Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview of Current Operations
Results of Operations for the years ended December 31, 2015 and 2014
During the fiscal years ended December 31, 2015 and 2014, the Company generated $30,398 and $25,896 in revenues respectively. The increase in revenues was due to the expansion of our customer base.
As at December 31, 2015 and 2014, the Company had $5,883 and $63,953 in cash, prepaid expenses of $4,558 and $nil, deferred financing costs of $9,638 and $nil and accounts receivable of $880 and $880, for total current assets of $20,959 and $64,833 respectively.
During the fiscal year ended December 31, 2015, the Company incurred total operating expenses of $1,413,460, as compared to total operating expenses of $373,182 for the same period last year. The significant increase in operating expenses was due to an increase of stock based compensation of $866,100, compared to $nil in 2014, in relation to issuance of certain Series B preferred shares to our sole officer and director. In addition, software development expenses increased to $152,471 from $28,310 in 2014 as we made substantive improvements to our application and its features. The operating loss for the fiscal year ended December 31, 2015 was $1,383,062 as compared to a net loss of $347,286 for the same period last year.
In addition, the Company recorded various other expenses during fiscal 2015 as a result of certain financing agreements, including a gain on the change in fair value of derivatives totaling $606,898, and a gain on debt settlement of $496,212 as compared to a loss on change in fair value of derivative liabilities of $1,332,900 and a loss on debt settlement in fiscal 2014. Further the Company incurred $601,243 in interest expenses in fiscal 2015 as compared to $146,883 in the prior fiscal year as a result of the entry into additional convertible notes.
The net loss in fiscal 2015 totaled $881,195 as compared to $1,947,873 in 2014.
The Company used net cash in operations of $443,070 and $216,869 during the twelve month periods ended December 31, 2015 and 2014, respectively, provided net cash in investing activities of $22,645 during fiscal 2014 and used net cash in investing activities of $nil in fiscal 2015. During the twelve-month period ended December 31, 2015 and December 31, 2014, we generated cash from financing activities including loans, convertible notes and share sales of $385,000 and $273,000, respectively.
Plan of Operation
Management believes that it will be able to commence profit generating operations in the current fiscal year. The Company's need for ongoing capital by way of loans and convertible notes, may change dramatically if it can generate additional revenues from its operations as it moves to secure additional business locally and in other states. There are no assurances additional capital will be available to the Company on acceptable terms.
Future funding could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's business, results of operations and financial condition. Any future funding might require the Company to obtain additional equity or debt financing, which might not be available on terms favorable to the Company, or at all, and such financing, if available, might be dilutive.
Going Concern
The Company experienced operating losses of $(1,383,062) and $(347,286) over the two most recent fiscal years The financial statements have been prepared assuming the Company will continue to operate as a going concern which contemplates the realization of assets and the settlement of liabilities in the normal course of business. No adjustment has been made to the recorded amount of assets or the recorded amount or classification of liabilities which would be required if the Company were unable to continue its operations. (See Financial Footnote 3.)
Liquidity and Capital Resources
As of December 31, 2015, the Company had total current assets of $20,959, and total current liabilities of $751,778. The Company has limited financial resources available outside revenues generated from sales, funds it has obtained through use of convertible debt instruments and loans with third parties. While the Company is expecting to continue to generate revenue and achieve profitable operations in the current fiscal year, it is possible that without realization of additional capital, it would be unlikely for the Company to continue as a going concern. In order for the Company to remain a Going Concern it may need to find additional capital. Additional working capital may be sought through additional debt or equity private placements, additional notes payable to banks or related parties (officers, directors or stockholders), or from other available funding sources at market rates of interest, or a combination of these. The ability to raise necessary financing will depend on many factors, including the nature and prospects of any business to be acquired and the economic and market conditions prevailing at the time financing is sought. During the most recently completed fiscal year management has obtained additional funding with success, however there is no guarantee we will be able to continue to obtain financing if and when required. The current economic downturn may make it difficult to find new capital sources for the Company should they be required.
Future Financings
We anticipate continuing to rely third party loans and/or equity sales of our common shares in order to continue to fund our business operations in the event of ongoing operational shortfalls. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any of additional sales of our equity securities or arrange for debt or other financing to fund our research and development activities.
Summary of any product research and development that we will perform for the term of our plan of operation.
We do not plan any product research nor development, based on our current business operations. However, we continue to maintain our software with required updates to meet the changing environment for hand held android and apple devices.
Expected purchase or sale of property and significant equipment
We do not anticipate the purchase or sale of any property or significant equipment; as such items are not required by us at this time.
Significant changes in the number of employees
As of March 31, 2016, we had one employee and one officer. We are dependent upon our officers and directors for our future business development, as well as a small team of sales consultants. As our operations expand we anticipate the need to hire additional employees, consultants and professionals; however, the exact number is not quantifiable at this time.
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 or operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual Obligations
The following table outlines payments due under our significant contractual obligations over the periods shown, exclusive of interest:
|
|
Payments due by Period
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
Less than
|
|
|
One to
|
|
|
Three to
|
|
|
More Than
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
Loan payable
|
|
$
|
32,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32,000
|
|
Convertible Debt
|
|
$
|
367,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
367,000
|
|
Capital Lease Obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Long-Term Debt Obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The above table outlines our obligations as of December 31, 2015 and does not reflect any changes in our obligations that have occurred after that date.
Critical Accounting Policies and Estimates
Revenue Recognition: The Company recognizes revenue on an accrual basis as it invoices for services. Revenue is generally realized or realizable and earned when all of the following criteria are met: 1) persuasive evidence of an arrangement exists between the Company and our customer(s); 2) services have been rendered; 3) our price to our customer is fixed or determinable; and 4) collectability is reasonably assured.
Recent Pronouncements
The Company's management has evaluated all the recently issued accounting pronouncements through the filing date of these financial statements and does not believe that any of these pronouncements will have a material impact on the Company's financial position and results of operations.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statements:
|
Page
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated Balance Sheets as of December 31, 2015 and 2014
|
F-2
|
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
|
F-3
|
Consolidated Statement of Stockholders' Deficit for the years ended December 31, 2015and 2014
|
F-4
|
Consolidated Statement of Cash Flows for years ended December 31, 2015 and 2014
|
F-5
|
Consolidated Notes to the Financial Statements
|
F-6 to F-24
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Epoxy, Inc.
