U.S. SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

For the transition period from _________ to _________

 

Commission File Number:  000-7475

____________________________


 

 

 

 

 

SOOUM CORP.

 

 (Exact name of registrant as specified in its charter)


Minnesota

 


41-0831186

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

590 Madison Avenue, Suite 1800

New York, NY  

 

10022

(Address of principal executive offices)

 

(Zip Code)

 

 

 

 

Registrant's telephone number, including area code: (646) 801-3772

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 requirements for the past 90 days.    [ X ] Yes  [  ]  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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [   ]  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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ]  Accelerated Filer [ ]     Non-Accelerated Filer [ ]   Smaller Reporting Company [X]    Emerging Growth Company [ ]

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 13(a) of the Exchange Act.  [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).[   ]  Yes [X]  No

 

The number of shares of issuer’s common stock, par value $0.0001 per share, outstanding as of November 30, 2017 was approximately 75,168,490.



-1-


PART I - FINANCIAL INFORMATION


Item 1: Financial Statements

3

Condensed Consolidated Balance Sheets – September 30, 2017 (Unaudited) and December 31, 2016

4

Unaudited Condensed Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2016 and 2017

5

Unaudited Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2016 and 2017 (Unaudited)

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3: Quantitative and Qualitative Disclosures About Market Risks

22

Item 4: Controls and Procedures

22

PART II - OTHER INFORMATION

 

Item 1: Legal Proceedings

23

Item 1A:  Risk Factors

23

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3: Defaults Upon Senior Securities

23

Item 4: Mine Safety Disclosures

23

Item 5: Other Information

23

Item 6: Exhibits

24

Signatures

24


-2-


SOOUM CORP.

New York, New York







FINANCIAL REPORTS

AT

SEPTEMBER 30, 2017




 



-3-

SoOum Corp.

New York, New York

 

CONDENSED CONSOLIDATED BALANCE SHEETS

         
   

Unaudited

   
   

September 30,

 

December 31,

 

 

2017

 

2016

         

ASSETS

 

Current Assets

 

Cash and Cash Equivalents

 

 $                  —

 $                  92

Prepaid Expenses

 

               13,268

                     —

Current Assets of Discontinued Operations

 

                     —

 

             391,566

   

Total Current Assets

 

               13,268

             391,658

   

Noncurrent Assets of Discontinued Operations

 

                     —

 

          3,454,787

   

Total Assets

 

 $            13,268

 

 $       3,846,445

   

LIABILITIES AND STOCKHOLDERS' DEFICIT

 
   

Liabilities

 

Current Liabilities

 

Bank Overdraft

 

 $              4,793

 $                  —

Notes Payable - Current Portion

 

             441,421

             441,421

Notes Payable - Related Parties

 

          1,258,187

          1,258,187

Accounts Payable

 

          1,316,333

          1,283,324

Customer Deposit

 

               23,085

                     —

Accrued Expenses

 

          3,135,543

          2,949,934

Judgements Payable

 

          1,147,203

          1,147,203

Stock Payable

 

                     —

                5,000

Convertible Debt - Net of Discounts

 

             628,369

             486,460

Derivative Liability

 

             755,905

             641,271

Current Liabilities of Discontinued Operations

 

                     —

 

          1,652,316

   

Total Current Liabilities

 

          8,710,839

          9,865,116

   

Other Liabilities

 

Non Current Portion of Discontinued Operations

 

                     —

 

               80,808

   

Total Liabilities

 

          8,710,839

          9,945,924

   

Stockholders' Deficit

 

Common Stock - $.0001 Par; 20,000,000,000 Shares Authorized,  

 

            3,168,490 and 2,125,393  Issued and Outstanding, Respectively

 

                   317

             106,270

Preferred Stock: $0.0001 Par; 25,000,000 Shares Authorized,

 

            25,000,000 Issued and Outstanding, Respectively

 

                2,500

                2,500

Preferred Stock  Class B: $0.0001 Par; 10,000,000 Shares Authorized,  

 

            9,100,000 Issued and Outstanding, Respectively

 

                   910

                   910

Preferred Stock Class C: $0.0001 Par; 10,000,000 Shares Authorized,

 

            1,690,000 Issued and Outstanding, Respectively

 

                   169

                   169

Additional Paid-In-Capital

 

        14,852,830

        14,445,510

Accumulated Deficit

 

       (23,554,297)

 

       (20,654,838)

   

Total Stockholders' Deficit

 

         (8,697,571)

 

         (6,099,479)

   

Total Liabilities and Stockholders' Deficit

 

 $            13,268

 

 $       3,846,445

   

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

         


-4-



SoOum Corp.

