NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – Basis of Presentation
The condensed consolidated financial statements of SoOum Corp. (the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the annual audited financial statements and the notes thereto included in the Company’s Form 10-K, and other reports filed with the SEC.
The accompanying unaudited interim financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Certain information that is not required for interim financial reporting purposes has been omitted.
Principles of Consolidation
The consolidated financial statements include the accounts of SoOum Corp., and its wholly owned subsidiaries; Nature Vision, Inc. and SoOum (the “Company”). All significant inter-company balances have been eliminated in consolidation.
NOTE B – Summary of Significant Accounting Policies
All significant accounting policies can be viewed on the Company’s annual report filed with the Securities and Exchange Commission.
NOTE C – Recently Issued Accounting Standards
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
6
SOOUM CORP.
New York, New York
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE D – Acquisition – iPoint Television
On January 15, 2014, the Company completed the acquisition of 90% of the issued and outstanding membership interest of iPoint. Pursuant to the Securities and Exchange
Agreement the Company issued Clark Ortiz, the Company’s CEO and Chairman, 25,000,000 shares of Swordfish’s Series A Preferred Stock, which has voting rights equal to 100 shares of the Company’s common stock and is convertible into the Company’s common stock at the rate of 10 shares of common stock for each share of Series A Preferred Stock. In addition to issuance of the Series A Preferred Stock, the Company agreed as part of the purchase price to issue 50,000,000 shares of its common stock to Mr. Ortiz. At the date of the transaction, the Company didn’t have any authorized and unissued shares available to issue to Mr. Ortiz, however in order to close the transaction, Mr. Ortiz agreed to close the transaction pending the Company increasing the authorized shares of common stock, which the Company did on March 25, 2014. As a result of the transaction, the Company owns 90% of issued and outstanding membership interests in iPoint Television LLC and is therefore a majority owned subsidiary of the Company and the Company will be able to report the results of iPoint on a consolidated basis in the Company’s financial statements. iPoint Television, also known as iPoint TV, is a Smart media and entertainment company, which holds development licenses from Apple, Android, Google, Roku, Kindle and most every smart device. iPoint is a full service Internet Protocol Television (IPTV), media entertainment company which develops applications for mobile and TV smart devices. As an acquisition of common control we are recording the assets acquired at their cost which is $0. The Company incurred $2,500 of acquisition expense which was expensed. iPoint did not have any results from operations from the date of acquisition through March 31, 2016.
7
SOOUM CORP.
New York, New York
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE E – Going Concern
The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has reported recurring losses from operations. As a result, there is an accumulated deficit of at March 31, 2016.
The Company’s continued existence is dependent upon its ability to raise capital or acquire a marketable company. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE F – Term Notes Payable
The Company is in default on all of the following unsecured term n
otes payable.
|
|
|
|
|
|
March 31,
|
December 31,
|
|
|
2016
|
2015
|
|
Jeff Zernov (Former Chief Executive Officer)
|
|
|
|
Payable August 17, 2010 at 15% Interest.
|
$ ––
|
$ 290,000
|
|
|
|
|
|
Castaic
|
|
|
|
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
|
|
|
|
Installment note payable monthly at $4,632 including interest at 7.0% from August 2008 through July 2011.
|
––
|
100,555
|
|
|
|
|
|
Total Notes Payable
|
$ ––
|
$ 441,421
|
|
|
|
|
8
SOOUM CORP.
New York, New York
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE G – Convertible Promissory Notes Payable
As of March 31, 2016, the Company has outstanding eight (8) 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 beneficial conversion feature was valued at the date of issuance 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:
|
|
|
|
|
|
|
March 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
|
|
February 28, 2014 – Debenture
|
|
8,410
|
––
|
8,410
|
|
April 2, 2014 – Debenture
|
|
17,815
|
––
|
17,815
|
|
June 18, 2014 – Settlement Agreement
|
|
58,420
|
––
|
58,420
|
|
October 05, 2015 - Debenture
|
|
3,500
|
––
|
3,500
|
|
October 21, 2015 - Debenture
|
|
6,275
|
––
|
6,275
|
|
November 23, 2015 - Debenture
|
|
10,988
|
––
|
10,988
|
|
December 3, 2015 - Debenture
|
|
13,000
|
(2,218)
|
10,782
|
|
|
|
|
|
|
|
Total Convertible Debentures
|
|
$ 125,558
|
$ (2,218)
|
$ 123,340
|
|
|
|
|
|
|
9
SOOUM CORP.