Henderson, Nevada
We have audited the accompanying consolidated balance sheets of Epoxy, Inc. and its subsidiaries (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Epoxy, Inc. and its subsidiaries as of December 31, 2015 and 2014 and the consolidated results of their operations and their cash flows for each of the years then in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered losses from operations and has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
April 14, 2016
EPOXY, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
ASSETS
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
|
$
|
5,883
|
|
|
$
|
63,953
|
|
Accounts receivable
|
|
|
880
|
|
|
|
880
|
|
Prepaid expenses
|
|
|
4,558
|
|
|
|
-
|
|
Deferred financing costs
|
|
|
9,638
|
|
|
|
-
|
|
Total Current Assets
|
|
|
20,959
|
|
|
|
64,833
|
|
|
|
|
|
|
|
|
|
|
Vehicle
|
|
|
9,436
|
|
|
|
20,758
|
|
Trademark and Patent
|
|
|
7,695
|
|
|
|
7,695
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
38,090
|
|
|
$
|
93,286
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
146,433
|
|
|
$
|
104,213
|
|
Loans payable
|
|
|
32,000
|
|
|
|
32,000
|
|
Derivative liabilities
|
|
|
296,090
|
|
|
|
2,251,429
|
|
Convertible notes, net of unamortized discounts
|
|
|
277,255
|
|
|
|
105,067
|
|
Total Current Liabilities
|
|
|
751,778
|
|
|
|
2,492,709
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
751,778
|
|
|
|
2,492,709
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.00001 par value;
|
|
|
|
|
|
|
|
|
authorized: 35,000,000 Series A Preferred shares, 25,080,985 issued and outstanding as of December 31, 2015 and December 31, 2014
|
|
|
251
|
|
|
|
251
|
|
authorized: 15,000,000 Series B Preferred shares, 1,000,000 and 0 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively
|
|
|
10
|
|
|
|
-
|
|
Common Stock, $0.00001 par value;
|
|
|
|
|
|
|
|
|
authorized: 850,000,000 shares, 226,253,317 and 176,594,121 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively
|
|
|
2,263
|
|
|
|
1,766
|
|
Additional paid-in capital
|
|
|
2,397,946
|
|
|
|
(168,477
|
)
|
Accumulated deficit
|
|
|
(3,114,158
|
)
|
|
|
(2,232,963
|
)
|
Total Stockholders’ Deficit
|
|
|
(713,688
|
)
|
|
|
(2,399,423
|
)
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
38,090
|
|
|
$
|
93,286
|
|
The accompanying notes are an integral part of these consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30,398
|
|
|
$
|
25,896
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,322
|
|
|
|
1,887
|
|
Software research and development
|
|
|
152,471
|
|
|
|
28,310
|
|
General and administrative expenses
|
|
|
1,249,667
|
|
|
|
342,985
|
|
Total operating expenses
|
|
|
1,413,460
|
|
|
|
373,182
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,383,062
|
)
|
|
|
(347,286
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses):
|
|
|
|
|
|
|
|
|
Gain (loss) on change in fair value of derivative liabilities
|
|
|
606,898
|
|
|
|
(1,332,900
|
)
|
Gain (loss) on debt settlement
|
|
|
496,212
|
|
|
|
(120,804
|
)
|
Interest expenses
|
|
|
(601,243
|
)
|
|
|
(146,883
|
)
|
Total other income (expenses)
|
|
|
501,867
|
|
|
|
(1,600,587
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(881,195
|
)
|
|
$
|
(1,947,873
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
|
198,573,462
|
|
|
|
171,376,249
|
|
The accompanying notes are an integral part of these consolidated financial statements
EPOXY INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
|
Preferred Stock
|
Common Stock
|
|
|
|
|
Series A
Preferred
shares
|
|
|
Par
Value
|
|
|
Series B
Preferred
shares
|
|
|
Par
Value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Additional
Paid- in Capital
|
|
|
Accumulated Deficit
|
|
|
Total Paid-in
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
25,080,985
|
|
|
$
|
251
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
168,824,706
|
|
|
$
|
1,688
|
|
|
$
|
152,689
|
|
|
$
|
(285,090
|
)
|
|
$
|
(130,462
|
)
|
Private placement for common shares
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
933,333
|
|
|
|
9
|
|
|
|
27,991
|
|
|
|
-
|
|
|
|
28,000
|
|
Shares issued as financing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
807,482
|
|
|
|
8
|
|
|
|
23,992
|
|
|
|
-
|
|
|
|
24,000
|
|
Shares issued for debt settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
2,528,600
|
|
|
|
26
|
|
|
|
83,165
|
|
|
|
-
|
|
|
|
83,191
|
|
Stock award granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
3,500,000
|
|
|
|
35
|
|
|
|
74,515
|
|
|
|
-
|
|
|
|
74,550
|
|
Stock option granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,832
|
|
|
|
-
|
|
|
|
9,832
|
|
Beneficial conversion feature from amended convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
-
|
|
|
|
125,000
|
|
Recognition of derivative associated with tainted instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(669,741
|
)
|
|
|
-
|
|
|
|
(669,741
|
)
|
Imputed interest
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,080
|
|
|
|
-
|
|
|
|
4,080
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,947,873
|
)
|
|
|
(1,947,873
|
)
|
Balance, December 31, 2014
|
|
|
25,080,985
|
|
|
|
251
|
|
|
|
-
|
|
|
|
-
|
|
|
|
176,594,121
|
|
|
|
1,766
|
|
|
|
(168,477
|
)
|
|
|
(2,232,963
|
)
|
|
|
(2,399,423
|
)
|
Preferred shares issued for services
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
866,090
|
|
|
|
|
|
|
|
866,100
|
|
Derivative liabilities reclassify as additional paid in capital due to conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,198,945
|
|
|
|
|
|
|
|
1,198,945
|
|
Shares issued for conversion of debt and accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,929,848
|
|
|
|
460
|
|
|
|
443,625
|
|
|
|
|
|
|
|
444,085
|
|
Shares issued for loss on debt settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,489,435
|
|
|
|
25
|
|
|
|
16,158
|
|
|
|
|
|
|
|
16,183
|
|
Shares issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,239,913
|
|
|
|
12
|
|
|
|
40,905
|
|
|
|
|
|
|
|
40,917
|
|
Imputed interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
|
|
|
|
700
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(881,195
|
)
|
|
|
(881,195
|
)
|
Balance, December 31, 2015
|
|
|
25,080,985
|
|
|
$
|
251
|
|
|
|
1,000,000
|
|
|
$
|
10
|
|
|
|
226,253,317
|
|
|
$
|
2,263
|
|
|
$
|
2,397,946
|
|
|
$
|
(3,114,158
|
)
|
|
$
|
(713,688
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
EPOXY, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Ca
sh flows from Operating Activities
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(881,195
|
)
|
|
$
|
(1,947,873
|
)
|
Adjustments to reconcile net loss to net cash used in operations:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
11,322
|
|
|
|
1,887
|
|
Share issuance for financing costs
|
|
|
-
|
|
|
|
24,000
|
|
Share issuance for services
|
|
|
40,917
|
|
|
|
74,550
|
|
Serial B preferred shares issuance for stock-based compensation
|
|
|
866,100
|
|
|
|
-
|
|
Stock option granted for consulting fees
|
|
|
-
|
|
|
|
9,832
|
|
Gain (loss) on extinguishment of debt
|
|
|
(496,212
|
)
|
|
|
120,804
|
|
(Gain) loss on change in fair value of derivative liabilities
|
|
|
(606,898
|
)
|
|
|
1,332,900
|
|
Amortization of discounts on convertible notes
|
|
|
518,085
|
|
|
|
122,692
|
|
Amortization of deferred financing costs
|
|
|
47,362
|
|
|
|
-
|
|
Imputed interest
|
|
|
700
|
|
|
|
4,080
|
|
Foreign exchange in loan payable
|
|
|
-
|
|
|
|
(1,001
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
-
|
|
|
|
1,450
|
|
Prepaid expenses
|
|
|
(4,558
|
)
|
|
|
-
|
|
Accounts payable and accrued expenses
|
|
|
61,307
|
|
|
|
39,810
|
|
Net cash used in operating activities
|
|
|
(443,070
|
)
|
|
|
(216,869
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from Investing Activities
|
|
|
|
|
|
|
|
|
Costs for vehicle purchase
|
|
|
-
|
|
|
|
(22,645
|
)
|
Net cash provided by (used in) investing activities
|
|
|
-
|
|
|
|
(22,645
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
-
|
|
|
|
28,000
|
|
Proceeds from convertible notes