New York, New York

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                 
   

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

2017

 

2016

 

2017

 

2016

                 

Revenues, Net

 

 $                     —

 $                 669

 $            19,354

 $                3,756

   

Cost of Sales

 

                       —

 

                   498

 

              14,315

 

                      935

   

Gross Profit

 

                       —

                   171

                5,039

                   2,821

   

Expenses

 

General and Administrative

 

                 40,832

 

             756,232

 

             557,608

 

             4,869,969

   

Loss Before Other Income and (Expense)

 

                (40,832)

            (756,061)

            (552,569)

            (4,867,148)

   

Other Income and (Expense)

 

Change in Fair Value of Derivative

 

               486,175

               24,060

             286,415

                 30,982

Loss on Extinguishment of Debt

 

                       —

                     —

            (390,254)

                        —

Write Off Of Liabilities

 

                       —

                     —

                     —

                        —

Interest Expense

 

                (62,466)

 

                (7,333)

 

            (572,822)

 

                (62,705)

   

Total Other Income and (Expense), Net

 

               423,709

               16,727

            (676,661)

                (31,723)

   

Income (Loss) from Operations Before

 

  Provision for Taxes and Loss from Discontinued Operations

               382,877

            (739,334)

         (1,229,230)

            (4,898,871)

   

Provision for Taxes

 

                       —

 

                     —

 

                     —

 

                        —

   

Net Income (Loss) Before Discontinued Operations

 

               382,877

            (739,334)

         (1,229,230)

            (4,898,871)

   

Loss on Discontinued Operations

 

                       —

 

                     —

 

         (2,625,197)

 

                        —

   

Net Income (Loss) for the Period

 

 $            382,877

 

 $         (739,334)

 

 $      (3,854,427)

 

 $         (4,898,871)

   

Weighted Average Number of Common Shares Outstanding

 

  Basic and Diluted

 

3,168,490

148,636

2,970,222

133,276

Net Loss Per Common Share - Basic & Diluted:

 

Continuing Operations

 

$0.12

($4.97)

($0.41)

($36.76)

Discontinued Operations

 

$0.00

 

$0.00

 

($1.30)

 

$0.00

                 

The accompanying notes are an integral part of these condensed consolidated financial Statements.

                 


-5-



SoOum Corp.

New York, New York

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

         

For the Nine Months Ended September 30,

 

2017

 

2016

         

Cash Flows from Operating Activities

       
         

Net Loss for the Period

 

            $ (3,854,427)

 $ (4,898,871)

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

Amortization of Debt Discount

 

                   213,393

                  36,667

Loss on Extinguishment of Debt

 

                   390,254

                        —

Change in Fair Value of Derivative

 

                  (286,415)

                503,690

Common Stock Issued for Services

 

                   111,000

             4,265,178

Common Stock Issued for Commitment Fee

 

                     62,344

                        —

Loss on Discontinued Operations

 

                2,625,197

                      344

Excess Fair Value of Derivatives

 

                   311,036

                        —

Changes in Assets and Liabilities:

 

Prepaid Expenses

 

                    (13,268)

                        —

Customer Deposit

 

                     23,085

                        —

Accounts Payable

 

                     35,510

                        —

Accrued Expenses

 

                   183,907

               (145,778)

Other Assets

 

                           —

 

                 (10,000)

   

Net Cash Flows Used In Operating Activities

 

                  (198,384)

 

               (248,770)

   

Cash Flows From Investing Activities

 

Cash Released in Spin-off of Discontined Operations

 

                  (122,830)

 

                        —

   

Net Cash Flows Provided by Investing Activities

 

                  (122,830)

 

                          —

   

Cash Flows From Financing Activities

 

Bank Overdraft

 

                       4,793

                        —

Proceeds from Notes Payable - Related Parties, net

 

                           —

                211,831

Cash Proceed Received from Convertible Notes Payable, net

 

                   193,500

 

                  44,000

   

Net Cash Flows Provided by Financing Activities

 

                   198,293

 

                255,831

   

