NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
(Unaudited)
Note 1. General Organization and Business
AngioSoma is a wellness company dedicated to bringing innovative, effective and high-quality supplement products to the medical, wellness and adult-use markets through our marketing subsidiary, SomaCeuticalsTM. SomaCeuticals has acquired a diversified supply of supplements, strong clinical, scientific and operating capabilities and leading product research and development infrastructure in order to create trusted products and brands in an expanding global market.
We have abandoned our pursuit of FDA clearance and marketing of any drugs or products, including LiprostinTM, the patented pharmaceutical for a controlled drug delivery system. When rights to the drug were acquired it was represented that the initial clinical trials had been successfully completed and the single remaining trial was eligible to go forward. Research disclosed the representations are untrue. Therefore, further efforts to seek clearance and market the product ceased.
The Company was incorporated on April 29, 2016. The Company’s year-end is September 30. On October 4, 2019, the Company filed Articles of Continuance with the Secretary of State of Wyoming to continue its business in the state of Wyoming. The Company filed its Certificate of Dissolution with the Secretary of State of Nevada on October 21, 2019 since it is no longer a Nevada corporation. The Company undertook the necessary steps to notify the Financial Industry Regulatory Authority (“FINRA”) of the move from Nevada to Wyoming, and on October 28, 2019, FINRA notified the Company that FINRA has updated their system to reflect that the Company is now a Wyoming company.
Note 2. Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three months ended December 31, 2019, the Company had a net loss of $161,037 and negative cash flow from operating activities of $82,236. As of December 31, 2019, the Company had negative working capital of $618,298. Management does not anticipate having positive cash flow from operations in the near future.
These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
Management has plans to address the Company’s financial situation as follows:
In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raise doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company, which will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.
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Note 3. Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X and should be read in conjunction with the audited financial statements and notes thereto for the year ended September 30, 2019 which are included on our Form 10-K filed on December 31, 2019. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the three months ended December 31, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2020.
Consolidated Financial Statements
The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, SomaCeuticals, Inc., First Titan Energy, LLC and First Titan Technical, LLC from the date of their formations or acquisition. Significant intercompany transactions have been eliminated in consolidation.
Recently Issued Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Accounting for Leases. This update requires that lessees recognize right-of-use assets and lease liabilities that are measured at the present value of the future lease payments at lease commencement date. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will largely remain unchanged and shall continue to depend on its classification as a finance or operating lease. We have performed a comprehensive review in order to determine what changes were required to support the adoption of this new standard. We elected certain practical expedients permitted under the transition guidance and the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. Under the new guidance, the majority of our leases will continue to be classified as operating leases. The Company adopted this guidance on October 1, 2019, with no impact to the consolidated financial statements due to the Company not being a party to any lease agreements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for
Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill
impairment test. In computing the implied fair value of goodwill under Step 2, current U.S. GAAP requires the performance of
procedures to determine the fair value at the impairment testing date of assets and liabilities (including unrecognized
assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and
liabilities assumed in a business combination. Instead, the amendments under this ASU require the goodwill impairment test to
be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be
recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company adopted this guidance
on October 1, 2019 with no material effect on our consolidated financial statements.
Note 4. Advances
As of December 31, 2019 and September 30, 2019, the Company had non-interest bearing advances payable to third parties of $59,650. These advances are payable on demand.
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Note 5. Convertible Notes Payable
Convertible notes payable consisted of the following at December 31, 2019 and September 30, 2019:
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|
|
|
|
|
|
|
|
|
December 31,
2019
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|
|
September 30,
2019
|
|
|
Convertible note dated April 13, 2017 in the original principal amount of $20,000, no stated maturity date, bearing interest at 3% per year, convertible into common stock at a rate of $0.01 per share.
