ITEM 1. BUSINESS
Corporate Development
Truli Media Group, Inc. (“Truli OK”), formerly known as SA Recovery Corp., was incorporated on July 28, 2008 in the State of Oklahoma. On June 13, 2012, the company entered into a Reorganization Agreement (the “Reorganization Agreement") with Truli Media Group, LLC, a Delaware Limited Liability Company (“Truli LLC”) and SA Recovery Merger Subsidiary, Inc., pursuant to an agreement and plan of merger. Under the terms of the agreement and plan of merger, all of Truli LLC’s membership interests were exchanged for shares of the Truli OK’s common stock, or, at the time, approximately 74% of the fully diluted issued and outstanding common stock of Truli OK.
Pursuant to the Reorganization Agreement, as part of the transaction the members of and other designees of Truli LLC acquired a controlling interest in Truli OK. The company was a publicly registered corporation with nominal operations immediately prior to the merger. For accounting purposes, Truli LLC was the surviving entity.
On March 17, 2015 (“Effective Date”), Truli OK effected a merger with its newly formed wholly-owned subsidiary, Truli Media Group, Inc., a Delaware corporation (“TMG”, “Truli” or, the “Company”) for the purposes of changing its state of incorporation to Delaware (the “Merger”). On the Effective Date, Truli OK also completed a reverse stock split as described below. Prior to the Merger, Truli OK was the sole stockholder of TMG. Upon completion of the Merger, Truli became the surviving entity. The Merger was effected through an agreement and plan of merger (“Merger Agreement”).
The Merger, including the Merger Agreement, was approved by the board of directors of the Truli OK and a majority of the outstanding capital stock pursuant to a written consent of the stockholders.
A certificate of merger was filed with both the Oklahoma Secretary of State and the Delaware Secretary of State on February 27, 2015. As a result of the Merger, the Company is subject to the certificate of incorporation and bylaws of TMG and shall be further governed by the Delaware General Corporation Law.
On the Effective Date, every fifty shares of Truli OK’s issued and outstanding common stock (“Common Stock”) was converted into one share of TMG common stock (“TMG Stock”) (the “Stock Split”). Every option and right to acquire Truli OK’s Common Stock and every outstanding warrant or right outstanding to purchase Truli OK’s Common Stock was automatically converted into options, warrants and rights to purchase TMG Stock whereby each option, warrant or right to purchase fifty shares of Common Stock was converted into an option, warrant or right to purchase one share of TMG Stock at 5,000% of the applicable exercise, conversion or strike price of such converted securities. The stockholders of the Company received no fractional shares of TMG and instead had every fractional share, option, warrant or right to purchase TMG Stock rounded up to the next whole number. Additionally, all debts and obligations of Truli OK were assumed by TMG.
All references to common stock, share and per share amounts have been retroactively restated to reflect the 1:50 reverse stock split as if it had taken place as of the beginning of the earliest period presented.
Business of the Company
Truli serves as a collaborative digital platform for members of the faith and family community worldwide, allowing them to share and deepen their faith and family values together. Truli invites ministries from various religious denominations to upload their messages to the Truli platform, at no cost. Our goal is to have an ever expanding library from these participating ministries, centralizing, serving and extending the Christian and family values message to a greater audience than previously done before. This platform delivers all types of media content to Internet accessible devices such as computers and an assortment of digital mobile devices such as tablets and smart phones. Currently, there are roughly 12,000 videos in its library, with faith-based content currently representing roughly 40% of the Truli Platform with roughly 60% of the platform representing family entertainment such as feature films “G” and “PG” rated, music videos, children’s programming, sports, education, etc. Truli also currently streams 8 Christian Network Television channels on its website. The Truli platform is also available in the Spanish language on its platform which includes roughly 4,500 items in its library.
Strategy and Plan of Operation
Truli’s goal is to sign up as many ministries as possible throughout the United States and abroad. Truli is affiliated with over two hundred fifty ministries and churches, and allows them to deliver their content through the Truli platform. We hope to attract ministries to join our platform by potentially providing benefits to them including (i) expanded dissemination of their message regardless of size, budget or location, (ii) direct user feedback from our consumers, and (iii) organization of their sermons and content as well as general technological advances to augment traditional places of worship.
Truli consumers have access to free content as well as certain Pay-per-View content on the interactive digital platform from which we hope to eventually derive revenue. In the event we are able to raise sufficient capital, and our platform gains significant traffic, we plan to sell advertising space on our website. We additionally plan to sell faith based merchandise through our website once we are financially able to do so. We also have created a “donation” section of our website whereby we will receive 15% of donations given to ministries and churches.
Truli also will allow partners to monetize their content through our platform by letting them set purchase prices for their content, and allowing them to receive money though the “donation” section of our website.
We have currently not generated any revenue from these business strategies and there can be no assurances that we will do so in the future.
Marketing
Due to our current lack of capital, we have halted any current marketing. As a result we currently market in a very limited capacity, primarily through press releases. In the event that we are able to access capital in the future, we would create a marketing campaign including, (i) direct marketing to ministries outlining the benefits of our platform to their ministry, (ii) presence at trade shows and conferences including the National Religious Broadcasters Convention which networks thousands of Christian community members and business people and the international Christian Retailers Show which is the largest Christian retailer gathering in the world, and (iii) other types of marketing including but not limited to social media, press exposure, brand building at various seminars, viral and social strategies as well as the utilization of networks, bloggers, newsletters, direct calling and radio. If we are able to raise sufficient capital we also plan on developing technology to create mobile phone applications related to our content.