Net Change in Cash and Cash Equivalents

 

                  (122,921)

                   7,061

   

Cash and Cash Equivalents - Beginning of Period

 

                   122,921

 

                        41

   

Cash and Cash Equivalents - End of Period

 

 $           0

 

 $           7,102

   

Cash Paid During the Period for:

 

Interest

 

                           —

                        —

Income Taxes

 

                           —

 

                        —

   

SUPPLEMENTAL DISCOLSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Derivative Liability Reclassified to APIC

 

 $   489,725

 $          —

Estimated Fair Value of Debt Discount

 

 $   189,484

 $          —

Common Stock Issued Upon the Conversion of Notes Payable

 

 $     83,299

 $          —

Common Stock Issued for Prepaid Services

 

                           —

  $   10,000

Common Stock Exchanged for Debt

 

                           —

  $     1,333

   
   

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

   

-6-


SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED 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.

 

On November 14, 2017, the Board of Directors of the Company approved a one for 500 share reverse split of the Company’s common stock. All share transactions and disclosures have been restated as if the reverse stock split occurred before all periods presented.

 

Material Definitive Agreements  

 

Acquisition

 

On August 25, 2016, SoOum Corp entered into a Securities Purchase Agreement with one hundred percent (100%) of the members (“the Sellers”) of Western Grade LLC (“WG”).   Upon the closing of the transaction on October 6, 2016, WG members transferred all of their outstanding ownership interests to SoOum Corp. In consideration, SoOum Corp. issued 890,000 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% at such time.  WG became a wholly owned subsidiary of SoOum Corp. See Form 8-K filed by SoOum Corp. on October 6, 2016 for more detail.

 

Initially, for periods after the acquisition of WG (since October 6, 2016), SoOum Corp.’s financial results were referred to as “Successor” and its results of operations combined SoOum Corp. operations and Western Grade’s operations.  For periods prior to the acquisition of WG the financial results were referred to as “Predecessor” and its operations included only the operations of WG.

 

Spin-Off

 

On July 28, 2017, the Company signed a Separation Agreement (the “Agreement”) with Ms. Joy Gillespie pursuant to which Ms. Gillespie exchanged her 890,000 shares of common stock of SoOum Corp. for 100% of the ownership interests of Western Grade, LLC (“WG”), which were owned by SoOum Corp.  In effect, this transaction reverses the prior acquisition of Western Grade by SoOum Corp., which occurred on October 06, 2016.  The Separation Agreement entered between the parties contains other terms common to a transaction of this nature.  Accordingly, the Company's financial statements will not include the operations of WG from effective date of January 1, 2017, and the related transaction was accounted for as a spin-off of WG as of the effective date. Based on the consideration received (shares of common stock) and the net assets surrendered, the Company recorded a loss on spinoff of approximately $2,600,000, which has been included in loss on discontinued operations in the accompanying statement of operations for the period ended September 30, 2017.

 

-7-

 


Due to the Agreement, the Company will no longer report WG as the Company's "Predecessor" and all historical financial information of the Company will be that of SoOum Corporation.  WG was only consolidated with SoOum Corporation's financial statements for the period from October 6, 2017 (date of acquisition) through December 31, 2016.   The Proforma financial information included below discloses the effects as if the acquisition of WG was not included in the consolidated balance sheet at December 31, 2016 included herein.

       

 

As Reported

Less: WG

ProForma

Current Assets

391,658

391,566

92

Total Assets

3,846,445

3,846,353

92

Current Liabilities

9,867,116

1,652,316

8,214,800

Total Liabilities

9,945,924

1,733,124

8,214,800

Total Equity (Deficit)

(6,099,479)

2,113,229

(8,214,708)

 

The following financial information presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations at December 31, 2016.

 

     

ASSETS

 

 

Current Assets:

 

 

Cash and Cash Equivalents

$

122,829

Accounts Receivable

 

112,929

Prepaid Expenses and Other Current Assets

 

155,808

Total Current Assets of Discontinued Operations

 

391,566

Noncurrent assets of Discontinued Operations

 

3,454,787

TOTAL ASSETS OF DISCONTINUED OPERATIONS

$

3,846,353

 

 

 

LIABILITIES

 

 

 

 

 

LIABILITIES

 

 

Current Liabilities:

 

 

Accounts Payable and Accrued Expenses

$

480,055

Current Portion of Notes Payable

 

1,033,183

Current Portion of Notes Payable to Related Parties

 

139,078

Total Current Liabilities of Discontinued Operations

 

1,652,316

Noncurrent Liabilities of Discontinued Operations

 

80,808

TOTAL LIABILITIES OF DISCONTINUED OPERATIONS

$

1,733,124


-8-

 


SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED 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., and SoOum (collectively the “Company”).  All significant inter-company balances have been eliminated in consolidation.

