Indicate by check mark if the registrant is a well-known seasoned registrant, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
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 past 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 [ ] No [X ]
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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act:
Indicate by check mark whether the registrant is a shell company (as defined in Rule l2b-2 of the Exchange Act). Yes [ ] No [X]
If an emerging growth company, indicate by check made if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 7(a)(2)(B) of the Securities Act. [ ]
As of June 30, 2017, the aggregate market value of the common equity held by non-affiliates computed by reference to the price at which the common equity was last sold on such date was approximately $318,866.
The number of shares outstanding of the registrant's
common stock, par value $0.0001 per share, as of June 30, 2017 was 2,029,245,095.
This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as anticipate, believe, estimate, intend, could, should, would, may, seek, plan, might, expect, anticipate, predict, project, forecast, potential, continue and negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties associated with such forward-looking statements. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and include information concerning possible or assumed future results of our operations, including statements about business strategies; future cash flows; financing plans; plans and objectives of management; future cash needs; future operations; business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report on Form 10-K and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report on Form 10-K.
Except to the extent required
by law, we undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, a change
in events, conditions, circumstances or assumptions underlying such statements,
or otherwise.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
SoOum Corporation
We have audited the accompanying consolidated balance sheet of SoOum Corporation (the Company) as of December 31, 2016, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the three months then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SoOum Corporation as of December 31, 2016, and the results of its operations and its cash flows for the three months then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note N to the consolidated financial statements, although the Company has established a source of revenues to cover certain of its operating costs, it incurred a loss in 2016 and cannot support a salary for its chief executive officer. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to this matter is also described in Note N to the consolidated financial statements. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
HALL & COMPANY Certified Public Accountants and Consultants
Irvine, CA
July 24,
2017
F-2
SoOum
Corp.
|
New York, New York
|
|
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
|
|
ASSETS
|
|
|
|
Current Assets
|
|
|
|
Cash and Cash Equivalents
|
|
|
$ 122,921
|
Accounts Receivable - Net of Allowance for Doubtful Accounts
|
|
|
112,929
|
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
|
|
|
3,628
|
Employee Advances
|
|
|
5,089
|
Notes Receivable - Related Parties
|
|
|
147,091
|
|
|
|
|
Total Current Assets
|
|
|
391,658
|
|
|
|
|
Property and Equipment - Net of Accumulated Depreciation
|
|
|
384,590
|
|
|
|
|
Intangibles - Net of Accumulated Amortization
|
|
|
532,500
|
Goodwill
|
|
|
2,537,697
|
|
|
|
|
Total Assets
|
|
|
$ 3,846,445
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Current Liabilities
|
|
|
|
Line of Credit
|
|
|
$ 977,933
|
Notes Payable - Current Portion
|
|
|
496,671
|
Notes Payable - Related Parties
|
|
|
1,397,265
|
Accounts Payable
|
|
|
1,633,811
|
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
|
|
|
32,957
|
Accrued Expenses
|
|
|
3,044,640
|
Customer Deposit
|
|
|
3,905
|
Judgements Payable
|
|
|
1,147,203
|
Stock Payable
|
|
|
5,000
|
Convertible Debt - Net of Discounts
|
|
|
486,460
|
Derivative Liability
|
|
|
641,271
|
|
|
|
|
Total Current Liabilities
|
|
|
9,867,116
|
|
|
|
|
Other Liabilities
|
|
|
|
Notes Payable - Net of Current Portion
|
|
|
78,808
|
|
|
|
|
Total Liabilities
|
|
|
9,945,924
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
Common Stock - $.0001 Par; 5,000,000,000 Shares Authorized,
|
|
|
|
1,062,696,295 Issued
and Outstanding
|
|
|
106,270
|
Preferred Stock: $0.0001 Par; 50,000,000 Shares Authorized,
|
|
|
|
25,000,000 Issued and Outstanding
|
|
|
2,500
|
Preferred Stock Class B: $0.0001 Par; 10,000,000 Shares Authorized,
|
|
|
|
9,100,000 Issued and Outstanding
|
|
|
910
|
Preferred Stock Class C: $0.0001 Par; 10,000,000 Shares Authorized,
|
|
|
|
1,690,000 Issued and Outstanding
|
|
|
169
|
Additional Paid-In-Capital
|
|
|
14,445,510
|
Accumulated Deficit
|
|
|
(20,654,838)
|
|
|
|
|
Total
Stockholders' Deficit
|
|
|
(6,099,479)
|
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
|
|
$ 3,846,445
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
F-3
SoOum
Corp.
|
New York, New York
|
|
|
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
|
For the Three Months Ended December 31, 2016
|
|
|
|
|
|
Revenues, Net
|
|
$ 638,660
|
|
|
|
Cost of Sales
|
|
629,812
|
|
|
|
Gross Profit
|
|
8,848
|
|
|
|
Expenses
|
|
|
General and Administrative
|
|
149,841
|
|
|
|
Total Expenses
|
|
149,841
|
|
|
|
Loss Before Other Income and (Expense)
|
|
(140,993)
|
|
|
|
Other Income and (Expense)
|
|
|
Change in Fair Value of Derivative
|
|
307,944
|
Extinguishment of Debt
|
|
(497,295)
|
Other
|
|
(1,017)
|
Interest Expense
|
|
(20,296)
|
Interest Income
|
|
4,800
|
|
|
|
Total Other Income and (Expense), Net
|
|
(205,864)
|
|
|
|
Loss from Operations Before
|
|
|
Provision for Taxes
|
|
(346,857)
|
|
|
|
Provision for Taxes
|
|
|
|
|
|
Net Loss
|
|
$ (346,857)
|
|
|
|
Weighted Average Number of Common Shares Outstanding
|
|
|
Basic and Diluted
|
|
874,719,839
|
|
|
|
Net Loss Per Common Share - Basic & Diluted
|
|
($0.00)
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
F-4
SoOum
Corp.
