profit |
|
$ |
4,182,782 |
|
|
$ |
3,512,864 |
Operating expenses |
|
$ |
8,526,961 |
|
|
$ |
6,275,712 |
Loss from operations |
|
$ |
(4,344,179) |
|
|
$ |
(2,762,848) |
Interest expenses |
|
$ |
(210,031) |
|
|
$ |
(62,940) |
Other income |
|
$ |
33,999 |
|
|
$ |
127,651 |
Net loss |
|
$ |
(4,520,211) |
|
|
$ |
(2,698,137) |
Revenues
Our retail revenue increased by $1,538,878, or 30.0%, in the nine months ended September 30, 2015, as compared to
the nine months ended September 30, 2014. The increase was primarily due to the opening of additional retail stores and increased
sales in existing stores due to increased consumer awareness.
Our wholesale revenue decreased by $524,590, or 70.2%, in the nine months ended September 30, 2015, as compared to the nine
months ended September 30, 2014. The decrease was primarily due to a decrease in market price for wholesale goods, which is
attributed to decreased demand in export markets and the current strength of the U.S. dollar. The wholesale market is driven
by export to foreign markets. Buyers pay by the pound for wholesale product, typically on the expectation that they will be
able to sell overseas for a profit. If such markets are experiencing a slowdown, it has a negative impact on our wholesale
business.
Gross profit as a percentage of total revenues for the nine months ended September 30, 2015 was 78.1% as compared
to 80.9% for the nine months ended September 30, 2014. Cost of Goods Sold Cost of revenue increased by $344,370, or 29.2%,
in the nine months ended September 30, 2015, as compared to the nine months ended September 30, 2014. The increase in cost
of revenue was primarily due to the increased volume of product utilized. It was further impacted by periodic needs to rapidly
increase regional inventory supply from new vendors at premium costs.
Operating Expenses
During the nine months ended
September 30, 2015, we incurred general and administrative expenses of approximately $2,013,659, payroll and related expenses
of $3,668,087, rent expense of $2,074,759, professional fees of $511,637 and depreciation expenses of $258,819, compared to
general and administrative expenses of $2,256,069, payroll and related expenses of $2,366,240, rent expense of $950,479,
professional fees of $527,201 and depreciation expense of $175,723 during the nine months ended September 30, 2014. The
increase of $2,251,249 in operating expenses incurred during the nine month period ended September 30, 2015, as compared to
the nine month period ended September 30, 2014, was mainly related to an increase in payroll of $1,301,847, rent expense of
$1,124,280, and depreciation and amortization expense $83,096, offset by a decrease in general and administrative expenses of
$242,410 and professional fees of $15,564. The increases were mainly the result of having twelve stores in operation during
the nine months ended September 30, 2015 as compared to having seven stores in operation for the nine months ended September
30, 2014, while the decreases were mainly the result of reduced spending due to budget cuts during the nine months ended
September 30, 2015.
Interest
Interest expense increased from $62,940 in the nine months ended September 30, 2014 to $210,031 in the nine months
ended September 30, 2015. The increase of $147,091 was due to the issuance of additional interest bearing notes payable.
Other Income
Other income decreased from $127,651 in the nine months ended September 30, 2014 to $33,999 in the nine months ended
September 30, 2015. The decrease of $93,652 was due to the company selling fewer fixed assets during the period ended September
30, 2015.
