Attached files

file filename
EX-32.1 - CERTIFICATION - Epoxy, Inc.ex321.htm
EX-31.2 - CERTIFICATION - Epoxy, Inc.ex312.htm
EX-31.1 - CERTIFICATION - Epoxy, Inc.ex311.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2018
 
 
[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from __________ to __________

000-53669
Commission File Number
 
EPOXY, INC.
(Exact name of registrant as specified in its charter)
 
 
Nevada
N/A
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
2518 Anthem Village Drive, Suite 100, Henderson NV
89052
(Address of principal executive offices)
(Zip Code)
 
702-350-2449
(Registrant's  telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 
Yes [X]  No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 
Yes [  ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer   [  ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
 
Emerging growth company [X]

      If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 
Yes [  ]  No [X ]
 
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

 
Yes [  ]  No [  ]
APPLICABLE ONLY TO CORPORATE ISSUERS
 
1,602,995,014 shares of common stock outstanding as of June 10, 2018
(Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.)



EPOXY, INC.
TABLE OF CONTENTS


 
 
Page
 
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
   3
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
   4
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
   7
 
 
 
Item 4.
Controls and Procedures
   7
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
   8
 
 
 
Item 1A.
Risk Factors
   8
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   8
 
 
 
Item 3.
Defaults Upon Senior Securities
   8
 
 
 
Item 4.
Mine Safety Disclosures
   8
 
 
 
Item 5.
Other Information
   8
 
 
 
Item 6.
Exhibits
   8
 
 
 
 
SIGNATURES
   9


 
2


EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)





PART I -- FINANCIAL INFORMATION


 
ITEM 1.  FINANCIAL STATEMENTS


 
Page
Unaudited Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017
F-1
Unaudited Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017
F-2
Unaudited Consolidated Statement of Cash Flows for the three months ended March 31, 2018 and 2017
F-3
Notes to the Unaudited Consolidated Financial Statements
F-4 to F-12



3

 
EPOXY, INC.
CONSOLIDATED BALANCE SHEETS

 
 
March 31,
2018
(Unaudited)
   
December 31,
2017
 
 ASSETS
           
Current
           
Cash
 
$
3,473
   
$
5,440
 
Accounts receivable
   
2,750
     
2,750
 
Prepaid expenses
   
970
     
970
 
Total Current Assets
   
7,193
     
9,160
 
 
               
Trademark and Patent
   
-
     
7,695
 
 
               
Total Assets
 
$
7,193
   
$
16,855
 
 
               
LIABILITIES
               
Current
               
Accounts payable and accrued liabilities
 
$
274,936
   
$
252,082
 
Accounts payable and accrued liabilities – related parties
   
98,053
     
88,293
 
Loans payable
   
17,000
     
17,000
 
Loan payable – related party
   
12,000
     
12,000
 
Derivative liabilities
   
647,697
     
497,988
 
Convertible notes, net of unamortized discounts and deferred financing cost
   
202,943
     
193,144
 
Other liabilities
   
72,400
     
72,400
 
Total Current Liabilities
   
1,325,029
     
1,132,907
 
 
               
Total Liabilities
   
1,325,029
     
1,132,907
 
 
               
STOCKHOLDERS' DEFICIT
               
Preferred Stock, $0.00001 par value;
               
authorized: 35,000,000 Series A Preferred share, 25,080,985 issued and outstanding as of March 31, 2018 and December 31, 2017
   
251
     
251
 
authorized: 15,000,000 Series B Preferred shares, 1,000,000 shares issued and outstanding as of March 31, 2018 and December 31, 2017
   
10
     
10
 
Common Stock, $0.00001 par value;
               
authorized: 4,450,000,000 shares, 1,602,995,014 shares issued and outstanding as of March 31, 2018 and December 31, 2017
   
16,030
     
16,030
 
Additional paid-in capital
   
3,827,203
     
3,827,028
 
Accumulated deficit
   
(5,161,330
)
   