|
New York, New York
|
|
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
For the Three Months Ended December 31, 2016
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
Net Loss
|
|
$ (346,857)
|
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
|
|
Amortization
|
|
7,500
|
Depreciation
|
|
53,778
|
Loss on Sale of Assets
|
|
857
|
Loss on Debt Extinguishment
|
|
497,295
|
Interest Expense on Derivative and Discounts
|
|
4,536
|
Change in Fair Value of Derivative
|
|
(307,944)
|
Changes in Assets and Liabilities:
|
|
|
Accounts Receivable
|
|
185,644
|
Other
|
|
9,911
|
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
|
|
(1,653)
|
Accounts Payable
|
|
374,430
|
Accrued Expenses
|
|
(460,729)
|
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
|
|
(35,402)
|
|
|
|
Net Cash Flows Used In Operating Activities
|
|
(18,634)
|
|
|
|
Cash Flows From Investing Activities
|
|
|
Proceeds from Sale of Equipment
|
|
2,000
|
Cash Acquired in Purchase of Western Grade
|
|
118,142
|
Cash Received on Notes Receivable
|
|
5,000
|
|
|
|
Net Cash Flows Provided by Investing Activities
|
|
125,142
|
|
|
|
Cash Flows From Financing Activities
|
|
|
Borrowings on Line of Credit, Net
|
|
18,845
|
Proceeds from Notes Payable, net
|
|
1,986
|
Repayment of Convertible Notes Payable
|
|
(12,020)
|
Cash Proceeds from Sale of Common Stock
|
|
500
|
|
|
|
Net Cash Flows Used In Financing Activities
|
|
9,311
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
115,819
|
|
|
|
Cash and Cash Equivalents - Beginning of Period
|
|
7,102
|
|
|
|
Cash and Cash Equivalents - End of Period
|
|
$ 122,921
|
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for:
|
|
|
Interest
|
|
|
Income Taxes
|
|
|
|
|
|
Non Cash Investing and Financing Activities:
|
|
|
Intangibles Acquired
|
|
$ 540,000
|
Goodwill Acquired
|
|
$ 2,537,697
|
Net Tangible Liabilities Acquired
|
|
$ 852,697
|
Fair Value of Beneficial Conversion Feature
|
|
$ 35,500
|
Common Stock Issued Upon Conversion of Notes Payable
|
|
$ 27,265
|
Reclassification of Derivative to Additional Paid in Capital
|
|
$ 308,044
|
Conversion of Accrued Expenses to Common Stock
|
|
$ 45,000
|
Conversion of Preferred Stock to Common Stock
|
|
$ 46,120
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
F-5
SoOum Corp.
|
New York, New York
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN DEFICIT FOR THE THREE MONTHS ENDED DECEMBER
31 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Preferred Stock
|
|
Preferred Stock - Class B
|
|
Preferred Stock - Class C
|
|
Preferred Stock - Class D
|
|
Additional
|
|
|
|
Total
|
|
$ .0001 Par
|
|
$ .0001 Par
|
|
$ .0001 Par
|
|
$ .0001 Par
|
|
$ .0001 Par
|
|
Paid-In
|
|
Accumulated
|
|
Stockholders'
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - October 1, 2016
|
106,817,927
|
|
10,682
|
|
25,000,000
|
|
2,500
|
|
9,100,000
|
|
910
|
|
1,690,000
|
|
169
|
|
3,441,000
|
|
344
|
|
11,899,445
|
|
(20,307,981)
|
|
(8,393,931)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for Note Payable Conversions
|
59,053,368
|
|
5,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,360
|
|
|
|
27,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued to Relieve Accrued Expenses
|
15,000,000
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,500
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Western Grade
|
445,000,000
|
|
44,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,180,500
|
|
|
|
2,225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Purchase of Stock
|
625,000
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of Derivative Liability to APIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,044
|
|
|
|
308,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value of Beneficial Conversion Feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,500
|
|
|
|
35,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series D Preferred Stock
|
436,200,000
|
|
43,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,441,000)
|
|
(344)
|
|
(43,276)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(346,857)
|
|
(346,857)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2016
|
1,062,696,295
|
|
$106,270
|
|
25,000,000
|
|
$ 2,500
|
|
9,100,000
|
|
$ 910
|
|
1,690,000
|
|
$ 169
|
|
|
|
$
|
|
$
14,445,510
|
|
$(20,654,838)
|
|
$ (6,099,479)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements
F-6
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A The Company
SoOum Corp., formerly known as Swordfish Financial, Inc., (a Texas Corporation), acquired 80% of the outstanding common stock of Nature Vision, Inc. pursuant to a stock acquisition/merger agreement on August 14, 2009. As a result of the merger, Nature Vision changed its name to Swordfish Financial, Inc. (Swordfish).
