Note 1 – Description of business and basis of presentation
Organization and nature of business
Epoxy, Inc. (the “Company”) was incorporated in the State of Nevada on November 13, 2007 as Rioridge Resources Corp. On July 22, 2008, the Company changed its name to Neohydro Technologies Corp.
On August 1, 2014, the Company’s name changed from Neohydro Technologies Corp. to Epoxy, Inc. in furtherance of actions taken on May 23, 2014, when the Board of Directors of the Company (the “
Board
”) approved, and recommended to the Majority Stockholders that they approve the name change. On May 27, 2014, the Majority Stockholders approved the name change by written consent in lieu of a meeting, in accordance with Nevada law. On August 4, 2014, the Company submitted the name change to FINRA for their review and approval, as well as the approval of a symbol change from NHYT to EPXY. The Company filed an amendment to our Articles of Incorporation with the Secretary of State of Nevada changing our name to Epoxy, Inc. effective on August 1, 2014.
On September 28, 2016 the Company’s board of directors and majority shareholder approved an increase of the Company’s authorized share capital from 850,000,000 common shares to 1,950,000,000 common shares. The Company filed the amendment with the State of Nevada on November 21, 2016.
The Company, through its wholly owned subsidiary, Couponz, Inc., is the developer of Epoxy app, an application or "app" for iPhone iOS and Android operating systems. Epoxy is an innovative smart phone application designed and created to conveniently connect business owners and consumers in order to ease marketing frustrations. The mobile app gives loyal customers the ease of keeping track of rewards and punch cards all in one place while also giving opportunities to review and share businesses with friends. In turn, Epoxy provides businesses the ability to reward customers, share offers, and deliver information about special events with their customers.
Financial Statements Presented
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 14, 2016.
Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.
Note 2 – Going Concern
For the nine months ended September 30, 2016, the Company used net cash in operations of $86,364. In addition, the Company had a working capital deficit as of September 30, 2016. The Company believes that its existing capital resources may not be adequate to enable it to execute its business plan. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company estimates that it will require additional cash resources during 2016 based on its current operating plan and condition. The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue and a decrease in certain operating expenses, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 4- Loans Payable (continued)
|
|
Loan #1
|
|
|
Loan #2
|
|
|
Loan #3
|
|
|
Loan #4
|
|
|
Loan #5
|
|
Principal
|
|
|
5,000
|
|
|
|
7,000
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
12,000
|
|
Issued Date
|
|
August 9, 2013
|
|
|
September 11,
2013
|
|
|
June 30,
2014
|
|
|
July 25,
2014
|
|
|
September 12,
2016
|
|
Due Date
|
|
August 8, 2014
|
|
|
On demand
|
|
|
June 30,
2015
|
|
|
July 25,
2015
|
|
|
September 12,
2017
|
|
Interest Rate
|
|
|
10
|
%
|
|
|
N/A
|
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
10
|
%
|
Default Interest Rate
|
|
|
16
|
%
|
|
|
N/A
|
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal:
|
|
|
5,000
|
|
|
|
7,000
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
-
|
|
Accrued Interest:
|
|
|
1,200
|
|
|
Nil
|
|
|
|
625
|
|
|
|
1,000
|
|
|
|
-
|
|
Addition: accrued interest
|
|
|
2,203
|
|
|
Nil
|
|
|
|
2,003
|
|
|
|
2,752
|
|
|
|
59
|
|
Deduct: debt assignment
|
|
|
(8,403
|
)
|
|
|
-
|
|
|
|
(12,628
|
)
|
|
|
-
|
|
|
|
|
|
Balance, September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal:
|
|
|
-
|
|
|
|
7,000
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
12,000
|
|
Accrued Interest:
|
|
|
-
|
|
|
Nil
|
|
|
|
-
|
|
|
|
3,752
|
|
|
|
59
|
|
Note 5- Convertible Notes
(1)
|
Convertible notes originally due on November 27, 2015:
|
On November 27, 2012, the Company entered into certain convertible loan agreements with four (4) investors. The Company received a total of $125,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $125,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000.
On August 1, 2014 the Company successfully amended the terms of certain convertible loan agreements with four (4) investors for a total of $125,000 due and payable on November 27, 2015. Under the amended terms, a total of $125,000 originally available for conversion into a total of 250,000,000 shares of common stock at $0.0005 per share has been amended to reflect a price of $0.005 per share for a total of 25,000,000 shares of common stock, if converted.