Competition
We face significant competition from integrated online media companies, social networking sites, traditional print and broadcast media, search engines, and various e-commerce sites. Our competitors include many well-known and fully funded news and information websites and content providers. Several of our competitors offer an integrated variety of Internet products, advertising services, technologies, online services and/or content that may compete for the attention of our users, advertisers, developers, and publishers. We may also in the future, more directly compete with these companies to obtain agreements with third parties to promote or distribute our services. In addition, we compete with social media and networking sites which are attracting an increasing share of users, users’ online time and online advertising dollars.
Financial
To date, we have devoted a substantial portion of our efforts and financial resources to creating and marketing our online platform. As a result, since our inception in 2011, we have generated no revenue and have funded our operations principally through private sales of debt and equity securities and through advances made by our Chief Executive Officer. We have never generated any revenue and, as of March 31, 2016, we had an accumulated deficit of $5,316,667. We expect to continue to incur operating losses for the foreseeable future and expect to generate no revenue for the foreseeable future.
Our cash and cash equivalents balance at March 31, 2016 was $13,245, representing 100% of total assets. Based on our current expected level of operating expenditures, we are currently uncertain if we will be able to fund our operations until our next year end. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events. Currently we are dependent upon working capital advances provided by our Chief Executive Officer. We need to raise additional cash through the private or public sales of equity or debt securities, collaborative arrangements, or a combination thereof, to continue to fund operations and the development of our website and digital platform. There is no assurance that such financing will be available to us when needed to allow us to continue our operations or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop developing or marketing our products, or cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding of cash from any source.
We have incurred indebtedness in the aggregate of $2,087,782 in principal and interest as of March 31, 2016. Unless we are able to restructure some or all of this debt, and raise sufficient capital to fund our continued development, our current operations do not generate any revenue to pay these obligations. Accordingly, there can be no assurances that we will be able to pay these or other obligations which we may incur in the future and it is unlikely we will be able to continue as a going concern.
Our Chief Executive Officer, vice-president and certain of our consultants are currently not being paid. In the event financing is not obtained, we may pursue further cost cutting measures. These events could have a material adverse effect on our business, results of operations and financial condition.
The independent registered public accounting firm’s report on our March 31, 2016 consolidated financial statements included in this Annual Report states that our difficulty in generating sufficient cash flow to meet our obligations and sustain operations raise substantial doubts about our ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might result should the Company be unable to continue as a going concern.
Employees
As of June 15, 2016, we have two total employees with one full-time employee, our Founder and Chief Executive Officer Michael Solomon, who has forgone payment for the fiscal year. We also employ 2 part-time consultants who are not currently being paid by Truli on a consistent basis. While we have not experienced any work disruptions or stoppages we have to consider our relationships with certain consultants tenuous as a result of certain non-payments.
Our Website
Our website address is www.truli.com. Information found on our website is not incorporated by reference into this report. We make available free of charge through our website our SEC filings furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
ITEM 1A.
ITEM 1A. RISK FACTORS
We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Annual Report, may adversely affect our business, operating results and financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Annual Report should be considered carefully in evaluating us, our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time.
Risks Related To Our Financial Condition.
We were formed on October 19, 2011 and have a limited operating history and accordingly may not be able to effectively operate our business.
We are still in the early stages of company development and accordingly, there is only a limited basis upon which to evaluate our prospects for achieving our intended business objectives. There can be no assurance that we will ever achieve positive cash flow or profitability, or that if either is achieved, that it will be at the levels estimated by management.
Prior to the date of this annual report, we have not yet generated any revenue. Our failure to generate significant revenues would seriously harm our business. Even if we are able to access capital, we anticipate that we will experience operating losses and incur significant and increasing losses in the future due to growth, expansion, development and marketing. In the event that we are able to raise adequate capital, we expect to significantly increase our sales and marketing and general and administrative expenses. As a result of these additional expenses, we would need to generate substantial revenues to become profitable. We expect to incur significant operating losses for at least the next several years.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
The report of our independent auditors dated June 29, 2016 on our consolidated financial statements for the year ended March 31, 2016 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on our incurring significant losses from operations and our working capital deficit position. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to realize the commercialization of our planned business operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertain.
We have a significant amount of debt which could impact our ability to continue to implement our business plan.
We have incurred liabilities of $2,345,910 (including $2,087,782 in unsecured notes and accrued interest due to our chief executive officer) as of March 31, 2016. Unless we are able to restructure some or all of this outstanding debt, and raise sufficient capital to fund our continued development, we will be unable to pay these obligations as our current operations do not generate any revenue.
We currently are subject to financial obligations of a settlement agreement regarding the cancellation of our previously issued 12% convertible debentures and our failure to meet payments or obligations as they become due may materially harm our financial condition.
We entered into a settlement agreement and release of claims on August 7, 2014 with the holders of our 12% convertible debentures whereby we paid an initial payment of $301,337. We additionally owed another $180,000 to be paid over 24 monthly payments beginning on October 10, 2014. We have currently not missed any payments. In the event we default on any payment under this settlement agreement, we would be subject to substantial penalties and interest, which will have a material adverse effect on our business and financial condition.
Our chief executive officer, vice-president, as well as consultants, are currently working without pay and there can be no assurances that they will continue to provide services to us.
Currently, our chief executive officer, our vice-president, and certain of our consultants, are not being paid for their services provided to the company due to a shortage of company funds. In the event that we are unable to secure additional financing to begin paying employees and consultants, they may quit, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Risks Related to the Company
There is no assurance that we will be able to attract and retain consumers to our website or generate revenues.