On September 23, 2014, Swordfish entered into a Securities Purchase Agreement with 100% of the common stock shareholders (the Sellers) of SoOum Corp. Upon the closing of the transaction on November 10, 2014, SoOum Corp. shareholders transferred all of their outstanding shares of common stock to SoOum Holdings, Inc., a wholly owned subsidiary of Swordfish. In consideration, Swordfish issued 9,100,000 shares of its Class B Preferred stock and 1,690,000 shares of its Class C preferred Stock. The Class B Preferred Stock is convertible at the rate of 1 common share to 1. The Class C Preferred Stock is convertible at the rate of 10 common shares to 1. Class B and Class C have voting rights of 1,000 to 1 per share. As a result of the merger Swordfish Financial, Inc. changed its name to SoOum Corp.
Effective with the merger, SoOum Corp. changed its business focus to international commodity trading arbitrage. The Company will use its own proprietary technology to identify and exploit arbitrage opportunities. SoOum also plans to distribute trade intelligence to global subscribers in order to solve supply shortages and bring new business to local manufacturers.
Material Definitive Agreement
On August 25, 2016, SoOum Corp (the Predecessor) entered
into a Securities Purchase Agreement with one hundred percent (100%) of the
members (the Sellers) of Western Grade LLC (the Successor or WG). Upon
the closing of the transaction on October 6, 2016 (for accounting purposes),
Western Grade LLC members transferred all of their outstanding ownership interests
to SoOum Corp. In consideration, SoOum Corp. issued 445,000,000 shares of common
stock to the Sellers. The common stock received by the members of Western Grade
LLC, represent an ownership interest in SoOum Corp of approximately 42%. Western
Grade LLC is now a wholly owned subsidiary of SoOum Corp. See Form 8-K filed
by SoOum Corp. on October 6, 2016 for more detail.
The acquisition method of accounting was used to record assets acquired and liabilities assumed by Successor. Such accounting generally results in increased amortization and depreciation reported in future periods. Accordingly, the consolidated financial statements of the Predecessor and Successor are not comparable in all material respects since those consolidated financial statements report financial position, results of operations, and cash flows of these two separate entities. Western Grade's fixed assets and identifiable intangible assets acquired were recorded based upon their estimated fair values as of the closing date of the Acquisition. The excess of purchase price over the value of the net assets acquired was recorded as intangible assets, including an allocation to goodwill.
For periods after the acquisition of Western Grade (since October 6, 2016), our financial results are referred to as Successor and its results of operations combines SoOum Corp. operations and Western Grade's operations. For periods prior to the acquisition of Western Grade our financial results are referred to as Predecessor and its operations includes only the operations of Western Grade.
Successor
Western Grade LLC was formed as an Arizona Limited Liability Company in 2001. The latest date this entity can dissolve is December, 2050. WG operates as a general industrial contractor within the State of Arizona. Contracts are performed on a fixed price; fixed price per-unit; and a time and material basis. Additionally, WG provides transportation services, primarily hauling and delivering material aggregates.
F-7
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A The Company continued
Principles of Consolidation
The consolidated financial statements include the accounts of SoOum Corp., and its wholly owned subsidiaries; Nature Vision, Inc., Western Grade and SoOum (collectively the Company). All significant inter-company balances have been eliminated in consolidation.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include all adjustments necessary for the fair presentation of the Company's financial position for the periods presented.
The Company currently operated in two business segments.
NOTE B Summary of Significant Accounting Policies
Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company's significant and critical accounting policies and practices are disclosed below.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents at financial institutions, which periodically may exceed federally insured amounts.
Income Taxes
The Company accounts for income taxes in accordance with generally accepted accounting principles which prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
The Company evaluates all significant tax positions as required by accounting principles generally accepted in the United States of America. As of December 31, 2016, the Company does not believe that it has taken any positions that would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the next year. It is the Company's policy to recognize any interest and penalties in the provision for taxes.
F-8
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B Summary of Significant Accounting
Policies- continued
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates. The more significant assumptions by management include among others: allowance for doubtful costs and estimated earnings in of billings on contracts, billings in excess of costs and earnings on uncompleted contracts, fair value of derivative liabilities, recovery of goodwill, the valuation of equity based instruments and their beneficial conversion features. Actual results could differ from those estimates. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Accounts Receivable
Contract receivables are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance for doubtful accounts based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable. Allowance for doubtful accounts was approximately $4,000 at December 31, 2016.
Property, Equipment and Depreciation
Property and equipment are stated at cost, less accumulated depreciation computed using the straight line method over the estimated useful lives as follows:
Construction
Equipment and Trucks
5 - 7 Years
Office Equipment
3 - 7 Years
Maintenance and repairs are charged to expense. The cost of the assets retired or otherwise disposed of and the related accumulated depreciation are removed from the accounts.
Fair Value of Financial Instruments
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and notes payable approximate fair value given their short-term nature or effective interest rates.
Long-Lived Assets
The Company reviews our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company evaluates assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the assets. If the carrying amount of the assets exceeds the estimated future undiscounted cash flows, impairment is measured based on the difference between the carrying amount of the assets and fair value. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. During the three months ended December 31, 2016, the Company did not recognize any impairment of our long-lived assets.
F-9
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B Summary of Significant Accounting Policies continued
Revenue Recognition
The Company follows the percentage of completion method of accounting for construction contracts. Income is recognized in the ratio that costs incurred bears to estimated total costs. That method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. The aggregate of costs incurred and income recognized on uncompleted contracts in excess of related billings is shown as a current asset, and the aggregate of billings on uncompleted contracts in excess of related costs and income recognized is shown as a current liability.