 

Basis of Presentation

 

The condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited consolidated financial statements, and these unaudited condensed consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United Stated ("U.S. GAAP"), and include all assets, liabilities, revenues and expenses of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. Certain information required by U.S. GAAP has been condensed or omitted in accordance with the rules and regulations of the U.S. Securites and Exchange Commission ("SEC"). The results for the period ended September 30, 2017, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2017 or for any future period. Certain items have been reclassified to conform to the current year presentation.

 

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.

 

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 accounts, fair value of derivative liabilities, and the valuation of equity based instruments. Actual results could differ from those estimates. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

 

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.


-9-

 


SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED 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.

 


-10-

 

SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED 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.

 

Debt Modifications and Extinguishments  

 

When the Company modifies or extinguishes debt, it does so in accordance with ASC Topic 470-50-40, which requires modification to debt instruments to be evaluated to assess whether the modifications are considered “substantial modifications”. A substantial modification of terms shall be accounted as an extinguishment. Based on the guidance relied upon and the analysis performed, if the Company believes the embedded conversion feature has no fair value on the date of issuance (measurement date) and the embedded conversion feature has no beneficial conversion feature, the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25 and the issuance of the convertible note payable is considered a modification, and not an extinguishment that would require the recognition of a gain or loss. If the Company determines the change in terms meet the criteria for substantial modification under ASC 470 it will treat the modification as extinguishment and recognize a loss from debt extinguishment.


-11-


SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE C – Recently Issued Accounting Standards

 

In July 2017, the FASB issued ASU No. 2017-11, which eliminates the requirement to classify financial instruments as derivative liabilities simply because they have down round pricing protection. The Company has often issued warrants with down round pricing protection as part of its financing activities. Currently, the Company has convertible notes payable and warrants with down round pricing protection that are classified as derivative liabilities. The Company revalues these warrant tranches each reporting period and records the valuation differences as a component of other income in the statement of operations. The adoption of this ASU will allow the Company to classify its remaining warrant derivatives as equity and future warrants that might be issued by the Company with down round price protection will qualify as equity rather than derivative liability for balance sheet presentation purposes. This ASU is effective for annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is determining the financial impact of this ASU.

 

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.


-12-

 

SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED 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.  This standard did not 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.


-13-

 

SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED 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. The adoption of this ASU did not have a significant impact on our financial position, results of operations and cash flows.

 

Note D - Notes Payable

 

Notes payable consisted of the following:

 

     

 

September 30, 2017

December 31, 2016

Jeff Zernov (Former Chief Executive Officer) (a)

 

 

Payable August 17, 2010 at 15% Interest.

$   290,000

$   290,000

 

 

 

Castaic (a)

 

 

Installment note payable annually at $17,171 including interest at 8.0% from January 2009 through January 2011.

30,620

30,620

 

 

 

Installment note payable monthly at $1,175 including interest at 8.0% from February 2008 through January 2011.  

20,246

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

100,555

 

 

 

Total Notes Payable

$   441,421

$   441,421

 

(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 $ 150,000 and $110,000 each at September 30, 2017 and December 31, 2016, respectively and increased interest expense by approximately $40,956 for each of the nine months ended September 30, 2017 and 2016.

 

NOTE E – Convertible Debentures


As of September 30, 2017, the Company has outstanding sixteen (16) security purchase agreements with accredited investors for the sale of convertible promissory notes bearing interest at 5% - 12%, per annum with maturity dates ranging from due on demand through February 2018 . 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. The convertible notes payable are convertible into common stock of the Company at the lesser of (a) discounts ranging from 0% - 50% of the lowest daily trading prices ranging from 10 to 30 days before the conversion date, or (b) a conversion price of $.0001

-14-


SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE E – Convertible Debentures – continued

 

During the nine months ended September 30, 2017, the Company entered into convertible debentures aggregating $196,000.  Based on the embedded conversion features, the Company recorded derivative liabilities in the amount of approximately $500,000, debt discount of approximately $189,000 and interest expense of approximately $311,000 (due to the excess of the initial derivative valuation over the face amount of the debenture). In addition, the Company issued shares of commons stock as a commitment fee (See Note I).