Our success depends upon our ability to obtain and retain consumers and potentially generate income from advertisers, future merchandise sales, donations to our subscriber ministries, as well as Pay-per-View content on our website. There is no assurance that we will be able to attract prospective consumers to our website, that we will be able to retain consumers that we attract, or that we will be able to generate revenue sufficient to continue our operations.
We will require additional capital to implement our business plan and marketing strategies which we may be unable to secure.
Under our business plan, we intend to build and expand our operations substantially over the next several years. Our cash on hand is insufficient for our operational needs. We therefore need additional financing for working capital purposes and to grow our business. There is no assurance that additional financing will available on acceptable terms, or at all. If we fail to obtain additional financing as needed, we may be required to reduce or halt our anticipated expansion plans and our business and results of operations could be materially, adversely affected. There can be no assurance that additional financing will be available on terms deemed to be acceptable by us, and in our stockholders’ interests.
Given our lack of capital, we may be unable to build, or continue to build, awareness of our brand, which could negatively impact our business, our ability to generate revenues, and/or cause our revenues to decline.
Our ability to build and maintain brand recognition is critical to attracting and expanding our online user base. In order to promote our brand, in response to competitive pressures or otherwise, we may find it necessary to increase our marketing budget, hire additional marketing and public relations personnel or otherwise increase our financial commitment to creating and maintaining brand loyalty among our clients. Given our insufficient funds, we are currently unable to promote our brand as necessary without raising additional capital. If we fail to promote and maintain our brand effectively, or incur excessive expenses attempting to promote and maintain our brands, our business and financial results may suffer.
The Company relies on the proper and efficient functioning of its computer and database systems, and a malfunction could result in disruptions to its business.
Our ability to keep our business operating depends on the proper and efficient operation of its computer and database systems. Since computer and database systems are susceptible to malfunctions and interruptions (including those due to equipment damage, power outages, computer viruses and a range of other hardware, software and network problems), we cannot guarantee that it will not experience such malfunctions or interruptions in the future. A significant or large-scale malfunction or interruption of one or more of its computer or database systems could adversely affect our ability to keep our operations running efficiently. If a malfunction results in a wider or sustained disruption to its business, this could have a material adverse effect on our business, financial condition and results of operations.
Our systems may be subject to slower response times and system disruptions that could adversely affect our revenues.
Our ability to attract and maintain relationships with users, advertisers and strategic partners will depend on the satisfactory performance, reliability and availability of our Internet infrastructure. System interruptions or delays that result in the unavailability of Internet sites or slower response times for users would reduce the number of advertising impressions and leads delivered. This could reduce our prospects of revenues as the attractiveness of our sites to users and advertisers decreases. Further, we do not have multiple site capacity for all of our services in the event of any such occurrence. We may experience service disruptions for the following reasons:
● occasional scheduled maintenance;
● equipment failure;
● traffic volume to our websites that exceed our infrastructure’s capacity; and
● natural disasters, telecommunications failures, power failures, other system failures, maintenance, viruses, hacking or other events outside of our control.
Our networks and websites must accommodate a high volume of traffic and deliver frequently updated information. They may experience slow response times or decreased traffic for a variety of reasons. There may be instances where our online networks as a whole, or our websites individually, will be inaccessible. Also, slower response times can result from general Internet problems, routing and equipment problems involving third party Internet access providers, problems with third party advertising servers, increased traffic to our servers, viruses and other security breaches, many of which problems are out of our control. In addition, our users depend on Internet service providers and online service providers for access to our online networks or websites. Such providers have experienced outages and delays in the past, and may experience outages or delays in the future. Moreover, our Internet infrastructure might not be able to support continued growth of our online networks or websites. Any of these problems could result in less traffic to our networks or websites or harm the perception of our networks or websites as reliable sources of information. Less traffic on our networks and websites or periodic interruptions in service could have the effect of reducing demand for both users and for advertisers on our networks or websites, thereby harming our financial condition and operations.
Our networks may be vulnerable to unauthorized persons accessing our systems, viruses and other disruptions, which could result in the theft of our proprietary information and/or disrupt our Internet operations making our websites less attractive and reliable for our users and advertisers.
Internet usage could decline if any compromise of security occurs. “Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Hackers, if successful, could misappropriate proprietary information or cause disruptions in our service.
We may be required to expend capital and other resources to protect our websites against hackers. Our online networks could also be affected by computer viruses or other similar disruptive problems, and we could inadvertently transmit viruses across our networks to our users or other third parties. Any of these occurrences could harm our business or give rise to a cause of action against us. Providing unimpeded access to our online networks is critical to servicing our customers and providing superior customer service. Our inability to provide continuous access to our online networks could cause some of our customers to discontinue purchasing advertising programs and services and/or prevent or deter our users from accessing our networks. Our activities and the activities of third party contractors involve the storage and transmission of proprietary and personal information. Accordingly, security breaches could expose us to a risk of loss or litigation and possible liability. We cannot assure that contractual provisions attempting to limit our liability in these areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of our agreements.
Our business, which is dependent on centrally located communications and computer hardware systems, is vulnerable to natural disasters, telecommunication and systems failures, terrorism and other problems, which could reduce traffic on our networks or websites and result in decreased capacity for advertising space.