Revenue from cost-plus and time and material contracts are recognized currently as the work is performed and billed. Revenue from transportation services is recognized currently as the work is performed and billed.
Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. Selling, general and administrative costs are charged to expense as incurred.
For its non-construction contracts the Company recognizes revenue from product
sales or services rendered when the following four revenue recognition criteria
are met: persuasive evidence of an arrangement exists, delivery has occurred
or services have been rendered, the selling price is fixed or determinable,
and collectability is reasonably assured.
Advertising Expense
Advertising costs are expensed as incurred and are included in general and administrative expense in the accompanying consolidated statements of operations. Advertising costs were approximately $1,000 for the three months ended December 31, 2016.
F-10
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B Summary of Significant Accounting Policies continued
Earnings per Share
Earnings per share of common stock are computed in accordance with the Financial Accounting Standards Board (FASB) ASC 260, Earnings per Share. Basic earnings per share are computed by dividing income or loss available to common shareholders by the weighted-average number of common shares outstanding for each period. Diluted earnings per share are calculated by adjusting the weighted average number of shares outstanding assuming conversion of all potentially dilutive stock options, warrants and convertible securities, if dilutive. Common stock equivalents that are anti-dilutive are excluded from both diluted weighted average number of common shares outstanding and diluted earnings per share.
Employee Stock Based Compensation
Stock based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock based award is recognized as an expense over the requisite service period of the award on a straight-line basis.
For purposes of determining the variables used in the calculation of stock based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our consolidated statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our consolidated financial statements.
Non-Employee Stock Based Compensation
Issuances of the Company's common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a "performance commitment" which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Goodwill
Goodwill is the cost of an acquisition less the fair value of the net assets of the acquired business.
F-11
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B Summary of Significant Accounting Policies continued
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
The Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. The Company uses a lattice model for valuation of the derivative.
When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net cash settlement of the derivative instrument could be required within the 12 months of the balance sheet date.
Concentrations, Risks, and Uncertainties
Seasonality
The business is subject to substantial seasonal fluctuations. Historically, a significant portion of net sales and net earnings have been realized during the period from April through October.
Reportable Segments
Our reporting segments consist of: a) Arbitrage; and b) Construction Services; Our Chief Executive Officer has been identified as the chief decision maker. Our operations are conducted primarily within the United States of America
F-12
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C Recently Issued Accounting Standards
Financial Accounting Standards Board, or FASB, Accounting Standards Update, or FASB ASU 2017-04 Simplifying the Test for Goodwill Impairment (Topic 350)
In January 2017, the FASB issued 2017-04. The guidance removes Step Two of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The ASU is effective for annual reporting periods beginning after December 15, 2019, and for interim periods within those years, with early adoption permitted. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.
FASB ASU 2017-01 Clarifying the Definition of a Business (Topic 805)
In January 2017, the FASB issued 2017-1. The new guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU is not expected to have a significant impact on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-15 Statement of Cash Flows (Topic 230)
In August 2016, the FASB issued 2016-15. Stakeholders indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU will not have a significant impact on our statement of cash flows.
FASB ASU 2016-12 Revenue from Contracts with Customers (Topic 606)
In May 2016, the FASB issued 2016-12. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-12 provides clarification on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-11 Revenue Recognition
(Topic 605) and Derivatives and Hedging (Topic 815)
In
May 2016, the FASB issued 2016-11, which clarifies guidance on assessing
whether an entity is a principal or an agent in a revenue transaction. This
conclusion impacts whether an entity reports revenue on a gross or net basis. This
ASU is effective for annual reporting periods beginning after December 15,
2017, with the option to adopt as early as December 15, 2016. We are currently
assessing the impact of adoption of this ASU on our consolidated results
of operations, cash flows and financial position.
F-13
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C Recently Issued Accounting Standards - continued
FASB ASU 2016-10 Revenue from Contracts with Customers (Topic 606)
In April 2016, the FASB issued ASU 2016-10, clarify identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.
FASB ASU 2016-09 Compensation Stock Compensation (Topic 718)
In March 2016, the FASB issued ASU 2016-09, which includes multiple provisions intended to simplify various aspects of accounting for share-based payments. The new guidance will require entities to recognize all income tax effects of awards in the income statement when the awards vest or are settled. It also will allow entities to make a policy election to account for forfeitures as they occur. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We do not expect this standard will have a significant impact on our consolidated financial statements and related disclosures.
FASB ASU 2016-02 Leases (Topic 842)
In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. We are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.
FASB ASU 2015-17 Income Taxes (Topic 740)
In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. We are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.
FASB ASU 2015-16 Business Combinations (Topic 805), or ASU 2015-16
- In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU is effective for interim and annual reporting period beginning after December 15, 2016, including interim periods within those fiscal years, with the option to early adopt for financial statements that have not been issued. We will apply this guidance to any business combinations that may occur.
F-14
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C Recently Issued Accounting Standards - continued
FASB ASU 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory, or ASU 2015-11
- In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim period. We do not expect the adoption of this ASU to have a significant impact on our financial position, results of operations and cash flows.
