ITEM 1. BUSINESS
General Company Description
Our goal is to provide a simple and easy to use platform for consumers to find business information, including but not limited to product and service descriptions, promotions, loyalty programs, and customer reviews, as well as to provide business owners a simple and easy to use platform to promote their businesses to mobile app users. Through the use of research and development we will be able to continue evolving our platform and features provided for our users.
Epoxy’s goals and objectives are as follows:
1.
Setup a board of advisors that specialize in
A.
Advertising/PR
B.
Sales
C.
Development (App/Web) -Dave
C.
Improve Marketing/Branding
i. Have “PR” staff visiting businesses (i.e. Epoxy Day) where we show users how the app works
ii. Expand from the South West to the Mid-West (2-3 years)
iii. Expand Nationally (~5 years)
iv. Expand Internationally (<~10 years)
Our primary philosophy is to provide excellent customer service to both app users and merchants, while utilizing feedback through our events, website and mobile app. The mobile application platform gives us an opportunity to seamlessly receive feedback while providing a service. Once feedback has been provided we can then study and then apply this to the system. We believe if you keep the marketing simple, to the point and clean people will be willing to listen and convert. Once a customer is willing to listen, they can be turned into more valuable, loyal customers.
Epoxy’s product is marketed to Mobile App Users as well as Business owners. Our website is www.epoxyapp.com
Products and Services
Epoxy’s mobile app, is a “two-part” system that has a server that both a website and a mobile application access. The mobile app allows users to find local businesses that have an Epoxy membership. An app user can navigate to an individual business several ways. App users can find a specific business by searching for the specific name of the business, the category of the business or by the app users location and listed results on a Map View. App users can then filter the results of the businesses in the Map View by category. Once a business is chosen the app user is presented with a Business Landing Page or “BLP”. The BLP displays information about that specific business that the business owner has input including operating hours, locations, menus, phone numbers as well as marketing such as digital loyalty cards and coupons. Within the BLP app users can also create reviews or “Sticky Notes” about that individual business and review other Sticky Notes that have been previously created. When an app user opens a loyalty card or offer the app has a built in scanner that allows the staff to “punch” or “redeem” either offer. A loyalty card is scanned multiple times and once completely filled is valid for a specified offer from the business owner. The app user can collect or “save” filled loyalty cards to redeem at a later time. A coupon is a one-time use offer that once redeemed will disappear from the device and become de-active. A business needs no equipment as the scanner is built into the Epoxy application that is required to scan each unique QR code. Epoxy provides each business with their own unique code that is used to track each loyalty card and offer. Each time an app user redeems an offer or digitally receives a punch the system tracks that information and displays it on a website administration panel for the business owner to track.
The website serves as a merchant login where merchants can access an administration panel that allows them to create their BLP and add digital punch cards, offers, events a and send out direct messages to individuals or groups in real-time. The admin panel also will provide the merchants with analytics such as the number of recipients for these direct messages, the number of punch cards and offers that have been used as well as the individual customers who are recommending that particular business (the referral system is a pending patent). This will allow the merchant to distinguish between different levels of consumers and compensate accordingly. This also adds a level of security and accuracy to the loyalty and coupon program that is not practical with a paper system.
Our pricing for merchants is a simple flat membership fee of $50 a month, without any contracts. The mobile app is free for consumers to download, and is available on both Android and Apple platforms. We are also translating our application into other languages in order to apply our technology to other markets. As we are able to obtain relationships with larger franchise based organizations we expect to offer tiered pricing which will reflect discounts for number of locations using our service.
Marketing Plan
Our primary marketing plan is through use of public relations and face to face meetings with business owners and retail chains or franchises. These efforts include attending various independent and franchised businesses to perform demonstrations of our app, and joining events such as “The Bite of Las Vegas”, an annual food festival in Las Vegas, Nevada which features restaurants from across the Las Vegas Valley, to gain exposure to local markets as well as potential app users. We are also branching out to markets outside Nevada, such as certain California based business operations.
We have previously setup successful focus groups. Through use of data obtained in these focus groups we can market direct to app users.
We also use such marketing tools as “Epoxy Days” where we spend 2 hours at a local business and allow users to receive an addition 10% Off (or custom offer) during this time, which allows us to reach the app users directly promoting more organic growth (users who have exposure to the app through use or at businesses promoting it) as opposed to users seeing it randomly.
We will also be able to market the “Green” Element of Epoxy. The fact is the need for print will be dramatically reduced (nearly eliminated) for merchants.
We are also implementing other rewards based incentive to assist existing users and business in helping us expand our reach to new business in similar retail market space.
Economics
Facts about Mobile Markets:
I. According to TheEpochTimes.com, the research firm Gartner predicts that 2013 would see a total of 102,000,000,000 mobile app downloads on smartphones, with app revenues totaling $26,000,000,000. (Source: The EpochTimes.com, “Mobile Apps in 2013: 102 Billion Downloads, $26 Billion in Sales”, September 23, 2013)
II. Currently consumers have little control over the “shotgun” approach to marketing (i.e. direct mail, text campaigns and even computer ads). Epoxy allows users to take control of who they hear from, giving them a little control over the way in which advertisements are delivered
III. What barriers to entry do you face in entering this market with your new company? Some typical barriers are:
- Market Share - Mobile Market
- Exposure - App users familiarity with our features
- Market Share - Merchant Market
- Brand Awareness
- Sales Structure
IV. And of course, how will you overcome the barriers?
-
Market share and presence has been our primary obstacle. Through the use of PR and events such as “Epoxy Days” we will gain two types of exposure simultaneously. One, we will be able to get the brand awareness out to app users and two, we will be giving them hands on experience and in turn making them more familiar with brand new features.
-
Market share in the merchant market will be done through our “claim your location” style of advertising. Merchant locations can be added to the application by not only Epoxy staff but by app users as well. By doing this, Epoxy sales staff and marketing can be directed at informing business owners that they can “claim” their business via our website, which would entail providing basic information about that business, such as location, phone number, and the like, free of charge. For merchants to utilize our features (i.e. punch cards, offers and analytics) would require joining Epoxy on a month-to-month basis.
-
Our sales payment structure will be a commission-based system. At our current state a commission based payment structure is the most conducive to our business.