Our operations are dependent on our communications systems and computer hardware, all of which are located in data centers operated by third parties. These systems could be damaged by fire, floods, earthquakes, power loss, telecommunication failures and other similar events and natural disasters. We currently have no insurance policies to cover for loss or damages in these events. In addition, terrorist acts or acts of war may cause harm to our employees or damage our facilities, our clients, our clients’ customers and vendors, or cause us to postpone or cancel, or result in dramatically reduced attendance at, our events, which could adversely impact our revenues, costs and expenses and financial position. We are predominantly uninsured for losses and interruptions to our systems or cancellations of events caused by terrorist acts and acts of war.
If additional Shares are issued in the future, an investor’s ownership interest will be diluted.
We may elect to issue additional shares of common stock in the future including, without limitation, in connection with an additional capital raise. If we issue additional shares in the future, an investor’s ownership interest will be diluted and such dilution may be substantial.
If Internet users do not interact with www.truli.com frequently or if we fail to attract new users to the site, our business and financial results will suffer.
The future success of www.truli.com is largely dependent upon users constantly visiting the site for content. We need to attract users to visit our website frequently and spend increasing amounts of time on the website when they visit. If we are unable to encourage users to interact more frequently with truli.com and to increase the amount of user generated content they provide, our ability to attract new users to our website and increase the number of loyal users will be diminished and adversely affected. As a result, our business and financial results will suffer, and we will not be able to grow our business as planned.
We intend to generate substantial portions of our revenue through advertising so uncertainties in the Internet advertising market and our failure to increase advertising inventory on our Web properties could adversely affect our ad revenues.
Although worldwide online advertising spending is growing steadily, it represents only a small percentage of total advertising expenditures. Advertisers will not do business with us if their investment in Internet advertising with us does not generate sales leads, and ultimately customers, or if we do not deliver their advertisements in an appropriate and effective manner. If the Internet does not continue to be as widely accepted as a medium for advertising and the rate of advertising on the Internet decreases, our ability to generate increased revenues could be adversely affected. We believe that growth in ad revenues will also depend on our ability to increase the number of pages on our website to provide more advertising inventory. If we fail to increase our advertising inventory at a sufficient rate, our ad revenues could grow more slowly than we expect, which could have an adverse effect on our financial results.
New technologies could block Internet ads from being seen by our users, which could harm our financial results.
Technologies have been developed, and are likely to continue to be developed, that can block the display of Internet ads. Ad-blocking technology may cause a decrease in the number of ads that we can display on our website, which could adversely affect our future ad revenues and our financial results.
If we fail to enhance awareness of our website and provide updated content, we will be unable to generate sufficient website traffic and our business and financial condition will suffer.
In order to generate traffic to our website, we believe that we need to enhance awareness of our website and consistently provide updated content. We also believe that the importance of brand recognition will increase due to the relatively low barriers to entry in our market. We believe we currently have low traffic on our website due to a lack of content, and our inability to adequately market the website given our insufficient capital. Increasing awareness and traffic will require us to spend increasing amounts of money on, and devote greater resources to, advertising, marketing and other brand-building efforts, and these investments may not be successful. Given our insufficient capital, even if these efforts are successful, they may not be cost-effective. If we are unable to enhance our website, our traffic may not increase and we may fail to attract advertisers, which could in turn result in lost revenues and adversely affect our business and financial results.
Risks related to Management
Our Chief Executive Officer, by virtue of his ownership of our securities, is currently able to control the company.
Our founder and Chief Executive Officer, Michael Jay Solomon, as of March 31, 2016, owns approximately 52% of the issued and outstanding equity of Truli. Additionally, as of March 31, 2016, Mr. Solomon is owed an aggregate of $1,982,084 in principal and accrued interest pursuant to a 4% unsecured, convertible promissory note which can be converted into our common stock at a price per share of $0.02. In the event that Mr. Solomon’s convertible note were converted in full, he would own approximately 99% of the issued and outstanding stock of the Truli. Our non-management shareholders will have virtually no ability to control or direct our affairs. Management will be in a position to control all of our decisions, and removal of such persons would be virtually impossible. Management will be able to significantly influence all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, which could have an undesired or undesirable effect. No person should invest in Truli unless such investor is willing to place all aspects of the management of the company in the existing management.
We are responsible for the indemnification of our officers and directors, which, if required, could result in significant company expenditures.
Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our articles of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of us. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.
Given our financial situation, we may be unable to implement growth and expansion strategies.
We are not able to expand our product and service offerings, our client base and markets, or implement the other features of our business strategy given our insufficient capital and need for additional financing. If we are unable to successfully manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel or effectively manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely affected.
Additional financing will be necessary for the implementation of our growth strategy.
We will require additional debt and/or equity financing to pursue our growth strategy. Given our limited operating history and existing losses, there can be no assurance that additional financing will be available, or, if available, that the terms will be acceptable to us. Lack of additional funding would force us to curtail substantially or even totally, our business and growth plans.
Furthermore, given our financial condition, future financing may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding on terms sufficient to us will seriously jeopardize our ability to continue our business and operations.
We depend on Michael Solomon, our Chief Executive Officer, to manage and drive the execution of our business plans and operations; the loss of Mr. Solomon would materially and adversely affect our business.
Currently, our CEO, Michael Solomon has forgone payment for the last three fiscal years given our financial condition. There can be no assurance that we will be successful in retaining Mr. Solomon. A voluntary or involuntary termination of Mr. Solomon would have a materially adverse effect on our business.
Risks Related to Investment in our Company
The market for our common stock has been illiquid so the price of our common stock could be volatile and could decline when you want to sell your holdings.