 

In January 2017, the Company entered into convertible debentures for an aggregate amount of $100,000. In exchange, the Company extinguished $100,000 of notes payable to a different party.   In connection with the $100,000 debentures, the Company recognized a loss from extinguishment of debt and additional derivative liabilities of approximately $390,000 during the nine months ended September 30, 2017.

 

The conversion rights embedded in the Notes are accounted for as derivative financial instruments because of the down round variable conversion 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 .96% to 1.31%, contractual expected life of six (6) to twelve (12) months, expected volatility of 372% to 560%, 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:

         

At September 30, 2017

 

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

 

227,873

––

227,873

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

––

22,285

January 11, 2017 - Debenture

 

30,000

( 2 880 )

8,173

January 18, 2017 - Debenture

 

60,000

(4,176)

15,824

January 18, 2017 - Debenture

 

15,000

––

6,136

January 23, 2017 - Debenture

 

37,000

––

37,000

February 2, 2017

 

66,500

––

20,942

March 9, 2017

 

20,000

––

4,166

May 12, 2017

 

2,000

––

2,000

August 29,2017

     

2,500

––

2,500

 

 

 

 

 

Total Convertible Debentures

 

 $       635,425

$    ( 7,056 )

$   628,369


 

-15-


SOOUM CORP.

New York, New York

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE E – Convertible Debentures - continued

         

At December 31, 2016

 

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 nine months ended September 30, 2017, the Company amortized approximately $31,000 to interest expense. The debt discount was fully amortized at September 30, 2017.

 

As of April 2017, all convertible notes payable are in default due to the Company’s delinquency of its public filings.  These notes also contain various default provisions including increases to the interest rate ranging from 0% to 16%, penalties of fixed amounts of $1,200, penalties of $500 per day or increases to the principal balance ranging from 0% to 150%. As of November 2 8, 2017, the Company has not received any correspondence enforcing default provisions of such notes.


-16-

 

 

SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note F – Related Party Transactions  

 

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 September 30, 2017 and December 31, 2016.


     

 

September 30, 2017

December 31, 2016

 

 

 

R Kiphart – Former Member of Board of Directors – Unsecured (a)

$             1,045,000

$             1,045,000

R Kiphart – Former Member of Board of Directors – Secured (a)

50,000

50,000

Legacy Shareholders (a)

149,185

149,185

Miscellaneous

5,611

5,611

Current Management

8,391

8,391

 

 

 

Total Notes Payable – Related Parties

$            1,258,187

$            1,258,187

 

 

 

(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 $287,000 and $164,000 at September 30, 2017 and December 31, 2016, respectively and increased interest expense by approximately $ 123,000 for each of the nine months ended September 31, 2017 and 2016.

  

Note G – Going Concern  

 

The accompanying condensed 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 nine months ended September 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The condensed 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 intends 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.

 

NOTE H – Accrued Expenses

 

Accrued Expenses consisted of the following:

 

     

 

September 30, 2017

December 31, 2016

 

 

 

Consulting Fees

$             765,379

$             765,379

Interest

1,726,023

1,681,011

Miscellaneous

644,141

503,544

 

 

 

Total Accrued Expenses

$    3,135,543

$    2,949,934

 

 

 


-17-


SOOUM CORP.

New York, New York


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE I – 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 1 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 shares 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 872,400 shares of the Company’s common stock, foregoing any additional shares owed under the stated conversion terms.

 

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 nine months ended September 30, 2017, the Company issued 1,665,972 shares of common stock for the conversion of debt and accrued interest of approximately $83,300.

 

During the nine months ended September 30, 2017, the Company issued 184,000 shares of common stock for services rendered.  The estimated fair value of such shares was approximately $111,000, which was expensed upon issuance.

 

During the three months ended September 30, 2017, the Company issued 83,125 shares of common stock for the payment of a loan commitment fee for a convertible debenture received February 2, 2017.  The estimated fair value of the loan commitment fee was approximately $62,350 and was expensed upon issuance. (See Note E).


-18-


SOOUM CORP.