(4,959,371
)
Total Stockholders' Deficit
   
(1,317,836
)
   
(1,116,052
)
Total Liabilities and Stockholders' Deficit
 
$
7,193
   
$
16,855
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements
 
 

F-1



EPOXY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

 
 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2018
   
2017
 
 
           
Revenue
 
$
33,823
   
$
41,053
 
 
               
Operating Expenses
               
Depreciation, and impairment
   
7,695
     
-
 
Software research and development
   
12,448
     
2,880
 
General and administrative expenses
   
67,994
     
64,358
 
Total operating expenses
   
88,137
     
67,238
 
 
               
Loss from operations
   
(54,314
)
   
(26,185
)
 
               
Other Income (Expenses):
               
Loss on change in fair value of derivative liabilities
   
(129,709
)
   
(440,558
)
Interest expenses
   
(17,936
)
   
(61,220
)
Total other income (expenses)
   
(147,645
)
   
(501,778
)
 
               
Net loss
 
$
(201,959
)
 
$
(527,963
)
 
               
Net loss per share – basic and diluted
 
$
(0.00
)
 
$
(0.00
)
 
               
Weighted average shares outstanding – basic and diluted
   
1,602,995,014
     
1,175,896,613
 

The accompanying notes are an integral part of these unaudited consolidated financial statements
 
 
F-2



EPOXY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited




 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2018
   
2017
 
Cash flows from Operating Activities
           
Net loss
 
$
(201,959
)
 
$
(527,963
)
Adjustments to reconcile net loss to net cash used in operations:
               
Impairment of trademark and patent
   
7,695
     
-
 
Transfer agent fees paid by note holders and settled with shares, including loss on issuance date
   
-
     
7,804
 
Loss on change in fair value of derivative liabilities
   
129,709
     
440,558
 
Amortization of discounts on convertible notes
   
9,377
     
51,524
 
Amortization of deferred financing costs
   
422
     
4,692
 
Imputed interest
   
175
     
175
 
Accrued interest settled with shares
   
-
     
5,704
 
Changes in operating assets and liabilities:
               
Prepaid expenses
   
-
     
(3,000
)
Deferred revenue
   
-
     
(29,000
)
Accounts payable and accrued expenses
   
22,854
     
3,587
 
Accounts payable and accrued expenses – related party
   
9,760
     
9,871
 
Net cash used in operating activities
   
(21,967
)
   
(36,048
)
 
               
Cash flows from Investing Activities
               
Net cash provided by (used in) investing activities
   
-
     
-
 
 
               
Cash flows from Financing Activities
               
Proceeds from convertible notes
   
20,000
     
41,500
 
Net cash provided by financing activities
   
20,000
     
41,500
 
 
               
Net increase (decrease) in cash during the period
   
(1,967
)
   
5,452
 
Cash, beginning of period
   
5,440
     
2,662
 
Cash, end of period
 
$
3,473
   
$
8,114
 
 
               
Supplemental disclosure of cash flow information:
               
Cash paid for:
               
    Interest
  $      
$
-
 
    Income taxes
  $      
$
-
 
 
               
Supplemental non-cash investing & financing activities:
               
Debt principal converted to shares
 
$
-
   
$
91,300
 
Accrued interest and transfer agent fees converted to shares
   
-
     
9,224
 
Derivative liability reclassified as additional paid-in capital
   
-
     
475,922
 
Derivative liability – debt discount
 
$
20,000
   
$
46,000
 




The accompanying notes are an integral part of these unaudited consolidated financial statements

F-3

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
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, initially through its wholly owned subsidiary, Couponz, Inc., and now primarily via operations undertaken by Epoxy, Inc directly, is the developer of Epoxy app, an application or "app" for iPhone iOS and Android operating systems. Epoxy is an innovative smart phone application designed and created to conveniently connect business owners and consumers in order to ease marketing frustrations. The mobile app gives loyal customers the ease of keeping track of rewards and punch cards all in one place while also giving opportunities to review and share businesses with friends. In turn, Epoxy provides businesses the ability to reward customers, share offers, and deliver information about special events with their customers.