Our common stock trades with limited volume on the OTC PINK tier of the OTC Markets Group under the symbol TRLI. Although a limited public market for our common stock exists, it is still relatively illiquid compared to that of a seasoned issuer. Any prospective investor in our securities should consider the limited market of our common stock when making an investment decision. No assurances can be given that the trading volume of our common stock will increase or that a liquid public market for our securities will ever materialize. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include but are not limited to: (i) actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investor; (ii) changes in financial estimates by us or by any securities analysts who might cover our stock; (iii) speculation about our business in the press or the investment community; (iv) significant developments relating to our relationships with our licensees and our advisors; (v) stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; (vi) our potential inability to pay back outstanding notes or debentures, or contractual obligations related to the cancellation thereof; (vii) investor perceptions of our industry in general and our company in particular; (viii) the operating and stock performance of comparable companies; (ix) general economic conditions and trends; (x) major catastrophic events; (xi) announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; (xii) changes in accounting standards, policies, guidance, interpretation or principles; (xiii) sales of our common stock, including sales by our directors, officers or significant stockholders; and (xiv) additions or departures of key personnel.
Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.
Our common stock will be subject to the “penny stock” rules of the SEC, which may make it more difficult for stockholders to sell our common stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit an investor’s ability to sell our common stock in the secondary market.
As an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward-looking statements does not apply to us.
Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
We are subject to price reset provisions, variable conversion prices and adjustments related to certain of our convertible notes (including those in default) and our common stock purchase warrants which could cause significant dilution to stockholders and adversely impact the price of our common stock.
Certain of our securities are subject to price reset provisions, variable conversion prices and adjustments. As a result, future sales of common stock or common stock equivalents may result in significant dilution to our shareholders. For instance, 50,134 common stock purchase warrants issued as compensation to placement agents in connection with our previously cancelled 12% convertible debentures have increased to 6,266,715 warrants and the exercise price has been reduced from $2.50 to $0.02 as a result of subsequent debt issuances.
In the event of further price resets or conversion price modifications, dilution may be substantial and our stock price may be negatively impacted.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results and stockholders could lose confidence in our financial reporting.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Failure to achieve and maintain an effective internal control environment, regardless of whether we are required to maintain such controls, could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Furthermore, we have not obtained an independent audit of our internal controls and, as a result, we are not aware of any deficiencies which would result from such an audit. Further, at such time as we are required to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may incur significant expenses in having our internal controls audited and in implementing any changes which are required.
We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.
No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
We became a public company in June 2012 and subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act. Prior to June 2012, we had not operated as a public company and the requirements of these rules and regulations have and will likely continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent auditors attest to, the effectiveness of our internal controls structure and procedures for financial reporting. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the time we will be required to do so. If we fail to do so, or if in the future our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our common stock. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, which will increase costs. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. In addition, because our management team has limited experience managing a public company, we may not successfully or efficiently manage our transition into a public company.
Future sales of our equity securities could result in downward selling pressure on our securities, and may adversely affect the stock price.
In the event that our equity securities are sold, there is a risk of downward pressure may result, making it difficult for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.
Risks Related to the Industry
The affinity-based content aggregation and ecommerce industry is highly competitive.
We will be in competition with other current or potential regional, national and international companies that may offer similar services to ours. Our current competitors include Sky Angel, HopeTV, Harvest-TV, Streaming Faith, Hulu, YouTube, Pandora, Rhapsody as well as thousands of small Christian-focused web sites. Additionally, ministries providing content to the Company may also distribute their content through other mediums such as cable TV, similar online companies, their own web site, YouTube and others. It is possible that additional online media content competitors who do not directly compete with us will elect to compete in our field or emerge in the future, some of which may be larger and have greater financial and operating resources than we do. There can be no assurance that we will be able to compete against such other competitors in light of the rapidly evolving, highly competitive marketplace for these services. Our failure to maintain and enhance our competitive position could reduce our market share, decrease our profit margin and cause our revenues to grow more slowly than anticipated or not at all.
Online piracy of media content on our website could result in reduced revenues and increased expenditures which could materially harm our financial condition.
Online media content piracy is extensive in many parts of the world and is made easier by technological advances. This trend facilitates the creation, transmission and sharing of high quality unauthorized copies of online video content. The proliferation of unauthorized copies of these products will likely continue, and if it does, could have an adverse effect on the Company’s business, because these products could reduce the revenue the Company receives from its products. Additionally, in order to contain this problem, the Company may have to implement elaborate and costly security and anti-piracy measures, which could result in significant expenses and losses of revenue. There can be no assurance that even the highest levels of security and anti-piracy measures will prevent piracy.
Our contracts with content providers are “non-exclusive” which may affect our ability to compete, resulting in potential adverse effects to our operations and financial condition.
Our contracts with content providers are “non-exclusive.” As a result, content providers are able to deliver and distribute content which is available on the Truli website, through other websites including, without limitation, our direct competitors. In addition, certain of the content available on the Truli website is also available generally to the public on cable television, YouTube.com or other file sharing websites, among others. The lack of exclusive content on our website may be harmful to our ability to compete in the marketplace which could adversely affect our results of operations and financial condition.
Changes in technology may affect the profitability of online content and if we are unable to adapt to such technological changes, it may negatively impact our business and financial condition.