The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification and as such the unamortized discount of $88,184 was recorded as loss on extinguishment of debt. The Company recalculated the intrinsic value of the embedded beneficial conversion feature of $125,000 this has been recorded at the discount on the convertible note. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000.
During August 2014, the conversion options in these notes became tainted upon the issuance of other variable rate convertible debt. Accordingly, the conversion options in these notes were accounted for as derivative liabilities.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes
(1)
|
Convertible notes originally due on November 27, 2015: (continued)
|
On July 16, 2015, the Company amended the terms of the certain convertible loan agreements with four investors for a total of $125,000 due and payable on April 16, 2016. Under the amended terms, a total of $125,000 in convertible notes which come due and payable on November 27, 2015 were first extended to mature on April 16, 2016, and then subsequently extended to mature on January 1, 2017. In addition, the notes were modified whereby they do not become convertible until maturity.
The Company analyzed the conversion feature of above Convertible Notes for derivative accounting consideration under FASB ASC 470 and determined that the conversion feature did not create embedded derivatives.
The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification and as such the unamortized discount of $79,103 was recorded as loss on extinguishment of debt. In addition, the fair value of the derivative liabilities associated with the pre modification conversion option in these notes of $591,496 was extinguished resulting in a gain of $591,496. The net gain on extinguishment of liabilities during the year ended December 31, 2015 resulting from this substantial modification was $512,393.
The carrying value of these convertible notes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2014
Recalculation
|
|
|
December 31,
2014
|
|
|
December 31,
2015
|
|
|
September 30,
2016
|
|
Face value of certain convertible notes
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
125,000
|
|
Less: unamortized discount
|
|
|
(125,000
|
)
|
|
|
(116,702
|
)
|
|
|
-
|
|
|
|
-
|
|
Carrying value
|
|
|
-
|
|
|
|
8,298
|
|
|
|
125,000
|
|
|
|
125,000
|
|
As at December 31 2015, the carrying values of the convertible debenture and accrued convertible interest thereon were $125,000 and $12,500, respectively. Amortization of the discounts associated with these notes was $37,599 during the year ended December 31, 2015.
As at September 30, 2016, the carrying values of the convertible debenture and accrued convertible interest thereon were $125,000 and $9,349, respectively.
(2)
|
Convertible note due on January 13, 2016
|
On January 13, 2015 the Company entered into a Securities Purchase Agreement (“SPA”) with Adar Bays, LLC (“Adar”) a Florida Limited Liability company where under the Company has issued two 8% convertible redeemable notes in the aggregate principal amount of $150,000 with the first note being $75,000 and the second note being $75,000, convertible into shares of the Company’s common stock with a maturity date one year after issuance or January 13, 2016. The first of the two notes (the “First Note”) shall be paid for by Adar upon execution of the SPA, and the second note (the “Second Note”) shall initially be paid for by the issuance of an offsetting $75,000 secured note issued to the Company by Adar (“Buyer Note”), provided that prior to conversion of the Second Note, Adar must have paid off the Buyer Note in cash. Under the terms of the First Note, at any time after 180 days, the holder may elect to convert all or part of the face value of the note into shares of the Company’s common stock without restrictive legend at a price (“Conversion Price”) for each share of Common Stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company. If the shares are not delivered in 3 business days, to the holder,
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes (continued)
(2)
|
Convertible note due on January 13, 2016: (continued)
|
the Notice of Conversion may be rescinded. Under the terms of the Second Note, the holder is entitles at its option, after the expiration of the requisite Rule 144 holding period and after full cash payment for the promissory note issued by the holder to the Company simultaneously with the issuance by the Company of this note (the “Holder Issued Note”) to convert all or part of the Note then outstanding into shares of the Company’s common stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company. If the shares are not delivered in 3 business days, to the holder, the Notice of Conversion may be rescinded. With respect to the First and Second Notes, in the event that the Company experiences a DTC “Chill” on its shares the conversion price shall be decreased to 42% instead of 52% while the “Chill” is in effect, and in no event shall the holder be allowed to effect a conversion, if such conversion, along with other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. Further, with respect to the Second note, in the event the Company is not “Current” in its SEC filings at the time the note is cash funded, the discount shall be decreased to 40% instead of 52%. In respect of the First and Second notes interest on any unpaid principal balance of the Notes shall be paid by the Company in common stock (the “Interest Shares”). The Holder may at any time send a Notice of Conversion for Interest Shares based on the aforementioned formula for all or part of interest payable.