Liquidity and Financial Condition
Working Capital
The following table provides selected
financial data about our company as of September 30, 2015 and December 31, 2014:
Balance Sheet Date |
|
September 30,
2015 |
|
|
December 31, 2014 |
|
|
(Decrease) / Increase |
|
|
(unaudited) |
|
|
(audited) |
|
|
|
|
Cash |
|
$ |
57,977 |
|
|
$ |
157,692 |
|
|
$ |
(99,715) |
Total current assets |
|
$ |
239,627 |
|
|
$ |
404,634 |
|
|
$ |
(165,007) |
Total current liabilities |
|
$ |
2,193,382 |
|
|
$ |
1,167,923 |
|
|
$ |
1,025,459 |
Working capital (deficiency) |
|
$ |
(1,953,755) |
|
|
$ |
(763,289) |
|
|
$ |
(1,190,466) |
Our
working capital decreased as of September 30, 2015 as compared to December 31, 2014 due to an increase in accounts payable of
$734,023, an increase in notes payable – current portion of $422,851, a decrease in cash of $99,715, a decrease in
accounts receivable of $20,471, a decrease in inventory of $67,355, and an increase in loans from related parties –
current portion of $9,463, offset by a decrease in deferred rents – current portion of $152,516.
Cash
Flows
|
|
For the Nine Months Ended
September 30, |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
Cash flows used in operating activities |
|
$ |
(2,890,200) |
|
|
$ |
(1,634,206) |
Cash flows used in investing activities |
|
$ |
(382,649) |
|
|
$ |
(630,669) |
Cash flows provided by financing activities |
|
$ |
3,173,134 |
|
|
$ |
2,218,097 |
Net increase (decrease) in cash during period |
|
$ |
(99,715) |
|
|
$ |
(46,778) |
Cash Flows from Operating Activities
For the nine months ended September
30, 2015, our cash flows used in operating activities amounted to $2,890,200, compared to cash used in the nine months ended September
30, 2014 of $1,634,206. The primary reason for the change relates to negative operating cash flows, offset mainly by an increase
in deferred rents of $548,727, depreciation and amortization of $258,819 and an increase in accounts payable and accrued expenses
of $734,023.
Cash Flows from Investing Activities
Our cash used in investing activities
amounted to $382,649 for the nine months ended September 30, 2015, as compared to $630,699 for the nine months ended September
30, 2014. The primary reason for the change relates to decreased spending on tenant improvements during the nine months ended September
30, 2015 as compared to the same period ended September 30, 2014
Cash Flows from Financing Activities
Our cash provided by financing activities
for the nine months ended September 30, 2015 amounted to $3,173,134, consisting primarily of $2,353,000 from proceeds received
from the issuance of common stock and $1,200,000 from proceeds received from notes payable borrowing. Cash provided by financing
activities in the nine months ended September 30, 2014 amounted to $2,218,097, consisting primarily of $2,001,112 from proceeds
received from the issuance of common stock, $52,000 from the proceeds from related party debts and $500,000 from notes payable
borrowing.
Going Concern
Our auditors issued a going
concern opinion on our financial statements for the year ended December 31, 2014. This means that there is
substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital
to pay for our expenses. There is no assurance we will ever reach this point. Our financial statements do not include
any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification
of liabilities that might be necessary should we be unable to continue as a going concern.
The continuation of our business is
dependent upon obtaining further financing and achieving more profitable operations. If we issue additional equity securities,
the equity interests of our current or future stockholders could be significantly diluted. Obtaining commercial loans, assuming
those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will
be able to obtain additional financing through private placements, and/or bank financing or other loans necessary to support our
working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or
bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing
will be available, or if available, will be on terms acceptable to us.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet
arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material
to investors.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk.
As a “smaller reporting company”,
we are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls
and Procedures
We maintain disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our principal executive officer and our principal financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered
by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer
and principal accounting officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based
on the foregoing, our principal executive 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 due to the presence of material weaknesses in internal
control over financial reporting.
A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that
a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely
basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September
30, 2015, our disclosure controls and procedures were not effective: (i) insufficient written policies and procedures for accounting
and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines; and (ii) matters related
to the transition of management in connection with the closing of the Exchange Agreement on June 24, 2015.
Remediation Plan to Address the Material
Weaknesses in Internal Control over Financial Reporting
Our company plans to take steps to enhance
and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on
Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to
implement the following changes during our fiscal year ending December 31, 2015: (i) adopt sufficient written policies and procedures
for accounting and financial reporting, and (ii) provide our new management with additional guidance regarding the financial monitoring
and reporting responsibilities associated with being a reporting company. The remediation efforts set out are largely dependent
upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing
such funds, remediation efforts may be adversely affected in a material manner.