The online industry in general, continues to undergo significant changes, primarily due to technological developments. Due to rapid growth of technology and shifting consumer tastes, the Company cannot accurately predict the overall effect that technological growth or the availability of alternative forms of entertainment may have on the profitability of its online content and/or the Company’s business in general. Examples of such advances include downloading and streaming from the Internet onto cellular phone or other mobile devices. Other online companies may have larger budgets to exploit these growing trends. The Company cannot predict how it or its business partners will financially participate in the exploitation of its content through these emerging technologies or whether the Company or its business partners have the right to do so for all of its content. If the Company or its business partners cannot successfully exploit these and other emerging technologies, it could have a material adverse effect on the Company’s revenues and therefore on the Company’s business, financial condition and results of operations.
As a result of providing online media content, we may be subject to intellectual property infringement claims which could have a material adverse effect on our financial condition.
One of the risks of the online media content business is the possibility that others may claim that such content misappropriates or infringes the intellectual property rights of third parties with respect to their previously developed films, stories, characters, other entertainment or intellectual property. The Company is likely to receive in the future claims of infringement or misappropriation of other parties’ proprietary rights. Any such assertions or claims may materially adversely affect the Company’s business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, the Company could incur significant costs and diversion of resources in defending against them, which could have a material adverse effect on the Company’s business, financial condition or results of operations. If any claims or actions are asserted against the Company, the Company may seek to settle such claim by obtaining a license from the plaintiff covering the disputed intellectual property rights. The Company cannot provide any assurances, however, that under such circumstances a license, or any other form of settlement, would be available on reasonable terms or at all. Any of these occurrences could have a material adverse effect on the Company’s revenues and therefore on the Company’s business, financial condition and results of operations.
As a distributor of content over the Internet, we face potential liability for legal claims based on the nature and content of the materials that we distribute.
Due to the nature of content published on our online network, including content placed on our online network by third parties, and as a distributor of original content and research, we face potential liability based on a variety of theories, including defamation, negligence, copyright or trademark infringement, or other legal theories based on the nature, creation or distribution of this information. Such claims may also include, among others, claims that by providing hypertext links to websites operated by third parties, we are liable for wrongful actions by those third parties through these websites. Similar claims have been brought, and sometimes successfully asserted, against online services. It is also possible that our users could make claims against us for losses incurred in reliance on information provided on our networks.
In addition, we could be exposed to liability in connection with material posted to our Internet sites by third parties. For example, many of our sites offer users an opportunity to post un-moderated comments and opinions. Some of this user-generated content may infringe on third party intellectual property rights or privacy rights or may otherwise be subject to challenge under copyright laws. Such claims, whether brought in the United States or abroad, could divert management time and attention away from our business and result in significant cost to investigate and defend, regardless of the merit of these claims. In addition, if we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial damages. We have no insurance to protect us against these claims. The filing of these claims may also damage our reputation as a high quality provider of unbiased, timely analysis and result in client cancellations or overall decreased demand for our services.
As a distributor of media content, the Company may face potential liability for defamation, invasion of privacy, negligence, copyright or trademark infringement and other claims based on the nature and content of the materials distributed.
These types of claims have been brought, sometimes successfully, against distributors of media content. Any imposition of liability, given our lack of insurance coverage, could have a material adverse effect on the Company’s business, results of operations and financial condition.
As a result of conducting business outside of the United States, we may be subjected to additional risks related to international trade which could have a material adverse effect on our financial condition.
We conduct business in overseas markets and are therefore subject to risks inherent in the international distribution of media content, many of which are beyond our control. These risks include: (i) laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws; (ii) differing cultural tastes and attitudes, including varied censorship laws; (iii) differing degrees of protection for intellectual property; (iv) financial instability and increased market concentration of buyers in foreign television markets, including in European pay television markets; (v) the instability of foreign economies and governments; (vi) fluctuating foreign exchange rates; and (vii) war and acts of terrorism.
Events or developments related to these and other risks associated with international trade could adversely affect our ability to do conduct business in non-U.S. sources, which could have a material adverse effect on our business, financial condition and results of operations.
Changes in laws and regulations, specifically those affecting the Internet could adversely affect our business and results of operations.
It is possible that new laws and regulations or new interpretations of existing laws and regulations in the United States and elsewhere will be adopted covering issues affecting our business, including (i) privacy, data security and use of personally identifiable information; (ii) copyrights, trademarks and domain names; and (iii) marketing practices, such as e-mail or direct marketing.
Increased government regulation, or the application of existing laws to online activities, could (i) decrease the growth rate of the Internet; (ii) reduce our revenues; (iii) increase our operating expenses; or (iv) expose us to significant liabilities.
Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is still evolving. Therefore, we might be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights. Any impairment in the value of these important assets could cause our stock price to decline. We cannot be sure what effect any future material noncompliance by us with these laws and regulations or any material changes in these laws and regulations could have on our business, operating results and financial condition.
Future government regulation may impair our ability to market and sell our services.
Our current and planned services are subject to federal, state, local and foreign laws and regulations governing virtually all aspects of our business and product offerings. As we offer existing products and services or introduce new ones commercially, it is possible that governmental authorities will adopt new regulations that will limit or curtail our ability to market and sell such products. We may also incur substantial costs or liabilities in complying with such new governmental regulations. Our potential customers and distributors, almost all of which operate in highly regulated industries, may also be required to comply with new laws and regulations applicable to products such as ours, which could adversely affect their interest in our products.
Our operating results are vulnerable to adverse conditions affecting southern California.
Our principal executive office is located in Beverly Hills, California. Thus, our operating results are vulnerable to natural disasters or other casualties and to negative economic, competitive, demographic and other conditions affecting Southern California. We currently have no insurance coverage, and accordingly, will have no compensation for economic consequences of any loss. Should a loss occur, we could lose both our invested capital and anticipated profits from affected facilities.