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$
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20,000
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|
|
$
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20,000
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|
|
|
|
|
|
|
|
|
|
|
|
Convertible note
dated April 1, 2019 in the original principal amount of $45,000, maturing February
15, 2019, bearing interest at 12% per year, convertible beginning September 28, 2019 into common stock at a rate of 65% of
the average of the two lowest trading prices during the 15 trading days prior to conversion. In October 2019, principal of
$45,000 and accrued interest of $2,700 were converted into 19,331,169 shares of common stock. There was no gain or loss
recognized as the conversion occurred in accordance with the original terms of the agreement.
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|
—
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45,000
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|
|
|
|
|
|
|
|
|
|
|
|
Convertible note
dated May 21, 2019 in the original principal amount of $35,000, maturing March 15,
2019, bearing interest at 12% per year, convertible beginning November 17, 2019 into common stock at a rate of 65% of the
average of the two lowest trading prices during the 15 trading days prior to conversion. In December 2019, principal of
$35,000 and accrued interest of $2,100 were converted into 20,502,580 shares of common stock. There was no gain or loss
recognized as the conversion occurred in accordance with the original terms of the agreement.
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|
—
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|
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|
35,000
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|
|
|
|
|
|
|
|
|
|
|
|
Convertible note dated August 2, 2019 in the original principal amount of $33,000, maturing May 15, 2020, bearing interest at 12% per year, convertible beginning January 29, 2020 into common stock at a rate of 65% of the average of the two lowest bid prices during the 15 trading days prior to conversion.
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33,000
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|
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33,000
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|
|
|
|
|
|
|
|
|
|
|
|
Convertible note dated August 13, 2019 in the original principal amount of $33,000, maturing May 30, 2020, bearing interest at 12% per year, convertible beginning February 9, 2020 into common stock at a rate of 65% of the average of the two lowest bid prices during the 15 trading days prior to conversion.
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33,000
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33,000
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|
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|
|
|
|
|
|
|
|
Convertible note dated October 28, 2019 in the original principal amount of $35,000, maturing September 15, 2020, bearing interest at 12% per year, convertible beginning April 5, 2020 into common stock at a rate of 65% of the average of the two lowest bid prices during the 15 trading days prior to conversion.
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35,000
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—
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Total current convertible notes payable
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121,000
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166,000
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|
|
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|
Less: discount on convertible notes payable
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(5,384
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)
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|
|
(52,205
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)
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Total convertible notes payable, net of discount
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$
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115,616
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|
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$
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113,795
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All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company. During the three months ended December 31, 2019, the Company recorded discounts to notes payable in connection with beneficial conversion features in the aggregate amount of $32,000 and deferred finance costs of $3,000, and recorded amortization of discounts in the amount of $81,821.
As of December 31, 2019 and September 30, 2019, accrued interest on notes payable was $227,917 and $227,734, respectively.
During the three months ended December 31, 2019 and 2018, interest expense on the convertible notes payable was $4,983 and $6,983, respectively.
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Note 6. Related Party Transactions
David Summers, a significant shareholder of the Company, formerly provided consulting services to the Company related to the development of our products. In addition, the Company had previously rented office space from Mr. Summers for $400 per month under a month to month lease. As part of the legal settlement discussed in Note 8, the Company was relived of these outstanding claims, and the unpaid liability balance of $112,804 was retired as contributed capital.
Alex Blankenship is paid $5,000 per month under her employment agreement as Chief Executive Officer of the Company. As of December 31, 2019, the Company owed Ms. Blankenship $135,438 for unpaid compensation.
As of December 31, 2019, the Company owed Sydney Jim, our former CEO, $38,130 for accrued but unpaid compensation.
Note 7. Stockholders’ Equity (Deficit)
Preferred Series A
During the three months ended December 31, 2019, the Company entered into a settlement agreement with David Summers, the Company’s former CEO and a common stockholder. As part of this settlement, David Summers returned 5,800,000 Series A preferred shares to the Company which were cancelled. See Note 8 for additional information regarding the settlement.
Common stock issued for conversion of convertible notes payable
During the three months ended December 31, 2019, the Company issued 39,833,749 shares of common stock upon the conversion of principal of $80,000 and accrued interest of $4,800. There was no gain or loss recognized as the conversion occurred in accordance with the original terms of the agreement.
