We have audited the accompanying balance sheets of Western Grade LLC as of December 31, 2015 and 2014, and the related statements of income, comprehensive income, members’ equity, and cash flows for each of the years in the two year period ended December 31, 2015. Western Grade LLC’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits 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. The company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
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 Western Grade LLC as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have
been prepared assuming that the company will continue as a going concern. As
discussed in Note J to the financial statements, the Company has suffered
recurring losses from operations and negative cash flows from operations the
past two years. These factors raise substantial doubt about its
ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note J. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
NOTE A – Basis of Presentation
The condensed financial statements 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.
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.
NOTE B – Organization and Operations
Western Grade LLC was formed as an Arizona Limited Liability Company in 2001. The latest date this Company can dissolve is December, 2050. The Company operates as a general industrial contractor within the State of Arizona. Contracts are preformed on a fixed price; fixed price per-unit; and a time and material basis. Additionally, the Company provides transportation services, primarily hauling and delivering material aggregates.
Material Definitive Agreement
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. Upon the closing of the transaction on October 6, 2016, Western Grade LLC members transferred all of their outstanding ownership interests to SoOum Corp. In consideration, SoOum Corp. issued 420,000,000 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.
NOTE C – Summary of Significant Accounting Policies
Summary of 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 as required by generally accepted accounting principles.
Method of Accounting
The Company maintains its books and prepares its financial statements on the accrual basis of accounting.
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.
- continued –
-8-
Western Grade LLC
Show Low, Arizona
NOTES TO UNAUDITED FINANCIAL STATEMENTS – Years Ended December 31, 2015 and 2014
NOTE C – Summary of Significant Accounting Policies - continued
Income Taxes
The Company, with the consent of its members, elected under the Internal Revenue Code to be an S Corporation, effective January 1, 2006. Accordingly, the shareholders of an S Corporation are taxed on their proportionate share of the Company’s taxable income. Therefore no provision or liability for federal income taxes has been included in these financial statements.
The Company’s federal and state income tax returns are subject to possible examination by the taxing authorities until the expiration of the related statutes of limitation on those returns. In general, the federal and state tax returns have, respectively, a three and four-year statute of limitations.
Use
of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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.
Contract Receivables
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 contract receivables. Allowance for doubtful accounts was $2,226 and $6,583, at December 31, 2015 and 2014, respectively.
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.
Sales Tax
The
State of Arizona and other local governments impose a transaction privilege
(sales) tax on contracts the Company is deemed to be the prime contractor. The
Company performs work as both a general (prime) contractor, and as a subcontractor
to other general contractors.
- continued –
-9-
Western Grade LLC
Show Low, Arizona
NOTES TO UNAUDITED FINANCIAL STATEMENTS – Years Ended December 31, 2015 and 2014
NOTE C – Summary of Significant Accounting Policies - continued
Long – Term Construction Contracts
The
Company follows the percentage of completion method of accounting for construction
contracts. Income is recognized in the ration 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 preformed 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.
NOTE D –Notes Receivable – Related Parties
Notes receivable related parties consist of the following at December 31, 2015 and 2014. All notes are due on demand.
|
|
|
|
|
December 31,
|
2015
|
2014
|
|
|
|
|
|
Western Capital PIT – 100% Owned by Member
|
$ 156,231
|
$ 157,199
|
|
|
|
|
|
Western Materials – 50% Owned by Member
|
687
|
1,000
|
|
|
|
|
|
Jeremy Flores - Member
|
5,000
|
––
|
|
|
|
|
|
Total Notes Receivable – Related Parties
|
$ 161,918
|
$ 158,199
|
-10-
Western Grade LLC
Show Low, Arizona
NOTES TO UNAUDITED FINANCIAL STATEMENTS – Years Ended December 31, 2015 and 2014
NOTE E – Property and Equipment
Property and equipment are recorded at cost and consisted of the following:
|
|
|
|
|
December 31,
|
2015
|
2014
|
|
|
|
|
|
Construction Equipment and Trucks
|
$2,948,245
|
$2,909,045
|
|
Office Equipment
|
72,179
|
72,179
|
|
|
$ 3,020,424
|
$ 2,981,224
|
|
Less: Accumulated Depreciation
|
2,356,179
|
2,137,500
|
|
|
|
|
|
Net Property and Equipment
|
$ 664,245
|
$ 843,724
|
Depreciation expense for the years ended December 31, 2015 and 2014 was $238,179 and $263,260, respectively.