ITEM 2.
ITEM 2. PROPERTIES
The Company currently does not own any properties. The Company currently occupies minimal office space provided by our CEO, Michael Solomon, at no charge to us, at 1638 Tower Grove Drive, Beverly Hills, CA 90210. Our corporate telephone number is (310) 274-0224 and our fax number is (310) 274-2252. Questions and requests for additional information should be addressed to Michael Solomon at 1638 Tower Grove Drive, Beverly Hills, CA 90210.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Annual Report, there are no material pending legal or governmental proceedings relating to our Company or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUTY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Equity Compensation Plan Information
The following table sets forth information as of March 31, 2016 with respect to our compensation plans under which equity securities may be issued.
(1) Our 2014 Equity Compensation Plan provides for the issuance of up to 510,798 common shares in the aggregate, all of which are remaining for future issuances under the Plan.
Our 2014 Equity Compensation Plan (“2014 Plan”) is administered by our board or any of its committees. The purposes of the 2014 Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of our business. The issuance of awards under our 2014 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2014 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards. Our 2014 Plan authorizes the issuance of up to 510,798 shares of common stock for the foregoing awards in the aggregate. As of March 31, 2016, we have granted no awards under the 2014 Plan. Accordingly, there are 510,798 shares of common stock available for future awards under the 2014 Plan. In the event of a change in control, awards under the 2014 Plan will become fully vested unless such awards are assumed or substituted by the successor corporation.
Market Information
Our common shares are quoted on the OTC PINK tier of the OTC Markets Group under the trading symbol of TRLI. As of the date of this Annual Report, the trading in our common shares is limited and sporadic. When our common stock does trade, the trading is of a relatively low dollar volume. Accordingly, management has concluded that no public market for our common shares exists. There can be no assurance that a public market for our common shares will develop in the future.
Holders
As of June 15, 2016, there were approximately 108 holders of record of our common stock.
Dividends
We have not declared cash dividends on our common stock since our inception and we do not anticipate paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
The following information is given with regard to unregistered securities sold since September 30, 2015. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering.:
● On April 13, 2016, the Company granted an option to purchase 100,000 shares of common stock as compensation pursuant to an employment agreement with our vice-president. We valued the option at approximately $750. The option has an exercise price of $0.02 per share, a term of five years and vests quarterly over a two year period from April 13, 2016.
● On December 1, 2015, the Company issued an unsecured, convertible promissory note to Michael Jay Solomon, our chief executive officer in the original principal amount of $1,955,934. The Convertible note carries interest at the rate of four (4%) percent per annum, and is convertible in shares of common stock at a rate of $0.02 per share. The convertible note was issued in exchange for a pre-existing promissory note owed to Mr. Solomon for the same amount (principal plus interest).
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable as we are a smaller reporting company.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and financial condition for the fiscal years ended March 31, 2016 and 2015 should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements that are included elsewhere in this Annual Report. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Risk Factors” and elsewhere in this report. See “Preliminary Note Regarding Forward Looking Statements.”
As used in this report, the terms "Company", "we", "our", "us" and "Truli" refer to Truli Media Group, Inc.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
● Company Overview - Discussion of our business plan and strategy in order to provide context for the remainder of MD&A.
● Critical Accounting Policies - Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
● Results of Operations - Analysis of our financial results comparing the year ended March 31, 2016 to 2015.
● Liquidity and Capital Resources - Analysis of changes in our cash flows, and discussion of our financial condition and potential sources of liquidity.
The various sections of this MD&A contain a number of forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the Risk Factors section of this Annual Report. Our actual results may differ materially.
COMPANY OVERVIEW
Business
Business of the Company
Truli serves as a collaborative digital platform for members of the faith and family community worldwide, allowing them to share and deepen their faith and family values together. Truli invites ministries from various religious denominations to upload their messages to the Truli platform, at no cost. Our goal is to have an ever expanding library from these participating ministries, centralizing, serving and extending the Christian and family values message to a greater audience than previously done before. This platform delivers all types of media content to Internet accessible devices such as computers and an assortment of digital mobile devices such as tablets and smart phones. Currently, there are roughly 12,000 videos in its library, with faith-based content currently representing roughly 40% of the Truli Platform with roughly 60% of the platform representing family entertainment such as feature films “G” and “PG” rated, music videos, children’s programming, sports, education, etc. Truli also currently streams 8 Christian Network Television channels on its website. The Truli platform is also available in the Spanish language on its platform which includes roughly 4,500 items in its library.
Strategy and Plan of Operation
Truli’s goal is to sign up as many ministries as possible throughout the United States and abroad. Truli is affiliated with over two hundred fifty ministries and churches, and allows them to deliver their content through the Truli platform. We hope to attract ministries to join our platform by potentially providing benefits to them including (i) expanded dissemination of their message regardless of size, budget or location, (ii) direct user feedback from our consumers, and (iii) organization of their sermons and content as well as general technological advances to augment traditional places of worship.
Truli consumers have access to free content as well as certain Pay-per-View content on the interactive digital platform from which we hope to eventually derive revenue. In the event we are able to raise sufficient capital, and our platform gains significant traffic, we plan to sell advertising space on our website. We additionally plan to sell faith based merchandise through our website once we are financially able to do so. We also have created a “donation” section of our website whereby we will receive 15% of donations given to ministries and churches.
Truli also will allow partners to monetize their content through our platform by letting them set purchase prices for their content, and allowing them to receive money though the “donation” section of our website.