During the first 180 days the Company may redeem the First Note by paying to the holder an amount as follows: (i) if the redemption is in the first 90 days the note is in effect an amount equal to 125% of the unpaid principal amount of the note along with accrued interest; (ii) if the redemption is after the 91st day the note is in effect then the
Company may redeem the note in an amount equal to 135% of unpaid principal and interest. The note is not redeemable after 180 days.
The Second Note may not be prepaid, except that if the First Note is redeemed by the Company within 6 months of the issuance date of such note, the obligations of the Company under the Second Note will be automatically deemed satisfied and the Second Note and the Holder Note will be deemed canceled and of no further force or effect.
On January 15, 2015 the Company received net proceeds from Adar totaling $63,750 with respect to the First Note in the total gross amount of $75,000. Financing fees of $7,500 and legal fees of $3,750 were paid.
As of December 31, 2015, the principal amount and all accrued interest payable with respect to this convertible note was paid in full with the issuance of 18,902,736 shares of common stock.
On December 1, 2015, upon receipt of a conversion notice from one of its convertible note holders, the Company issued 2,489,435 shares of common stock to the Note holder. Subsequent to the fiscal year end the Company advised the note holder of an error in their calculations and it was agreed the Note holder would provide additional cash proceeds of $9,000 in respect of the purchase price of the shares. As a result of the error during fiscal 2015, the Company recorded a loss on debt settlement in the amount of $16,183 in respect to this over issuance of shares.
On March 8, 2016, the Company received $9,000 from an investor in order to acquire 2,489,435 and recorded as gain on recovered loss on debt settlement for the nine months ended September 30, 2016.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes (continued)
(3)
|
Convertible note due on January 14, 2016 (CN#1)
|
On July 14, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $90,000 from total loan proceeds of $102,000, which bears interest at 8% per annum and is due on January 14, 2016. Financing fees of $10,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of September 30, 2016, the outstanding principal balance under this note was all converted to shares (December 31, 2015 -$102,000).
The following table reflects the details of the issuance of 96,876,179 shares in respect of Conversion Notices received for a total of 102,000 in principal and $5,498 in accrued interest from CN#1 during the nine months ended September 30, 2016:
Conversion Date
|
|
Original Principal Amount
($)
|
|
|
Accrued interest payable
($)
|
|
|
Conversion Price
($)
|
|
|
Number of shares issued
|
|
January 22, 2016
|
|
|
19,471
|
|
|
|
-
|
|
|
|
0.00185
|
|
|
|
10,524,653
|
|
February 26, 2016
|
|
|
14,997
|
|
|
|
-
|
|
|
|
0.001425
|
|
|
|
10,524,653
|
|
March 7, 2016
|
|
|
13,507
|
|
|
|
-
|
|
|
|
0.0012833
|
|
|
|
10,524,653
|
|
March 28, 2016
|
|
|
12,488
|
|
|
|
-
|
|
|
|
0.00088
|
|
|
|
14,150,943
|
|
April 13, 2016
|
|
|
11,707
|
|
|
|
-
|
|
|
|
0.000825
|
|
|
|
14,190,567
|
|
April 29, 2016
|
|
|
15,639
|
|
|
|
-
|
|
|
|
0.000822
|
|
|
|
19,022,419
|
|
May 10, 2016
|
|
|
14,191
|
|
|
|
5,498
|
|
|
|
0.0011
|
|
|
|
17,898,667
|
|
Total
|
|
|
102,000
|
|
|
|
5,498
|
|
|
|
|
|
|
|
96,876,179
|
|
(4)
|
Convertible note due on July 29, 2016 (CN#2)
|
On July 29, 2015 the Company entered into a convertible loan agreement with an investor. The Company received new proceeds totaling $75,000 from total loan proceeds of $84,000 which bears interest at 8% per annum and is due on July 29, 2016. An original issue discount of $6,000 and legal fees of $3,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at 58% multiplied by the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding the applicable Conversion, provided that if at any time the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the then-current Conversion Factor shall be reduced by 5% for all future Conversions. As of September 30, 2016, the outstanding principal balance under this note was converted to shares (December 31, 2015 - $84,000).