NOTE E Notes Receivable, net Related Parties
Notes receivable related parties consist
of the following. All notes are due on demand.
|
|
|
December 31, 2016
|
Notes Receivable
|
|
Western Capital PIT 100% Owned by Shareholder
|
$ 156,231
|
Notes Payable
|
|
Western Materials 50% Owned by Shareholder
|
(9,140)
|
|
|
Total Notes Receivable, net Related Parties
|
$ 147,091
|
NOTE F Acquisition of Western Grade and Intangibles
On October 6, 2016, the Company exchanged each issued and outstanding share of membership interest of Western Grade, LLC (the "Acquisition") for the issuance of common shares of SoOum Corp. Upon the closing of the Acquisition, the Company received all of the operating assets of WG.
With the acquisition of WG, the
Company plans to stabilize cash flow of SoOum and utilize WG for strategic
growth.
The purchase price of WG was the issuance
445,000,000 shares of common stock valued at $2,225,000 (based on the Company's
stock price on the date of issuance). The Company accounted for the Acquisition
using the acquisition method of accounting.
|
|
|
|
|
|
|
|
|
|
Total Purchase Consideration:
|
|
|
|
|
Estimated fair value of common stock
|
|
$
|
2,225,000
|
|
|
|
$
|
2,225,000
|
|
F-15
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F Acquisition of Western Grade and Intangibles - continued
The following table
approximates
the
estimated fair values of the tangible and intangible assets acquired
as of the date of acquisition:
|
|
|
|
Net
assets acquired:
|
|
|
|
Current assets
|
|
$
|
576,000
|
Equipment
|
|
|
441,000
|
Other assets
|
|
|
|
Current liabilities
|
|
|
(1,544,000)
|
Other liabilities
|
|
|
(326,000)
|
Marketing related
|
|
|
240,000
|
Customer list
|
|
|
300,000
|
Goodwill
|
|
|
2,538,000
|
|
|
$
|
2,225,000
|
Goodwill is the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. In accordance with applicable accounting standards, goodwill is not amortized but instead is tested for impairment at least annually or more frequently if certain indicators are present.
Intangibles are recorded at cost. Marketing is not amortized as the life is indefinite. Customer List is amortized over a 10 year life.
|
|
|
December 31, 2016
|
|
|
Marketing Related
|
$ 240,000
|
Customer List
|
300,000
|
|
540,000
|
Less: Accumulated Amortization
|
(7,500)
|
|
|
Net Intangibles
|
$ 532,500
|
Amortization expense for the three months
ended December 31, 2016 was $7,500.
As with all acquisitions, there are numberous challenges to integrating such businesses. As SoOum and WG operate in different industries, the streamlining of processes and procedures is challenging. Although management of the Company desires efficient operations between the entities, such operations could be impractical and result in ineffective or ceased operations.
F-16
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G Property and Equipment
Property and equipment are recorded at cost
and consisted of the following:
|
|
|
December 31, 2016
|
|
|
Construction Equipment and Trucks
|
$ 2,827,516
|
Office Equipment
|
67,966
|
|
$ 2,895,482
|
Less: Accumulated Depreciation
|
(2,510,892)
|
|
|
Net Property and Equipment
|
$ 384,590
|
Depreciation expense for the three months
ended December 31, 2016 was $53,152.
Note H Cost, Estimated Profits and Billings on Uncompleted Contracts
Costs, estimated profits and billings on
uncompleted contracts consisted of the following:
|
|
|
|
|
December 31, 2016
|
|
|
|
|
Costs Incurred on Uncompleted Contracts
|
$ 115,632
|
|
|
Estimated Profits
|
14,100
|
|
|
Total
|
129,732
|
|
|
Billings on Uncompleted Contracts
|
(159,061)
|
|
|
|
$ (29,329)
|
|
|
Included in the Balance Sheet Under the Following Captions:
|
|
|
|
Costs and Estimated Profits in Excess of Billings on
Uncompleted Contacts
|
$ 3,628
|
|
|
Billings in Excess of Costs and Estimated Profits on
Uncompleted Contracts
|
(32,957)
|
|
|
Total
|
$ (29,329)
|
F-17
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I - Notes Payable
Notes payable consisted of the following:
|
|
|
December 31, 2016
|
Jeff Zernov (Former Chief Executive Officer) (a)
|
|
Payable August 17, 2010 at 15% Interest.
|
$ 290,000
|
|
|
Castaic (a)
|
|
Installment note payable annually at $17,171 including interest at 8.0% from January 2009 through January 2011.
|
30,620
|
|
|
Installment note payable monthly at $1,175 including interest at 8.0% from February 2008 through January 2011.
|
20,246
|
|
|
Innovative Outdoors (a)
|
|
Installment note payable monthly at $4,632 including interest at 7.0% from August 2008 through July 2011.
|
100,555
|
|
|
ALLY
|
|
Installment note payable of $773 per month including interest at 4%. Secured by vehicle.
|
19,271
|
|
|
Catapillar Financial Services
|
|
Installment note payable of $2,116 per month including interest at 4.42%. Secured by equipment.
|
59,036
|
|
|
Chase
|
|
Installment note payable of $748 per month including interest at 7.04%. Secured by vehicle.
|
11,034
|
|
|
John Deere
|
|
Installment note payable of $1,505 per month including interest at 8.4%. Secured by equipment.
|
44,717
|
|
|
Total Notes Payable
|
575,479
|
|
|
Less: Current Portion
|
496,671
|
|
|
Notes Payable Net of Current Portion
|
$ 78,808
|
(a) The Company no longer has contact with
these holders and, accordingly, has not accrued interest on such notes since
2014. Such accrual would have increased accrued expenses by approximately
$13,652 at December 31, 2016 and increased interest expense by approximately
$13,652 for the three months then ended.