New York, New York

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE J – Commitments and Contingencies

 

Various creditors have brought legal proceedings for collections of their claims against the Company.  Judgments payable at September 30, 2017 and December 31, 2016 are $1,147,203.

 

NOTE K – 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 September 30, 2017 and December 31, 2016. No other items were valued at fair value on a recurring or non-recurring basis as of September 30, 2017 and December 31, 2016.


           

September 30, 2017

 

Fair Value Measurements Using

 

Carrying

 

 

 

 

 

Value

Level 1

Level 2

Level 3

Total

Derivative Liabilities

$      ––

$      ––

$      ––

   $     755,905

$     755,905

 

 

 

 

 

 

Total

 

$      ––

$      ––

   $     755,905

$     755,905


           

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


-19-

SOOUM CORP.

New York, New York


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE K – Fair Value – continued

 

The following table presents the approximate changes in fair value of the Company’s embedded conversion features (See Note E) measured at fair value on a recurring basis for the three months ended March 31, 2017.

 

   

Balance – January 1, 2017

$    641,271

Issuance of Embedded Conversion Feature

890,774

Change in Fair Value

286,415

Reclassification to Additional Paid in Capital

(489,725)

 

 

Balance – September 30, 2017

$    755,905

 

NOTE L – Subsequent Events

 

In November 2017, the Company issued 72,000,000 shares of Common Stock for employee and consultants compensation.

 

 

 

-20-


 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Three Months Ended September 30, 2017 Compared With Three Months Ended September 30, 2016

 

Net revenues for the three months ended September 30, 2017 and 2016 was $-0- and $629, respectively.  Cost of goods sold were $-0- and $498 for the three months ended September 30, 2017 and 2016, respectively.  Net income for the three months ended September 30 2017 was $382,959 compared to net loss of ($350,797) for the three months ended September 30, 2016.

 

Total general and administrative expenses were $40,832 for the three months ended September 30, 2017 compared to $165,543 for the three months ended September 30, 2016.  

 

Other income and (expenses) were $423,791 for the three months ended September 30, 2017 compared to ($185,425) for the three months ended September 30, 2016. Other income and (expenses) for the three months ended September 30, 2017 consisted of  change in fair value of derivatives of $486,175 and interest expense of ($62,384) compared to change in fair value of derivatives of $355,408 and interest expense of ($540,833) for the three months ended September 30, 2016.

 

Nine Months Ended September 30, 2017 Compared With Nine Months Ended September 30, 2016

 

Net revenues for the nine months ended September 30, 2017 and 2016 was $19,354 and $3,756, respectively.  Cost of goods sold were $14,315 and $935 for the nine months ended September 30, 2017 and 2016, respectively.  Net loss for the nine months ended September 30 2017 was ($3,854,345) compared to net income of $6,040,282 for the nine months ended September 30, 2016.

 

Total general and administrative expenses were $557,608 for the nine months ended September 30, 2017 compared to $279,280 for the nine months ended September 30, 2016.  

 

Other income and (expenses) were ($676,579) for the nine months ended September 30, 2017 compared to $6,316,741 for the nine months ended September 30, 2016. Other income and (expenses) for the nine months ended September 30, 2017 consisted of change in fair value of derivatives of $286,415, loss on extinguishment of debt of ($390,254) and interest expense of ($572,740) compared to change in fair value of derivatives of $362,330, loss on extinguishment of debt of $-0- and interest expense of ($596,205) for the nine months ended September 30, 2016.

 

Loss on discontinued operations was $2,625,197 for the nine months ended September 30, 2017 compared to $-0- for the nine months ended September 30, 2016, which accounted for the spin-off of Western Grade.

 

Spin-Off  

 

On July 28, 2017, the Company signed a Separation Agreement (the “Agreement”) with Ms. Joy Gillespie pursuant to which Ms. Gillespie exchanged her 445,000,000 shares of common stock of SoOum Corp. for 100% of the ownership interests of Western Grade, LLC (“WG”), which were owned by SoOum Corp.  In effect, this transaction reverses the prior acquisition of Western Grade by SoOum Corp., which occurred on October 06, 2016.  The Separation Agreement entered between the parties contains other terms common to a transaction of this nature.  Accordingly, the Company's financial statements will not include the operations of WG from effective date of January 1, 2017, and the related transaction was accounted for as a spin-off of WG as of the effective date. Based on the consideration received (shares of common stock) and the net assets surrendered, the Company recorded a loss on spinoff of approximately $2,600,000, which has been included in loss on discontinued operations in the accompanying statement of operations for the period ended June 30, 2017.

