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 ongoing research and development we will be able to continue evolving our platform and features provided for our users.
Epoxy has been in the market for several years and is generating revenues, though we are not yet able to cover all our operational costs. Presently we are focussed on (1) increasing the number of merchants using our app (increasing paying customer base); (2) increasing the number of users of our app and the frequency of use and (3) expansion of our market presence from the West Coast (California, Nevada) to a national presence.
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 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 individual 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. We have obtained a small number of relationships with larger franchise based organizations to whom we offer tiered pricing which will reflect discounts for number of locations using our service. As well we receive development fees from these merchants for the customization of their unique Epoxy app presence.
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 and secured several California based customers, as well as customers in other key geographical regions.
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 additional 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 incentives 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 Statistica.com, a statistics portal that combines Statistics and Studies from over 18,000 sources, there were approximately 149.3 BN mobile app downloads, both free and paid in 2016 on smartphones, with app revenues totaling over $88.8 BN (Source: https://www.statista.com/statistics/271644/worldwide-free-and-paid-mobile-app-store-downloads/ and https://www.statista.com/statistics/269025/worldwide-mobile-app-revenue-forecast/). This is expected to increase to over 352 BN downloads in fiscal 2021 with projected revenues of over 188.9 BN.
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. How will Epoxy overcome the barriers?
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Market share and presence has been our primary obstacle. Through the use of PR and events such as "Epoxy Days" and other marketing promotions 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 customers hands on experience and in turn making them more familiar with brand new features.
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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.
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Our sales payment structure is a commission-based system. At our current stage 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
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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.
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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:
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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)
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Less frustration: by combing all of these features into one central platform, merchants are also provided a much simpler way to advertise.
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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 remains 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 to 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 is to spend time targeting small-medium size businesses in Nevada, California and other individual markets 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 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 promotions. Additionally, we 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 are expanding our business we have added tiered pricing levels for chains or franchises that agree to use our service at multiple locations. Reduced pricing on these larger businesses based on number of locations is the structure we are currently using. We are also earning revenue in the form of one-time development fees for customize work to the Epoxy app for certain of our larger business customers.
Operational Plan
Development
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Continued Research and Development to find the most successful ways to connect with customers and consumers to expand our user base;
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Design improvements as required and branch out to other international marketplaces where applicable;
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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., our wholly owned subsidiary, has filed two patents pending 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
The Company charges research and development costs with respect to software improvements to expense when incurred in accordance with FASB ASC 730, "Research and Development". Research and development costs were $14,366 and $26,861 for the year ended December 31, 2017 and 2016, respectively.
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 2018, however presently all additional sales assistance is provided on a consulting basis under consulting contracts with third parties. The Company from time to time may also 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.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
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 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. During the fiscal year ended December 31, 2015 the Company renewed the lease and agreed to a small monthly rent increase. The Company did not enter into a formal renewal agreement and the lease is now operating on a month to month basis.
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
Our common stock is quoted on the OTC Markets Inc. owned and operated Inter-dealer Quotation System ("OTCPINK") under the symbol "EPXY". The following table sets forth, for the quarters indicated, the high and low closing bid prices per share of our common stock on OTC Markets Inc., reported by the National Association of Securities Dealers Composite Feed or other qualified interdealer quotation medium. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Information provided below represents the two years ended December 31, 2017.
(b) Classes of Stock and Holders of Common Stock
The Company has authorized a total of 4,500,000,000 shares of stock of which there are 4,450,000,000 common shares and 50,000,000 Preferred shares. Of the Preferred shares the Company has designated 35,000,000 Class A Preferred Shares and 15,000,000 Class B Preferred Shares. Par value of all classes of stock is $0.00001 per share.
As at May 8, 2018 the Company had 25,080,985 Series A Preferred Shares issued and outstanding each carrying conversion rights of 2.5 common shares to each 1 share of Series A Preferred Stock and voting rights of 15 to 1, compared to common stock; and, 1,000,000 shares of Class B Preferred Stock with voting rights of 80% of the total votes on any matters brought to a vote of the holders of the Company's common stock. Class B Preferred shares carry no conversion rights.
As of May 8, 2018, there were approximately Thirty-Two (32) holders of record of our Common Stock and 1,602,995,014 common 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, 2017, 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. The Company granted Mr. Woywod 500,000 incentive stock options at an exercise price of $0.03 per share for a term of 2 years from the date of grant, which options also vested immediately. These options expired unexercised in fiscal 2016 and were returned to the plan. Presently there remain 6,500,000 shares available for grant under the 2014 Stock Option and Award Plan.
(e) Recent Sales of Unregistered Securities
There were no sales of Unregistered Securities during the last three months of fiscal 2017 or up to the date of this report.
(f) Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the years ended December 31, 2017 or December 31, 2016.