Financial Statements Presented

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  All such adjustments are of a normal recurring nature.  Operating results for the three months ended March 31, 2018, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018.  For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on June 8, 2018.

Note 2 – Going Concern
 
For the three months ended March 31, 2018, the Company used net cash in operations of $21,967. In addition, the Company had a working capital deficit as of March 31, 2018. The Company believes that its existing capital resources may not be adequate to enable it to execute its business plan. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The Company estimates that it will require additional cash resources during 2018 based on its current operating plan and condition. The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue and a decrease in certain operating expenses, although there can be no assurance thereof. The accompanying consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If we fail to generate positive cash flow or obtain additional financing, when required, we may have to modify, delay, or abandon some or all of our business and expansion plans.

F-4

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3- Fair Value Measurements

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.
 
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level of input that is significant to the fair value measurement of the instrument.

The following table provides a summary of the fair value of our derivative liabilities as of March 31, 2018 and December 31, 2017:

 
Fair value measurements on a recurring basis
 
 
Level 1
 
Level 2
 
Level 3
 
As of March 31, 2018:
           
Liabilities
           
Derivative liabilities
 
$
-
   
$
-
   
$
647,697
 
 
                       
As of December 31, 2017:
                       
Liabilities
                       
Derivative liabilities
 
$
-
   
$
-
   
$
497,988
 

Note 4- Loans Payable

The Company has received loans from third parties in prior fiscal years, 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 March 31, 2018 and December 31, 2017:

 
 
Note Payable
   
Accrued interest
 
Balance, December 31, 2016
 
$
17,000
   
$
4,218
 
Additions
   
-
     
1,848
 
Balance, December 31, 2017
   
17,000
     
6,066
 
Additions
   
-
     
456
 
Balance, March 31, 2018
 
$
17,000
   
$
6,522
 
F-5

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5- Convertible Notes

At March 31, 2018 and December 31, 2017, convertible notes payable consisted of the following:
 
 
 
March 31,
2018
   
December 31,
2017
 
Principal amount
 
$
226,180
   
$
205,430
 
Less: unamortized debt discount
   
(22,343
)
   
(11,721
)
          Financing costs
   
(894
)
   
(565
)
Convertible notes payable, net
 
$
202,943
   
$
193,144
 

(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.

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.

F-6

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5- Convertible Notes (continued)

(1)  
Convertible notes originally due on November 27, 2015 (cont'd)

The carrying value of these convertible notes is as follows:

As at March 31, 2018 and December 31, 2017, the carrying values of the convertible debenture was $125,000.
 
During the three months ended March 31, 2018 and 2017, accrued convertible interest thereon was $3,116.

The notes came due on January 1, 2017 and are currently in default.

 (2)  
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.

(3)  
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.

During the three months 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 March 31, 2018 the carrying value of the back-end convertible debenture and accrued convertible interest thereon were $49,680 and $12,045 respectively. 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.
F-7

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5- Convertible Notes (continued)

(4)  
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.

(5)  
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. Upon an event of default, the interest rate is increased to 15% per annum. 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 March 31, 2018 the carrying value of the convertible debenture and accrued convertible interest thereon were $15,000 and $902, respectively. As at December 31, 2017 the carrying value of the convertible debenture and accrued convertible interest thereon were $14,592 and $368, respectively.

(6)  
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.   On January 15, 2019 a further $15,000, inclusive of $750 in legal fees, and on March 8, 2018 additional $5,000, had been received. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion.