Product
Our customers view our product as a convenience. Primarily removing the need to store and save paper offers such as coupons or punch cards. Additionally, app users have responded particularly well to the fact that Epoxy is free of charge, and allows the features it does.
Features and Benefits
Mobile App Features:
·
Cost, Epoxy is free
·
Convenience: Everything is delivered right on consumers device
Epoxy will allow users to see businesses in their area, read reviews and share these businesses with friends with one simple click. Users will also have the ability to redeem offers directly from their device through the use of our patent pending software design via their camera. Users benefit from Epoxy because they can “filter” the amount of advertising they are exposed to while merchants still have a platform to share offers on.
Merchant User Features:
·
Cost: very affordable.
·
Convenient: Everything from creating offers, adding events and informing customers is now done via our website. Merchants simply login and update their customers base as well as new customers
·
Informative: Analytics
Benefits of these features include:
·
Saving Time, now merchants can not only update customers immediately and in less than 1 minute, they can also track offer usage (Punch Card and Coupon redemption history)
·
Less frustration: by combing all of these features into one central platform, merchants are also provided a much simpler way to advertise.
·
Gives merchants “real” as opposed to “theoretical” analytics, meaning that they now can distinguish the actual number of consumers that have “seen” an offer or message. Once this figure is known, merchants can now more accurately market.
Customers
App Users:
· 18-40
· Male and Female
Merchants:
· Food and Service Industries
· Small to medium size businesses
· Good quality and service
Competition
The primary differentiation between Epoxy and what is available in the current market place is the majority of services available for business owners are more favorable to the consumer rather than to the business owner. Our services were designed to benefit primarily the business owner and secondarily the consumers. Business owners no longer need to split revenues with a marketing company such as Groupon or Living Social and now they can create a profile and send out offers or information to receive the full benefits of the return.
Currently Yelp would be our primary competitor for the “Reviews” feature of Epoxy. Groupon, Living Social and Amazon Deals are competitors for the “Offer” features of Epoxy.
Epoxy has features that have evolved and will continue to evolve directly from user input and interaction. Epoxy’s reviews allow a user not only write reviews about a particular business, but also allows a user to follow fellow users with similar tastes and receive updates when the users they are following write reviews.
Our competitive advantage relies heavily on Mr. Gasparine’s experience in the restaurant industry. His background in owning and operating several restaurants has proven to be an asset to this concept, as he is fully aware of the challenges facing business owners in their marketing decisions, and can easily articulate to business owners the advantages that the Epoxy technology gives them in their marketing plan. Our key features that differentiate Epoxy from the rest are the recommendation and rewarding system and the integration of technologies that allow business owners to sign up and engage without the need of any equipment. Mr. Gasparine is able to apply this experience to other retail locations where customer loyalty and rewards may be applicable.
Niche
Our current niche is the small-medium business owner who can benefit from word-of-mouth marketing that don’t have a lot of time to spend towards marketing. Our long term goal is to expand beyond our current niche to include national and regional chains, as well as to continue to serve our core business of small to medium sized independent businesses.
Strategy
Initial Strategy will be to spend time targeting small-medium size businesses that have a positive reputation and good product. Advertising campaigns will be geared towards explaining the benefits of Epoxy membership as well as how simple it is to use.
Secondary Strategy will be affiliated marketing strategies that will enable us to expand our reach through these networks and place our brand into larger national chains.
Promotion
We will primarily utilize a multi-faceted approach to initially promote our business to merchants, including but not limited to billboards, direct contact by sales staff, sales videos, and web-based promotion. Additionally, will also utilize the customer base within the app to help reach our merchants via a word-of-mouth recommendation program the enables users to recommend Epoxy to business owners for a reward.
Pricing
Our pricing is a monthly recurring fee of $50/month and we will not require a contract. As we expand our business we expect to offered tiered pricing levels for chains or franchises that agree to use our service at multiple locations. Reduced pricing on these larger businesses reach certain retail location thresholds are currently under consideration.
Operational Plan
Development
·
Continued Research and Development to find the most successful ways to connect with customers and consumers to expand our user base;
·
Design improvements as required and branch out to other international marketplaces where applicable;
·
Development (implementing the ideas and feedback into future versions of Epoxy)
Patent, Trademark, License and Franchise Restrictions and Contractual Obligations and Concessions
We do not have any granted trademarks, patents, or other intellectual property. Couponz Inc. has filed two patents with the US Patent office. US Patent # 13/168,763 filed June 24th, 2011 and Patent # 13/404,882 filed on Feb 24th, 2012. The first patent (168,763) covers the ability for a mobile application to use the scanning technology within a mobile device to deliver information to our backend and in turn display analytics to the end user (merchants). The second patent (404,882) covers the analytics system of tracking customers who have "shared," the user who has received the "share" and if that user actually redeemed the "share" within the business. At the date of this report these patents have not yet been granted and the Company has retained counsel specializing in intellectual property to progress our existing applications.
We plan to rely on trade secrets, technical know-how, and on-going design development to build and maintain our competitive position. We will take security measures to protect our trade secrets, proprietary know-how and technologies, and confidential data and continue to explore further methods of protection. Our policy is to execute confidentiality agreements with our employees and consultants upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to any third parties. These agreements also generally provide that any designs or product development conceived by the individual in the course of rendering services to us shall be our exclusive property.
Research and Development Activities and Costs
Research and Development activities are not applicable to our business model. We undertake ongoing software development activities to fit our application to the changing marketplace.
Employees
The Company has one employee, who is also an Officer and Director of the Company. Our Officers perform all of the job functions for the Company. The Company is considering adding additional employees in the form of a sales force during fiscal 2015. The Company from time to time may retain independent consultants in connection with its operations to provide specialised services such as accounting, public relations, investor relations and software development services.
(i) The Company's performance is dependent on the performance of its officers and directors. In particular, the Company's success depends on their ability to develop a business strategy which will be successful for the Company.
(ii) The Company does not carry key person life insurance on any of its personnel. The loss of the services of any of its executive officers or other key employees could have a material adverse effect on the business, results of operations and financial condition of the Company. The Company's future success also depends on its ability to retain and attract highly qualified technical and managerial personnel.