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, 2017 and 2016
During the fiscal years ended December 31, 2017 and 2016, the Company generated $107,267 and $29,415 in revenues, respectively. The substantive increase in revenue period over period is due to the fact that Company was able to fulfill certain development and revenue contracts entered into during fiscal 2016 in the current fiscal year, and therefore allocated a portion of previously deferred revenue totaling $29,000 to income during the period. In addition, the Company closed contracts in fiscal 2017 with a larger corporate customer which has substantially increased our recurring monthly revenue on an annual basis. There remains $72,400 of deferred revenue from fiscal 2016 contract services which we hope to realize in fiscal 2018. This outstanding balance has been reclassified to "other liabilities" at the current fiscal year end.
As at December 31, 2017 and 2016, the Company had $5,440 and $2,662 in cash, prepaid expenses of $970 (2016 -$970), and accounts receivable of $2,750 and $0 for total current assets of $9,160 and $3,632, respectively. Total assets at December 31, 2017 and 2016 totaled $16,855 and $11,327 inclusive of capitalized trademark and patent expenditures.
During the fiscal year ended December 31, 2017, the Company incurred total operating expenses of $262,087, as compared to total operating expenses of $289,481 for the same period last year. The slight decrease in operating expenses was primarily due to a reduction in depreciation expense from $5,662 in fiscal 2016 to $0 in the current fiscal year, and a reduction in software research and development expenses from $26,861 in fiscal 2016 to only $14,366 in the current fiscal year ended December 31, 2017. The operating loss for the fiscal year ended December 31, 2017 was $154,820 as compared to an operating loss of $260,066 for the same period last year.
In addition, the Company recorded various other expenses during fiscal 2017 and 2016 as a result of certain financing agreements, including a loss on the change in fair value of derivatives totaling $327,142 in fiscal 2016, as compared to $763,687 in the current fiscal year. During fiscal 2016, the Company recorded a gain from the recovery of a loss incurred on the issuance of shares in a fiscal year ended 2015 of $9,000, with no comparative results in fiscal 2017. The Company incurred $129,761 in interest expenses in fiscal 2017 as compared to $214,963 in the prior fiscal year as a result of certain convertible notes being converted in fiscal 2017. Further we recorded a loss on disposal of assets in fiscal 2016 of $3,774 with no comparable entry in the current fiscal year.
The net loss in fiscal 2017 totaled $1,048,268 as compared to $796,945 in 2016.
The Company used net cash in operations of $68,722 and $86,721 during the twelve-month periods ended December 31, 2017 and 2016, respectively, used net cash in investing activities of $0 in fiscal 2017 and 2016, and generated cash from financing activities including loans and convertible notes of $71,500 and $83,500, 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. The Company expects to reflect another substantial increase to its revenue base in fiscal 2018.
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 net losses of $1,048,268 and to $796,945 over the two most recent fiscal years which raises substantial doubt about the Company's ability to continue as a going concern. 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, 2017, the Company had total current assets of $9,160, and total current liabilities of $1,132,907. 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 December 31, 2017 and as at December 31, 2016, we had one full time employee who is also an officer and director. 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, 2017 and does not reflect any changes in our obligations that have occurred after that date.
Critical Accounting Policies and Estimates
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, 2017, and 2016, all capitalized software costs related to the development of the application were expensed because development was complete, and the useful life of the development is less than one year.
Research and Development Costs
The Company charges research and development costs with respect to software improvements to expense when incurred in accordance with FASB ASC 730, "Research and Development". Research and development costs were $14,366 and $26,861 for the year ended December 31, 2017 and 2016, respectively.
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. Revenue in respect of our development contracts with third parties for the use of our app, including customization of our Epoxy app for particular clients, is recognized when the services have been rendered in full or as set out under the benchmark terms of each respective contract. During fiscal 2016 the Company recorded $101,400 as deferred revenue in respect to certain contracts that have not been rendered in full. Of this amount the Company concluded services under contracts with a value of $29,000 during fiscal 2017 and the remaining balance of $72,400 has been reallocated to other liabilities as the Company is in negotiation with customers for contracts terminated or suspended.
Concentrations
Accounts receivable
As at December 31, 2017 (2016 - $0) one customer accounted for 100% of our accounts receviable balance.
Revenue
For the year ended December 31, 2017 (2016 - 0%) one customer to whom we provide application services in each of their Canadian and US operating divisions accounted for approximately 55% of revenues.
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, 2017 and 2016, and we wrote off a total of $880 in the fiscal year ended December 31, 2016.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
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, 2017 and December 31, 2016:
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.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
EPOXY INC.
AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Epoxy, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Epoxy, Inc. (the "Company") as of December 31, 2017 and 2016, and the related statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2017 and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has not generated revenues sufficient to cover operating expenses and has negative working capital. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/Pinnacle Accountancy Group of Utah
We have served as the Company's auditor since 2017
Farmington, Utah
June 8, 2018
EPOXY, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these audited consolidated financial statements
EPOXY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these audited consolidated financial statements
EPOXY INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
The accompanying notes are an integral part of these audited consolidated financial statements
EPOXY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these audited consolidated financial statements
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of business and basis of presentation
Organization and nature of business
Epoxy, Inc. (the "Company") was incorporated in the State of Nevada on November 13, 2007 as Rioridge Resources Corp. On July 22, 2008, the Company changed its name to Neohydro Technologies Corp.
On August 1, 2014, the Company's name changed from Neohydro Technologies Corp. to Epoxy, Inc. in furtherance of actions taken on May 23, 2014, when the Board of Directors of the Company (the "Board") approved and recommended to the Majority Stockholders that they approve the name change. On May 27, 2014, the Majority Stockholders approved the name change by written consent in lieu of a meeting, in accordance with Nevada law. On August 4, 2014, the Company submitted the name change to FINRA for their review and approval, as well as the approval of a symbol change from NHYT to EPXY. The Company filed an amendment to our Articles of Incorporation with the Secretary of State of Nevada changing our name to Epoxy, Inc. effective on August 1, 2014.
On March 16, 2016 pursuant to approval by the board of directors and shareholders, the Company filed an Amendment to its Articles of Incorporation increasing the authorized shares to 900,000,000 with 850,000,000 common and 50,000,000 preferred shares. On September 28, 2016, the Company's board of directors and majority shareholder approved a further increase of the Company's authorized share capital from 850,000,000 common shares to 1,950,000,000 common shares. The Company filed the amendment with the State of Nevada on November 21, 2016. On November 7, 2017, the Company's board of directors and majority shareholder approved a further increase of the Company's authorized share capital from 1,950,000,000 common shares to 4,450,000,000 common shares. The Company filed the amendment with the State of Nevada on January 11, 2018.
The Company, through its wholly owned subsidiary, Couponz, Inc., is the developer of Epoxy app, an application or "app" for iPhone iOS and Android operating systems. Epoxy is an innovative smart phone application designed and created to conveniently connect business owners and consumers in order to ease marketing frustrations. The mobile app gives loyal customers the ease of keeping track of rewards and punch cards all in one place while also giving opportunities to review and share businesses with friends. In turn, Epoxy provides businesses the ability to reward customers, share offers, and deliver information about special events with their customers.
Note 2 - Summary of Significant Accounting Policies
Principal of Consolidation
These consolidated financial statements include the accounts of Epoxy, Inc. and its wholly-owned subsidiary, Couponz, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, debt discounts and common stock issued for assets, services or in settlement of obligations.
Cash and Cash Equivalents
For purposes of reporting within the statements of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
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.
During the year ended December 31, 2017 and December 31, 2016, the depreciation expense was $0 and $5,662, respectively.
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, 2017, and 2016, all capitalized software costs related to the development of the application were expensed because development was complete, and the useful life of the development is less than one year.
Research and Development Costs
The Company charges research and development costs with respect to software improvements to expense when incurred in accordance with FASB ASC 730, "Research and Development". Research and development costs were $14,366 and $26,861 for the year ended December 31, 2017 and 2016, respectively.
Trademark and Patent (Intangible assets)
Trademark and patent are recorded at cost. Amortization on trademark and patent are determined by their economic life.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. This typically occurs when customers are invoiced for their monthly membership fee. Participants in the program pay a monthly subscription fee per retail location, at the start of each month, which amount is immediately recorded as revenue. A notice period of 30 days is required to terminate any services with no refunds payable. Revenue in respect of our development contracts with third parties for the use of our app, including customization of our Epoxy app for particular clients, is recognized when the services have been rendered in full or as set out under the benchmark terms of each respective contract. During fiscal 2016 the Company recorded $101,400 as deferred revenue in respect to certain contracts that have not been rendered in full. Of this amount the Company completed services and recorded as revenue $29,000 during fiscal 2017 and the remaining balance of $72,400 has been reallocated to other liabilities as the Company is in negotiation with customers for contracts terminated or suspended.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
Concentrations
Accounts receivable
As at December 31, 2017 (2016 - $0) one customer accounted for 100% of our accounts receviable balance.
Revenue
For the year ended December 31, 2017 (2016 - 0%) one customer to whom we provide application services in each of their Canadian and US operating divisions accounted for approximately 55% of revenues.
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, 2017 and 2016, 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, 2017 and 2016, and we wrote off a total of $880 in the fiscal year ended December 31, 2016.
Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:
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, 2017 and December 31, 2016:
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
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. A separate computation of diluted earnings (loss) per share is not presented.
Reclassification
Certain reclassifications have been made to the prior period's financial statements to conform to the current period's presentation.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business" with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted. This guidance will be applied prospectively to any transactions occurring within the period of adoption.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment" that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit's carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current goodwill impairment test). This guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. This guidance will be adopted on a prospective basis.