|
|
|
442,000
|
|
|
|
225,000
|
|
Deferred financing costs
|
|
|
(57,000
|
)
|
|
|
-
|
|
Proceeds from loan payable
|
|
|
-
|
|
|
|
20,000
|
|
Net cash provided by financing activities
|
|
|
385,000
|
|
|
|
273,000
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash during the period
|
|
|
(58,070
|
)
|
|
|
33,486
|
|
Cash, beginning of period
|
|
|
63,953
|
|
|
|
30,467
|
|
Cash, end of period
|
|
$
|
5,883
|
|
|
$
|
63,953
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
2,986
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing activities:
|
|
|
|
|
|
|
|
|
Debt discount on convertible debt due to beneficial conversion feature
|
|
|
-
|
|
|
|
125,000
|
|
Debt discount due to derivative
|
|
|
-
|
|
|
|
225,000
|
|
Derivative liability due to tainting of amended convertible notes
|
|
|
-
|
|
|
|
669,741
|
|
Shares issued for the settlement of debt
|
|
|
-
|
|
|
|
83,191
|
|
Debt principal converted to shares
|
|
|
425,000
|
|
|
|
-
|
|
Accrued interest converted to shares
|
|
|
19,085
|
|
|
|
-
|
|
Derivative liability reclassified as additional paid-in capital
|
|
|
1,198,945
|
|
|
|
-
|
|
Derivative liability – debt discount
|
|
|
442,000
|
|
|
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Description of business and basis of presentation
Organization and nature of business
Epoxy, Inc. (the “Company”) was incorporated in the State of Nevada on November 13, 2007 as Rioridge Resources Corp. On July 22, 2008, the Company changed its name to Neohydro Technologies Corp.
On August 1, 2014, the Company’s name changed from NeoHydro Technologies Corp. to Epoxy, Inc. in furtherance of actions taken on May 23, 2014, when the Board of Directors of the Company (the “
Board
”) approved, and recommended to the Majority Stockholders that they approve the name change. On May 27, 2014, the Majority Stockholders approved the name change by written consent in lieu of a meeting, in accordance with Nevada law. On August 4, 2014, the Company submitted the name change to FINRA for their review and approval, as well as the approval of a symbol change from NHYT to EPXY. The Company filed an amendment to our Articles of Incorporation with the Secretary of State of Nevada changing our name to Epoxy, Inc. effective on August 1, 2014.
On March 16, 2016 pursuant to approval by the Board of Directors and shareholders, the Company filed an Amendment to its Articles of Incorporation increasing the authorized shares to 900,000,000 with 850,000,000 common and 50,000,000 preferred shares. This action has been retroactively applied in the body of these financial statements.
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.
Note 2 - Summary of Significant Accounting Policies
Principal of Consolidation
These consolidated financial statements include the accounts of Epoxy, Inc. and its wholly-owned subsidiary, Couponz, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, debt discounts and common stock issued for assets, services or in settlement of obligations.
Cash and Cash Equivalents
For purposes of reporting within the statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization on property and equipment are determined using the straight-line method over the three to five year estimated useful lives of the assets.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
Capitalized Software Costs
Software costs incurred internally in creating computer software products are expensed until technological feasibility has been established upon completion of a detailed program design. Thereafter, all software development costs are capitalized until the point that the product is ready for sale, and are subsequently reported at the lower of unamortized cost or net realizable value. The Company periodically reviews capitalized software costs for impairment where the fair value is less than the carrying value. As of December 31, 2015 and 2014, all capitalized software costs related to the development of the application were expensed because development was complete.
Research and Development Costs
The Company charges research and development costs with respect to software improvements to expense when incurred in accordance with FASB ASC 730, “Research and Development”. Research and development costs were $152,471 and $28,310 for the year ended December 31, 2015 and 2014, respectively.
Trademark and Patent (Intangible assets)
Trademark and patent are recorded at cost. Amortization on trademark and patent are determined by their economic life.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. This typically occurs when customers are invoiced for their monthly membership fee. Participants in the program pay a monthly subscription fee per retail location, at the start of each month, which amount is immediately recorded as revenue. A notice period of 30 days is required to terminate any services with no refunds payable.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. During the years ended December 31, 2015and 2014, there was no impairment of long-lived assets.
Allowance for Doubtful Accounts
We establish an allowance for bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of our customers. We do not generally require collateral for our accounts receivable. Our allowance for doubtful accounts was $0 as of December 31, 2015 and 2014.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments (continued)
Level 1
– Quoted prices in active markets for identical assets or liabilities.
Level 2
– Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
– Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.
The following table provides a summary of the fair value of our derivative liabilities as of December 31, 2015 and December 31, 2014:
|
|
Fair value measurements on a recurring basis
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
296,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,251,429
|
|
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
Stock based compensation
We account for stock based compensation in accordance with ASC 718 which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. For stock-based awards granted on or after January 1, 2006, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. In prior years, we accounted for stock-based awards under APB No. 25, “Accounting for Stock Issued to Employees.” We account for non-employee share-based awards in accordance with ASC 505-50.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
Loss per Common Share
In accordance with ASC Topic 280 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Reclassification
Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Note 3 – Going Concern
The Company has incurred net losses since inception and had a working capital deficit of $730,819 at December 31, 2015. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.
Note 4- Loans Payable
During the month of July 2014, the Company entered into two 5% one-year promissory notes for a total of $20,000.
At December 31, 2015, the Company is indebted to these unrelated third parties in the amount of $20,000 (December 31, 2014 - $20,000).
During the month of August 2013, the Company entered into a 10% one-year promissory notes for a total of $5,000.
At December 31, 2015, the Company is indebted to this unrelated third parties in the amount of $5,000 (December 31, 2014 - $5,000).
At December 31, 2015, the Company is indebted to one unrelated third parties in amount of $7,000 (December 31, 2014 - $7,000). The loans are non-interest bearing and due on demand after maturity. During the year ended December 31, 2015, the Company recorded imputed interest of $700 in respect of these loans.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes
(1)
|
Convertible notes originally due on November 27, 2015:
|
On November 27, 2012, the Company entered into certain convertible loan agreements with four (4) investors. The Company received a total of $125,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $125,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000.