(iii) There can be no assurance that the Company will be able to retain its key managerial and technical personnel or that it will be able to attract and retain additional highly qualified technical and managerial personnel in the future. The inability to attract and retain the technical and managerial personnel necessary to support the growth of the Company's business, due to, among other things, a large increase in the wages demanded by such personnel, could have a material adverse effect upon the Company's business, results of operations and financial condition.
Item 1A.
Item 1A. Risk Factors.
Risk Factors Relating to Our Company
RISK FACTORS RELATING TO OUR FINANCIAL CONDITION
1. WE HAVE LIMITED HISTORICAL FINANCIAL INFORMATION UPON WHICH YOU MAY EVALUATE OUR PERFORMANCE.
We have a limited history and we are subject to all risks inherent in a developing business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered by a development stage company. You should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us, that are in our early stages of development. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or profits we anticipate in the future.
2. AS WE HAVE RECOGNIZED LIMITED REVENUES SINCE OUR INCEPTION, THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO CONTINUE AS A GOING CONCERN.
Our financial statements included with this Form 10-K have been prepared assuming that we will continue as a going concern. Our auditors have made reference to the substantial doubt as to our ability to continue as a going concern in their audit report on our audited financial statements for the year ended December 31, 2014. Because the Company has been issued an opinion by its auditors that substantial doubt exists as to whether the Company can continue as a going concern, it may be more difficult for the Company to attract investors. Since our auditor’s have raised a substantial doubt about our ability to continue as a going concern, this typically results greater difficulty to obtain loans than businesses that do not have a qualified auditors opinion. Additionally, any loans we might obtain may be on less advantageous terms. If we plan to seek additional funds through private placements of our common stock, you may be investing in a company that will not have the funds necessary to continue to deploy its business strategies. If we are not able to achieve sufficient revenues to cover our costs or find financing, then we likely will be forced to cease operations and investors will likely lose their entire investment, investors may lose their entire investment.
3. THE EFFECTS OF WAR, ACTS OF TERRORISM OR NATURAL DISASTERS COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.
The continued threat of terrorism, heightened security measures and military action in response to acts of terrorism or civil unrest has, at times, disrupted commerce and intensified concerns regarding the United States economy. Any further acts of terrorism or new or extended hostilities may disrupt commerce and undermine consumer confidence, which could negatively impact our sales and results of operations. Similarly, the occurrence of one or more natural disasters, such as hurricanes, fires, floods or earthquakes could result in the closure of one or more of our distribution centers, our corporate headquarters or a significant number of stores or impact one or more of our key suppliers. In addition, these types of events could result in increases in energy prices or a fuel shortage, the temporary or long-term disruption in the supply of product, disruption in the transport of product from overseas, delay in the delivery of product to our factories, our customers or our stores and disruption in our information and communication systems. Accordingly, these types of events could have a material adverse effect on our business and our results of operations.
4. OUR MANAGEMENT CONTROLS A LARGE BLOCK OF OUR COMMON STOCK THAT WILL ALLOW THEM TO CONTROL THE COMPANY.
As of April 10, 2015, our officers and directors owned approximately 64% of our outstanding preferred stock, which provides approximately 43% voting control. As a result, our officers/directors, along with the few of the major shareholders, will have the ability to control substantially all matters submitted to our stockholders for approval including:
a) election of our board of directors;
b) removal of any of our directors;
c) amendment of our Articles of Incorporation or bylaws; and
d) adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.
As a result of their ownership and positions, our officers and directors have the ability to influence all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. In addition, the future prospect of sales of significant amounts of shares held by our director and executive officer could affect the market price of our common stock if the marketplace does not orderly adjust to the increase in shares in the market and the value of your investment in the company may decrease. Management's stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
Investors will own a minority percentage of the Company’s common stock and will have minority voting rights. Investors will not have the ability to control either a vote of the Company’s Shareholders or Board of Directors.
RISK FACTORS RELATING TO OUR COMMON STOCK
5. ALTHOUGH OUR STOCK IS QUOTED ON THE OTCQB A LIMITED TRADING MARKET HAS DEVELOPED FOR OUR STOCK AND PURCHASERS OF OUR SECURITIES MAY HAVE DIFFICULTY SELLING THEIR SHARES.
Although our stock is quoted on the OTCQB, few trades in our stock have taken place, to-date, and an active trading market in our securities may not develop, or if developed, may not be sustained. If no active market is ever developed for our common stock, it will be difficult for you to sell any shares you purchase in our Company. In such a case, you may find that you are unable to achieve any benefit from your investment or liquidate your shares without considerable delay, if at all. In addition, if no trading develops, your common stock will not have a quantifiable value and it may be difficult, if not impossible, to ever resell your shares, resulting in an inability to realize any value from your investment.
6. FUTURE SALES OF SHARES BY EXISTING CONTROLLING STOCKHOLDERS COULD CAUSE OUR STOCK PRICE TO DECLINE. FURTHER, CERTAIN SHARES OF OUR COMMON STOCK ARE RESTRICTED FROM IMMEDIATE RESALE.
If our existing controlling stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of April 10, 2015, we have 182,671,770 common shares issued and outstanding. Our officers/directors own 16 million preferred shares which are convertible on a ratio of 2.5 to 1 into common shares, or 40,000,000 common shares. If in the future, if they decide to sell their shares or if it is perceived that they will be sold, to the extent permitted by the Rules 144 and 701 under the Securities Act, the trading price of our common stock could decline.
The 16 million preferred shares, (which are convertible into 40,000,000 common shares) owned by our officers/directors will be restricted from immediate resale in the public market. The restricted shares are restricted in accordance with Rule 144, which states that if unregistered, restricted securities are to be sold, a minimum of one year must elapse between the later of the date of acquisition of the securities from the issuer or from an affiliate of the issuer, and any resale of those securities in reliance on Rule 144. The Rule 144 restrictive legend remains on the stock until the holder of the stock holds the stock for longer than six months (unless an affiliate) and meets the other requirements of Rule 144 to have the restriction removed. The sale or resale of those shares in the public market, or the market’s expectation of such sales, may result in an immediate and substantial decline in the market price of our shares. Such a decline will adversely affect our investors, and make it more difficult for us to raise additional funds through equity offerings in the future.