New York, New York
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE G – Convertible Promissory Notes Payable - continued
|
|
|
|
|
|
|
December 31, 2015
|
|
Outstanding Balance of Convertible Debenture
|
Unamortized
Discount
|
Net of Principal and Unamortized Discount
|
|
|
|
|
|
|
|
Convertible Debentures
|
|
|
|
|
|
January 10, 2014 - Debenture
|
|
$ 7,150
|
$ ––
|
$ 7,150
|
|
February 28, 2014 – Debenture
|
|
8,410
|
––
|
8,410
|
|
April 2, 2014 – Debenture
|
|
17,815
|
––
|
17,815
|
|
June 18, 2014 – Settlement Agreement
|
|
58,420
|
––
|
58,420
|
|
October 05, 2015 - Debenture
|
|
3,500
|
––
|
3,500
|
|
October 21, 2015 - Debenture
|
|
6,275
|
––
|
6,275
|
|
November 23, 2015 - Debenture
|
|
10,988
|
––
|
10,988
|
|
December 3, 2015 - Debenture
|
|
13,000
|
(5,371)
|
7,629
|
|
|
|
|
|
|
|
Total Convertible Debentures
|
|
$ 125,558
|
$ (5,371)
|
$ 120,187
|
|
|
|
|
|
|
NOTE H – Accrued Expenses
Accrued Expenses consisted of the following at March 31, 2016 and December 31, 2015:
|
|
|
|
|
|
March 31,
|
December 31,
|
|
|
2016
|
2015
|
|
|
|
|
|
Consulting Fees
|
$ ––
|
$ 765,379
|
|
Interest
|
1,261,327
|
1,639,949
|
|
Miscellaneous
|
503,331
|
460,852
|
|
|
|
|
|
Total Accrued Expenses
|
$1,764,658
|
$ 2,866,180
|
|
|
|
|
NOTE I – Stockholders’ Equity
Preferred Stock
On August 12, 2015, the Company approved a reverse stock split of their common stock at 1,000 shares to 1. In conjunction with this reverse, the rate at which preferred stock is convertible to common was also impacted by the same 1,000 rate. The new conversion rates are reflected above.
10
SOOUM CORP.
New York, New York
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE I – Stockholders’ Equity - continued
Common Stock
On August 12, 2015, the Company approved a reverse stock split of their common stock at 1,000 shares to 1.
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 shall expire on January 1, 2017.
NOTE J – Commitments and Contingencies
Various creditors have brought legal proceedings for collections of their claims against the Company. Judgments payable at March 31, 2016 and December 31, 2015 are $1,147,203 and $1,138,264 respectively.
NOTE K – Related Party Transactions
The Company has borrowed $1,103,320 from a former member of the Board of Directors and four (4) related parties. The related party notes total to $8,319. Two of the notes from the former Board of Directors total to $1,045,000 and are unsecured. The third note in the amount of $50,000 is secured by a second lien on the Company’s assets. 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 March 31, 2016.
Payments of Company expenses have been made by current members of the board of directors $2,708 is included in notes payable affiliates.
11
SOOUM CORP.
New York, New York
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE L – 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 March 31, 2016 and December 31, 2015. No other items were valued at fair value on a recurring or non-recurring basis as of March 31, 2016 and December 31, 2015.
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Fair Value Measurements Using
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Derivative Liabilities
|
$ ––
|
$ ––
|
$ ––
|
$ 229,545
|
$ 229,545
|
|
|
|
|
|
|
|
|
Total
|
|
$ ––
|
$ ––
|
$ 229,545
|
$ 229,545
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Fair Value Measurements Using
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Derivative Liabilities
|
$ ––
|
$ ––
|
$ ––
|
$ 256,273
|
$ 256,273
|
|
|
|
|
|
|
|
|
Total
|
|
$ ––
|
$ ––
|
$ 256,273
|
$ 256,273
|
NOTE M – Subsequent Events
On August 25, 2016 the Company entered into an exchange agreement with Western Grade, LLC. Under the terms of the exchange agreement, Western Grade members will exchange their ownership interest for 420,000,000 shares of the common stock of the Company, which represents 42% ownership in the Company. Western Grade will therefore be a wholly owned subsidiary of the Company.
12
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Three Months Ended March 31, 2016 Compared With Three Months Ended March 31, 2015
Net revenues for the three months ended March 31, 2016 and 2015 was $2,660 and $45,900 respectively. Cost of goods sold were $125 and $33,860 for the three months ended March 31, 2016 and 2015, respectively. Net income for the three months ended March 31 2016 was $2,967,689 compared to net income of $7,507,784 for the three months ended March 31, 2015.
Total operating expenses were $108,660 for the three months ended March 31, 2016 compared to $171,576 for the three months ended March 31, 2015. The primary expenses for the three months ended March 31, 2016 were general and administrative expenses of $55,506 and interest expense of $53,154. The primary expenses for the three months ended March 31, 2015 were general and administrative expenses of $83,493 and interest expense of $88,083.
Other income of $3,073,814 for the three months ended March 31, 2016 consisted of gain on derivatives of $26,728 and write off of liabilities of $3,047,086. Other income of $7,667,320 for the three months ended March 31, 2015 consisted of gain on conversion of preferred stock of $7,697,992 and loss on derivatives of $30,672.
Liquidity and Capital Resources
Our operations used approximately $39 in cash for the three months ended March 31, 2016. Cash required during the three months ended March 31, 2016, came principally from cash proceeds from notes payable affiliates of $535.
Our operations used approximately $1,229 in cash for the three months ended March 31, 2015. Cash required during the three months ended March 31, 2015 came principally from cash proceeds from notes payable affiliates of $1,181.
The accompanying 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 net income of $2,967,689 and $7,507,784 respectively, for the three months ended March 31, 2016 and 2015 and had an accumulated deficit of $12,143,141 as of March 31, 2016. We have managed our liquidity during the first quarters of 2016 through the issuance of notes payable to affiliates. 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.
Item 3: Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
13