The following table reflects the details of the issuance of 98,107,486 shares in respect of Conversion Notices received for a total of 84,000 in principal and $4,580 in accrued interest from CN#5 during the nine months ended September 30, 2016:
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes (continued)
(4)
|
Convertible note due on July 29, 2016 (CN#2) (continued)
|
Conversion Date
|
|
Original Principal Amount
($)
|
|
|
Accrued interest payable
($)
|
|
|
Conversion Price
($)
|
|
|
Number of shares issued
|
|
February 11, 2016
|
|
|
15,000
|
|
|
|
-
|
|
|
|
0.00212
|
|
|
|
7,075,472
|
|
March 7, 2016
|
|
|
15,000
|
|
|
|
-
|
|
|
|
0.00106
|
|
|
|
14,150,943
|
|
March 31, 2016
|
|
|
14,000
|
|
|
|
-
|
|
|
|
0.000795
|
|
|
|
17,610,063
|
|
April 18, 2016
|
|
|
22,500
|
|
|
|
-
|
|
|
|
0.000795
|
|
|
|
28,301,887
|
|
May 12, 2016
|
|
|
17,000
|
|
|
|
-
|
|
|
|
0.000795
|
|
|
|
21,383,649
|
|
June 23, 2016
|
|
|
500
|
|
|
|
4,580
|
|
|
|
0.00053
|
|
|
|
9,585,472
|
|
Total
|
|
|
84,000
|
|
|
|
4,580
|
|
|
|
|
|
|
|
98,107,485
|
|
(5)
|
Convertible note due on August 3, 2016 (CN#3)
|
On August 3, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $50,000 from total loan proceeds of $56,000, which bears interest at 8% per annum and is due on August 3, 2016. Financing fees of $3,500 and legal fees of $2,500 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of September 30, 2016, the outstanding principal balance under this note was converted to shares (December 31, 2015 - $56,000).
The following table reflects the details of the issuance of 62,413,844 shares in respect of Conversion Notices received for a total of $56,000 in principal and $3,114 in accrued interest from CN#5 during the nine months ended September 30, 2016:
Conversion Date
|
|
Original Principal Amount
($)
|
|
|
Accrued interest payable
($)
|
|
|
Conversion Price
($)
|
|
|
Number of shares issued
|
|
February 8, 2016
|
|
|
5,000
|
|
|
|
203
|
|
|
|
0.00275
|
|
|
|
1,891,905
|
|
February 23, 2016
|
|
|
5,000
|
|
|
|
219
|
|
|
|
0.00165
|
|
|
|
3,163,138
|
|
March 7, 2016
|
|
|
5,000
|
|
|
|
233
|
|
|
|
0.0011
|
|
|
|
4,757,658
|
|
April 15, 2016
|
|
|
6,000
|
|
|
|
331
|
|
|
|
0.000825
|
|
|
|
7,674,420
|
|
April 19, 2016
|
|
|
13,000
|
|
|
|
792
|
|
|
|
0.000825
|
|
|
|
16,641,726
|
|
May 9, 2016
|
|
|
15,500
|
|
|
|
938
|
|
|
|
0.000825
|
|
|
|
19,924,416
|
|
May 12, 2016
|
|
|
6,500
|
|
|
|
398
|
|
|
|
0.000825
|
|
|
|
8,360,581
|
|
Total
|
|
|
56,000
|
|
|
|
3,114
|
|
|
|
|
|
|
|
62,413,844
|
|
(6)
|
Convertible note due on January 25, 2017 (CN#4)
|
On January 25, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion. As of September 30, 2016, the outstanding principal balance under this note was $35,000 (December 31, 2015 - $nil).
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 5- Convertible Notes (continued)
(7)
|
Convertible note due on May 20, 2017 (CN#5)
|
On May 20, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $46,000 from total loan proceeds of $41,500, which bears interest at 8% per annum and is due on May 20, 2017. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of September 30, 2016, the outstanding principal balance under this note was $46,000 (December 31, 2015 - $nil).