7. WE HAVE NEVER DECLARED DIVIDENDS ON OUR COMMON STOCK AND DO NOT PLAN TO DO SO IN THE FORESEEABLE FUTURE.
We intend to retain any future earnings to finance the operation and expansion of its business and do not anticipate paying any cash dividends in the foreseeable future. As a result, stockholders will need to sell shares of common stock in order to realize a return on their investment, if any. You should not rely on an investment in our company if you require dividend income. The only possibility of any income to investors would come from any rise in the market price of your stock, which is uncertain and unpredictable.
A holder of common stock will be entitled to receive dividends only when, as, and if declared by the Board of Directors out of funds legally available therefore. We have never issued dividends on our common stock. Our Board of Directors will determine future dividend policy based upon our results of operations, financial condition, capital requirements, and other circumstances.
8. HOLDERS OF OUR COMMON STOCK HAVE A RISK OF POTENTIAL DILUTION IF WE ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE.
Although our Board of Directors intends to utilize its reasonable business judgment to fulfill its fiduciary obligations to our then existing stockholders in connection with any future issuance of our common stock, the future issuance of additional shares of our common stock would cause immediate, and potentially substantial, dilution to the net tangible book value of those shares of common stock that are issued and outstanding immediately prior to such transaction. Any future decrease in the net tangible book value of our issued and outstanding shares could have a material effect on the market value of the shares.
9. IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD AND AS A RESULT, INVESTORS MAY BE MISLED AND LOSE CONFIDENCE IN OUR FINANCIAL REPORTING AND DISCLOSURES, AND THE PRICE OF OUR COMMON STOCK MAY BE NEGATIVELY AFFECTED.
The Sarbanes-Oxley Act of 2002 requires that we report annually on the effectiveness of our internal control over financial reporting. A "significant deficiency" means a deficiency or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting. A "material weakness" is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2014 management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting. The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) 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.
In addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover "material weaknesses" in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Failure to provide effective internal controls may cause investors to lose confidence in our financial reporting and may negatively affect the price of our common stock. Moreover, effective internal controls are necessary to produce accurate, reliable financial reports and to prevent fraud. If we have deficiencies in our internal controls over financial reporting, these deficiencies may negatively impact our business and operations.
10. LOW-PRICED STOCKS MAY AFFECT THE RESELL OF OUR SHARES.
Penny Stock Regulation Broker-dealer practices in connection with transactions in "Penny Stocks" are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risk associated with the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock; the broker-dealer must make a written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. The Company’s stock is currently quoted on the OTC-Bulletin Board with no trading activity to date; therefore, the stock will has a trading price of less than $5.00 per share and is subject to the penny stock rules and investors may find it more difficult to sell their securities, should they desire to do so.
Item 1B.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2.
Item 2. Properties.
Our primary corporate offices are currently located at 2518 Anthem Village Drive, Suite 100, Henderson, Nevada 89052. In March 2015 we have leased a small residential/office space in San Diego, California in order to assist our management in cultivating new sales in the local California markets.
Management believes that its current leased facilities are adequate for its needs.
Item 3.
Item 3. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable
PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
Epoxy Inc. Common Stock, $0.00001 par value, is quoted on the OTCQB under the stock symbol: EPXY.
There are limited trades of the Company’s stock, there are no assurances that an active market will ever develop for the Company's stock.
(b) Holders of Common Stock
As of April 10, 2015, there were approximately twenty two (22) holders of record of our Common Stock and 182,671,770 shares issued and outstanding.
Stock Transfer Agent
Our stock transfer agent is Empire Stock Transfer Inc. 1859 Whitney Mesa Dr. Henderson, NV 89014
(c) Dividends
In the future we intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be the sole discretion of board of directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.
(d) Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information, as of December 31, 2014, with respect to our compensation plans under which common stock is authorized for issuance.
(1)
On October 17, 2014 the Company’s Board of Directors approved a 2014 Stock Option and Award Plan, approving the issuance of up to 10,000,000 shares of the Company’s common stock. Concurrenlty, nder the 2014 Stock Option and Award Plan, the Company granted Mr. Woywod, director of the Company, 500,000 stock awards and Mr. Harney, director of the Company, 3,000,000 stock awards, 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 form the date of grant, which options also vested immediately. Presently there remain 6,000,000 shares available for grant under the 2014 Stock Option and Award Plan
(e) Recent Sales of Unregistered Securities
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 event that the Company experiences a DTC “Chill” on its shares the conversion price shall be decreased to 42% instead of 52% while the “Chill” is in effect, and in no event shall the holder be allowed to effect a conversion, if such conversion, along with other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. Further, with respect to the Second note, in the event the Company is not “Current” in its SEC filings at the time the note is cash funded, the discount shall be decreased to 40% instead of 52%. In respect of the First and Second notes interest on any unpaid principal balance of the Notes shall be paid by the Company in common stock (the “Interest Shares”). The Holder may at any time send a Notice of Conversion for Interest Shares based on the aforementioned formula for all or part of interest payable.
During the first 180 days the Company may redeem the First Note by paying to the holder an amount as follows: (i) if the redemption is in the first 90 days the note is in effect an amount equal to 125% of the unpaid principal amount of the note along with accrued interest; (ii) if the redemption is after the 91st day the note is in effect then the
Company may redeem the note in an amount equal to 135% of unpaid principal and interest. The note is not redeemable after 180 days.
The Second Note may not be prepaid, except that if the First Note is redeemed by the Company within 6 months of the issuance date of such note, the obligations of the Company under the Second Note will be automatically deemed satisfied and the Second Note and the Holder Note will be deemed canceled and of no further force or effect.
On January 15, 2015, the Company 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.
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 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 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 backend portion of certain convertible 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.
(f) Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the years ended December 31, 2014 or December 31, 2013.
Item 6.
Item 6. Selected Financial Data.
Not applicable.
Item 7.
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, 2014 and 2013
During the fiscal years ended December 31, 2014 and 2013, the Company generated $25,896 and $11,705 in revenues respectively.
During the fiscal years ended December 31, 2014 and 2013, the Company had $63,953 and $30,467 in cash, and accounts receivable of $880 and $2,330, for total current assets of $64,833 and $32,797 respectively.