Beneficial conversion feature
During the three months ended December 31, 2019, the Company charged to additional paid-in capital the aggregate amount of $32,000 on connection with the beneficial conversion feature of notes payable.
Note 8. Commitments and Contingent Liabilities
Litigation
The Company was involved in a legal dispute with Mr. David Summers, a significant shareholder, regarding the settlement of claims on certain patents and formulas. In October 2019, the Company entered into a settlement agreement with David Summers whereby all claims, disputes and litigation were dismissed. Mr. Summers returned 5,800,000 shares of Series A Preferred stock to the Company, which were cancelled. The Company was relieved of the previously recognized liability for compensation amounts due to Mr. Summers of $112,804. The Company assigned three patents that it previously held to David Summers, which had no book value as of the date of the settlement. The settlement was recorded as a capital transaction due to the related party nature and as such no gain or loss was recorded.
Note 9. Subsequent Events
On January 14, 2020, the Company entered into a convertible promissory note of $38,000, which matures on November 1, 2020 and bears interest at 12%. The promissory note is convertible beginning July 16, 2020 into common stock at a rate of 65% of the average of the two lowest trading prices during the 15 trading days prior to conversion. The Company received cash proceeds of $35,000 after deferred financing fees.
On February 10, 2020, the holders of the convertible note payable dated August 2, 2019 elected to convert principal in the amount of $12,000 into 6,000,000 shares of the Company’s common stock at a price of $0.002 per share. There was no gain or loss recognized as the conversion occurred in accordance with the original terms of the agreement.
On February 14, 2020, the holders of the convertible note payable
dated August 2, 2019 elected to convert principal in the amount of $14,000 into 9,333,333 shares of the Company’s common
stock at a price of $0.0015 per share. There was no gain or loss recognized as the conversion occurred in accordance with
the original terms of the agreement.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
AngioSoma is a wellness company dedicated to bringing innovative, effective and high-quality supplement products to the medical, wellness and adult-use markets through our marketing subsidiary, SomaCeuticalsTM. SomaCeuticals has acquired a diversified supply of supplements, strong clinical, scientific and operating capabilities and leading product research and development infrastructure in order to create trusted products and brands in an expanding global market.
We have abandoned our pursuit of FDA clearance and marketing of any drugs or products, including LiprostinTM, the patented pharmaceutical for a controlled drug delivery system. When rights to the drug were acquired it was represented that the initial clinical trials had been successfully completed and the single remaining trial was eligible to go forward. Research disclosed the representations are untrue. Therefore, further efforts to seek clearance and market the product ceased.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the condensed consolidated financial statements are prepared. We regularly review our accounting policies, and how they are applied and disclosed in our condensed consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
Results of Operations
Three Months Ended December 31, 2019 Compared to the Three Months Ended December 31, 2018
Revenue. We had revenue of $77 for the three months ended December 31, 2019 compared to $275 for the three months ended December 31, 2018.
Cost of goods sold. We had cost of goods sold of $14 for the three months ended December 31, 2019 compared to $47 for the three months ended December 31, 2018.
General and administrative expense. We recognized general and administrative expense of $74,296 for the three months ended December 31, 2019 compared to $129,623 for the comparable period of 2018. The decrease in general and administrative expense was related primarily to decreases in consulting fees and computer/internet expenses.
Loss on conversion of debt. We recognized a loss on the conversion of debt in the amount of $115,311 during the three months ended December 31, 2018.
Interest expense. We recognized interest expense of $86,804 for the three months ended December 31, 2019 compared to $83,537 for the comparable period of 2018, including amortization of the discount on convertible notes payable of $81,821 and $76,554 during the three months ended December 31, 2019 and 2018, respectively.
Net loss. For the reasons above, we recognized a net loss of $161,037 for the three months ended December 31, 2019 compared to $328,243 for the three months ended December 31, 2018.