(8)
|
Convertible note due on May 20, 2017 (CN#6)
|
On July 13, 2016 a total of $15,000 in principal and $6,030.74 in accrued interest payable to Andara Investments Limited (formerly known as Adam’s Ale) was acquired by GW Holdings Group LLC. The Company issued a replacement note in the principal amount of $21,031 to GW on July 21, 2016 which convertible note bears interest at 8% per annum and is due on July 13, 2017. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 52% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of September 30, 2016, the outstanding principal balance under this note was $21,031 (December 31, 2015 - $nil).
In our evaluation of the financing arrangement, we concluded that the conversion features were not afforded the exemption as a conventional convertible instrument and it did not otherwise meet the conditions set forth in current accounting standards for equity classification. Accordingly, they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities. (See footnote 7 for derivative disclosure)
Additionally, the Company evaluated the convertible notes in note 5 (1) above and concluded that these were tainted due to the variable conversion rate of the above the convertible notes and as such they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities. They were removed from the derivative liabilities upon their substantial modification and extinguishment. (See footnote 7 for derivative disclosure)
The carrying value of certain convertible notes (CN#1, CN#2, CN#3, CN#4, CN#5 and CN#6) are as follows:
|
|
CN#1
|
|
|
CN#2
|
|
|
CN#3
|
|
|
CN#4
|
|
|
CN#5
|
|
|
CN#6
|
|
|
Total
|
|
Carrying value, December 31, 2015
|
|
$
|
92,822
|
|
|
$
|
30,385
|
|
|
$
|
19,410
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
142,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face value of certain convertible notes
|
|
|
102,000
|
|
|
|
84,000
|
|
|
|
56,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
242,000
|
|
Add: Face value of certain convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,000
|
|
|
|
46,000
|
|
|
|
21,031
|
|
|
|
102,031
|
|
Less: Face value converted to shares
|
|
|
(102,000
|
)
|
|
|
(84,000
|
)
|
|
|
(56,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(242,000
|
)
|
Less: unamortized discount
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(12,907
|
)
|
|
|
(32,652
|
)
|
|
|
(15,757
|
)
|
|
|
(61,316
|
)
|
Carrying value, September 30, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,093
|
|
|
$
|
13,348
|
|
|
$
|
5,274
|
|
|
$
|
40,715
|
|
Amortization of the discount over the three and nine months ended September 30, 2016 totaled $28,013 and $149,598, respectively, which amount has been recorded as interest expense. The unamortized discount of $61,316 associated with above notes (CN#4, CN#5 and CN#6) will be expensed in future periods.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 6 – Common Stock and Stock-Based Compensation
On March 16, 2016 pursuant to approval by the Board of Directors and shareholders, the Company filed an Amendment to its Articles of Incorporation increasing the authorized shares to 900,000,000 consisting of 850,000,000 common and 50,000,000 preferred shares of which 35,000,000 shares have been designated Series A Preferred Stock and 15,000,000 have been designated Series B Preferred Stock all with par value of $0.00001 per share. This action has been retroactively applied in the body of these financial statements.
On September 28, 2016 the Company’s board of directors approved an increase of the Company’s authorized share capital from 850,000,000 common shares to 1,950,000,000 common shares. The Company filed the amendment with the State of Nevada on November 21, 2016. The authorized preferred shares remain at a total of 50,000,000 for issue so that the Company has a total of 2,000,000,000 shares authorized.