As at March 31, 2018 the carrying value of the convertible debenture and accrued convertible interest thereon were $13,263 and $918, respectively. The unamortized debt discount was
$23,237 and $11,878, respectively as of March 31, 2018 and December 31, 2017, and the carrying value of the convertible debenture and accrued convertible interest thereon was $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)
F-8

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5- Convertible Notes (continued)

The following table sets forth interest expense for amortization of the debt discount and financing costs recognized related to the above convertible notes:

 
Three Months ended March 31,
 
 
2018
 
2017
 
Amortization of financing costs
 $
422
   $
4,692
 
Amortization of debt discount
 
9,377
   
51,524
 
Total
 $
9,799
   $ 56,216  

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. 
 
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.  There were no share issuances during the three months ended March 31, 2018.

As at March 31, 2018 and December 31, 2017 the Company had 1,602,995,014 shares of common stock issued and outstanding

Series A Preferred Shares

As at March 31, 2018 and December 31, 2017 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.   
 




F-9

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 7 - Derivative Liabilities

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 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.   On January 15, 2018 a further $15,000, inclusive of $750 in legal fees, and on March 8, 2018 additional $5,000, had been received. 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.    Upon issuance, a total of $26,387, the day one loss on the notes, was recorded as a change in the fair value of the derivative liability.

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.

As a result of the application of ASC No. 815 in period ended March 31, 2018 and December 31, 2017, the fair value of the conversion feature associated with the convertible loans is summarized as follows:

Balance at December 31, 2017
 
$
497,988
 
Derivative additions associated with convertible notes
   
20,000
 
Loss on change in fair value during the period
   
129,709
 
Balance at March 31, 2018
 
$
647,697
 


 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 March 31, 2018, December 31, 2017 and commitment date:

 
Commitment
Date
 
March 31,
2018
 
December 31,
2017
 
Expected dividends
   
0
     
0
     
0
 
Expected volatility
319.13%~453.80%
 
286.05%~361.56%
 
572.51% ~ 1,194%
 
Expected term
0 ~ 0.98 years
 
0.07~0.53 years
 
0 ~ 0.74 years
 
Risk free interest rate
0.55~1.33%
 
0.44~0.62%
 
1.28% ~ 1.65%
 

F-10

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 guaranteed 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

Note 9 – Related Party Transactions

Transactions with David Gasparine

In October 2015,  the board agreed to increase Mr. Gasparine's salary under an employment agreement originally entered into during fiscal 2014 to $72,000 per annum.

During the three months ended March 31, 2018 and 2017, the Company accrued additional fees of $18,000 respectively for services provided by Mr. Gasparine. The Company paid $7,000, net to Mr. Gasparine in the current three month period (2017 - $6,640), leaving $96,191 and $86,731, respectively, on the balance sheets as accounts payable and accrued liabilities – related parties as at March 31, 2018 and 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 March 31, 2018 and December 31, 2017 a cumulative total of $1,862 and $1,562, respectively, 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.
F-11

EPOXY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 10 – Other Liability

(a)  
During the three months ended March 31, 2016 the Company entered into various agreements with a telephone service provider (the "Client") for the launch of the Epoxy App at its corporate and franchise locations. Under the terms of the agreement, Epoxy would offer training to the corporate location and the term would run twelve months from the launch of the Epoxy App.  As consideration the Company would receive fees from certain locations in advance, totaling $23,400.  Subsequent to the execution of the agreements the Client revised its corporate focus.  As a result, the Company has recorded the entire fee remitted as deferred revenue until such time as a formal unwinding of the agreement is complete. As at March 31, 2018 and December 31, 2017, the amounts received remain in other liability as the Company has not yet concluded the unwinding of the agreement. At the date this report, executive management of the Client has not responded to management requests to complete the formal unwinding of the agreement.
 
(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.  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 March 31, 2018 and at December 31, 2017, the amounts received remained in other liability. 

Note 11 – Subsequent events

The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no additional subsequent events to disclose.

F-12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
This current report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "intends", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results, later events or circumstances or to reflect the occurrence of unanticipated events.

In this report unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to the common shares of our capital stock.