On August 1, 2014 the Company successfully amended the terms of certain convertible loan agreements with four (4) investors for a total of $125,000 due and payable on November 27, 2015. Under the amended terms, a total of $125,000 originally available for conversion into a total of 250,000,000 shares of common stock at $0.0005 per share has been amended to reflect a price of $0.005 per share for a total of 25,000,000 shares of common stock, if converted.
The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification and as such the unamortized discount of $88,184 was recorded as loss on extinguishment of debt. The Company recalculated the intrinsic value of the embedded beneficial conversion feature of $125,000 this has been recorded at the discount on the convertible note. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000.
During August 2014, the conversion options in these notes became tainted upon the issuance of other variable rate convertible debt. Accordingly, the conversion options in these notes were accounted for as derivative liabilities.
On July 16, 2015, the Company amended the terms of the certain convertible loan agreements with four investors for a total of $125,000 due and payable on April 16, 2016. Under the amended terms, a total of $125,000 convertible notes which comes due and payable on November 27, 2015 were extended to the maturity date of April 16, 2016. 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
|
|
Face value of certain convertible notes
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
Less: unamortized discount
|
|
|
(125,000
|
)
|
|
|
(116,702
|
)
|
|
|
-
|
|
Carrying value
|
|
$
|
-
|
|
|
|
8,298
|
|
|
$
|
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.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes (continued)
(2)
|
Convertible note due on August 22, 2015 (CN#1)
|
On August 22, 2014, the Company entered into a convertible loan agreement with an investor (the “CN#1”), where under the Company has issued two 8% convertible redeemable notes in the aggregate principal amount of $250,000 with the first note being $125,000 and the second note being $125,000, convertible into shares of the Company’s common stock upon the terms.
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 equal to 52% of the lowest trading price of the Common Stock as reported on the OTCQB exchange for the twelve (12) prior trading days including the day upon which a Notice of Conversion is received by the Company.
On August 22, 2014, the Company received net proceeds totaling $106,250 in respect to the first of the two notes in the totaling gross amount of $125,000. Financing fees of $12,500 and legal fees of $6,250 were paid in respect of the back end note which is due and payable on August 22, 2015.
On January 15, 2015 and February 26, 2015 respectively the Company received net proceeds from an investor totaling $63,750 and $42,500 in respect to the second of the two notes in the total gross amount of $125,000. Financing fees of $12,500 and legal fees of $6,250 were paid in respect of the back end note which is due and payable on August 22, 2015.
The following table reflects the issuance of 17,846,932 shares in respect of Conversion Notices received for a total of $250,000 in principal and $9,570 in accrued interest from CN#1 during the year ended December 31, 2015:
Conversion Date
|
|
Original Principal Amount
($)
|
|
|
Accrued interest payable
($)
|
|
|
Conversion Price
($)
|
|
|
Number of shares issued
|
|
February 27, 2015
|
|
|
40,000
|
|
|
|
1,613
|
|
|
|
0.0364520
|
|
|
|
1,141,587
|
|
April 17, 2015
|
|
|
15,000
|
|
|
|
766
|
|
|
|
0.0239200
|
|
|
|
659,114
|
|
April 29, 2015
|
|
|
20,000
|
|
|
|
1,074
|
|
|
|
0.0208000
|
|
|
|
1,013,171
|
|
May 7, 2015
|
|
|
25,000
|
|
|
|
1,386
|
|
|
|
0.0130000
|
|
|
|
2,029,715
|
|
May 21, 2015
|
|
|
25,000
|
|
|
|
1,463
|
|
|
|
0.0130000
|
|
|
|
2,035,616
|
|
June 2, 2015
|
|
|
25,983
|
|
|
|
547
|
|
|
|
0.0141445
|
|
|
|
1,875,620
|
|
June 8, 2015
|
|
|
29,017
|
|
|
|
649
|
|
|
|
0.0141440
|
|
|
|
2,097,405
|
|
June 29, 2015
|
|
|
18,000
|
|
|
|
485
|
|
|
|
0.0145600
|
|
|
|
1,269,592
|
|
July 7, 2015
|
|
|
19,000
|
|
|
|
546
|
|
|
|
0.00936
|
|
|
|
2,088,197
|
|
July 20, 2015
|
|
|
33,000
|
|
|
|
1,041
|
|
|
|
0.00936
|
|
|
|
3,636,915
|
|
Total
|
|
|
250,000
|
|
|
|
9,570
|
|
|
|
|
|
|
|
17,846,932
|
|
As of December 31, 2015, the principal amount and all accrued interest payable with respect to CN#1 was paid in full with issuance of common stock.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes
(3)
|
Convertible note due on April 16, 2015 (CN#2)
|
On September 17, 2014, the Company entered into a convertible loan agreement with an investor (the “CN#2). The Company received net proceeds totaling $88,000 from a note in the gross amount of $100,000 which bears interest at 10% per annum and is due on April 16, 2015. Financing fees of $10,500 and legal fees of $2,000 were paid in respect of the note which is due and payable on April 16, 2015. 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 the lower of (1) a 50% discount to the average of the three lowest daily trading prices for the previous twenty (20) trading days to the date of conversion; or (2) a 50% discount to the average of the three lowest daily trading prices for the previous twenty (20) trading days before the date that this note was executed.
The following table reflects the details of the issuance of 9,180,180 shares in respect of Conversion Notices received for a total of $100,000 in principal and $5,582 in accrued interest from CN#2 during the year ended December 31, 2015:
Conversion Date
|
|
Original Principal Amount
($)
|
|
|
Accrued interest payable
($)
|
|
|
Conversion Price
($)
|
|
|
Number of shares issued
|
|
March 26, 2015
|
|
|
6,775
|
|
|
|
-
|
|
|
|
0.0115167
|
|
|
|
588,235
|
|
April 1, 2015
|
|
|
50,000
|
|
|
|
-
|
|
|
|
0.0115000
|
|
|
|
4,347,826
|
|
April 22, 2015
|
|
|
43,225
|
|
|
|
5,582
|
|
|
|
0.0115000
|
|
|
|
4,244,119
|
|
Total
|
|
|
100,000
|
|
|
|
5,582
|
|
|
|
|
|
|
|
9,180,180
|
|
As of December 31, 2015, the principal amount and all accrued interest payable with respect to CN#2 was paid in full with issuance of common stock.