Common stock
The following shares of common stock were issued in the nine months ended September 30, 2016
Issuances Date
|
|
|
Conversion Price/FMV
($)
|
|
|
Number of shares
issued
|
|
|
Amount
($)
|
|
January 22, 2016
|
Conversion of debt
|
|
|
0.00185
|
|
|
|
10,524,653
|
|
|
|
19,471
|
|
February 8, 2016
|
Conversion of debt
|
|
|
0.00275
|
|
|
|
1,891,905
|
|
|
|
5,203
|
|
February 11, 2016
|
Conversion of debt
|
|
|
0.00212
|
|
|
|
7,075,472
|
|
|
|
15,000
|
|
February 23, 2016
|
Conversion of debt
|
|
|
0.00165
|
|
|
|
3,163,138
|
|
|
|
5,219
|
|
February 26, 2016
|
Conversion of debt
|
|
|
0.001425
|
|
|
|
10,524,653
|
|
|
|
14,997
|
|
March 7, 2016
|
Conversion of debt
|
|
|
0.0011
|
|
|
|
4,757,658
|
|
|
|
5,233
|
|
March 7, 2016
|
Conversion of debt
|
|
|
0.0012833
|
|
|
|
10,524,653
|
|
|
|
13,507
|
|
March 7, 2016
|
Conversion of debt
|
|
|
0.00106
|
|
|
|
14,150,943
|
|
|
|
15,000
|
|
March 28, 2016
|
Conversion of debt
|
|
|
0.00088
|
|
|
|
14,190,567
|
|
|
|
12,488
|
|
March 31, 2016
|
Conversion of debt
|
|
|
0.000795
|
|
|
|
17,610,630
|
|
|
|
14,000
|
|
April 13, 2016
|
Conversion of debt
|
|
|
0.000825
|
|
|
|
14,190,567
|
|
|
|
11,707
|
|
April 15, 2016
|
Conversion of debt
|
|
|
0.000825
|
|
|
|
7,674,420
|
|
|
|
6,331
|
|
April 18, 2016
|
Conversion of debt
|
|
|
0.000795
|
|
|
|
28,301,887
|
|
|
|
22,500
|
|
April 19, 2016
|
Conversion of debt
|
|
|
0.000825
|
|
|
|
16,641,726
|
|
|
|
13,792
|
|
April 29, 2016
|
Conversion of debt
|
|
|
0.0008255
|
|
|
|
19,022,419
|
|
|
|
15,639
|
|
May 9, 2016
|
Conversion of debt
|
|
|
0.000825
|
|
|
|
19,924,416
|
|
|
|
16,438
|
|
May 10, 2016
|
Conversion of debt
|
|
|
0.0011
|
|
|
|
17,898,667
|
|
|
|
19,689
|
|
May 12, 2016
|
Conversion of debt
|
|
|
0.000825
|
|
|
|
8,360,581
|
|
|
|
6,898
|
|
May 12, 2016
|
Conversion of debt
|
|
|
0.000795
|
|
|
|
21,383,649
|
|
|
|
17,000
|
|
June 23, 2016
|
Conversion of debt
|
|
|
0.00053
|
|
|
|
9,585,472
|
|
|
|
5,080
|
|
|
Total
|
|
|
|
|
|
|
257,397,509
|
|
|
|
255, 192
|
|
Series A Preferred Shares
As at September 30, 2016 and December 31, 2015 the Company had 25,080,985 Series A Preferred Shares issued and outstanding each carrying conversion rights of 2.5 common shares to each 1 share of Series A Preferred Stock and voting rights of 15 to 1, compared to common stock.
Series B Preferred shares
On September 16, 2015 pursuant to approval by the Board of Directors, the registrant filed a Certificate of Designation for its Class B preferred shares under which it was designated that there should be 15,000,000 Class B preferred shares with par value of $0.00001 each of which shall have voting rights of 1,000 to 1 as compared to common stock but no conversion rights.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 6 – Common Stock and Stock-Based Compensation (continued)
Series B Preferred shares (continued)
On October 6, 2015, the Board of Directors authorized the issuance of 1,000,000 Class B preferred shares to David Gasparine, the CEO, for services rendered to the corporation. The shares issued to David Gasparine are not registered under the Securities Act. These shares will be issued relying upon the exemption from the registration requirements provided under Sections 4(a) or 3(b) of the Securities Act.
The Company obtained a third party valuation of the preferred stock and recorded stock-based compensation of $866,100 during the year ended December 31, 2015. The third party valuation report was based on the following inputs as at October 6, 2015: (1) price per share of common stock of $0.0179; (2) market capitalization based on 212,481,148 common shares outstanding; no “in the money” warrants; 25,080,985 Series A Preferred shares (converts at 2.5 to 1 and voting rights of 15 to1); and the new issuance of 1,000,000 Series B Preferred shares with voting rights of 1,000 to 1; (3) a 17.58% premium for the voting preference; (4) 1,588,695,923 total voting shares/rights on valuation date and based on management’s 240,000,000 Series A and 1,000,000,000 Series B rights which cumulatively represented 78.051% of the total voting rights at valuation date; (5) the conversion value is $0 as there are no rights of conversion associated with the Series B preferred shares.