Changes in Internal Control over
Financial Reporting
There have been no changes in our internal
controls over financial reporting that occurred during the quarter ended September 30, 2015, that have materially or are reasonably
likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material, existing or
pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation,
as at the date of this quarterly report. There are no proceedings in which any of our directors, officers or affiliates, or any
registered beneficial holder of our common stock, is an adverse party or has a material interest adverse to our interest.
Item 1A. Risk Factors.
In
addition to the other information set forth in this quarterly report, you should carefully consider the following factors, which
could materially affect our business, financial condition or results of operations in future periods. The risks described below
are not the only risks facing our company. Additional risks not currently known to us or that we currently deem to be immaterial
also may materially adversely affect our business, financial condition or results of operations in future periods.
Risks
Related to Our Business
Our
future success depends, in part, upon our ability to anticipate and respond to changing consumer preferences, trends and competitive
environment in a timely manner.
Our
future success depends, in part, upon our ability to identify and respond to shopping trends in a timely manner. The second hand
retail apparel business fluctuates according to changes in the economy and customer preferences, dictated by economic factors and
seasons. These fluctuations especially affect the inventory possessed by secondary retailers because merchandise typically is collected
in advance of the selling season and is provided based on consumers percentage of discarded merchandise. While we endeavor to test
many merchandise items from our suppliers before ordering large quantities, we are still susceptible to poor or low quality merchandise
and fluctuations in customer demands. In addition, the cyclical nature of the retail business requires that we carry a significant
amount of inventory, especially during our peak selling seasons. As a result, we are vulnerable to changes in consumer demand,
pricing shifts and the timing and selection of merchandise purchases. The failure to enter into agreements for the purchase of
merchandise in a timely manner could, among other things, lead to a shortage of inventory and lower sales.
Our
independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
Our financial statements are prepared using generally accepted accounting principles in the United States of America
applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and to allow
us to continue as a going concern. Our ability to continue as a going concern is dependent on our company obtaining adequate
capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced
to significantly curtail or cease operations. In its report on our financial statements for the year ended December 31, 2014,
our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our
ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The
success of our operations depends upon the effect of economic pressures and other business factors.
The
success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending,
including economic conditions affecting disposable consumer income, such as payroll taxes, employment, consumer debt, interest
rates, increases in energy costs and consumer confidence. There can be no assurance that consumer spending will not be further
negatively be affected by general, local or international economic conditions, thereby adversely impacting our business and results
of operations.
Our
business is subject to seasonality.
Historically,
our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the first and fourth
fiscal quarters, reflecting increased demand during tax rebates and year-end holiday selling seasons, respectively. As a result
of this seasonality, any factors negatively affecting us during the first and fourth fiscal quarters of any year, including adverse
weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations
for the entire year. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday
seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, competitive factors,
weather and general economic conditions.
Our
overall profitability depends on our ability to react to raw material cost, labor and energy cost increases.
Increases
in our costs, such as raw materials, labor and energy, may reduce our overall profitability. Specifically, fluctuations in
the cost associated with the collection of merchandise we purchase from our suppliers impacts our cost of sales. Additionally,
increases in other costs, including labor and energy, could further reduce our profitability if not mitigated.
Our
ability to drive improved performance will depend in part on our ability to rebalance our store fleet and drive improved performance
through new store openings, selective closings and existing store remodels and expansions.
Our
ability to drive improved performance will depend in part on our ability to expand stores on a timely and profitable basis. Accomplishing
our expansion goals will depend upon a number of factors, including the ability to obtain suitable sites for new and expanded
stores at acceptable costs, the hiring and training of qualified personnel, particularly at the store management level, the integration
of new stores into existing operations, and the expansion of our buying and inventory capabilities. There can be no assurance
that we will be able to achieve our store expansion and rebalancing goals, manage our growth effectively, successfully integrate
the planned new stores into our operations or operate our new stores profitably.