During the fiscal year ended December 31, 2014, the Company had total operating expenses of $373,182, as compared to total operating expenses of $129,862 for the same period last year. The increase in operating expenses represented an increase of professional fees of to $64,370 in fiscal 2014 as compared to $17,784 in the prior fiscal year, an increase in consulting fees to $153,520 from $Nil in the prior fiscal year as a result of certain stock options and awards granted to directors of the Company, the addition of finance costs in the current fiscal year totaling $54,750 as the Company completed various financing arrangements, with no comparative expense in fiscal 2013 and an increase of general and administrative from $64,679 (2013) to $$70,354 (2014). These increases were partially mitigated by a decrease in software development of from $47,399 (2013) to $28,310 (2014). The operating loss for the fiscal year ended December 31, 2014 was $347,286 as compared to a net loss of $118,157 for the same period last year.
In addition, the Company recorded various other expenses during fiscal 2014 as a result of certain financing agreements including a loss on the change in fair value of derivatives totaling $1,332,900, loss on e on debt settlement of $120,804, each with no comparative expense in fiscal 2013. Further the Company incurred $146,883 in interest expenses in fiscal 2014 as compared to $7,076 in the prior fiscal year as entered into certain convertible notes. .
The net loss in fiscal 2014 totaled $1,947,873 as compared to $125,233 in 2013.
The Company used net cash in operations of $216,869 and $31,502 during the twelve month periods ended December 31, 2014 and 2013, respectively, provided net cash in investing activities of $1,477 during fiscal 2013 and used net cash in investing activities of $22,645 in fiscal 2014. During the twelve month period ended December 31, 2014 we generated cash from financing activities including loans, convertible notes and share sales of $273,000 $60,000, 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 $(347,286) and $(118,157) 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, 2014, the Company had total current assets of $64,833, and total current liabilities of $2,492,709. 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 April 10, 2015, 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:
The above table outlines our obligations as of December 31, 2014 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 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
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, 2014 and 2013 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, 2014 and 2013 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 15, 2015
EPOXY INC.
(Formerly NeoHydro Technologies Corp.)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements
EPOXY INC.
(Formerly NeoHydro Technologies Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2014 and 2013
The accompanying notes are an integral part of these consolidated financial statements
EPOXY INC.
(Formerly NeoHydro Technologies Corp.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
The accompanying notes are an integral part of these consolidated financial statements
EPOXY INC.
(Formerly NeoHydro Technologies Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2014 and 2013
The accompanying notes are an integral part of these consolidated financial statements
EPOXY, INC.
(Formerly Neohydro Technologies Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of business and basis of presentation
Organization and nature of business
Epoxy Inc., (formerly NeoHydro Technologies Corp.) (the “Company”) was originally 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 July 19, 2013, the corporation entered into an agreement to purchase Couponz, Inc. (“Couponz”), a Company incorporated in the State of Nevada. Under the agreement, the Company had the right to acquire 100% of the ownership of Couponz, Inc. in exchange for the issuance of 24,514,319 shares of preferred stock of the Company and $100,000. The agreement provided for the preferred shares issued to be designated as 1 share of preferred to carry 15 shares of common voting rights and to be convertible into common shares on the basis of 2.5 shares of common for each 1 share of preferred. Mr. David Gasparine, the sole director of NeoHydro Technologies Corp., is also the controlling shareholder of Couponz, Inc., and, as such, the transaction is considered to be non- arm’s length. Mr. Gasparine became the controlling shareholder of the Company concurrent with the completion of the transaction.
On November 1, 2013, the Company completed the aforementioned transaction and Couponz, Inc. became a wholly owned subsidiary of the Company.
The business combination was accounted for as a reverse acquisition and recapitalization using accounting principles applicable to reverse acquisitions whereby the financial statements subsequent to the date of the transaction are presented as a continuation of Couponz. Under reverse acquisition accounting Couponz (subsidiary) is treated as the accounting parent (acquirer) and the Company (parent) is treated as the accounting subsidiary (acquiree). All outstanding shares have been restated to reflect the effect of the business combination.
Couponz Inc. is the developer of Epoxy app, an application or "app" for iPhone iOS and Android operating systems. Epoxy is an innovative smart phone application designed and created to conveniently connect business owners and consumers in order to ease marketing frustrations. The mobile app gives loyal customers the ease of keeping track of rewards and punch cards all in one place while also giving opportunities to review and share businesses with friends. In turn, Epoxy provides businesses the ability to reward customers, share offers, and deliver information about special events with their customers. Epoxy designers are dedicated to providing a superior and easy-to-use product for business owners to reward loyal customers.
Couponz Inc has already filed two patents with the US Patent office. US Patent # 13/168,763 filed June 24th, 2011 and Patent # 13/404,882 filed on Feb 24th, 2012. The first patent (168,763) covers the ability for a mobile application to use the scanning technology within a mobile device to deliver information to our backend and in turn display analytics to the end user (merchants). The second patent (404,882) covers the analytics system of tracking customers who have "shared," the user who has received the "share" and if that user actually redeemed the "share" within the business.
On August 1, 2014, the Company’s name changed from NeoHydro Technologies Corp. to Epoxy, Inc. in regard to actions taken on May 23, 2014, when the Board of Directors of the Company 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.
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.
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, 2014 and 2013, all capitalized software costs related to the development of the application were expensed because technological feasibility was established.
Trademark and Patent (Intangible assets)
Trademark and patent are recorded at cost. Amortization on trademark and patent are determined by their economic life.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. This typically occurs when customers are invoiced for their monthly membership fee. Participants in the program pay a monthly subscription fee per retail location, at the start of each month, which amount is immediately recorded as revenue. A notice period of 30 days is required to terminate any services with no refunds payable.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. During the years ended December 31, 2014 and 2013, 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, 2014 and 2013.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, receivables, payables, and due to related party. The carrying amount of cash, receivables and payables approximates fair value because of the short-term nature of these items. The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at market interest rates.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
Stock based compensation
We account for stock based compensation in accordance with ASC 718 which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. For stock-based awards granted on or after January 1, 2006, stock-based compensation expense is recognized on a straight-line basis over the requisite service period. In prior years, we accounted for stock-based awards under APB No. 25, “Accounting for Stock Issued to Employees.” We account for non-employee share-based awards in accordance with ASC 505-50.