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Liquidity and Capital Resources
At December 31, 2019, we had cash on hand of $48,709. The Company has negative working capital of $618,298. Net cash used in operating activities for the three months ended December 31, 2019 was $82,236. Cash on hand is adequate to fund our operations for less than twelve months. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to implement our business plan. There is no guarantee that we will be able to attain fund when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of December 31, 2019.
During the three months ended December 31, 2019, the Company used cash in operating activities in the amount of $82,236. This consisted of the net loss of $161,037, partially offset by the following non-cash operating expenses: depreciation in the amount of $906; amortization of the discount on notes payable in the amount of $81,821, and changes in working capital of $3,926. The Company used $1,514 of cash for investing activities during the three months ended December 31, 2019 related to the purchase of fixed assets. The Company had cash flows from financing activities of $32,000 from the proceeds of convertible notes payable.
Additional Financing
Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Internal Control over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2019. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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1.
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As of December 31, 2019, we did not maintain effective controls over the control environment. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
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2.
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As of December 31, 2019, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
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Our management, including our principal executive officer and principal financial officer, who is the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Change in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of September 30, 2019, the Company was involved in litigation: Cause No. 2018-48120; Somaceuticals, Inc. and AngioSoma, Inc. v. David Summers in the 151st District Court of Harris County, Texas. Dr. Summers provided scientific expertise to AngioSoma for several years, and there was a dispute regarding the ownership of several patents and other intellectual property. AngioSoma obtained a favorable settlement of the lawsuit on October 16, 2019, which resulted in the settlement of all claims of both parties along with (i) the assignment by the Company of certain technology and intellectual property to Dr. Summers, (ii) the assignment by Dr. Summers of any interest he owns in certain technology and intellectual property to the Company; and (iii) the assignment by Summers of 5,800,000 shares of Series A preferred stock of the Company to the Company.
We know of no other material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Set forth below is information regarding the securities sold during the quarter ended December 31, 2019 that were not registered under the Securities Act:
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|
Date of Sale
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|
Title of Security
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|
Number Sold
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|
Consideration Received
and Description of
Underwriting or Other
Discounts to Market
Price or Convertible
Security, Afforded to
Purchasers
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|
Exemption from
Registration
Claimed
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|
If Option, Warrant
or Convertible
Security, terms of
exercise or
conversion
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|
|
October 7, 2019
|
|
Common Stock
|
|
|
4,285,714
|
|
Conversion of Note Payable
|
|
Section 3(a)(9) of the Securities Act
|
|
Convertible at $.0028 per share
|
|
October 15, 2019
|
|
Common Stock
|
|
|
6,500,000
|
|
Conversion of Note Payable
|
|
Section 3(a)(9) of the Securities Act
|
|
Convertible at $.0026 per share
|
|
October 22, 2019
|
|
Common Stock
|
|
|
8,545,455
|
|
Conversion of Note Payable
|
|
Section 3(a)(9) of the Securities Act
|
|
Convertible at $.0022 per share
|
|
December 2, 2019
|
|
Common Stock
|
|
|
7,894,737
|
|
Conversion of Note Payable
|
|
Section 3(a)(9) of the Securities Act
|
|
Convertible at $.0019 per share
|
|
December 16, 2019
|
|
Common Stock
|
|
|
6,666,667
|
|
Conversion of Note Payable
|
|
Section 3(a)(9) of the Securities Act
|
|
Convertible at $.0018 per share
|
|
December 27, 2019
|
|
Common Stock
|
|
|
5,941,176
|
|
Conversion of Note Payable
|
|
Section 3(a)(9) of the Securities Act
|
|
Convertible at $.0017 per share
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Table of Contents
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has not defaulted upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
This item is not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
__________
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(1)
|
Incorporated by reference to our Definitive Proxy Statement on Schedule 14A filed on April 8, 2015.
|
|
(2)
|
Incorporated by reference to our Form 10-K/A Amendment No. 1 for the year ended September 30, 2015 filed on January 22, 2016.
|
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(3)
|
Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on November 3, 2010.
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(4)
|
Filed or furnished herewith.
|
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(5)
|
In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
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