The
failure to achieve planned store financial performance could adversely affect our results of operations and financial condition.
The
results achieved by our stores may not be indicative of long-term performance or the potential performance of stores in other locations.
The failure of stores to achieve acceptable results could result in additional store asset impairment charges, which could adversely
affect our results of operations and financial condition.
The
financial failure of a key supplier could disrupt our operations.
Our
merchandise is collected by suppliers nationwide. Although we purchase approximately one third of our merchandise through a single
agent, we do not maintain any exclusive commitments to purchase from any one supplier. Because we have a nationwide supply chain,
any event causing the disruption of product, including the insolvency of a significant supplier or a major labor slow-down, strike
or dispute, including any actions involving trucking, transloaders, consolidators or shippers, could have an adverse effect on
our operations. Given the volatility and risk in the current markets, our reliance on external suppliers leaves us subject to certain
risks should one or more of these external suppliers become insolvent. Although we monitor the financial stability of our key suppliers
and plan for contingencies, the financial failure of a key supplier could disrupt our operations and have an adverse effect on
our cash flows, results of operations and financial condition.
Information
technology system disruptions and inaccurate system information could have a material adverse effect on our results of operations.
We
regularly evaluate our information technology systems and are currently implementing modifications and/or upgrades to the information
technology systems that support our business. Modifications include replacing legacy systems with successor systems, making changes
to legacy systems or acquiring new systems with new functionality. We are aware of inherent risks associated with operating, replacing
and modifying these systems, including inaccurate system information and system disruptions. There is a risk that information technology
system disruptions and inaccurate system information, if not anticipated and/or promptly and appropriately mitigated, could have
a material adverse effect on our results of operations.
If
we fail to safeguard against security breaches with respect to our information technology systems, we could be exposed to a risk
of loss or misuse of this information and potential liability.
Our
business employs systems and websites that allow for the storage and transmission of proprietary or confidential information regarding
our business, customers and employees, including credit card information. Security breaches could expose us to a risk of loss or
misuse of this information and potential liability. We may not be able to anticipate or prevent rapidly evolving types of cyber-attacks.
Actual or anticipated attacks may cause us to incur increased costs, including costs to deploy additional personnel and protection
technologies, train employees and engage third party experts and consultants. Advances in computer capabilities, new technological
discoveries or other developments may result in the technology used by us to protect transaction or other data being breached or
compromised. Data and security breaches can also occur as a result of non-technical issues, including intentional or inadvertent
breach by employees or persons with whom we have commercial relationships that result in the unauthorized release of personal or
confidential information. Any compromise or breach could result in a violation of applicable privacy and other laws, significant
financial exposure and a loss of confidence in our security measures, which could have an adverse effect on our results of operations
and our reputation.
We
rely on key personnel.
Our
success depends to a significant extent upon our ability to attract and retain qualified key personnel, including senior management.
Collective or individual changes in our senior management and other key personnel could have an adverse effect on our ability to
determine and execute our strategies, which could adversely affect our business and results of operations. There is a high level
of competition for senior management and other key personnel, and we cannot be assured we will be able to attract, retain and develop
a sufficient number of qualified senior managers and other key personnel.
Risks
Related to Ownership of Our Common Stock
Penny
stock rules will limit the ability of our stockholders to sell their stock.
The Securities and Exchange Commission
has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as
defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities
are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons
other than established customers and “accredited investors”. The term “accredited investor” refers generally
to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities
and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject
to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.
We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
The
Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements that may also limit a stockholder’s
ability to buy and sell our stock.
In addition to the “penny stock”
rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative
low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about
the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these
rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least
some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock,
which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our
board of directors is authorized to issue additional shares of our common stock that would dilute existing stockholders.