Interest expense on notes payable for the three months ended December 31, 2016 was $14,375.
The Company has a line of credit with Peoples United Equipment Finance in the amount of $1,010,016 bearing interest at 7.25%. The outstanding balance at December 31, 2016 was $843,565.
The Company has a line of credit with National
Bank in the amount of $150,000 bearing interest at 2.5%. The outstanding balance
at December 31, 2016 was $134,368.
F-18
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Annual maturities of notes payable for the five years succeeding December 31, 2016 are as follows:
|
|
|
|
|
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
$ 496,671
|
$ 52,046
|
$ 26,762
|
$
|
$
|
$
|
NOTE J Convertible Promissory Notes Payable
As of December 31, 2016, the Company has outstanding nine (9) security purchase agreements with accredited investors for the sale of convertible promissory notes bearing interest at 10% - 12%, per annum. Pursuant to the convertible promissory notes the investor may convert the amount paid towards the Securities Purchase Agreements into common stock of the Company. Conversion prices vary based on the agreements and have various discount rates and terms. Trading price means the closing bid price on the OTC Market Over-the-Counter Bulletin Board Pink Sheets.
The conversion rights embedded in the Notes are accounted for as derivative financial instruments because of the down round feature of the conversion price. The embedded conversion feature was valued at the date of issuance and each reporting period using the Black-Scholes-Merton options pricing model with the following assumptions: risk free interest rates ranging from .07% to .45%, contractual expected life of six (6) to twelve (12) months, expected volatility of 185% to 931%, calculated using the historical closing price of the company's common stock, and dividend yield of zero, resulting in fair market value.
The Company had convertible debentures outstanding
as follows:
|
|
|
|
|
|
|
Outstanding Balance of Convertible Debenture
|
Unamortized
Discount
|
Net of Principal and Unamortized Discount
|
|
|
|
|
|
Convertible Debentures
|
|
|
|
|
January 10, 2014 - Debenture
|
|
$ 7,150
|
$
|
$ 7,150
|
April 2, 2014 Debenture
|
|
17,815
|
|
17,815
|
June 18, 2014 Settlement Agreement
|
|
58,420
|
|
58,420
|
September 1, 2015 - Debenture
|
|
327,873
|
|
327,873
|
December 3, 2015 - Debenture
|
|
11,667
|
|
11,667
|
August 29, 2016 - Debenture
|
|
20,000
|
|
20,000
|
August 29, 2016 - Debenture
|
|
24,000
|
|
24,000
|
December 8, 2016 - Debenture
|
|
35,500
|
(30,965)
|
4,535
|
December 13, 2016 - Debenture
|
|
15,000
|
|
15,000
|
|
|
|
|
|
Total Convertible Debentures
|
|
$ 517,425
|
$ (30,965)
|
$ 486,460
|
In connection with the issuance of the note payable on December 8, 2016, the Company recorded a beneficial conversion feature of $35,500 based on the fixed conversion terms of such instrument. During the three months ended December 31, 2016, the Company amortized approximately $4,500 to interest expense.
Note K Related Party Transactions
During the three months ended December 31,
2016 the Company purchased materials for approximately $13,000 from Western
Materials a company partially owned by a shareholder of the Company. Additionally,
the Company subleases its office and yard from Western Materials on a month
to month basis. Total rent expense during the three months ended December 31,
2016 was approximately $7,000.
The Company
leases a vehicle and equipment from a shareholder of the Company on an as
needed basis. Rent expense was approximately $5,000 for the three months
ended December 31, 2016.
F-19
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note K Related Party Transactions
- continued
Notes payable Related Parties consisted
of the following:
The notes to the former member of the Board of Directors are in default and the Company has included approximately $1,347,828 of accrued interest in accrued expenses at December 31, 2016.
|
|
|
|
|
December 31, 2016
|
|
|
R Kiphart Former Member of Board of Directors - Unsecured
|
$ 1,045,000
|
R Kiphart Former Member of Board of Directors - Secured
|
50,000
|
Joy Gillespie-
Shareholder
|
139,078
|
Miscellaneous
(a)
|
163,187
|
|
|
Total Notes Payable - Related Parties
|
$ 1,397,265
|
|
|
(a) The Company no longer has contact with these holders and, accordingly, has not accrued interest on such notes since December 2015. Such accrual would have increased accrued expenses by approximately $164,248 December 31, 2016 and increased interest expense by approximately $41,062 for the three months then ended.
At December
31, 2016, the Company owes a stockholder approximately $140,000. The borrowings are in default and all amounts under the note
are due and payable. The note accrues interest at 5.16%.
Note L Leases
The Company
leases its corporate office space on an annual basis. Rent for the three
months ended December 31, 2016 was $1,200.
In October 2016, the Company entered into a lease for WG's office. The terms of the base require monthly payments of $5,000 from October 1, 2016 through September 30, 2018.
Note M Backlog
The estimated gross revenue to be received on signed contracts at December 31, 2016 was $117,000. This represents three (3) contracts awarded at December 31, 2016 and yet to be completed.
Note N Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has negative working capital and has incurred an operating loss during the three months ended December 31, 2016. These factors raise substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern. Management hopes to raise additional working capital through the issuance of stock and through additional loans from investors.
The ability of the Company to continue as a going concern is dependent on its ability to raise adequate capital to fund operating losses until it is able to engage in profitable business operations. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing its services and meeting its obligations. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements. The accompanying financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.