In March 2017, the FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities" that shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. This guidance will be adopted using a modified retrospective transition approach. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The accounting standard update will be effective for The Company beginning January 1, 2018 on a prospective basis, and early adoption is permitted. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.
In August of 2017, the FASB issued guidance to better align the financial reporting related to hedging activities with the economic objectives of those activities and to simplify the application of current hedge accounting guidance. Entities are required to apply the guidance using a modified retrospective method as of the period of adoption. This guidance is effective for annual and interim periods beginning after December 31, 2018. Early adoption is permitted. Management is evaluating
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Going Concern
For the year ended December 31, 2017, the Company used net cash in operations of $68,722. In addition, the Company had a working capital deficit as of December 31, 2017. The Company believes that its existing capital resources may not be adequate to enable it to continue to execute its operating plan. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. While revenue increased substantially in fiscal 2017, the Company estimates that it will require additional cash resources during 2018 based on its current operations and condition. The Company expects cash flows from operating activities to continue to improve, primarily as a result of an increase in revenue and a decrease in certain operating expenses, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.
Note 4- Loans Payable
The Company has received loans from arms length third parties in prior fiscal years in the gross amount of $32,000, accruing interest at rates of between 5% and 10% with default interest rates of between 10% and $16%. The loans are in default and due on demand as at December 31, 2017 and December 31, 2016:
On July 13, 2016, a total of $15,000 in principal and $6,031 in accrued interest payable to Andara Investments Limited (formerly known as Adam's Ale) was acquired by GW Holdings Group LLC. The Company issued a convertible replacement note in the principal amount of $21,031 to GW on July 21, 2016. (ref Note 5- Convertible Notes (8))
Note 5- Convertible Notes
At December 31, 2017 and December 31, 2016, convertible notes payable consisted of the following:
(1)
Convertible notes originally due on November 27, 2015
On November 27, 2012, the Company entered 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. On the date of the agreements, 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 $0. The carrying value will be accreted over the term of the convertible debentures up to its face value of $125,000.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes (continued)
(1)
Convertible notes originally due on November 27, 2015 (continued)
On August 1, 2014, the Company successfully amended the terms of the aforementioned loan agreements. Under the amended terms, a total of $125,000 originally available for conversion into 250,000,000 shares of common stock at $0.0005 per share was amended to reflect a fixed conversion price of $0.005 per share for a total of 25,000,000 shares of common stock, if converted.
The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification, and as such the remaining unamortized discount of $88,184 as of the amendment date, was recorded as loss on extinguishment of debt. The Company recalculated the intrinsic value of the embedded beneficial conversion feature of $125,000, which amount was recorded as the discount on the amended convertible notes. The carrying value will be accreted over the term of the convertible notes up to their face value of $125,000.
Concurrently, in August 2014, the conversion features in respect to these notes became tainted upon the issuance of other variable rate convertible debt. Accordingly, we accounted for the conversion options in respect to these notes as derivative liabilities.
On July 16, 2015, the Company again amended the terms of the convertible loan agreements for a total of $125,000 to extend the maturity date from November 27, 2015 to April 16, 2016. Subsequently, the parties agreed the notes would mature on January 1, 2017. The notes were further modified whereby they do not become convertible until maturity.
Upon the change to the terms of the convertible notes, the Company analyzed the conversion feature for derivative accounting consideration under FASB ASC 470 and determined that the conversion feature would not create embedded derivatives until maturity, January 1, 2017.
Further upon maturity, and due to the continuing existence of other variable rate convertible debt, we accounted for the conversion options in respect to these notes as derivative liabilities.
The carrying value of these convertible notes is as follows:
As at December 31, 2017 and December 31, 2016, the carrying values of the convertible debenture was $125,000.
During the years ended December 31, 2017 and 2016, accrued convertible interest thereon was $12,500.
The notes came due on January 1, 2017 and are currently in default.
(2)
Convertible note due on January 13, 2016
On January 13, 2015, the Company entered into a Securities Purchase Agreement ("SPA") with Adar Bays, LLC ("Adar") a Florida Limited Liability company where under the Company has issued two 8% convertible redeemable notes in the aggregate principal amount of $150,000 with the first note being $75,000 and the second note being $75,000, convertible into shares of the Company's common stock with a maturity date one year after issuance or January 13, 2016. The first of the two notes (the "First Note") shall be paid for by Adar upon execution of the SPA, and the second note (the "Second Note") shall initially be paid for by the issuance of an offsetting $75,000 secured note issued to the Company by Adar ("Buyer Note"), provided that prior to conversion of the Second Note, Adar must have paid off the Buyer Note in cash. Under the terms of the First Note, at any time after 180 days, the holder may elect to convert all or part of the face value of the note into shares of the Company's common stock without restrictive legend at a price ("Conversion Price") for each share of
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes (continued)
(2)
Convertible note due on January 13, 2016 (continued)
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 received net proceeds from Adar totaling $63,750 with respect to the First Note in the total gross amount of $75,000. Financing fees of $7,500 and legal fees of $3,750 were paid.