Stock award and stock option
The following tables summarize information concerning stock options outstanding as of September 30, 2016 and December 31, 2015
|
September 30, 2016
|
|
December 31, 2015
|
|
|
Shares
|
|
Weighted Average Exercise Price
$
|
|
Shares
|
|
Weighted Average Exercise Price
$
|
|
Outstanding at beginning of the year
|
500,000
|
|
|
0.03
|
|
500,000
|
|
|
0.03
|
|
Granted
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
Exercised
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
Expired or cancelled
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
Outstanding at the period
|
500,000
|
|
|
0.03
|
|
500,000
|
|
|
0.03
|
|
Exercise Price
|
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual Life
|
|
Number Subject to Exercise
|
$
|
0.03
|
|
|
|
500,000
|
|
|
|
0.30
|
|
500,000
|
Share Purchase Warrants
During the year ended December 31, 2014 the Company issued a 2-year warrant entitling the holders to acquire an additional 93,333 shares of common stock at an exercise price of $0.30 per share.
As September 30, 2016 and December 31, 2015, the following share purchase warrants were outstanding:
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
Outstanding – December 31, 2014
|
|
|
950,000
|
|
|
|
0.14
|
|
Forfeited/Canceled/Expired
|
|
|
(950,000
|
)
|
|
|
0.12
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding – December 31, 2015
|
|
|
93,333
|
|
|
|
0.30
|
|
Forfeited/Canceled/Expired
|
|
|
(93,333
|
)
|
|
|
0.30
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Exercisable – September 30, 2016
|
|
|
-
|
|
|
|
-
|
|
All 93,333 warranted expired unexercised during the period ended September 30, 2016.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 7 - Derivative Liabilities
(1)
|
Derivative liabilities from convertible notes
|
On July 14, 2015, the Company entered into a convertible loan agreement with an investor (the “CN#1”). The Company received net proceeds totaling $90,000 from total loan proceeds of $102,000, which bears interest at 8% per annum and is due on January 14, 2016. Financing fees of $10,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
On July 29, 2015 the Company entered into a convertible loan agreement with an investor (the “CN#2”). The Company received cash proceeds of $75,000 from total loan proceeds of $84,000 which bears interest at 8% per annum and is due on July 29, 2016. An original issue discount of $6,000 and legal fees of $3,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at 58% multiplied by the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding the applicable Conversion, provided that if at any time the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the then-current Conversion Factor shall be reduced by 5% for all future Conversions.
On August 3, 2015, the Company entered into a convertible loan agreement with an investor (the “CN#3”). The Company received net proceeds totaling $50,000 from total loan proceeds of $56,000, which bears interest at 8% per annum and is due on August 3, 2016. Financing fees of $3,500 and legal fees of $2,500 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
On January 25, 2016, the Company entered into a convertible loan agreement with an investor (the “CN#4”). The Company received net proceeds totaling $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion.
On May 20, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $46,000 from total loan proceeds of $41,500, which bears interest at 8% per annum and is due on May 20, 2017. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
On July 13, 2016 a total of $15,000 in principal and $6,030.74 in accrued interest payable to Andara Investments Limited (formerly known as Adam’s Ale) was acquired by GW Holdings Group LLC. The Company issued a replacement note in the principal amount of $21,031 to GW on July 21, 2016 which convertible note bears interest at 8% per annum and is due on July 13, 2017. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 52% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 7 - Derivative Liabilities (continued)
(1)
|
Derivative liabilities from convertible notes (continued)
|
Since equity classification is not available for the conversion feature, we were required to bifurcate the embedded conversion feature and carry it as a derivative liability, at fair value. Derivative financial instruments are carried initially and subsequently at their fair values.
We estimated the fair value of the derivative on the inception dates, and subsequently, using the Black-Scholes Merton valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk free rates) that are necessary to fair value complex derivate instruments.
(2)
|
Derivative liabilities from share purchase warrants
|
On August 22, 2014, the Company entered
into a convertible loan agreement
with an investor which the Company concluded was tainted due to the variable conversion rate of the share purchase warrants (ref Note 6) and as such they did not meet the conditions necessary to obtain equity classification and therefore all convertible notes are required to be carried as derivative liabilities.