We are currently authorized to issue
up to 687,500,000 shares of common stock and 10,000,000 shares of preferred stock, of which 34,383,109 shares of common stock and
no shares of preferred stock are currently issued and outstanding. We expect to seek additional financing in order to provide working
capital to our business. Our board of directors has the power to issue any or all of such authorized but unissued shares at any
price they consider sufficient, without stockholder approval. The issuance of additional shares of common stock in the future will
reduce the proportionate ownership and voting power of current stockholders.
Our
common stock is illiquid and stockholders may be unable to sell their shares.
There is currently no market for our
common stock and we can provide no assurance to investors that a market will develop. If a market for our common stock does not
develop, our stockholders may not be able to re-sell the shares of our common stock that they have purchased and they may lose
all of their investment. Public announcements regarding our company, changes in government regulations, conditions in our market
segment or changes in earnings estimates by analysts may cause the price of our common stock to fluctuate substantially.
There
is not now, and there may never be, an active, liquid and orderly trading market for our common stock, which may make it difficult
for you to sell your shares of our common stock.
There is not now, nor has there been
since our inception, any trading activity in our common stock or a market for shares of our common stock, and an active trading
market for our shares may never develop or be sustained. As a result, investors in our common stock must bear the economic risk
of holding those shares for an indefinite period of time. Although our common stock is quoted on the OTC Pink Marketplace operated
by OTC Markets Inc., an over-the-counter quotation system, trading of our common stock is extremely limited and sporadic and at
very low volumes. We do not now, and may not in the future, meet the initial listing standards of any national securities exchange,
and we presently anticipate that our common stock will continue to be quoted on the OTC Pink Marketplace or another over-the-counter
quotation system for the foreseeable future. As a result, our stockholders may find it difficult to obtain accurate quotations
as to the market value of their shares of our common stock, and may find few buyers to purchase their stock and few market makers
to support its price. As a result of these and other factors, you may be unable to resell your shares of our common stock at or
above the price for which you purchased them, or at all. Further, an inactive market may also impair our ability to raise capital
by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companies
or products by using shares of our common stock as consideration.
A
decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our
ability to continue operations and we may go out of business.
A prolonged decline in the price of
our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.
Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through
the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations
because the decline may cause investors not to choose to invest in our stock lf we are unable to raise the funds we require for
all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative
effect on our business plan and operations, including our ability to develop new products and continue our current operations.
As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our
financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.
Because we became public by means
of a reverse takeover transaction, we may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we became public through a “reverse takeover” with a shell company.
Security analysts of major brokerage firms and securities institutions may not cover us since there are no broker-dealers
who sold our stock in a public offering who would have an incentive to follow or recommend the purchase of our common stock.
No assurance can be given that established brokerage firms will want to conduct any financings for us in the future.
The
market price of our common stock may be volatile.
The market price of our common stock
may be highly volatile. Some of the factors that may materially affect the market price of our common stock are beyond our control,
such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate,
or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless of
our performance. In addition, public stock markets have experienced extreme price and trading volume volatility. This volatility
has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating
performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Because
we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able
to receive a return on their shares unless they sell them.
We intend to retain any future earnings
to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in
the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors,
and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital
requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will
be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends,
our stockholders will not be able to receive a return on their shares unless they sell them.
Because
our directors and executive officers are among our largest stockholders, they can exert significant control over our business and
affairs and have actual or potential interests that may depart from those of investors.