(4)
|
Convertible note due on January 13, 2016 (CN#3)
|
On January 13, 2015 the Company entered into a Securities Purchase Agreement (“SPA”) with Adar Bays, LLC (“Adar”) a Florida Limited Liability company where under the Company has issued two 8% convertible redeemable notes in the aggregate principal amount of $150,000 with the first note being $75,000 and the second note being $75,000, convertible into shares of the Company’s common stock with a maturity date one year after issuance or January 13, 2016. The first of the two notes (the “First Note”) shall be paid for by Adar upon execution of the SPA, and the second note (the “Second Note”) shall initially be paid for by the issuance of an offsetting $75,000 secured note issued to the Company by Adar (“Buyer Note”), provided that prior to conversion of the Second Note, Adar must have paid off the Buyer Note in cash. Under the terms of the First Note, at any time after 180 days, the holder may elect to convert all or part of the face value of the note into shares of the Company’s common stock without restrictive legend at a price (“Conversion Price”) for each share of Common Stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company. If the shares are not delivered in 3 business days, to the holder, the Notice of Conversion may be rescinded. Under the terms of the Second Note, the holder is entitles at its option, after the expiration of the requisite Rule 144 holding period and after full cash payment for the promissory note issued by the holder to the Company simultaneously with the issuance by the Company of this note (the “Holder Issued Note”) to convert all or part of the Note then outstanding into shares of the Company’s common stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company. If the shares are not delivered in 3 business days, to the holder, the Notice of Conversion may be rescinded. With respect to the First and Second Notes, in the
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes
(4)
|
Convertible note due on January 13, 2016 (CN#3) (cont’d)
|
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.
Upon funding of each Note the Company shall pay $3,750 in legal fees and fees to Carter, Terry & Company of $7,500.
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.
The following table reflects the details of the issuance of 18,902,736 shares in respect of Conversion Notices received for a total of $75,000 in principal and $3,934 in accrued interest from CN#3 during the year ended December 31, 2015:
Conversion Date
|
|
Original Principal Amount
($)
|
|
|
Accrued interest payable
($)
|
|
|
Conversion Price
($)
|
|
|
Number of shares issued
|
|
July 20, 2015
|
|
|
5,000
|
|
|
|
-
|
|
|
|
0.00936
|
|
|
|
534,188
|
|
July 23, 2015
|
|
|
15,000
|
|
|
|
-
|
|
|
|
0.00936
|
|
|
|
1,602,564
|
|
August 13, 2015
|
|
|
7,000
|
|
|
|
-
|
|
|
|
0.00832
|
|
|
|
841,346
|
|
August 27, 2015
|
|
|
8,000
|
|
|
|
-
|
|
|
|
0.005772
|
|
|
|
1,386,001
|
|
September 8, 2015
|
|
|
7,000
|
|
|
|
-
|
|
|
|
0.005252
|
|
|
|
1,332,826
|
|
September 16, 2015
|
|
|
10,000
|
|
|
|
-
|
|
|
|
0.0052
|
|
|
|
1,923,077
|
|
October 13, 2015
|
|
|
12,000
|
|
|
|
-
|
|
|
|
0.0052
|
|
|
|
2,307,692
|
|
November 6, 2015
|
|
|
6,000
|
|
|
|
-
|
|
|
|
0.001664
|
|
|
|
3,605,769
|
|
December 1, 2015
|
|
|
5,000
|
|
|
|
3,934
|
|
|
|
0.001664
|
|
|
|
5,369,273
|
|
Total
|
|
|
75,000
|
|
|
|
3,934
|
|
|
|
|
|
|
|
18,902,736
|
|
As of December 31, 2015, the principal amount and all accrued interest payable with respect to CN#3 was paid in full with issuance of common stock.
On December 1, 2015, the Company issued 2,489,435 additional shares of common stock to the Note holder and recorded a loss on debt settlement in the amount of $16,183. (ref Note 6 below).
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes
(5)
|
Convertible note due on January 14, 2016 (CN#4)
|
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 December 31, 2015, the outstanding principal balance under this note was $102,000.
(6)
|
Convertible note due on July 29, 2016 (CN#5)
|
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 December 31, 2015, the outstanding principal balance under this note was $84,000.
(7)
|
Convertible note due on August 3, 2016 (CN#6)
|
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 December 31, 2015, the outstanding principal balance under this note was $56,000.
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 11 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 9 for derivative disclosure)
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes
The carrying value of certain convertible notes (CN#1, CN#2 and CN#3) are as follows
|
|
CN#1
|
|
|
CN#2
|
|
|
CN#3
|
|
|
Total
|
|
Carrying value, December 31, 2013
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Add: Face value of certain convertible notes
|
|
|
125,000
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
225,000
|
|
Less: unamortized discount
|
|
|
(79,860
|
)
|
|
|
(48,371
|
)
|
|
|
|
|
|
|
(128,231
|
)
|
Carrying value, December 31, 2014
|
|
|
45,140
|
|
|
|
51,629
|
|
|
|
-
|
|
|
|
96,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Face value of certain convertible notes
|
|
|
125,000
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Face value of certain convertible notes
|
|
|
250,000
|
|
|
|
100,000
|
|
|
|
75,000
|
|
|
|
425,000
|
|
Less: converted face value to shares
|
|
|
(250,000
|
)
|
|
|
(100,000
|
)
|
|
|
(75,000
|
)
|
|
|
(425,000
|
)
|
Less: unamortized discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Carrying value, December 31, 2015
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
The carrying value of certain convertible notes (CN#4 CN#5 and CN#6) are as follows
|
|
CN#4
|
|
|
CN#5
|
|
|
CN#6
|
|
|
Total
|
|
Carrying value, December 31, 2014
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Face value of certain convertible notes
|
|
|
102,000
|
|
|
|
84,000
|
|
|
|
56,000
|
|
|
|
242,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Face value of certain convertible notes
|
|
|
102,000
|
|
|
|
84,000
|
|
|
|
56,000
|
|
|
|
242,000
|
|
Less: converted face value to shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Less: unamortized discount
|
|
|
(8,270
|
)
|
|
|
(48,426
|
)
|
|
|
(33,049
|
)
|
|
|
(89,745
|
)
|
Carrying value, December 31, 2015
|
|
$
|
93,730
|
|
|
|
35,574
|
|
|
$
|
22,951
|
|
|
$
|
152,255
|
|
Amortization of the discount over the year ended December 31, 2015 totaled $518,085, which amount has been recorded as interest expense. The unamortized discount of $89,745 associated with above notes (CN #1 to CN#6) will be expensed in future periods.
Note 6 – Common Stock and Stock-Based Compensation
On March 16, 2016 pursuant to approval by the Board of Directors and shareholders, the Company filed an Amendment to its Articles of Incorporation increasing the authorized shares to 900,000,000 with 850,000,000 common and 50,000,000 preferred shares of which 35,000,000 have been designated Series A Preferred Stock and 15,000,000 have been designated Series B Preferred Stock all with par value of $0.00001 per share. This action has been retroactively applied in the body of these financial statements.
