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. The
results of operations for the period from inception (April 29, 2016) through June 30, 2016 are not necessarily indicative of the
results to be expected for the full fiscal year ending September 30, 2016.
Consolidated
Financial Statements
The consolidated
financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, AngioSoma Research,
LLC, 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.
Use of
Estimates
The preparation
of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Credit
Risk due to Certain Concentrations
We extend
credit, primarily in the form of uncollateralized oil and gas sales through the operators of our working interests, to various
companies in the oil and gas industry, which results in a concentration of credit risk. The concentration of credit risk may be
affected by changes in economic or other conditions within our industry and may accordingly affect our overall credit risk. However,
we believe that the risk of these unsecured receivables is mitigated by the nature of the companies to which we extend credit.
For the period from inception (April 29, 2016) through June 30, 2016, two operators accounted for 54% and 46% of our oil and gas
sales. Those operators account for 35% and 65% of accounts receivable as of June 30, 2016. We did not recognize any credit losses
during the period from inception (April 29, 2016) through June 30, 2016. We have not recognized an allowance for doubtful accounts
as of June 30, 2016.
Oil and
Gas Properties
The Company
follows the full cost method of accounting for its oil and gas properties, whereby all costs incurred in connection with the acquisition,
exploration for and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological
and geophysical activities, rentals on non-producing leases, drilling, completing, and equipping of oil and gas wells and administrative
costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted
for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the
relationship between capital costs and proved reserves of oil, in which case the gain or loss is recognized in the statement of
operations.
Depletion
of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the
units-of-production method based on proved reserves. The company recognized $386 of depletion during the period from inception
(April 29, 2016) through June 30, 2016. Net capitalized costs of oil and gas properties, less related deferred taxes, are limited
to the lower of unamortized cost or the cost ceiling, defined as the sum of the present value of estimated future net revenues
from proved reserves based on unescalated prices discounted at ten percent, plus the cost of properties not being amortized, if
any, plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any, less
related income taxes. As of June 30, 2016, the Company has oil and gas properties in the amount of $200,575, which are being excluded
from amortization because they have not been evaluated to determine whether proved reserves are associated with those properties.
Costs in excess of the present value of estimated future net revenues as discussed above are charged to impairment expense. The
Company applies the full cost-ceiling test on a quarterly basis on the date of the latest balance sheet presented.
Based on management’s
review, 100% of the unproved oil and gas properties balance as of June 30, 2016 are expected to be added to amortization during
the year ending September 30, 2016. The table below sets forth the cost of unproved properties excluded from the amortization
base as of June 30, 2016 and notes the year in which the associated costs were incurred:
| |
|
Year
of Acquisition |
|
|
|
| |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
Total |
|
| Acquisition
costs |
|
$ |
153,264 |
|
$ |
47,311 |
|
$ |
— |
|
$ |
— |
|
$ |
200,575 |
|
| Development costs |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Exploration costs |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Total |
|
$ |
153,264 |
|
$ |
47,311 |
|
$ |
— |
|
$ |
— |
|
$ |
200,575 |
|
Asset retirement
costs are recognized when the asset is placed in service, and are included in the amortization base and amortized over proved
reserves using the units of production method. Asset retirement costs are estimated by management using existing regulatory requirements
and anticipated future inflation rates.
Financial
Instruments
The Company’s
balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate
their fair value because of the relatively short period between the origination of these instruments and their expected realization.
FASB Accounting
Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from
independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed
based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three
broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described
below:
| |
|
| Level
1 - |
Unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| |
|
| Level
2 - |
Inputs other than
quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including
quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest
rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| |
|
| Level
3 - |
Inputs that are
both significant to the fair value measurement and unobservable. |
Fair value
estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June
30, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to
the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts
payable, and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would
be available for debt of similar terms that is not significantly different from its stated value.
The following
table presents assets that were measured and recognized at fair value as of June 30, 2016 and the period then ended on a recurring
and nonrecurring basis:
June
30, 2016
Description |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total
Realized Loss |
| Asset
retirement obligation |
|
$ |
— |
|
$ |
— |
|
$ |
21,116 |
|
$ |
— |
| Available for sale
securities |
|
|
13,002 |
|
|
— |
|
|
— |
|
|
— |
| Totals |
|
$ |
13,002 |
|
$ |
— |
|
$ |
21,116 |
|
$ |
— |
Revenue
Recognition
Sales of crude
oil are recognized when the delivery to the purchaser has occurred and title has been transferred. This occurs when oil has been
delivered to a pipeline or a tank lifting has occurred. Crude oil is priced on the delivery date based upon prevailing prices
published by purchasers with certain adjustments related to oil quality and physical location.
Common
Stock
The Company
records common stock issuances when all of the legal requirements for the issuance of such common stock have been satisfied.
Income
Taxes
The Company
accounts for income taxes under ASC 740 Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the
enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company
will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of June 30, 2016.
Earnings
(Loss) per Common Share
The Company
computes basic and diluted earnings per common share amounts in accordance with ASC Topic 260, Earnings per Share. The
basic earnings (loss) per common share are calculated by dividing the Company’s net income available to common shareholders
by the weighted average number of common shares outstanding during the year. The diluted earnings (loss) per common share are
calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number
of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number
of shares adjusted as of the first of the year for any potentially dilutive debt or equity. There are no dilutive shares outstanding
for any periods reported.
In periods
in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded
from the calculation. The Company’s convertible debt is considered anti-dilutive due to the Company’s net loss for the
period from inception (April 29, 2016) through June30, 2016. As a result, the Company did not have any potentially dilutive common
shares for that period. At June 30, 2016, the Company had 32,762,153 potentially issuable shares upon the conversion of convertible
notes payable and interest.
Beneficial
Conversion Feature
Beneficial
conversion feature is a non-detachable conversion feature that is in the money at the commitment date. The Company follows the
guidance of ASC Subtopic 470-20 Debt with Conversion and Other Options to evaluate as to whether beneficial conversion
feature exists. Pursuant to Section 470-20-30 an embedded beneficial conversion feature recognized separately under paragraph
470-20-25-5 shall be measured initially at its intrinsic value at the commitment date (see paragraphs 470-20-30-9 through 30-12)
as the difference between the conversion price (see paragraph 470-20-30-5) and the fair value of the common stock or other securities
into which the security is convertible, multiplied by the number of shares into which the security is convertible. When the Company
issues a debt or equity security that is convertible into common stock at a discount from the fair value of the common stock at
the date the debt or equity security counterparty is legally committed to purchase such a security (Commitment Date), a beneficial
conversion charge is measured and recorded on the Commitment Date for the difference between the fair value of the Company’s
common stock and the effective conversion price of the debt or equity security. If the intrinsic value of the beneficial conversion
feature is greater than the proceeds allocated to the debt or equity security, the amount of the discount assigned to the beneficial
conversion feature is limited to the amount of the proceeds allocated to the debt or equity security.
Commitments
and Contingencies
The Company
follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions
may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which
will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. There are no known commitments or contingencies as of June 30,
2016.
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.
Subsequent
events
The Company
follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events.
The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09
of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they
are widely distributed to users, such as through filing them on EDGAR..
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