As of December 31, 2015, the principal amount of 75,000 and all accrued interest payable of $3,934 with respect to this convertible note was paid in full with the issuance of 18,902,736 shares of common stock.
On December 1, 2015, upon receipt of a conversion notice from one of its convertible note holders, the Company issued 2,489,435 shares of common stock to the Note holder. Subsequent to the fiscal year end the Company advised the Note holder of an error in their calculations and it was agreed the Note holder would provide additional cash proceeds of $9,000 in respect of the purchase price of the shares. As a result of the error during fiscal 2015, the Company recorded a loss on debt settlement in the amount of $16,183 in respect to this over issuance of shares.
On March 8, 2016, the Company received $9,000 from the aforementioned note holder in respect of the 2,489,435 shares which amount was recorded as a recovered loss on issuance of shares for the year ended December 31, 2016.
(3)
Convertible note due on January 14, 2016
On July 14, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $90,000 from total loan proceeds of $102,000, which bears interest at 8% per annum and is due on January 14, 2016. Financing fees of $10,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. During the period ended May 31, 2016, the noteholder gave notice of conversion and the Company issued 96,876,179 shares of its common stock in full satisfaction of the entire principal of $102,000 and accrued interest balance of $5,498.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes (continued)
(4)
Convertible note due on July 29, 2016
On July 29, 2015 the Company entered into a convertible loan agreement with an investor. The Company received net proceeds of $75,000 from total loan proceeds of $84,000 which bears interest at 8% per annum and is due on July 29, 2016. An original issue discount of $6,000 and legal fees of $3,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at 58% multiplied by the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding the applicable Conversion, provided that if at any time the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the then-current Conversion Factor shall be reduced by 5% for all future Conversions.
During the period ended June 30, 2016, the noteholder gave notice of conversion and the Company issued 98,107,485 shares of its common stock in full satisfaction of the entire principal of $84,000 and accrued interest balance of $4,580.
(5)
Convertible note due on August 3, 2016
On August 3, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds of $50,000 from total loan proceeds of $56,000, which bears interest at 8% per annum and is due on August 3, 2016. Financing fees of $3,500 and legal fees of $2,500 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
During the period ended May 31, 2016, the noteholder gave notice of conversion and the Company issued 62,413,844 shares of its common stock in full satisfaction of the entire principal of $56,000 and accrued interest balance of $3,052.
(6)
Convertible note due on January 25, 2017
On January 25, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds of $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion.
In January 2017, the noteholder gave notice of conversion and the Company issued 290,187,136 shares of its common stock in full satisfaction of the entire principal of $35,000 and accrued interest balance of $2,792 with $3,520 in transfer agent fees.
(7)
Convertible note due on May 24, 2017
On May 20, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds of $46,000 from total loan proceeds of $41,500, which bears interest at 8% per annum and is due on May 24, 2017. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes (continued)
(7)
Convertible note due on May 24, 2017 (continued)
During the three month period ended March 31, 2017 the noteholder gave notice of conversion and the Company issued 726,933,349 shares of its common stock in full satisfaction of the entire principal of $46,000 and accrued interest balance of $2,625
On January 11, 2017, the Company received net proceeds of $41,500 with respect to the backend feature of this Convertible Note. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of the backend note which bears interest at 8% per annum and is due on May 24, 2017. During the quarter ended June 30, 2017 the convertible note fell into default due to the Company failure to be current in its filings with the Securities and Exchange Commission. Upon an event of default, the interest rate is increased to 24% per annum. On May 24, 2017, this Note remained unpaid at maturity, and the outstanding principal due under this Note was increased by 8%, or $3,680.
As at December 31, 2017 the carrying value of the back-end convertible debenture and accrued convertible interest thereon were $49,680 and $9,105, respectively.
(8)
Convertible note due on July 13, 2017
On July 13, 2016 a total of $15,000 in principal and $6,031 in accrued interest payable to Andara Investments Limited (formerly known as Adam's Ale) was acquired by GW Holdings Group LLC. The Company issued a replacement note in the principal amount of $21,031 to GW on July 21, 2016 which convertible note bears interest at 8% per annum and is due on July 13, 2017. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 52% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
During the year ended December 31, 2016, the Company issued 49,290,170 shares in respect of Conversion Notices received for a total of $10,731 in principal and $137 in accrued interest, and in January 2017, the Company issued 52,933,533 shares in respect of Conversion Notices received for a total of $10,300 in principal and $278 in accrued interest in January 2017.
(9)
Convertible note due on January 5, 2018
On July 5, 2017, the Company entered into a convertible loan agreement with an investor. The Company received total loan proceeds $15,000, which bears interest at 5% per annum and is due on January 5, 2018. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 50% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
As at December 31, 2017 the carrying value of the convertible debenture and accrued convertible interest thereon were $14,592 and $368, respectively.