Common stock
Shares issued in current period ended December 31, 2015:
Issuances Date
|
|
|
Conversion Price/FMV
($)
|
|
|
Number of shares
issued
|
|
|
Amount
($)
|
|
February 27, 2015
|
Conversion of debt
|
|
|
0.0364520
|
|
|
|
1,141,587
|
|
|
|
41,613
|
|
March 26, 2015
|
Conversion of debt
|
|
|
0.0115167
|
|
|
|
588,235
|
|
|
|
6,775
|
|
April 1, 2015
|
Conversion of debt
|
|
|
0.0115000
|
|
|
|
4,347,826
|
|
|
|
50,000
|
|
April 17, 2015
|
Conversion of debt
|
|
|
0.0239200
|
|
|
|
659,114
|
|
|
|
15,766
|
|
April 22, 2015
|
Conversion of debt
|
|
|
0.0115000
|
|
|
|
4,244,119
|
|
|
|
48,807
|
|
April 29, 2015
|
Conversion of debt
|
|
|
0.0208000
|
|
|
|
1,013,171
|
|
|
|
21,074
|
|
May 7, 2015
|
Conversion of debt
|
|
|
0.0130000
|
|
|
|
2,029,715
|
|
|
|
26,386
|
|
May 21, 2015
|
Conversion of debt
|
|
|
0.0130000
|
|
|
|
2,035,616
|
|
|
|
26,463
|
|
June 2, 2015
|
Conversion of debt
|
|
|
0.0141445
|
|
|
|
1,875,620
|
|
|
|
26,530
|
|
June 8, 2015
|
Conversion of debt
|
|
|
0.0141440
|
|
|
|
2,097,405
|
|
|
|
29,666
|
|
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Common Stock and Stock-Based Compensation (continued)
Common stock (continued)
Shares issued in current period ended December 31, 2015: (continued)
Issuances Date
|
|
|
Conversion Price/FMV
($)
|
|
|
Number of shares
issued
|
|
|
Amount
($)
|
|
June 18, 2015
|
Services rendered
|
|
|
0.0330000
|
|
|
|
1,239,913
|
|
|
|
40,917
|
|
June 29, 2015
|
Conversion of debt
|
|
|
0.0145600
|
|
|
|
1,269,592
|
|
|
|
18,485
|
|
July 7, 2015
|
Conversion of debt
|
|
|
0.00936
|
|
|
|
2,088,197
|
|
|
|
19,546
|
|
July 20, 2015
|
Conversion of debt
|
|
|
0.00936
|
|
|
|
4,171,103
|
|
|
|
39,041
|
|
July 23, 2015
|
Conversion of debt
|
|
|
0.00936
|
|
|
|
1,602,564
|
|
|
|
15,000
|
|
August 13, 2015
|
Conversion of debt
|
|
|
0.00832
|
|
|
|
841,346
|
|
|
|
7,000
|
|
August 27, 2015
|
Conversion of debt
|
|
|
0.005772
|
|
|
|
1,386,001
|
|
|
|
8,000
|
|
September 8, 2015
|
Conversion of debt
|
|
|
0.005252
|
|
|
|
1,332,826
|
|
|
|
7,000
|
|
September 16, 2015
|
Conversion of debt
|
|
|
0.0052
|
|
|
|
1,923,077
|
|
|
|
10,000
|
|
October 13, 2015
|
Conversion of debt
|
|
|
0.0052
|
|
|
|
2,307,692
|
|
|
|
12,000
|
|
November 6, 2015
|
Conversion of debt
|
|
|
0.001664
|
|
|
|
3,605,769
|
|
|
|
6,000
|
|
December 1, 2015
|
Conversion of debt
|
|
|
0.001664
|
|
|
|
5,369,273
|
|
|
|
8,934
|
|
December 1, 2015
|
Shares issued for cash proceeds at $0.003615 per share*
|
|
|
0.0065
|
|
|
|
2,489,435
|
|
|
|
16,182
|
|
Total
|
|
|
|
|
|
|
|
49,659,196
|
|
|
|
501,185
|
|
*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.
Shares issued in the fiscal year ended December 31, 2014
On April 30, 2014, the Company received the final $28,000 installment in respect of a funding agreement entered into on June 17, 2013 (ref: Note 10) for a total of $100,000. The Company accepted a subscription for 933,333 shares of common stock at $0.03 per share for cash proceeds of $28,000 and the Company also agreed to issue a 2-year warrant entitling the holder to acquire an additional 93,333 and shares of common stock at an exercise price of $0.30 per share.
On August 8, 2014 the Company agreed to issue 500,000 fully paid for and earned restricted shares of the Company’s common stock under an agent agreement with Carter, Terry & Company (“C&T”). The Company recorded $15,000 as financing costs, which was the fair market value of the shares on the agreement date.
On August 22, 2014, the Company settled certain unrelated third party debt in the amount of $50,572 by way of the issuance of 2,528,600 shares of the Company’s common stock at $0.02 per share with a fair value of $83,192. The Company recognized loss on the debt settlement in the amount of $32,620.
During the period ended September 30, 2014 the Company agreed to issue a total of 307,482 restricted shares of the Company’s common stock under an agent agreement with C&T, which equal to the 4% of $225,000 capital raised divided by the closing price of the stock on the date of close.
On October 17, 2014, the Company issued 3,500,000 shares of the Company’s common stock at $0.0213 per share with a fair value of $74,550 as stock awards to officers and directors of the Company.
As of December 31, 2015 and December 31, 2014, there were a total of 226,253,317 and 176,594,122 shares issued and outstanding, respectively.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Common Stock and Stock-Based Compensation (continued)
Series A Preferred Shares
As at December 31, 2015 and 2014 the Company had 25,080,985 Series A Preferred Shares issued and outstanding each carrying conversion rights of 2.5 common shares to each 1 share of Series A Preferred Stock and voting rights of 15 to 1, compared to common stock.
Series B Preferred shares
On September 16, 2015 pursuant to approval by the Board of Directors, the registrant filed a Certificate of Designation for its Class B preferred shares under which it was designated that there should be 15,000,000 Class B preferred shares with par value of $0.00001 each of which shall have voting rights of 1,000 to 1 as compared to common stock but no conversion rights.
On October 6, 2015, the Board of Directors authorized the issuance of 1,000,000 Class B preferred shares to David Gasparine, the CEO, for services rendered to the corporation. The shares issued to David Gasparine are not registered under the Securities Act. These shares will be issued relying upon the exemption from the registration requirements provided under Sections 4(a) or 3(b) of the Securities Act.
The Company obtained a third party valuation of the preferred stock and recorded stock-based compensation of $866,100 during the year ended December 31, 2015. The third party valuation report was based on the following inputs as at October 6, 2015: (1) price per share of common stock of $0.0179; (2) market capitalization based on 212,481,148 common shares outstanding; no “in the money” warrants;
25,080,985 Series A Preferred shares (converts at 2.5 to 1 and voting rights of 15 to1); and the new issuance of 1,000,000 Series B Preferred shares with voting rights of 1,000 to 1; (3) a 17.58% premium for the voting preference; (4) 1,588,695,923 total voting shares/rights on valuation date and based on management’s 240,000,000 Series A and 1,000,000,000 Series B rights which cumulatively represented 78.051% of the total voting rights at valuation date; (5) the conversion value is $0 as there are no rights of conversion associated with the Series B preferred shares.