Certain of our executive officers and
directors own a significant percentage of our outstanding capital stock. As of the date of this current report, our executive officers
and directors beneficially own approximately 28.2% of our outstanding voting stock, on an undiluted basis. The holdings of our
directors and executive officers may increase further in the future upon vesting or other maturation of exercise rights under any
of the options or warrants they may hold or in the future be granted, or if they otherwise acquire additional shares of our common
stock. The interests of such persons may differ from the interests of our other stockholders. As a result, in addition to their
board seats and offices, such persons will have significant influence and control over all corporate actions requiring stockholder
approval, irrespective of how our company’s other stockholders may vote, including the following actions:
| · | to elect or defeat the election of our directors; |
| · | to amend or prevent amendment of our articles of incorporation or
by-laws; |
| · | to effect or prevent a merger, sale of assets or other corporate
transaction; and |
| · | to control the outcome of any other matter submitted to our stockholders
for a vote. |
This concentration of ownership by itself
may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential
acquirer from making a tender offer for our common stock, which in turn could reduce our stock price or prevent our stockholders
from realizing a premium over our stock price.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.
We did not issue any securities
in the three months ended September 30, 2015.
Item 3. Defaults Upon Senior
Securities.
On April 16, 2015, Epic Corp. issued a secured convertible promissory note to an investor in the principal amount of $200,000.
The note bears a 23% annual interest rate and matured on June 30, 2015 and is secured by all assets of our operating subsidiary,
Epic Corp. In connection with the contribution of all of the assets of Epic LLC to Epic Corp., Epic Corp. offered the noteholder
the opportunity to convert the note into 352,941 shares of Epic Corp.’s common stock, which represented the pro rata
value provided to each Class B Unit holder at the time of the contribution. The note holder did not accept the proposed terms
and, as a result, the note was not converted prior to our acquisition of Epic Corp. on June 24, 2015.
The note carries a break-up provision which states that the parties shall use commercially reasonable efforts to negotiate
future financing and convert the then outstanding principal and interest of the note into securities of Epic Corp. The note
provided that, in the event the parties were unable to agree on mutually agreeable terms on or prior to June 30, 2015, Epic
Corp. was to pay the lender, in addition to any other amounts due and owing under the note, a break-up fee in an amount equal
to $50,000. The contingent balance of $50,000 has been accrued as of September 30, 2015. As the parties were unable to finalize
the negotiation of a future financing by June 30, 2015, this contingent fee became contractually due to the note holder as
of July 1, 2015. As of the date of this filing, we have only made interest payments and the note is in default. We continue to negotiate the final terms of settlement with the noteholder.
Item 4.
Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following exhibits are included as
part of this report:
Exhibit No. |
|
Description |
2.1(2) |
|
Share exchange agreement dated as of June 24, 2015 by and among our company Epic Stores Corp. and the stockholders of Epic Stores Corp. |
3.1(3) |
|
Articles of Incorporation |
3.2(3) |
|
Bylaws |
3.3(4) |
|
Articles of Merger dated effective December 20, 2013 |
3.4(4) |
|
Certificate of Change dated effective December 20, 2013 |
3.5(4) |
|
Certificate of Change dated effective December 30, 2013 |
3.6(1) |
|
Articles of Merger dated effective August 18, 2015 |
3.7(1) |
|
Certificate of Change dated effective August 18, 2015 |
10.1(2) |
|
Share cancellation agreement dated June 24, 2015 between our company and John Kitchen |
10.2(2) |
|
Share cancellation agreement dated June 24, 2015 between our company and Linda Miller |
10.3(2) |
|
Warrant cancellation agreement dated June 24, 2015 between our company and Paul Medley |
10.4(2) |
|
Form of subscription agreement for units dated June 24, 2015 |
10.5(2) |
|
Investor rights agreement among our company, Belloc Pty Ltd and the subscribers to the concurrent financing |
10.6(2) |
|
Voting agreement dated June 24, 2015 among our company and each of the former stockholders of Epic |
10.7(2) |
|
Escrow agreement dated June 24, 2015 among our company, Doney Ventures, Inc. and certain former stockholders of Epic |
10.8(2) |
|