(10)
Convertible note due on September 27, 2018
On September 27, 2017, the Company entered into a Securities Purchase Agreement ("SPA") with an investor where under the Company will issue four 8% convertible redeemable notes in the aggregate principal amount of $63,000 with the first note being $15,750 funded on October 4, 2017, with financing cost of $750, and the rest will be funded in future periods, convertible into shares of the Company's common stock with a maturity date on September 27, 2018. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 5- Convertible Notes (continued)
(10)
Convertible note due on September 27, 2018 (continued)
As at December 31, 2017 the carrying value of the convertible debenture and accrued convertible interest thereon were $3,872 and $304, respectively.
In our evaluation of the aforementioned financing arrangements, we concluded that the conversion features were not afforded the exemption as a conventional convertible instrument and it did not otherwise meet the conditions set forth in current accounting standards for equity classification. Accordingly, they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities. (See footnote 7 for derivative disclosure)
The following table sets forth interest expense for amortization of the debt discount and financing costs recognized related to the above convertible notes:
Note 6 - Common Stock and Stock-Based Compensation
On November 7, 2017 the Board of Directors and majority shareholders approved the authorization of an increase of the authorized shares of the Company to an aggregate number of Four and a Half Billion (4,500,000,000) of which 4,450,000,000 will be common stock, with a par value of $0.00001 per share, and Fifty Million (50,000,000) shares will be preferred stock, with a par value of $0.00001 per share. The Amendment has been retroactively affected as of the date of the filing of this report.
Common stock
As described more fully above in Note 5, the Company issued 1,070,054,018 shares of common stock to settle certain convertible notes and accrued interest payable during the year ended December 31, 2017.
As described more fully above in Note 5, the Company issued 306,687,678 shares of common stock to settle certain convertible notes and accrued interest payable during the year ended December 31, 2016.
Series A Preferred Shares
As at December 31, 2017 and December 31, 2016 the Company had 25,080,985 Series A Preferred Shares issued and outstanding, each carrying conversion rights of 2.5 common shares to each 1 share of Series A Preferred Stock and voting rights of 15 to 1, compared to common stock.
On September 16, 2015 pursuant to approval by the Board of Directors, the registrant filed a Certificate of Designation for its Class B preferred shares under which it was designated that there should be 15,000,000 Class B preferred shares with par value of $0.00001 each of which shall have voting rights of 1,000 to 1 as compared to common stock but no conversion rights.
On October 6, 2015, the Board of Directors authorized the issuance of 1,000,000 Class B preferred shares to David Gasparine, the CEO, for services rendered to the corporation. The shares issued to David Gasparine are not registered under the Securities Act. These shares will be issued relying upon the exemption from the registration requirements provided under Sections 4(a) or 3(b) of the Securities Act.
Stock award and stock option
Stock Option
During fiscal 2016, a total of 500,000 stock options available for exercise at $0.03 per share expired unexercised.
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.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Common Stock and Stock-Based Compensation (continued)
As December 31, 2017 and December 31, 2016, the following share purchase warrants were outstanding:
All 93,333 warranted expired unexercised during the year ended December 31, 2016.
Note 7 - Derivative Liabilities
On August 22, 2014, the Company entered into a convertible loan agreement with an investor (the "CN#1") which the Company concluded 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 January 25, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion.
On May 24, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds of $41,500 from total loan proceeds of $46,000, which bears interest at 8% per annum and is due on May 24, 2017. During the period ended March 31, 2017 the Company received a further $41,500 ($46,000 gross proceeds) in respect of a backend note forming part of the original convertible loan agreement which allowed for additional funds to be advanced under the same terms as the original note at a subsequent date to the original loan agreement. Financing fees of $2,500 and legal fees of $2,000 were paid in respect of each note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
On July 13, 2016 a total of $15,000 in principal and $6,031 in accrued interest payable to Andara Investments Limited (formerly known as Adam's Ale) was acquired by GW Holdings Group LLC. The Company issued a replacement note in the principal amount of $21,031 to GW on July 21, 2016 which convertible note bears interest at 8% per annum and is due on July 13, 2017. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 52% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
On July 5, 2017, the Company entered into a convertible loan agreement with an investor. The Company received total loan proceeds $15,000, which bears interest at 5% per annum and is due on January 5, 2018. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 50% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
On September 27, 2017, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $15,000 from total loan proceeds of $15,750, which bears interest at 8% per annum and is due on September 27, 2018 Financing fees of $750 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
Since equity classification is not available for the conversion feature, we were required to bifurcate the embedded conversion feature and carry it as a derivative liability, at fair value. Derivative financial instruments are carried initially and subsequently at their fair values.