The management's discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission on June 8, 2018 along with the accompanying notes.  As used in this quarterly report, the terms "we", "us", "our", and the "Company" means Epoxy, Inc. and its wholly owned subsidiary Couponz, Inc.

Current Business

On July 19, 2013, the Company entered into an agreement to purchase Couponz, Inc. ("Couponz"), a company incorporated in the State of Nevada.  Under the agreement, the Company had the right to acquire 100% of the ownership of Couponz, Inc. in exchange for the issuance of 24,514,319 shares of preferred stock of the Company and $100,000. The agreement provided for the preferred shares issued to be designated as 1 share of preferred to carry 15 shares of common voting rights and to be convertible into common shares on the basis of 2.5 shares of common for each 1 share of preferred. Mr. David Gasparine, the sole director of Epoxy Inc., is also the controlling shareholder of Couponz, Inc., and, as such, the transaction is considered to be non-arm's length.  Mr. Gasparine became the controlling shareholder of the Company concurrent with the completion of the transaction.
 
On November 1, 2013, the Company completed the aforementioned transaction and Couponz, Inc. became a wholly owned subsidiary of the Company.

The Company, initially through its wholly owned subsidiary, Couponz, Inc., and now primarily via operations undertaken by Epoxy, Inc directly, 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.

Our goal is to provide a simple and easy to use platform for consumers to find business information, including but not limited to product and service descriptions, promotions, loyalty programs, and customer reviews, as well as to provide business owners a simple and easy to use platform to promote their businesses to mobile app users. Through the use of research and development we will be able to continue evolving our platform and features provided for our users.
 
Epoxy's 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.
4


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.
 
We plan to expand geographically in stages.  We have already obtained various customers beyond the Las Vegas market and into certain Southwestern United States, as well as client accounts in Canada. Our initial target for expansion was focused on Southern California but we have been expanding to new markets as the opportunity presents itself.  By December 2019 we plan to expand nationally by adding customers with a national presence to our portfolio. As we experience each stage of growth, we plan to increase our staff primarily through commission-based sales people, as opposed to salaried or hourly wage employees, thus minimizing the financial burden of each stage of expansion. We believe that this plan for expansion will also minimize the need for additional outside financing, as we plan to fund our growth primarily through the growth of our paying customer base. In addition, as we move from single customer locations to larger corporate bodies with numerous franchise or store front locations we will adjust the per location pricing of our program to suit our customer's budget and needs.  In addition, we offer training, customized development and product support where applicable for a one time development fee.
 
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.
 
Couponz's product is marketed to Mobile App Users as well as Business owners.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017.

Our net loss for the three month periods ended March 31, 2018 and 2017 is as follows:

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2018
   
2017
 
 
           
Revenue
 
$
33,823
   
$
41,053
 
 
               
Operating Expenses
               
Depreciation, and impairment
   
7,695
     
-
 
Software research and development
   
12,448
     
2,880
 
General and administrative expenses
   
67,994
     
64,358
 
Total operating expenses
   
88,137
     
67,238
 
 
               
Loss from operations
   
(54,314
)
   
(26,185
)
 
               
Other Income (Expenses):
               
Loss on change in fair value of derivative liabilities
   
(129,709
)
   
(440,558
)
Interest expenses
   
(17,936
)
   
(61,220
)
Total other income (expenses)
   
(147,645
)
   
(501,778
)
 
               
Net loss
 
$
(201,959
)
 
$
(527,963
)

5

During the comparative three month periods ended March 31, 2018 and 2017 the Company experienced a decline in period over period revenue as certain previously deferred revenues in the amount of $29,000 were brought into income during the three months ended March 31, 2017, with no similar transactions during the comparative three months ended March 31, 2018.  The Company experienced a substantial increase to operating expenses as software development costs increased from $2,880 in the three months ended March 31, 2017 to $12,448 in the current period as we continued to upgrade our product offerings. In addition, the Company recorded a one time impairment of $7,695 relative to the write down of its previously capitalized trademark and patent application costs in the current three months ended March 31, 2018 with no prior expense in the comparative period.  During the current three month period the Company has been actively seeking additional capital by way of loans and equity financings in order to meet operational shortfalls.  