Management agreement dated January 1, 2015 between Epic and Brian Davidson |
10.9(2) |
|
Management agreement dated January 1, 2015 between Epic and Bob Riggs |
10.10(2) |
|
Management agreement dated January 1, 2015 between Epic and Wayne Riggs |
10.11(2) |
|
Consulting agreement dated March 3, 2015 between Epic and Bluechip Advisors LLC with respect to the provision of services as Chief Financial Officer by Zach Bradford |
10.12(2) |
|
Consulting agreement dated March 3, 2015 between Epic and Bluechip Advisors LLC with respect to the provision of controller and accounting services |
10.13(2) |
|
Consulting agreement dated March 3, 2015 between Epic and Bluechip Advisors LLC with respect to the provision of SEC financial reporting services |
31.1* |
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* |
|
Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* |
|
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2* |
|
Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
99.1(2) |
|
Audited annual financial statements of Epic as at and for the years ended December 31, 2014 and 2013 |
99.2(2) |
|
Unaudited interim financial statements of Epic as at and for the three months ended March 31, 2015 and 2014 |
99.3(2) |
|
Unaudited pro forma combined financial statements as at March 31, 2015 and December 31, 2014 |
101.INS* |
|
XBRL Instance |
101.SCH(5) |
|
XBRL Taxonomy Extension Schema |
101.CAL(5) |
|
XBRL Taxonomy Extension Calculations |
101.DEF(5) |
|
XBRL Taxonomy Extension Definitions |
101.LAB(5) |
|
XBRL Taxonomy Extension Labels |
101.PRE(5) |
|
XBRL Taxonomy Extension Presentation |
101.INS(5) |
|
XBRL Instance |
101.SCH(5) |
|
XBRL Taxonomy Extension Schema |
* |
Filed herewith. |
(1) |
Previously filed as exhibits to our current report on Form 8-K,
filed on August 19, 2015. |
(2) |
Previously filed as exhibits to our current report on Form 8-K, filed on June 30, 2015. |
(3) |
Previously filed as exhibits to our registration statement on Form S-1, on February 26, 2013, File Number 333-186869 and incorporated herein. |
(4) |
Previously filed as exhibits to our current report on Form 8-K, on December 31, 2013, File Number 333-186869 and incorporated herein. |
(5) |
XBRL Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
EPIC STORES CORP. |
|
|
(Registrant) |
|
|
|
|
|
|
|
Dated: November 23, 2015 |
/s/ Brian Davidson |
|
|
Brian Davidson |
|
|
President, Chief Executive Officer, Secretary, Treasurer and Director |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
Dated: November 23, 2015 |
/s/ Zach Bradford |
|
|
Zach Bradford |
|
|
Chief Financial Officer and Director |
|
|
(Principal Financial Officer, and Principal Accounting Officer) |
|
|
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer
I, Brian Davidson, certify that;
1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2015 of Epic Stores Corp. (the “registrant”); |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 23, 2015
/s/ Brian Davidson
By: Brian Davidson
Title: Chief Executive Officer
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer
I, Zachary Bradford, certify that;
1. |
|
I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2015 of Epic Stores Corp. (the “registrant”); |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. |
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. |
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. |
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. |
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. |
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 23, 2015
/s/ Zachary Bradford
By: Zachary Bradford
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the quarterly Report of
Epic Stores Corp. (the “Company”) on Form 10-Q for the quarter ended September 30, 2015 filed with the Securities and Exchange
Commission (the “Report”), I, Brian Davidson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
1. |
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of the dates presented and the results of operations of the Company for the periods presented. |
By: |
/s/ Brian Davidson |
Name: |
Brian Davidson |
Title: |
Chief Executive Officer |
Date: |
November 23, 2015 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the quarterly Report of
Epic Stores Corp. (the “Company”) on Form 10-Q for the quarter ended September 30, 2015 filed with the Securities and Exchange
Commission (the “Report”), I, Zachary Bradford, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
1. |
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition of the Company as of the dates presented and the results of operations of the Company for the periods presented. |
By: |
/s/ Zachary K. Bradford |
Name: |
Zachary Bradford |
Title: |
Chief Financial Officer |
Date: |
November 23, 2015 |
This certification has been furnished solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.