We estimated the fair value of the derivative on the inception dates, and subsequently, using the Black-Scholes Merton valuation technique, adjusted for the effect of dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, and risk-free rates) that are necessary to fair value complex derivate instruments.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Derivative Liabilities (continued)
As a result of the application of ASC No. 815 in period ended December 31, 2017 and December 31, 2016, the fair value of the conversion feature associated with the convertible loans 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, 2017, December 31, 2016 and commitment date:
Note 8 - Commitments
(1)
Office Lease
On April 16, 2015 the Company entered into a six-month lease commencing April 1, 2015 with certain other third parties in respect of a shared office and residential premises located in San Diego, California. The Company's obligation under the terms of the lease was $875 per month plus utilities. The Company paid a security deposit of $875 and the first two months rent totaling $1,750 upon signing of the contract. Effective November 1, 2015, the Company agreed to a rent increase to $925 per month plus utilities. The Company did not enter into a formal renewal agreement and the lease is now operating on a month to month basis.
(2)
Vehicle Lease
On July 29, 2016 the Company entered into a closed end motor vehicle lease for a 36 months term with an initial deposit of $1,200 and a monthly payment of $897, due on the first of each month. The lease does not meet the criteria of a capital lease and therefore the amounts are expended on a monthly basis and included in operating expenses. The lease was personally guarantees by our President, Mr. David Gasparine. At the end of the term, the vehicle may be purchased for $35,568.
Future minimum payments under the terms of the aforementioned lease are as follows:
2018 - $10,761
2019 - $6,277
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Related Party Transactions
Transactions with David Gasparine
On August 28, 2014, the Company entered into an employment agreement with David Gasparine, president of the Company, for management services. The employment agreement became effective as of September 1, 2014. Under the employment agreement, the base salary is of $36,000 per annum, paid monthly. The amount of base salary shall be determined by the Board of Directors and may be increased, but not decreased, from time to time by the Board of Directors of the Company. In addition to the base salary, Mr. Gasparine shall be eligible for periodic bonuses in amounts to be determined by the Board of Directors. In January 2015 the board agreed to increase Mr. Gasparine's salary to $57,600 per year, with a further salary increase to $72,000 per annum effective October 1, 2015.
During the year ended December 31, 2016, the Company accrued fees of $72,000 and Mr. Gasparine advanced $977 to the Company. The Company paid $25,176, net, to Mr. Gasparine, leaving $40,938 on the balance sheets as accounts payable and accrued liabilities - related parties as of December 31, 2016
During the year ended December 31, 2017 the Company accrued additional fees of $72,000 for services provided by Mr. Gasparine. The Company paid $20,745, net to Mr. Gasparine, leaving $86,731 on the balance sheets as accounts payable and accrued liabilities - related parties as at December 31, 2017.
Transactions with Mary Gasparine
On September 12, 2016 the Company received proceeds of $12,000 secured by a promissory note from Mary Gasparine, the mother of our CEO, President and a director. The loan bears interest at 12% per annum and matures on September 12, 2017. As at December 31, 2017 a total of $1,562 (2016 - $362) has been accrued as interest expense in respect to the aforementioned loan and recorded on the balance sheets as accounts payable and accrued liabilities - related party. On September 12, 2017 this loan came due and payable, including all accrued interest thereon. This loan is presently in default.
Note 10 - Deferred Revenue
(a)
During the three months ended March 31, 2016 the Company entered into various agreements with a telephone service provider (the "Client") for the launch of the Epoxy App at its corporate and franchise locations. Under the terms of the agreement, Epoxy would offer training to the corporate location and the term would run twelve months from the launch of the Epoxy App. As consideration the Company would receive fees from certain locations in advance, totaling $23,400. Subsequent to the execution of the agreements the Client revised its corporate focus. As a result, the Company has recorded the entire fee remitted as deferred revenue until such time as a formal unwinding of the agreement is complete. At the date this report, executive management of the Client has not responded to management requests to complete the formal unwinding of the agreement. As at December 31, 2017, the amounts received was reclassified to other liability.
(b)
On March 31, 2016 the Company entered into an agreement with a third party to develop a customized EPOXY app for gift and loyalty cards for each client. Under the terms of the agreement Epoxy will receive a development fee of $49,000 which amounts were paid as to $30,000 on signing of the agreement, and $19,000 upon official launch of the pilot program, which occurred during the year ended December 31, 2016. All proceeds have been received under the contract and recorded as deferred revenue. These amounts are expected to be realized as income upon completion of the pilot program. However, as at the date of this report, executive management of the third party has not confirmed the program is complete. As at December 31, 2017, the amounts received was reclassified to other liability.