Loss per Common Share
In accordance with ASC Topic 280 - “Earnings Per Share”, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Reclassification
Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Note 3 - Going Concern
The Company has incurred net losses since inception and had a working capital deficit of $xxx,xxx at December 31, 2014. 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 - Correction of an error
During the preparation of the quarterly report for the period ended March 31, 2014, the Company discovered an immaterial error related to its December 31, 2013 balance sheet. The error related to the valuation of an embedded derivative liability, in which the derivative liability was calculated using the wrong number of shares exceeding our authorized (see Note 7). The resulting error totaled $13,824. Pursuant to the Securities and Exchange Commission’s SAB Topic 108, the company has corrected this error in the accompanying December 31, 2013 balance sheet.
The following table reflects the amounts originally reported and as adjusted for each major caption of the balance sheet:
Note 5- Fair Value Measurements
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
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, 2014 and December 31, 2013:
Note 6- Loans Payable
During the month of July 2014, the Company entered into 5% one-year promissory notes for a total of $20,000. At December 31, 2014, the Company is indebted to these unrelated third parties in the amount of $20,000 (December 31, 2013 - $nil).
On August 22, 2014, the Company settled certain unrelated third party debt in the amount of $50,572 by issuing 2,528,600 shares of the Company’s common stock at $0.02 per share. The fair market value per share of the Company’s common stock was $0.0329. The Company recognized a loss on the debt settlement in the amount of $32,619.
At December 31, 2014, the Company is indebted to unrelated third parties for $12,000 (December 31, 2013 - $63,573. The loan is non-interest bearing and is due on demand. During the year ended December 31, 2014, the Company recorded imputed interest of $4,080.
Note 7- Convertible Notes
(1)
Convertible notes 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 determined that the amended qualified as a substantial modification under ASC 470-60.
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 $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.
The carrying value of certain convertible notes is as follows:
As at December 31, 2014, the carrying values of the convertible debenture and accrued convertible interest thereon were $8,298 and $26,165, respectively.
(2)
Convertible note due on August 22, 2015 and Convertible note due on April 16, 2015
On August 22, 2014, the Company entered into a convertible loan agreements 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. 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 agreements 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.
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 6 (1) above and concluded that these are 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. (See footnote 9 for derivative disclosure)
Amortization of the discount over the year ended December 31, 2014 totaled $96,769, which amount has been recorded as Accretion of discounts on convertible notes and is reflected on the Company’s balance sheet as Convertible Note Liabilities, Net. The unamortized discount of $128,231 associated with CN#1 and CN#2 will be expensed in future periods.
Note 8 - 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 granted Mr. Woywod, director of the Company, 500,000 stock awards and Mr. Harney, director of the Company, 3,000,000 stock awards, 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 form the date of grant, which options also vested immediately.
Stock Award
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.
Stock Option
The following tables summarizes the information concerning stock options outstanding as of December 31, 2014:
The Company recognized stock-based compensation of $9,832 as consulting fees during the year ended December 31, 2014 (December 31, 2013 - $nil) in respect of the aforementioned stock option.
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:
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.
Note 9 - Common stock
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, 2014 and December 31, 2013, there were a total of 176,594,122 and 168,824,707 shares issued and outstanding, respectively.
Note 10 - Share Purchase Warrants
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 part of the Funding Agreement described above in Note 9.
As December 31, 2014, the following share purchase warrants were outstanding:
EPOXY, INC.
(Formerly Neohydro Technologies Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Share Purchase Warrants (continued)
The intrinsic value of these warrants was $0 at December 31, 2014.
Preferred share purchase warrants
As of December 31, 2014, the following preferred share purchase warrants were outstanding:
Note 11- Derivative Liabilities
(1)
Derivative liabilities from exceed authorized shares of common stock
As of August 1, 2014, 2014, given the fact that the Company had 480,000,000 shares of common stock authorized, the Company determined it could exceed its authorized shares of common stock by approximately 4,743,836 shares (December 31, 2013 - 3,717,169 shares) if all of the financial instruments described in the table above were exercised or converted into shares of common stock. At August 1, 2014, 4,743,836 of these shares were in excess of the authorized shares and were accounted for as a derivative liability. The fair value of these 4,743,836 common shares was determined to be $131,878 ($23,790 as to 3,717,168 shares as of December 31, 2013) using the closing price of Epoxy’s common stock.
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 (ref: Note 6). 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.
As such a total of $120,688 was reclassified from derivative liability to additional paid in capital due to the fact that the Company has sufficient unissued common stock.
(2)
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 agreements 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. 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 agreements 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.
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.
(3)
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 such a total of $20,698 was reclassified from derivative liability to additional paid in capital.
As a result of the application of ASC No. 815 in period ended December 31, 2014 and issue dates of August 22, 2014 and September 17, 2014; the fair value of the conversion feature is summarized as follows:
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, 2014 and commitment date (August 22, 2014 and September 17, 2014):
Commitment Date
December 31, 2014
Expected dividends
Expected volatility
218.59 ~ 219.26
%
215.76
%
Expect term
0.59 ~ 1 years
0.54~0.89 years
Risk free interest rate
0.10
%
0.03 ~ 0.11
%
Note 12 - Commitments
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 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.
Note 13 - 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 2014 and 2013, 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$2,134,580 and $271,089 at December 31, 2014 and 2013, respectively, and will begin to expire in the year 2031.
The Company had deferred income tax assets as of December 31, 2014, and 2013 as follows:
Note 14 - Subsequent events
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 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.
The Company will account for the aforementioned Note(s) as embedded derivative liabilities.
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.
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 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 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 backend portion of CN#1 (see Note 7(2)) 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.
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.
Item 9.
Item 9. Changes in and Disagreements With Accountants On Accounting and Financial Disclosure.
None.
Item 9A.
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, 2014, 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, 2014. 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, 2014.
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, 2014 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, 2014. 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.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Director, Executive Officer and Corporate Governance.
The following table sets forth certain information regarding our current directors and executive officers. Our executive officers serve one-year terms. Set forth below are the names, ages and present principal occupations or employment, and material occupations, positions, offices or employments for the past five years of our current director and executive officer.
Name
Age
Position & Offices Held
Appointed On
David Gasparine
President, CEO, CFO, Director
February 13, 2013
John Harney
Director
September 10, 2013
Jason Woywod
Director
September 10, 2013
All directors hold office until the next annual meeting of stockholders of the Company and until their successors have been elected and qualified. Directors currently receive no fees for services provided in that capacity. The officers of the Company are elected annually and serve at the discretion of the Board of Directors.
