Note 3. Summary of Significant Accounting Policies
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.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, 20182019 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2019.2020.
The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, AngioSoma Research, LLC,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.
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.
Note 4. Advances
Note 5. Convertible Notes Payable
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.
During the three months ended December 31, 2018, the holders of the Convertible Note Payable dated May 14, 2018 elected to convert, in four separate transactions, principal of $58,000 and accrued interest of $3,480 into a total of 6,959,142 shares of common stock. A loss in the aggregate amount of $12,073 was recognized on the conversions.
Also during the three months ended December 31, 2018, the Company issued 3,300,001 shares of common stock with a fair value of $99,000 for the conversion of a note payable with a basis of $0. A loss in the amount of $99,000 was recorded on this transaction.
Also during the three months ended December 31, 2018, the holders of the Convertible Note Payable dated June 25, 2018, elected to convert principal of $12,000 into 2,006,689 shares of common stock. The Company recorded a loss of $4,238 on this transaction.
Note 6. Note Payable
The Company entered into a promissory note with its attorney to refinance accounts payable of $68,793 as of September 30, 2016 into a promissory note. The note can be issued up to the total principal amount of $100,000 and includes the prepayment of legal fees of $31,498 to be incurred during the period from October 1, 2016 through March 1, 2017. The note payable was recorded at $68,793 (the amount of refinanced accounts payable) as of September 30, 2017. There was no prepayment recognized as of September 30, 2017. During the year ended September 30, 2018, the company increased the amount of the note to $100,000 in connection with legal fees incurred. The note bears interest at the prime rate and requires monthly payments of principal and interest of $10,000 beginning July 1, 2017, the maturity date. As of December 31, 2018, the note is classified in current liabilities on the balance sheet; no principal payments have been made on this note. During the three months ended December 31, 2018, the Company accrued interest in the amount of $1,331 on this note.
Note 7.6. Related Party Transactions
David Summers, a significant shareholder of the Company, providesformerly 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 December 31, 2018, services, rentthe legal settlement discussed in Note 8, the Company was relived of these outstanding claims, and other expense reimbursements in the amountunpaid liability balance of $112,804 was unpaid.
The Company is also involved in a legal dispute with Mr. Summers to gather the funds due,retired as well as settle claims on certain patents and formulas. There is no significant exchange of monies or ownership anticipated.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, 2018,2019, the Company owed Ms. Blankenship $135,438 for unpaid compensation.
As of December 31, 2018,2019, the Company owed Sydney Jim, our former CEO, $38,130 for accrued but unpaid compensation.
Note 8.7. 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 Stockstock issued for conversion of Series B Preferred Stockconvertible notes payable
During the three months ended December 31, 2017,2019, the Company issued 2,400,000 shares of common stock upon conversion of the Series B Preferred Stock. A loss of $7,250 was recognized and is recorded in Additional paid-in capital on the consolidated balance sheet.
Common stock issued for conversion of convertible note payable
During three months ended December 31, 2018, the Company issued 1,098,90139,833,749 shares of common stock upon the conversion of principal of $15,000. A loss in the amount of $3,616 was recognized on this transaction.
During three months ended December 31, 2018, the Company issued 1,442,308 shares of common stock upon the conversion of principal of $15,000. A loss in the amount of $3,365 was recognized on this transaction.
During three months ended December 31, 2018, the Company issued 1,224,490 shares of common stock upon the conversion of principal of $12,000. A loss in the amount of $1,531 was recognized on this transaction.
During three months ended December 31, 2018, the Company issued 3,193,443 shares of common stock upon the conversion of principal of $16,000$80,000 and accrued interest of $4,800. There was no gain or loss recognized as the conversion occurred in accordance with the amountoriginal terms of $3,561. A loss in the amount of $3,561 was recognized on this transaction.agreement.
During three months ended December 31, 2018, the Company issued 2,006,689 shares of common stock upon theBeneficial conversion of principal of $12,000. A loss in the amount of $4,238 was recognized on these transaction.feature
During the three months ended December 31, 2018,2019, the Company issued 3,300,001 shares of common stock with a fair value of $99,000 forcharged to additional paid-in capital the conversion of a note payable with a basis of $0. A loss in theaggregate amount of $99,000 was recorded$32,000 on this transaction.
During three months ended December 31, 2017, the Company issued 6,000,000 shares of common stock upon the conversion of principal of $0. A loss of $328,200 was recognized on the transaction because it occurred after all debt had been fully converted as of September 30, 2017. This is recorded under additional paid-in capital.notes payable.
Note 9.8. Commitments and ContingentContingent Liabilities
Litigation
The Company iswas involved in a legal dispute with Mr. David Summers, a significant shareholder, regarding the settlement of claims on certain patents and formulas. There is no significant exchange of monies or ownership anticipated, andIn October 2019, the Company has not accruedentered 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 with regardfor compensation amounts due to this dispute.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 10.9. Subsequent Events
On January 3, 2019,14, 2020, the Company issued 2,842,809 sharesentered 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 forat a rate of 65% of the conversionaverage of notes payable in the principal amounttwo lowest trading prices during the 15 trading days prior to conversion. The Company received cash proceeds of $17,000.$35,000 after deferred financing fees.