 

Due to the Agreement, the Company will no longer report WG as the Company's "Predecessor" and all historical financial information of the Company will be that of SoOum Corporation.  WG was only consolidated with SoOum Corporation's financial statements for the period from October 6, 2017 (date of acquisition) through December 31, 2016.  The Proforma financial information included below discloses the effects as if the acquisition of WG was not included in the consolidated balance sheet at December 31, 2016 included herein.

 

Liquidity and Capital Resources

 

Our operations used approximately $196,000 in cash for the nine months ended September 30, 2017. Cash required during the nine months ended September 30, 2017, came principally from cash proceeds from convertible notes payable of $193,500.

 

Our operations used approximately $9,000 in cash for the nine months ended September 30, 2017. Cash required during the three months ended September 30, 2017 came principally from cash proceeds from an investor of $2,500.

 


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The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.  We incurred a net loss of $3,854,345 and net income of $6,040,283 respectively, for the nine months ended September 30, 2017 and 2016 and had an accumulated deficit of $23,554,215 as of September 30, 2017.  We have managed our liquidity during the nine months of 2017 through the issuance of convertible notes payable.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

There were no changes to the Company’s critical accounting policies for the three months ended September 30, 2017.  Refer to the filed 10-K for a more detailed summary of the Company’s critical accounting policies.

 

Going Concern  

 

The condensed 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 September 30, 2017. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The condensed 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 intends 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.


Item 3:  Quantitative and Qualitative Disclosure about Market Risk

 

Not applicable.

 

Item 4:   Controls and Procedures

 

(a)   Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. 

 

Management, including our Principal Executive Officer and Principal Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control over Financial Reporting - Guidance for Smaller Public Companies.

 

We identified the following deficiencies which together constitute material weaknesses in our assessment of the effectiveness of internal control over financial reporting as of September 30, 2017: 

 

1. Inadequate number of personnel that could accurately and timely record and report the Company's financial statements in accordance with GAAP.

 

2. We have not performed a risk assessment and mapped our processes to control objectives.

 

3. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.



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The Company is continuing the process of remediating its control deficiencies. However, the material weakness in internal control over financial reporting that has been identified will not be remediated until numerous internal controls are implemented and operate for a period of time, are tested, and the Company is able to conclude that such internal controls are operating effectively. The Company cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements. The Company cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future. Management plans, as capital becomes available to the Company, to increase the accounting and financial reporting staff and provide future investments in the continuing education and public company accounting training of our accounting and financial professionals.


It should be noted  that any  system of  controls,  however  well  designed  and operated,  can provide only  reasonable,  and not absolute,  assurance  that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.  Because of these and other inherent limitations of control system, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

(b)   Changes in internal controls .

 

There have been no significant changes in our internal controls or other factors that would significantly affect such controls and procedures subsequent to the date we completed our evaluation. Therefore, no corrective actions were taken.

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings .

To the best knowledge of the Company’s officers and directors, the Company is currently not a party to any material pending legal proceeding.

 

Item 1A. Risk Factors.

 

Not applicable as a smaller reporting company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .

 

The Company has a convertible note payable with a David Westbrook, a related party, father to the Company’s CEO, in the amount of $2,000.  The note is due and payable in November 2017 and accrues interest at 12%.

Item 3. Defaults Upon Senior Securities .

None.

Item 4. Mine Safety Disclosures .

 

Not applicable.

 

Item 5. Other Information .

None.



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Item 6. Exhibits

 

(a) Exhibits

 

31.1*  Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2* Certification pursuant to Section 302of Sarbanes Oxley Act of 2002

32.1*  Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002

32.2* Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002

101 XBRL Interactive Data Documents (To be filed as an amendment)

 

(b) Reports of Form 8-K

None.


Signatures

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SOOUM CORP.

Date: November 30, 2017

By /s/William Westbrook

                    

       William Westbrook

 

Its:  Chief Executive Officer and President

 

Date: November 30, 2017

By: /s/Terence Byrne

      

         Terence Byrne

 

Its:  Treasurer and Chief Financial Officer    

 

 

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