As a result of the application of ASC No. 815 in nine months ended September 30, 2016 the fair value of the conversion feature associated with the convertible loans is summarized as follows:
Balance at December 31, 2015
|
|
$
|
296,090
|
|
Derivative additions associated with convertible notes
|
|
|
102,032
|
|
Derivative liability reclassified as additional paid-in capital associated with conversion of debt
|
|
|
(579,057
|
)
|
Loss on change in fair value during the period
|
|
|
334,687
|
|
Balance at September 30, 2016
|
|
$
|
153,752
|
|
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2016 and commitment date:
|
|
Commitment
Date
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Expected dividends
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expected volatility
|
|
196.14 ~ 280.77 %
|
|
|
233.67%~264.82%
|
|
|
265~ 268 %
|
|
Expected term
|
|
0.59 ~ 1 years
|
|
|
0.32~0.78 years
|
|
|
0.04~0.59
|
|
Risk free interest rate
|
|
0.10~0.45 %
|
|
|
0.21~0.45%
|
|
|
0.14 ~ 0.48 %
|
|
On April 16, 2015 the Company entered into a six-month lease commencing April 1, 2015 with certain other third parties in respect of a shared office and residential premises located in San Diego, California. The Company’s obligation under the terms of the lease was $875 per month plus utilities. The Company paid a security deposit of $875 and the first month’s rent totaling $1,750 upon signing of the contract. During the fiscal year ended December 31, 2015 the Company renewed the lease so that the termination date was March 1, 2016, and agreed to a rent increase to $925 per month plus utilities. During the most recent quarter the Company did not enter into a formal renewal agreement and the lease is now operating on a month to month basis.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 9 – Related Party Transactions
On August 28, 2014, the Company entered into an employment agreement with David Gasparine, president of the Company, for management services. The employment agreement became effective as of September 1, 2014. Under the employment agreement, the base salary is of $36,000 per annum, paid monthly. The amount of base salary shall be determined by the Board of Directors and may be increased, but not decreased, from time to time by the Board of Directors of the Company. In addition to the base salary, Mr. Gasparine shall be eligible for periodic bonuses in amounts to be determined by the Board of Directors. In January 2015 the board agreed to increase Mr. Gasparine’s salary to $57,600 per year, with a further salary increase to $72,000 per annum effective October 1, 2015.
During the nine months ended September 30, 2016, the Company accrued fees of $54,000 (September 30, 2015 - $43,200) and paid $28,360 to Mr. Gasparine, leaving $25,640 on the balance sheets on the accounts payable and accrued liabilities.
Note 10 – Deferred Revenue
(a)
|
During the three months ended March 31, 2016 the Company entered into various agreements with a telephone service provider (the “Client”) for the launch of the Epoxy App at its corporate and franchise locations. Under the terms of the agreement, Epoxy would offer training to the corporate location and the term would run twelve months from the launch of the Epoxy App. As consideration the Company would receive fees from certain locations in advance, totaling $23,400. Subsequent to the execution of the agreements the Client revised its corporate focus. As a result, the Company has recorded the entire fee remitted as deferred revenue until such time as a formal unwinding of the agreement is complete. As at September 30, 2016 the amounts received remain in deferred revenue as the Company has not yet concluded the unwinding of the agreement.
|
(b)
|
On March 31, 2016 the Company entered into an agreement with a third party for the development of a customized Epoxy app pilot program and branded corporate implementation. Under the terms of the agreement Epoxy will receive a development fee of $49,000 which amounts were paid as to $30,000 on signing of the agreement, and $19,000 upon official launch of the pilot program, which occured during the quarter ended September 30, 2016. All proceeds have been received under the contract and recorded as deferred revenue. These amounts are expected to be realized as income upon completion of the pilot program.
|
Note 11 – Subsequent events
Subsequent to September 30, 2016 the Company entered into two service contracts for a term of 12 months and 24 months, respectively, where under during phase 1 the Company will develop a customized EPOXY app for gift and loyalty cards for each client. Terms of the agreements provide for phase one development fees in the cumulative amount of $29,000, in addition, cumulative monthly fees payable under the contracts, which increase on a sliding scale based on the number of customer locations, are a minimum of $1,400 per month.