On January 8,February 10, 2020, the holders of the convertible note payable dated August 2, 2019 the Company issued 2,402,899 shares of common stock for the conversion of notes payable in theelected to convert principal amount of $14,000 and accrued interest in the amount of $2,580.$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 13,14, 2020, the holders of the convertible note payable dated August 2, 2019 the Company issued 1,513,636 shares of common stock for the conversion of notes payable in theelected to convert principal amount of $18,000 and accrued interest in the amount of $1,980.$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.
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, stage biotechnology company focused on improving the effectiveness of current standard-of-care treatments, especially relatedscientific and operating capabilities and leading product research and development infrastructure in order to endovascular interventionscreate trusted products and brands in the treatment of peripheral artery disease (PAD).an expanding global market.
AngioSoma is developing its leadWe 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 a drug candidate called LiprostinTM for the treatment of peripheral artery disease, or PAD, which has completed FDA Phase I and three Phase II clinical trials. We are in discussions with several contract research organizations for completion of our FDA protocol for Phase III and submission of our new drug application for marketing in the US and its territories.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,, 2018 2019 Compared to the Three Months Ended December 31, 2018, 2017
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, compared to $02018.
Cost of goods sold. We had cost of goods sold of $14 for the three months ended December 31, 2017. Revenue consisted of the sale of nutriceuticals.
Cost of goods sold. We had cost of goods sold of2019 compared to $47 for the three months ended December 31, 2018, compared to $02018.
General and administrative expense. We recognized general and administrative expense of $74,296 for the three months ended December 31, 2017. The increase was due to the increase in sales.
General and administrative expense. We recognized general and administrative expense of $129,623 for the three months ended December 31, 20182019 compared to $128,685$129,623 for the comparable period of 2017.2018. The increasedecrease in general and administrative expense was related primarily to an increasedecreases in non-cash compensation during the period.consulting fees and computer/internet expenses.
Loss on conversion of debt and preferred stock.debt. We recognized a loss on the conversion of debt in the amount of $115,311 during the three months ended December 31, 2018 compared to $335,450 during the three months ended December 31, 2017. The decrease was due to the loss on conversion of preferred stock and convertible notes payable.2018.
Interest expense. We recognized interest expense of $83,537$86,804 for the three months ended December 31, 20182019 compared to $1,205$83,537 for the comparable period of 2017. The increase was due primarily to the2018, including amortization of the discount on convertible notes payable of $81,821 and $76,554 during the current period in the amount of $76,554 compared to $2,931 during the comparable period of the prior year.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 compared to $465,350 for the three months ended December 31, 2017.2018.
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Liquidity and Capital Resources
At December 31, 2018,2019, we had cash on hand of $53,909.$48,709. The Company has negative working capital of $857,332.$618,298. Net cash used in operating activities for the three months ended December 31, 20182019 was $72,688.$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, 2018.2019.
$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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
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, 2018.2019. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2018,2019, 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. | As of December 31, 2018,2019, 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. | 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.
The Company is involved in a legal dispute with Mr. David Summers, a significant shareholder, regarding the settlement of claims on certain patents and formulas. There is no significant exchange of monies or ownership anticipated, and the Company has not accrued a liability with regard to this dispute.
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, 20182019 that were not registered under the Securities Act:
| | | | | | | | | | | |
Date of Sale | | Title of Security | | Number Sold | | Consideration Received
and Description of
Underwriting or Other
Discounts to Market
Price or Convertible
Security, Afforded to
Purchasers | | Exemption from
Registration
Claimed | | If Option, Warrant
or Convertible
Security, terms of
exercise or
conversion |
October 15, 2018 | | Common Stock | | | 3,300,001 | | Conversion of Note Payable | | Section 3(a)(9) of the Securities Act | | Convertible at $0.0091 per share |
November 23, 2018October 7, 2019
| | Common Stock | | | 1,098,9014,285,714 | | Conversion of Note Payable | | Section 3(a)(9) of the Securities Act | | Convertible at $0.0151$.0028 per share |
November 30, 2018October 15, 2019
| | Common Stock | | | 1,442,3086,500,000 | | Conversion of Note Payable | | Section 3(a)(9) of the Securities Act | | Convertible at $0.0117$.0026 per share |
December 10, 2018October 22, 2019
| | Common Stock | | | 1,224,4908,545,455 | | Conversion of Note Payable | | Section 3(a)(9) of the Securities Act | | Convertible at $0.0107$.0022 per share |
December 14, 20182, 2019 | | Common Stock | | | 3,193,4437,894,737 | | Conversion of Note Payable | | Section 3(a)(9) of the Securities Act | | Convertible at $0.0064$.0019 per share |
December 28, 201816, 2019 | | Common Stock | | | 2,006,6896,666,667 | | Conversion of Note Payable | | Section 3(a)(9) of the Securities Act | | Convertible at $0.0064$.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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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has not defaulted upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
This item is not applicable to smaller reporting companies.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. |
(3) | Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on November 3, 2010. |
(4) | Filed or furnished herewith. |
(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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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| AngioSoma Inc. |
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Date: February 19, 201914, 2020 | By: /s/ Alex Blankenship |
| Alex Blankenship |
| Chief Executive Officer, President, Secretary, Treasurer, Principal Executive Officer, Principal Finance and Accounting Officer and Sole Director |
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