Liquidity and Financial Condition

Working Capital
 
 
At
March 31, 2018
   
At
December 31, 2017
 
Current Assets
 
$
7,193
   
$
9,160
 
Current Liabilities
 
$
1,325,029
   
$
1,132,907
 
Working Capital (Deficit)
 
$
(1,317,836
)
 
$
(1,123,747
)
 
The substantial increase to our working capital deficit is related to the valuation of our derivative liabilities which increased dramatically period over period.

Cash Flows
 
 
Three month periods ended March 31,
 
 
 
2018
   
2017
 
Net cash used in operating activities
 
$
(21,967
)
 
$
(36,048
)
Net cash provided by (used in) investing activities
   
-
     
-
 
Net cash provided by financing activities
 
$
20,000
   
$
41,500
 
Net increase (decrease) in cash during period
 
$
(1,967
)
 
$
5,452
 

Operating Activities
 
Net cash used in operating activities was $21,967 for the three-month period ended March 31, 2018 compared with cash used in operating activities of $36,048 in the same period in 2017. The decrease in cash used in operating activities is predominantly attributable to various non-cash reconciliation adjustments including substantial reductions to the accretion of debt discount on convertible notes and the change in the fair value of our derivative liabilities.  We continued to record increases to accounts payable and related party payables in the current and prior comparative period, as we were not able to retire our obligations as they became due. During fiscal 2017 we were able to bring certain prior deferred revenues in the amount of $29,000 into income, with no similar results in the current three months ended March 31, 2018.
 
Investing Activities
 
There were no investing activities during the three-month period ended March 31, 2018 and 2017.
 
Financing Activities
 
Net cash provided by financing activities was $20,000 for the three-month period ended March 31, 2018 compared to $41,500 of cash provided in the same period in 2017. All amounts relate to convertible notes payable entered into in the respective periods.
6

 
Going Concern
 
Company had a working capital deficit as of March 31, 2018. The Company believes that its existing capital resources may not be adequate to enable it to execute its business plan. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The Company estimates that it will require additional cash resources during 2018 based on its current operating plan and condition. The Company expects cash flows from operating activities to improve, primarily as a result of an increase in revenue and a decrease in certain operating expenses, although there can be no assurance thereof. The accompanying condensed 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.
 
Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements that will have a current or future effect on our financial condition and changes in financial condition.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements.  Refer to Note 2 of the Financial Statements included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on June 8, 2018.
 
Recent Accounting Pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the results of its operations.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide this information.
  
ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.
 
As of the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.
 
Changes in Internal Control over Financial Reporting
 
During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
7


PART II – OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings and is not aware of any pending legal proceedings as of the date of this Form 10-Q.

ITEM 1A. RISK FACTORS

The Company is a smaller reporting company and is not required to provide this information.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
There were no unregistered securities to report which were sold or issued by the Company without the registration of these securities under the Securities Act of 1933 in reliance on exemptions from such registration requirements, within the period covered by this report, which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company does not have any senior securities as of the date of this Form 10-Q.
  
ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable
 
ITEM 5. OTHER INFORMATION

None

ITEM 6.  EXHIBITS

Exhibit Description
Filed herewith
Exhibit
Incorporated by reference
Filing Date
 
X
   31.1
 
 
X
   31.2
 
 
 X 
   32.1
 
 
 X
  101
 
 


8


 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 
EPOXY, INC.
 
 
 
 
 
Date: June 22, 2018
By:
/s/ David Gasparine
 
 
Name:
David Gasparine
 
 
Title:
Chief Executive Officer (Principal Executive Officer), Treasurer, (Principal Financial Officer) Secretary, and Director
 

 






9