Stock award and stock option
On October 17, 2014 the Company’s Board of Directors approved a 2014 Stock Option and Award Plan. Under the Stock Option and Award Plan, the Company awarded Mr. Woywod, director of the Company, 500,000 common shares and Mr. Harney, director of the Company, 3,000,000 common shares, all of which were fully vested on the date of issue. The Company also granted Mr. Woywod 500,000 incentive stock options at an exercise price of $0.03 per share for a term of 2 years from the date of grant, which options also vested immediately.
As a result of the stock awards granted, the Company recorded stock based compensation expenses totaling $74,550 as consulting fees during the year ended December 31, 2014.
The following tables summarize the information concerning stock options outstanding as of December 31, 2015 and December 31, 2014:
|
December 31, 2015
|
|
December 31, 2014
|
|
|
Shares
|
|
Weighted Average Exercise Price
$
|
|
Shares
|
|
Weighted Average Exercise Price
$
|
|
Outstanding at beginning of the year
|
500,000
|
|
|
0.03
|
|
-
|
|
|
-
|
|
Granted
|
-
|
|
|
-
|
|
500,000
|
|
|
0.03
|
|
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
|
|
|
|
0.80
|
|
500,000
|
The Company recognized stock-based compensation of $9,832 as consulting fees during the year ended December 31, 2014 in respect of the aforementioned stock option.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Common Stock and Stock-Based Compensation (continued)
Stock award and stock option (continued)
Valuation Assumptions
The following table presents the range of the weighted average fair value of options granted and the related assumptions used in the Black-Scholes model for stock option grants made during the year ended December 31, 2014:
|
|
Options Granted
|
|
|
October 17, 2014
|
Fair value of options granted
|
|
$
|
0.021
|
|
Assumptions used:
|
|
|
|
|
Expected life (years) (a)
|
|
|
2
|
|
Risk free interest rate (b)
|
|
|
0.39
|
%
|
Volatility (c)
|
|
|
261
|
%
|
Dividend yield (d)
|
|
|
0.00
|
%
|
|
a)
|
Expected life
: The expected term of options granted is determined using the “shortcut” method allowed by SAB No.107. Under this approach, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term.
|
|
b)
|
Risk-free interest rate
: The rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options.
|
|
c)
|
Volatility:
The expected volatility of the Company’s common stock is calculated by using the historical daily volatility of the Company’s stock price calculated over a period of time representative of the expected life of the options.
|
|
d)
|
Dividend yield
: The dividend yield rate is not considered in the model, as the Company has not established a dividend policy for the stock.
|
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 December 31, 2015 and December 31, 2014, the following share purchase warrants were outstanding:
|
|
Warrants
|
|
|
Weighted Average Exercise Price
|
|
Outstanding - December 31, 2013
|
|
|
856,667
|
|
|
|
0.12
|
|
Granted
|
|
|
93,333
|
|
|
|
0.30
|
|
Forfeited/Canceled/Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding – December 31, 2014
|
|
|
950,000
|
|
|
|
0.14
|
|
Forfeited/Canceled/Expired
|
|
|
(856,667
|
)
|
|
|
0.12
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding – December 31, 2015
|
|
|
93,333
|
|
|
|
0.30
|
|
Exercisable – December 31, 2015
|
|
|
93,333
|
|
|
|
0.30
|
|
The intrinsic value of these warrants was $0 and $0 at December 31, 2015 and December 31, 2014.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Derivative Liabilities
(1)
|
Derivative liabilities from convertible notes
|
On August 22, 2014, the Company entered
into a convertible loan agreement
with an investor (the “CN#1”) see below which the Company concluded that these are tainted due to the variable conversion rate of the below convertible notes and as such they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities.
On August 22, 2014, the Company entered into a convertible loan agreement with an investor (the “CN#1”). The Company received a total of $125,000 which bears interest at 8% per annum and is due on August 22, 2015. During the period ended June 30, 2015 the Company further received a total of $125,000 in respect to the backend note from CN#1. Interest shall accrue from the advancement date and shall be payable on August 22, 2015. 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 equal to 52% of the lowest trading price of the Common Stock as reported on the OTCQB exchange for the twelve (12) prior trading days including the day upon which a Notice of Conversion is received by the Company.
On September 17, 2014, the Company entered into a convertible loan agreement with an investor (the “CN#2). The Company received a total of $100,000 which bears interest at 10% per annum and is due on April 16, 2015. Interest shall accrue from the advancement date and shall be payable on April 16, 2015. 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 the lower of (1) a 50% discount to the average of the three lowest daily trading prices for the previous twenty (20) trading days to the date of conversion; or (2) a 50% discount to the average of the three lowest daily trading prices for the previous twenty (20) trading days before the date that this note was executed.
On January 13, 2015, the Company entered into a convertible loan agreement with an investor (the “CN#3”). The Company received a total of $75,000 which bears interest at 8% per annum and is due on January 13, 2016. Interest shall accrue from the advancement date and shall be payable on August 22, 2015. 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 equal to 52% of the lowest trading price of the Common Stock as reported on the OTCQB exchange for the twelve (12) prior trading days including the day upon which a Notice of Conversion is received by the Company.
On July 14, 2015, the Company entered into a convertible loan agreement with an investor (the “CN#4”). 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#5”). 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.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Derivative Liabilities (continued)
(1)
|
Derivative liabilities from convertible notes (continued)
|
On August 3, 2015, the Company entered into a convertible loan agreement with an investor (the “CN#6). 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.
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 (the “CN#1”) see above (2) which the Company concluded that these are tainted due to the variable conversion rate of the share purchase warrants (ref Note 10) and as such they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities.
As a result of the application of ASC No. 815 in period ended December 31, 2015 the fair value of the conversion feature is summarized as follows:
Balance at December 31, 2013
|
|
$
|
23,790
|
|
Derivative addition associated with convertible notes
|
|
|
225,000
|
|
Recognition of derivative associated with tainted instruments
|
|
|
669,741
|
|
December 31, 2014 loss on change in fair value
|
|
|
1,332,898
|
|
Balance at December 31, 2014
|
|
|
2,251,429
|
|
Derivative additions associated with convertible notes
|
|
|
442,000
|
|
Extinguishment of derivative liabilities
|
|
|
(591,496
|
)
|
Derivative liability reclassified as additional paid-in capital associated with conversion of debt
|
|
|
(1,198,945
|
)
|
Loss on change in fair value during the period
|
|
|
(606,898
|
)
|
Balance at December 31, 2015
|
|
$
|
296,090
|
|
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 December 31, 2015 and commitment date:
|
|
Commitment
Date
|
|
|
December 31,
2014
|
|
|
December 31,
2015
|
|
Expected dividends
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expected volatility
|
|
196.14 ~ 219.26 %
|
|
|
|
192.59
|
%
|
|
265~ 268 %
|
|
Expected term
|
|
0.59 ~ 1 years
|
|
|
0.29~0.64 years
|
|
|
0.04~0.59
|
|
Risk free interest rate
|
|
0.10~0.19 %
|
|
|
|
0.12
|
%
|
|
0.14 ~ 0.48 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1)
|
Agency Agreement with Cater, Terry & Company
|
On August 8, 2014 the Company entered into an Agency Agreement (the “Agreement”) with Carter, Terry & Company (“C&T”) where under C&T will act as the Company’s exclusive Financial Advisor, Investment Bank and Placement Agent, on a "best efforts" basis for an initial period of 30 days, and then reverting to a non-exclusive financial advisor for the next twelve consecutive (12) months. Under the terms of the Agreement, C&T will receive 500,000, fully paid for and earned restricted shares of the Company’s common stock. In addition, in respect of any introductions those results in financing for the Company C&T shall receive fees as follows:
|
a.