Set forth below is a brief description of the background and business experience of our sole officer and directors.
David Gasparine, President, CFO, Director
Dave Gasparine. Mr. Gasparine started Couponz, Inc in April 2011 from scratch and with a plan to provide an easy to use tool that alleviated the frustrations he experienced while he was operating his other small businesses, Tropical Smoothie Café. Mr. Gasparine owned and operated two Tropical Smoothie Café locations in the greater Las Vegas area from February 2007 to April 2011. Mr. Gasparine held several customer relation positions at the Bellagio, a 5 diamond Las Vegas Resort and Casino from November 1998 to June 2007. Mr. Gasparine’s positions included Senior Valet Attendant and Limo driver; catering to the hotels elite clients. From 2003 to 2007, Mr. Gasparine attended the College of Southern Nevada (CSN) completing an Associate’s degree of Liberals Arts. Additionally, he attended the University of Las Vegas (UNLV) Engineering program.
JasonWoywod, Director
Jason Woywod has deep roots in the hospitality industry with his father running some of Las Vegas' largest casinos since the 1960's. After receiving his bachelors in 2002 and masters degrees in 2006 from UNLV, Woywod worked up the ranks and is credited with record-breaking revenue increases and national expansions. These accomplishments led him to his current position as CEO and managing partner with Executive Gaming where he oversees all aspects of the day-to-day operations of several properties throughout Nevada. Born into the business, his years of experience and knowledge have provided him the ability to play an instrumental role in expanding the Executive Gaming brand.
Recently, Woywod has discovered his passion for the tech industry. He is currently utilizing his extensive background in the gaming industry to develop new concepts and trends in technology. Woywod believes that the merging of his experience and technology can help lead to successful platforms and is excited to bring this experience and knowledge to the Epoxy brand. When he's with his family, Woywod enjoys traveling, hiking and skiing. He's a Junior Olympic Swimming Champion and has won several Triathlon gold medals.
John Harney, Director
John Harney has worked with, at, or owned, several businesses with success. He spent five years working backstage at Cirque du Soleil’s Mystere, as well as doing production and stage work for several other shows, movies, television and commercials. In 1999 Mr. Harney attended the Las Vegas Metropolitan Police Academy. In his 14+ years with the department, Harney has accrued a list of accomplishments including several high priority operations as a detective. In 2005 he promoted to the rank of Sergeant. He was quickly selected to operate as a detective sergeant with a clandestine operating unit. Aside from managing several high priority cases, resulting in large seizures and statistics, to include being recognized by a 3 star General of the U.S. Air Force for achievement, Harney was responsible for writing and implementing policy, preparing briefs and testifying before the county commission regarding laws and enforcement related to contemporary issues. Harney was a liaison between the agency and the water district during the implementation of the prescription drug disposal sites related to their "pain in the drain" program to lower the amount of pollutants in our water supply. He continues to mentor future leaders for the agency, using those skills he learned from leadership training seminars, management training and practical application with great success. During the past 6 years, Harney has worked as a real estate sales professional, achieving recognized levels of success with the companies he's worked for. In 2006, Harney opened a franchise quick service restaurant with his current business partner, Dave Gasparine.
Board of Directors
Our board of directors currently consists of three members. Our directors serve one-year terms.
Audit Committee
The company does not presently have an Audit Committee. Our Board Members serve as the Audit Committee. No qualified financial expert has been hired because the Company is too small to afford such expense.
Committees and Procedures
1. The registrant has no standing audit, nominating and compensation committees of the Board of Directors, or committees performing similar functions. The Board acts itself in lieu of committees due to its small size.
2. The view of the board of directors is that it is appropriate for the registrant not to have such a committee because its directors participate in the consideration of director nominees and the board and the company are so small.
3. The members of the Board who acts as nominating committee is not independent, pursuant to the definition of independence of a national securities exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 78f(a).
4. The nominating committee has no policy with regard to the consideration of any director candidates recommended by security holders, but the committee will consider director candidates recommended by security holders.
5. The basis for the view of the board of directors that it is appropriate for the registrant not to have such a policy is that there is no need to adopt a policy for a small company.
6. The nominating committee will consider candidates recommended by security holders, and by security holders in submitting such recommendations.
7. There are no specific, minimum qualifications that the nominating committee believes must be met by a nominee recommended by security holders except to find anyone willing to serve with a clean background.
8. The nominating committee's process for identifying and evaluation of nominees for director, including nominees recommended by security holders, is to find qualified persons willing to serve with a clean backgrounds. There are no differences in the manner in which the nominating committee evaluates nominees for director based on whether the nominee is recommended by a security holder, or found by the board.
Code of Ethics
We have not adopted a Code of Ethics for the Board and any salaried employees. Presently our sole salaried employee is David Gasparine, President and Director.
Limitation of Liability of Directors
Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director's liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
Nevada Anti-Takeover Law and Charter and By-law Provisions
The anti-takeover provisions of Sections 78.411 through 78.445 of the Nevada Corporation Law apply to Epoxy Inc. Section 78.438 of the Nevada law prohibits the Company from merging with or selling more than 5% of our assets or stock to any shareholder who owns or owned more than 10% of any stock or any entity related to a 10% shareholder for three years after the date on which the shareholder acquired the Epoxy shares, unless the transaction is approved by Epoxy's Board of Directors. The provisions also prohibit the Company from completing any of the transactions described in the preceding sentence with a 10% shareholder who has held the shares more than three years and its related entities unless the transaction is approved by our Board of Directors or a majority of our shares, other than shares owned by that 10% shareholder or any related entity. These provisions could delay, defer or prevent a change in control of Epoxy, Inc.
Item 11.
Item 11. Executive Compensation
The following table sets forth certain compensation information for: (i) each person who served as the chief executive officer of our company at any time during the year ended December 31, 2014, regardless of compensation level, and (ii) each of our other executive officers, other than the chief executive officer, serving as an executive officer at any time during the year end December 31, 2014. The foregoing persons are collectively referred to herein as the "Named Executive Officers." Compensation information is shown for fiscal years 2014 and 2013.
Epoxy Inc. Summary Compensation Table
We do not maintain key-man life insurance for our executive officers/directors. At this time, we do not have any long-term compensation plans, stock option plans or employment agreements with our executive officers/directors.