Note F - Notes Payable
Notes payable consisted of the following:
|
|
|
|
|
December 31,
|
2015
|
2014
|
|
|
|
|
|
Ally
|
|
|
|
Installment note payable of $773 per month including
principal and interest at 4%. Secured by vehicle.
|
$ 24,424,
|
$ 34,815
|
|
|
|
|
|
Catapillar Financial Services
|
|
|
|
Installment note payable of $2,116 per month including
principal and interest at 4.42%. Secured by equipment.
|
76,133
|
99,973
|
|
|
|
|
|
Chase
|
|
|
|
Installment note payable of $748 per month including
principal and interest at 7.04%. Secured by vehicle.
|
15,524
|
25,579
|
|
|
|
|
|
Direct Capital
|
|
|
|
Installment note payable of $2,287 per month including
principal and interest at 4.49%. Secured by equipment.
|
101,375
|
––
|
|
|
|
|
|
Financial Pacific
|
|
|
|
Installment note payable of $1,179 per month including
principal and interest at 8.1%. Secured by equipment.
|
13,673
|
––
|
|
|
|
|
|
John Deere
|
|
|
|
Installment note payable of $1,505 per month including
principal and interest at 8.4 %. Secured by equipment.
|
59,162
|
74,798
|
|
|
|
|
|
Total Notes Payable
|
$ 290,291
|
$ 235,165
|
|
|
|
|
|
Less: Amount Due Within One Year
|
91,629
|
55,642
|
|
|
|
|
|
Amount Due After One Year
|
$ 198,662
|
$ 179,523
|
-11-
Western Grade LLC
Show Low, Arizona
NOTES TO UNAUDITED FINANCIAL STATEMENTS – Years Ended December 31, 2015 and 2014
NOTE F – Notes Payable – continued
Interest expense for the years ended December 31, 2015 and 2014 was $64,188 and $94,191, respectively.
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, 2015 and 2014 was $795,268 and $806,585, respectively.
Note G – Cost, Estimated Profits and Billings on Uncompleted Contracts
Costs, estimated profits and billings on uncompleted contracts consisted of the following:
|
|
|
|
|
December 31,
|
2015
|
2014
|
|
|
|
|
|
|
|
|
|
Costs Incurred on Uncompleted Contracts
|
$ 2,955
|
$ 116,786
|
|
|
|
|
|
Estimated Profits
|
478
|
13,970
|
|
|
|
|
|
Total
|
3,433
|
130,756
|
|
|
|
|
|
Billings on Uncompleted Contracts
|
(3,324)
|
(119,877)
|
|
|
|
|
|
|
$ 109
|
$ 10,879
|
|
|
|
|
|
Included in the Balance Sheet Under the Following Captions:
|
|
|
|
|
|
|
|
Costs and Estimated Profits in Excess of Billings on
Uncompleted Contacts
|
$ 734
|
$ 35,290
|
|
|
|
|
|
Billings in Excess of Costs and Estimated Profits on
Uncompleted Contracts
|
(625)
|
(24,411)
|
|
|
|
|
|
Total
|
$ 109
|
$ 10,879
|
Note H – Related Party Transactions
During the years ended December 31, 2015 and 2014 the Company purchased materials for $167,490 and $191,654, respectively from Western Materials a company related through common ownership. Additionally, the Company subleases its office and yard from Western Materials on a month to month basis. Total rent expense during the year ended December 31, 2015 and 2014 was $13,396 and $61,510, respectively.
The Company leases a vehicle and equipment from a member of the Company on an as needed basis. Rent expense was $12,380 and $27,750 for the years ended December 31, 2015 and 2014, respectively.
The Company also had some immaterial transactions with related entities during the periods that occurred due to size and convenience of the transactions.
Note I – Leases
The
Company leases its office space on an annual basis. Rent for the years ended
December 31, 2015 and 2014 was $37,839 and $59,462, respectively.
Note J – Going Concern
The Company’s 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 and negative cash flows from operations for the past 2 years. As a result, there is an accumulated deficit of at December 31, 2015 and 2014.
-12-
=================================================================================================================
Western Grade LLC
Show Low, Arizona
NOTES TO UNAUDITED FINANCIAL STATEMENTS – For 9 Months Ended September 30, 2016
NOTE A – Basis of Presentation
The condensed financial statements 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.
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.
NOTE B – Organization and Operations
Western Grade LLC was formed as an Arizona Limited Liability Company in 2001. The latest date this Company can dissolve is December, 2050. The Company operates as a general industrial contractor within the State of Arizona. Contracts are preformed on a fixed price; fixed price per-unit; and a time and material basis. Additionally, the Company provides transportation services, primarily hauling and delivering material aggregates.
Material Definitive Agreement
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. Upon the closing of the transaction on October 6, 2016, Western Grade LLC members transferred all of their outstanding ownership interests to SoOum Corp. In consideration, SoOum Corp. issued 420,000,000 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.
NOTE C – Summary of Significant Accounting Policies
Summary of 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 as required by generally accepted accounting principles.
-
continued –
-13-
Western Grade LLC
Show Low,
Arizona