F-20
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O Accrued Expenses
Accrued
Expenses consisted of the following at December 31, 2016:
|
|
|
December 31,
|
|
2016
|
|
|
Consulting Fees
|
$ 765,379
|
Interest
|
1,681,011
|
Miscellaneous
|
598,250
|
|
|
Total Accrued Expenses
|
$ 3,044,640
|
|
|
NOTE P Stockholders' Equity
Increase in Authorized Shares
On February 6, 2017, the shareholders approved an amendment to the Company's articles of Incorporation to increase the number of authorized common stock to 20,000,000,000 shares from 5,000,000,000 shares.
Preferred Stock
In June 2011, the board of directors approved
the designation of 25,000,000 shares of preferred stock, par value $0.0001
per share, of the Company as Class A Preferred Stock. The Class A Preferred
stock receive no dividends or liquidation preferences. Each share is entitled
to the equivalent of 100 votes of common stock. Each share of Class A is convertible
at a ratio of .01 share of Class A for 10 share of common.
In September 2014, the board of directors
approved the designation of 10,000,000 shares of preferred stock, par value
$0.0001 per share, of the Company as Class B Preferred Stock. The Class B Preferred
stock receives no dividends or liquidation preferences. Each share is entitled
to the equivalent of 1,000 votes of common stock. Each share of Class B is
convertible at a ratio of 1 share of Class B for 1 share of common.
In September 2014, the board of directors
approved the designation of 10,000,000 shares of preferred stock, par value
$0.0001 per share, of the Company as Class C Preferred Stock. The Class C Preferred
stock receives no dividends or liquidation preferences. Each share is entitled
to the equivalent of 10,000 votes of common stock. Each share of Class C is
convertible at a ratio of 1 share of Class C for 10 share of common.
In January 2016, the board of directors approved the designation of 10,000,000 shares of preferred stock, par value $0.001 per share, of the Company as Class D Preferred Stock. The Class D Preferred stock participate in dividends declared on the Company's common stock on the basis of 1,000 shares of common per share of Class D and have no liquidation preference. Each share is entitled to the equivalent of 1,000 votes of common stock. Each share of Class D is convertible at a ratio of 1 share of Class D for 1,000 shares of common.
·
In January 2016, the Company issued 3,441,000 shares of Class D as compensation for services rendered. The Company recorded approximately $4,000,000 of expense related to such issuance.
·
In
October 2016, the holders of the Class D converted all outstanding shares
into 436,200,000 shares of the Company's common stock, foregoing any additional
shares owed under the stated conversion terms.
F-21
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
On October 13, 2015, the Company resolved to adopt the Employees, Directors and Consultants Stock Plan for the Year 2015. The purpose of this Plan is to enable the Company, to promote the interests of the Company and its stockholders by attracting and retaining employees, directors and consultants capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company's stockholders, by paying their fees or salaries in the form of shares of the Company's common stock. 500,000,000 shares of common stock are registered to this plan at an offering price of $0.0001. The Plan expired on January 1, 2017.
During the three months ended December 31, 2016, the Company
issued 59,053,368 shares of common stock for the conversion of debt and accrued
interest of approximately $27,000.
During the three months ended December 31, 2016, the Company
issued 15,000,000 shares of common stock for services rendered. The estimated
fair value of such shares was approximately $45,000, which was expensed upon
issuance.
During the three months ended December 31, 2016, the Company
issued 445,000,000 shares of common stock for the acquisition of WG (see Note
F).
During the three months ended December 31, 2016, the Company
issued 625,000 shares of its common stock for cash in the amount of $500.
NOTE Q Commitments and Contingencies
Various creditors have brought legal proceedings
for collections of their claims against the Company. Judgments payable
at December 31, 2016 are $1,147,203.
F-22
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE R Fair Value
The Company has categorized its assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP. All assets and liabilities are recorded at historical cost which approximates fair value, and therefore, no items were valued according to these inputs.
The levels of fair value hierarchy are as follows:
-
Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;
-
Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and
-
Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. All assets and liabilities are at cost which approximates fair value and there are not items that were required to be valued on a non-recurring basis.
The following liabilities were valued at fair value as of December 31, 2016. No other items were valued at fair value on a recurring or non-recurring basis as of December 31, 2016.
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value Measurements Using
|
|
Carrying
|
|
|
|
|
|
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Derivative Liabilities
|
$
|
$
|
$
|
$ 641,271
|
$ 641,271
|
|
|
|
|
|
|
Total
|
|
$
|
$
|
$ 641,271
|
$ 641,271
|
The following table presents the approximate changes in fair value of the Company's embedded conversion features (See Note J) measured at fair value on a recurring basis for the three months ended December 31, 2016.
|
|
|
|
Balance October 1, 2016
|
$ 759,964
|
Issuance of Embedded Conversion Feature
|
497,295
|
Change in Fair Value
|
(307,944)
|
Reclassification to Additional Paid in Capital
|
(308,044)
|
|
|
Balance December 31, 2016
|
$ 641,271
|
F-23
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE S Income Taxes
For the three months ended December 31, 2016, the Company incurred net losses and therefore has no tax liability. The Company's net operating loss carry-forwards may be carried forward and can be used through the year 2036 to offset future taxable income. In the future, the cumulative net operating loss carry-forward for income tax purposes may differ from the cumulative financial statement loss due to timing differences between book and tax reporting.