Stock Option Grants
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 granted Mr. Woywod, director of the Company, 500,000 stock awards and Mr. Harney, director of the Company, 3,000,000 stock awards, 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 form the date of grant, which options also vested immediately.
Outstanding Equity Awards at 2014 Fiscal Year-End
As noted above, 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. The awards were fully vested on grant date. There are no outstanding equity awards as at December 31, 2014.
Option Exercises for Fiscal 2014
There were no options exercised by our named executive officers in fiscal 2014 or 2013.
Potential Payments Upon Termination or Change in Control
We have not entered into any compensatory plans or arrangements with respect to our named executive officers, which would in any way result in payments to such officer(s) because of their resignation, retirement, or other termination of employment with us or our subsidiaries, or any change in control of, or a change in their responsibilities following a change in control.
Director Compensation
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 granted Mr. Woywod, director of the Company, 500,000 stock awards and Mr. Harney, director of the Company, 3,000,000 stock awards, 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 form the date of grant, which options also vested immediately.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
SECURITY OWNERSHIP OF SHAREHOLDERS BENEFICIALLY OWNING MORE THAN FIVE PERCENT (5%) OF ANY CLASS OF THE VOTING STOCK
The following table sets forth the number and percentage of shares of our Common Stock owned as of April 10, 2015, by all persons (i) known to us who own more than 5% of the outstanding number of such shares, (ii) by all of our directors, and (iii) by all officers and directors of us as a group. Unless otherwise indicated, each of the Shareholders has sole voting and investment power with respect to the shares beneficially owned.
Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and means voting or investment power with respect to securities. Shares of our common stock issuable upon the exercise of stock options exercisable currently or within 60 days of April 10, 2015, are deemed outstanding and to be beneficially owned by the person holding such option for purposes of computing such person’s percentage ownership, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
(1)
Calculation of percentage of Voting Shares is based on the following voting rights: (a) each share of Common Stock has the right to cast one (1) vote; and (b) each share of Series A Preferred Stock has the right to cast fifteen (15) votes.
SECURITIES BENEFICIALLY OWNED BY ALL EXECUTIVE OFFICERS AND DIRECTORS.
The following table sets forth the number and percentage of shares of our Common Stock owned as of April 10, 2015, by all of our directors and executive all officers and our directors and executive officers as a group. Unless otherwise indicated, each of the persons identified below has sole voting and investment power with respect to the shares beneficially owned.
Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and means voting or investment power with respect to securities. Shares of our common stock issuable upon the exercise of stock options exercisable currently or within 60 days of April 10, 2015, are deemed outstanding and to be beneficially owned by the person holding such option for purposes of computing such person’s percentage ownership, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
(1)
Calculation of percentage of Voting Shares is based on a total of 558,886,545 voting shares with the following voting rights: (a) each share of Common Stock has the right to cast one (1) vote; and (b) each share of Series A Preferred Stock has the right to cast fifteen (15) votes.
(2)
Shares held by Mr. Woywod include 500,000 shares of common stock and 500,000 incentive stock options at an exercise price of $0.03 per share for a term of 2 years form the date of grant (October 17, 2014), which options vested immediately.
We are not aware of any arrangements that may result in "changes in control" as that term is defined by the provisions of Item 403(c) of Regulation S-B.
We believe that all persons named have full voting and investment power with respect to the shares indicated, unless otherwise noted in the table. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Transactions
There were no transactions since the beginning of the Company’s last fiscal year, or any currently proposed transaction, in which the Company was or is to be a participant and the amount involved exceeds $120,000 and to which any related person had or will have a direct or indirect material interest.
Review, Approval or Ratification of Transactions with Related Persons
Our company does not currently have any written policies and procedures for the review, approval or ratification of any transactions with related persons.
Promoters and Certain Control Persons
Our officer and director, Mr. David Gasparine, can be considered a promoter of the Company in consideration of his participation and managing of the business of the Company.
Director Independence
As of the date of this Annual Report, we have 2 independent directors.
Our company has developed the following categorical standards for determining the materiality of relationships that the directors may have with our company. A director shall not be deemed to have a material relationship with our company that impairs the director's independence as a result of any of the following relationships:
1.
the director is an officer or other person holding a salaried position of an entity (other than a principal, equity partner or member of such entity) that provides professional services to our company and the amount of all payments from our company to such entity during the most recently completed fiscal year was less than two percent of such entity’s consolidated gross revenues;
2.
the director is the beneficial owner of less than five (5%) per cent of the outstanding equity interests of an entity that does business with our company;
3.
the director is an executive officer of a civic, charitable or cultural institution that received less than the greater of one million ($1,000,000) dollars or two (2%) per cent of its consolidated gross revenues, as such term is construed by the New York Stock Exchange for purposes of Section 303A.02(b)(v) of the Corporate Governance Standards, from our company or any of its subsidiaries for each of the last three (3) fiscal years;
4.
the director is an officer of an entity that is indebted to our company, or to which our company is indebted, and the total amount of either our company's or the business entity's indebtedness is less than three (3%) per cent of the total consolidated assets of such entity as of the end of the previous fiscal year; and
5.
the director obtained products or services from our company on terms generally available to customers of our company for such products or services. Our board retains the sole right to interpret and apply the foregoing standards in determining the materiality of any relationship.
Our board shall undertake an annual review of the independence of all non-management directors. To enable our board to evaluate each non-management director, in advance of the meeting at which the review occurs, each non-management director shall provide our board with full information regarding the director’s business and other relationships with our company, its affiliates and senior management.
Directors must inform our board whenever there are any material changes in their circumstances or relationships that could affect their independence, including all business relationships between a director and our company, its affiliates, or members of senior management, whether or not such business relationships would be deemed not to be material under any of the categorical standards set forth above. Following the receipt of such information, our board shall re-evaluate the director's independence.
Item 14.
Item 14. Principal Accountant Fees and Services.
Malone Bailey, LLP served as our principal independent public accountants for reporting fiscal years ending December 31, 2014 and 201. Aggregate fees billed to us for the years ended December 31, 2014 and December 31, 2013 for audit fees were as follows:
Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.
PART IV
Item 15.
Item 15. Exhibits
* to be filed by amendment
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Las Vegas, Nevada.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.