(c)
On October 11, 2016 the Company entered into an agreement with a third party to develop a customized EPOXY app for gift and loyalty cards for each client. Under the terms of the agreement Epoxy will receive a development fee of $10,500 which amounts were paid on signing of the agreement. In addition to the development fees, Epoxy will receive monthly fee of $25 per location if locations number between 50-500 or less if the locations are over 500. The parties agreed to a mutual termination of the original agreement effective February 28, 2017 and all amounts were realized as income during the year ended December 31, 2017.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Deferred Revenue (continued)
(d)
On November 9, 2016 the Company entered into an agreement with a third party for the development of a customized Epoxy app pilot program and branded corporate implementation. Under the terms of the agreement Epoxy will receive a development fee of $18,500 in the first phase which amounts were paid on signing of the agreement, and $42,750 in the second phase. In addition to the development fees in phase 1 and phase 2, Epoxy will receive monthly fee of $700 if locations number between 1-50 or more if the locations are over 50. These amounts will be realized as income upon completion of the pilot program in fiscal 2017. As at the date of this report this contract has moved from the "Pilot" phase into "Full Production" and is now live in the Canadian market under monthly pricing as agreed between the parties.
During the year ended December 31, 2017, $18,500 deferred revenue was transferred to income.
Note 11 - 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 2017 and 2016, 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 $2,669,255 and $2,484,507 at December 31, 2017 and 2016, respectively, and will begin to expire in the year 2031.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Company does not have any foreign earnings and therefore, we do not anticipate the impact of a transition tax. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21%. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118, and no later than fiscal year end December 31, 2018.
The Company had deferred income tax assets as of December 31, 2017, and 2016 as follows:
The Company has no tax position at December 31, 2017 and 2016 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December 31, 2017 and 2016.
EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - Income Taxes (continued)
The Company recognized deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. The Company will establish a valuation allowance to reflect the likelihood of realization of deferred tax assets.
As of the date of this filing, the Company is delinquent in filing their tax returns, and there is uncertainty regarding potential penalties and interest. The last return filed by the Company was December 31, 2012, and the Company has not accrued for any potential penalties or interest from that period forward. The Company will need to file returns for the years ending December 31, 2013, 2014, 2015, 2016 and 2017, which are still open for examination.
Note 12 - Subsequent events
Further to a Securities Purchase Agreement ("SPA") with an investor entered into on September 27, 2017 (ref: Note 5(9)), where under the Company will issue four 8% convertible redeemable notes in the aggregate principal amount of $63,000, a further $20,750, inclusive of $750 in legal fees, has been received subsequent to December 31, 2017. The notes are convertible into shares of the Company's common stock with a maturity date of September 27, 2018. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.
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, 2017, 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, 2017. In making its assessment, management used the criteria established in "Internal Control - Integrated Framework (2013)" 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, 2017.
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, 2017 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, 2017. 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 year 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 Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this annual report.
Item 9B.
Item 9B. Other Information.
On December 19, 2017 our current audit firm, Heaton & Company, PLLC, completed the acquisition of another firm of independent registered public accountants and concurrently changed their operating name to Pinnacle Accountancy Group of Utah.
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, 2016, 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, 2016. The foregoing persons are collectively referred to herein as the "Named Executive Officers." Compensation information is shown for fiscal years 2016 and 2015.
Epoxy Inc. Summary Compensation Table
(1) During the year ended December 31, 2017 and 2016 respectively, the Company accrued fees of $72,000 under the terms of an employment contract with Mr. Gasparine. Mr. Gasparine was paid $25,176, net, during fiscal 2016, and $20,745, net, during fiscal 2017 leaving $86,731 on the balance sheets as accounts payable and accrued liabilities.
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. The 500,000 options expired during fiscal 2016, unexercised.
There were no stock option grants in the fiscal years ended December 31, 2017 and 2016. A total of 6,500,000 shares remain available for grant under the 2014 Stock Option and Award Plan.
Outstanding Equity Awards at 2017 Fiscal Year-End
None
Option Exercises for Fiscal 2017 and 2016
There were no options exercised by our named executive officers in fiscal 2017 or 2016.
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
None.
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 AND OWNED BY ALL EXECUTIVE OFFICERS AND DIRECTORS.
The following table sets forth the number and percentage of shares of our Common and Preferred Stock owned as of May 8, 2018, 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 May 8, 2018 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.
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 which has not been disclosed herein under Item 11. Executive Compensation or as a part of the disclosure contained in Footnote 9 to the audited financial statements for the fiscal year ended December 31, 2017 under Item 8. Financial Statements and Supplementary Data.
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. In addition Mr. Gasparine is the Company's controlling shareholder by virtue of his ownership of 1,000,000 shares of Series B Preferred Stock which carries voting rights equivalent to 80% of the voting shares at any meeting of shareholders.
Director Independence
As of the date of this Annual Report, we have 1 independent director.
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.
Heaton & Company, PLLC operating as Pinnacle Accountancy Group of Utah, served as our principal independent public accountants for the reporting fiscal years ending December 31, 2017 and 2016. Aggregate fees billed to us for the years ended December 31, 2017 and 2016 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
(1) 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.