|
|
10% of the amount for any equity or hybrid equity capital raised up to $2,000,000
|
|
b.
|
|
8% of the amount for any equity or hybrid equity capital raised up to $5,000,000
|
|
c.
|
|
6% of the amount for any equity or hybrid equity capital raised over $5,000,000
|
|
And;
|
|
|
|
|
|
an amount of restricted shares equal to 4% of capital raised divided by the closing price of the stock on the date of close.
|
On August 8, 2014, the Company issued 500,000 shares of the Company’s common stock in consideration of $15,000 as financing costs pursuant the Agreement.
On August 22, 2014 and September 17, 2014 the Company raised $125,000 and $100,000, respectively, under two convertible notes (CN#1 and CN#2) and paid to C&T cash consideration of $22,500 as financing costs and issued 307,482 shares of the Company’s common stock in consideration of $9,000 as financing costs.
During the year ended December 31, 2015 the Company raised $125,000 and $75,000, respectively, under two convertible notes (CN#1 and CN#3) and paid to C&T cash consideration of $20,000 as deferred financing costs.
During the year ended December 31, 2015 the Company raised $102,000 and $56,000, respectively, under two convertible notes (CN#4 and CN#6) and paid to C&T cash consideration of $13,500 as deferred financing costs.
(2)
|
Independent Contractor Agreement with Sherf Corporation
|
On January 15, 2015, the Company entered into an Independent Contractor Agreement (the “Agreement”) with Scherf Corporation (“Scherf”) of Las Vegas, Nevada for the provision of public relations services to the Company for an initial term of one year, expiring on December 31, 2015, with an option to renew for successive one (1) year terms upon mutual agreement of both parties.
Under the terms of the Agreement Scherf will provide communications with shareholders, drafting and placing press announcements and articles pertaining to the Company’s business and introduction to venture capital firms, hedge funds and other potential investors. In consideration for services provided, exclusive of venture capital introduction) Scherf shall receive compensation equal to 0.5% of the increase in the market cap of the Company from one fiscal quarter to the next. The compensation shall be paid in the form of common shares of the Company determined by the average closing price of the Company’s common stock over the last ten trading days of the fiscal quarter to be compensated for. Such compensation shall be paid within fifteen (15) days of the close of each fiscal quarter. Further the Company shall compensate Scherf for all venture capital introduction ate a rate of 3% of any and all funds received as investments by any venture capital, hedge fund or other investor introduced by Scherf. The compensation shall be paid in the form of common shares of the Company determined by the average closing price of the Company’s common stock over the last ten trading days of the fiscal quarter to be compensated for. Such compensation shall be paid within fifteen (15) days of the close of each fiscal quarter.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(2)
|
Independent Contractor Agreement with Sherf Corporation (continued)
|
Further by resolution of the Board it was determined that Scherf shall receive additional compensation in the form of 1,000,000 restricted shares of the Company’s common stock as consideration for the translation of the Company’s website, and mobile application into German. On June 18, 2015, 1,039,913 restricted shares were issued in respect of the translation services provided and the quarterly compensation for the period ended March 31, 2015 as required under the terms of the agreement. During the period ended June 30, 2015 the contract with Scherf was terminated by mutual agreement of the parties thereto.
(3)
|
Service Agreement with Wheat Creative LLC
|
On February 1, 2015 the Company entered into a Services Agreement (the “Agreement”) with Wheat Creative LLC (the “Consultant”), a Nevada Limited Liability Company. Under the terms of the Agreement, the Consultant shall be engaged to redesign the Company’s mobile app for both iOS and Android. As consideration for services rendered, the Consultant shall receive a total of 200,000 shares of the Company’s restricted common shares, deliverable upon completion and delivery of the redesign of the Company’s mobile app for both iOS and Android. On June 18, 2015, 200,000 shares were issued upon completion of services rendered as compensation.
On March 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 is a total of $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.
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 year ended December 31, 2015, the Company paid $61,200 to Mr. Gasparine (December 31, 2014 - $44,457).
On October 6, 2015, the Board of Directors authorized the issuance of 1,000,000 Class B preferred shares valued at $866,100 to David Gasparine, the CEO, for services rendered to the corporation. The shares which will be issued to David Gasparine Corporation 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.
Note 10 – Income Taxes
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2015 and 2014, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $2,181,388 and $2,134,580 at December 31, 2015 and 2014, respectively, and will begin to expire in the year 2031.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 10 – Income Taxes (continued)
The Company had deferred income tax assets as of December 31, 2015, and 2014 as follows:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Loss carryforwards
|
|
$
|
741,700
|
|
|
$
|
725,700
|
|
Less - valuation allowance
|
|
|
(741,700
|
)
|
|
|
(725,700
|
)
|
Total net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 10 – Subsequent events
On January 25, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion.
On March 8, 2016, the Company received $9,000 from an investor in order to acquire
2,489,435
Subsequent to December 31, 2015 the Company issued a total of
95,150,733 shares in respect of conversion notices received for a total of $120,118 in principal and interest related to various convertible notes as discussed in Note 5 above.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, who is also our sole officer and a member of our Board of Directors, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were not effective. Our disclosure controls and procedures were not effective because of the "material weaknesses" described below under "Management's annual report on internal control over financial reporting," which are in the process of being remediated as described below under "Management Plan to Remediate Material Weaknesses."
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and affected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:
|
·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
|
|
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and
|
|
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements
|
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Further, over time control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making its assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on its assessment, management has concluded that we had certain control deficiencies described below that constituted material weaknesses in our internal controls over financial reporting. As a result, our internal control over financial reporting was not effective as of December 31, 2015.
A "material weakness" is defined under SEC rules as 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 a company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. As a result of management's review of the investigation issues and results, and other internal reviews and evaluations that were completed after the end of fiscal year ending December 31, 2015 related to the preparation of management's report on internal controls over financial reporting required for this annual report on Form 10-K, management concluded that we had material weaknesses in our control environment and financial reporting process consisting of the following:
·
|
Lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures
|
·
|
Limited or no segregation of duties
|
We do not believe the material weaknesses described above caused any meaningful or significant misreporting of our financial condition and results of operations for the fiscal year ended December 31, 2015. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management Plan to Remediate Material Weaknesses
Management is pursuing the implementation of corrective measures to address the material weaknesses described below. In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
We plan to appoint an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
We believe the remediation measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Corporation's registered public accounting firm pursuant to temporary rules of the SEC that permit the Corporation to provide only the management's report in this quarterly report.