The provision for Federal income tax consists of the following for the three months ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit attributable to:
|
|
|
|
|
|
Net loss
|
|
|
346,857
|
|
|
Permanent differences
|
|
|
|
|
|
Valuation allowance
|
|
|
(346,857)
|
|
|
Net provision for income tax
|
|
|
|
|
|
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
Net operating loss carryover
|
|
|
$ 3,085,784
|
|
|
Valuation allowance
|
|
|
(3,085,784
|
)
|
|
Net deferred tax asset
|
|
|
|
|
|
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.
The Company has identified the United States Federal tax returns as its major tax jurisdiction. The United States Federal return years 2010 through 2015 are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations. The Company is subject to examination and currently does not have any ongoing tax examinations.
F-24
SOOUM CORP.
New York, New York
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE T Segment Reporting
The Company's operations are organized into two segments: Construction and Arbitrage. All revenue originates and all assets are located in the United States. We have revised our disclosure to correspond to the information provided to the chief operating decision maker.
Three Months ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
Arbitrage
|
|
Total
|
Revenues
|
$
|
638,576
|
$
|
84
|
$
|
638,660
|
Costs and expenses
|
|
(629,667)
|
|
(145)
|
|
(629,812)
|
Interest expense
|
|
(14,328)
|
|
(5,968)
|
|
(20,296)
|
|
$
|
(5,419)
|
$
|
(6,029)
|
|
(11,448)
|
Corporate expenses
|
|
|
|
|
|
(335,409)
|
|
|
|
|
Net loss
|
$
|
(346,857)
|
|
|
|
|
|
|
|
Total assets
|
|
|
Construction
|
|
776,156
|
Arbitrage
|
|
92
|
Corporate
|
|
3.070,197
|
|
$
|
3,846,445
|
NOTE U Subsequent Events
Subsequent to year ended December 31, 2016
the Company issued
966,548,800
shares of common stock. This stock was issued
to pay vendors and for conversions of notes payable. The company also
received $191,500 in debt proceeds subsequent to December 31, 2016.
F-25
=================================================================================================================
Western
Grade, LLC
|
FINANCIAL REPORTS
|
AT
|
DECEMBER 31, 2016
|
|
|
Western
Grade, LLC
|
|
Table
of Contents
|
PAGE
|
|
|
Report of Independent Registered Public Accountant
|
G-2
|
|
Balance
Sheets at September 30, 2016
and December 31, 2015
|
G-3
|
|
|
Statements
of Operations for the Nine Months Ended September
30, 2016 and the Year Ended December 31, 2015
|
G-4
|
|
|
Statements
of Cash Flows for the Nine Months Ended September
30 ,
2016 and the Year Ended December 31, 2015
|
G-5
|
|
|
Statement
of
Members' Deficit as of September 30,
2016
and the Year Ended December 31, 2015
|
G-6
|
|
|
Notes
to Financial Statements
|
G-7-13
|
|
|
G-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Western Grade LLC
We have audited the accompanying balance sheets of Western Grade LLC (the Company) as of September 30, 2016 and December 31, 2015, and the related statements of operations, cash flows and changes in members' deficit for the nine months and year then ended, respectively. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2016 and December 31, 2015, and the results of its operations and its cash flows for the nine months and year then ended, respectively, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note K to the financial statements, although the Company has established a source of revenues to cover certain of its operating costs, it incurred a loss in 2015 and 2016 and had a working capital deficit at September 30, 2016 and December 31, 2015. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to this matter is also described in Note K to the financial statements. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
HALL & COMPANY Certified Public Accountants and Consultants
Irvine, CA
July 24,
2017
G-2
Western
Grade LLC
|
|
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and Cash Equivalents
|
|
$ 118,142
|
|
$ 93,375
|
Accounts Receivable - Net
|
|
244,148
|
|
780,343
|
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
|
|
1,975
|
|
|
Investment
|
|
5,000
|
|
5,000
|
Notes Receivable - Related Parties
|
|
152,366
|
|
162,193
|
|
|
|
|
|
Total Current Assets
|
|
521,631
|
|
1,040,911
|
|
|
|
|
|
Property and Equipment - Net
|
|
441,225
|
|
696,256
|
|
|
|
|
|
Total Assets
|
|
$ 962,856
|
|
$ 1,737,167
|
|
|
|
|
|
LIABILITIES AND MEMBERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Line of Credit
|
|
$ 959,088
|
|
$ 795,268
|
Notes Payable - Current
|
|
59,751
|
|
91,629
|
Accounts Payable
|
|
414,839
|
|
637,150
|
Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
|
|
68,359
|
|
138,440
|
Accrued Expenses
|
|
41,658
|
|
11,210
|
|
|
|
|
|
Total Current Liabilities
|
|
1,543,695
|
|
1,673,697
|
|
|
|
|
|
Other Liabilities
|
|
|
|
|
Notes Payable - Net of Current Portion
|
|
72,321
|
|
198,662
|
Note Payable - Member
|
|
253,687
|
|
84,998
|
|
|
|
|
|
Total Liabilities
|
|
1,869,703
|
|
1,957,357
|
|
|
|
|
|
Total Members' Deficit
|
|
(906,847)
|
|
(220,190)
|
|
|
|
|
|
Total Liabilities and Members' Deficit
|
|
$ 962,856
|
|
$ 1,737,167
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements
G-3
Western
Grade LLC
|
|
STATEMENTS
OF OPERATIONS
|