We have currently not generated any revenue from these business strategies and there can be no assurances that we will do so in the future.
Marketing
Due to our current lack of capital, we have halted any current marketing. As a result we currently market in a very limited capacity, primarily through press releases. In the event that we are able to access capital in the future, we would create a marketing campaign including, (i) direct marketing to ministries outlining the benefits of our platform to their ministry, (ii) presence at trade shows and conferences including the National Religious Broadcasters Convention which networks thousands of Christian community members and business people and the international Christian Retailers Show which is the largest Christian retailer gathering in the world, and (iii) other types of marketing including but not limited to social media, press exposure, brand building at various seminars, viral and social strategies as well as the utilization of networks, bloggers, newsletters, direct calling and radio. If we are able to raise sufficient capital we also plan on developing technology to create mobile phone applications related to our content.
Competition
We face significant competition from integrated online media companies, social networking sites, traditional print and broadcast media, search engines, and various e-commerce sites. Our competitors include many well-known and fully funded news and information websites and content providers. Several of our competitors offer an integrated variety of Internet products, advertising services, technologies, online services and/or content that may compete for the attention of our users, advertisers, developers, and publishers. We may also in the future, more directly compete with these companies to obtain agreements with third parties to promote or distribute our services. In addition, we compete with social media and networking sites which are attracting an increasing share of users, users’ online time and online advertising dollars.
Financial
To date, we have devoted a substantial portion of our efforts and financial resources to creating and marketing our online platform. As a result, since our inception in 2011, we have generated no revenue and have funded our operations principally through private sales of debt and equity securities and through advances made by our Chief Executive Officer. We have never generated any revenue and, as of March 31, 2016, we had an accumulated deficit of $5,316,667. We expect to continue to incur operating losses for the foreseeable future and expect to generate no revenue for the foreseeable future.
Our cash and cash equivalents balance at March 31, 2016 was $13,245, representing 100% of total assets. Based on our current expected level of operating expenditures, we are currently uncertain if we will be able to fund our operations until our next year end. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events. Currently we are dependent upon working capital advances provided by our Chief Executive Officer. We need to raise additional cash through the private or public sales of equity or debt securities, collaborative arrangements, or a combination thereof, to continue to fund operations and the development of our website and digital platform. There is no assurance that such financing will be available to us when needed to allow us to continue our operations or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop developing or marketing our products, or cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding of cash from any source.
We have incurred indebtedness in the aggregate of $2,087,782 in principal and interest as of March 31, 2016. Unless we are able to restructure some or all of this debt, and raise sufficient capital to fund our continued development, our current operations do not generate any revenue to pay these obligations. Accordingly, there can be no assurances that we will be able to pay these or other obligations which we may incur in the future and it is unlikely we will be able to continue as a going concern.
Our Chief Executive Officer, vice-president and certain of our consultants are currently not being paid. In the event financing is not obtained, we may pursue further cost cutting measures. These events could have a material adverse effect on our business, results of operations and financial condition.
The independent registered public accounting firm’s report on our March 31, 2016 consolidated financial statements included in this Annual Report states that our difficulty in generating sufficient cash flow to meet our obligations and sustain operations raise substantial doubts about our ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might result should the Company be unable to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. The following accounting policy is critical to understanding and evaluating our reported financial results:
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.
Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Stock-Based Compensation
The Company utilizes the Black-Scholes option-pricing model to determine fair value of options and warrants granted as stock-based compensation, which requires us to make judgments relating to the inputs required to be included in the model. In this regard, the expected volatility is based on the historical price volatility of the Company’s common stock. The dividend yield represents the Company’s anticipated cash dividend on common stock over the expected life of the stock options. The U.S. Treasury bill rate for the expected life of the stock options is utilized to determine the risk-free interest rate. The expected term of stock options represents the period of time the stock options granted are expected to be outstanding.
RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 31, 2016 AS COMPARED TO THE FISCAL YEAR ENDED MARCH 31, 2015
The Company had no revenue for the fiscal years ended March 31, 2016 and 2015. Truli officially launched its website on July 10, 2012 but, has not yet generated significant revenue. Prior to such time, the Company was principally involved in website development and research and development activities. Net loss of $305,851 for the year ended March 31, 2016 and net income of $1,103,141 for the year ended March 31, 2015 results from the operational activities described below.
Operating Expenses
Operating expenses totaled $294,928 and $393,258 for the years ended March 31, 2016 and 2015, respectively. The decrease in operating expenses is the result of the following factors.
The Company incurred selling, general and administrative expenses of $294,928 for the fiscal year ended March 31, 2016, principally comprised of website development costs, marketing, investor relations, professional fees and consulting fees. The decrease of 25% for 2016 compared to 2015 was primarily attributable to decreased spending on marketing, investor relations, professional and consulting fees, due to limited capital resources. We do not anticipate that the reported expenses represent a reliable indicator of future performance because we are still in the pre-revenue stage of development. Future costs are expected to be more heavily weighted towards marketing and promotion as our website potentially gains traffic and sales.
Other Income (Expense)
The Company charged to operations interest expense of $114,628 and $349,005 for the fiscal years ended March 31, 2016 and 2015, respectively. The decrease was primarily related to a reduction in debt outstanding. Additionally, the Company had expense of $12,276 and gain of $1,087,275 for the fiscal years ended March 31, 2016 and 2015, respectively, as a result of the change in fair value of the Company’s derivative instruments. The Company also had gains on extinguishment of debt of $115,981 and $759,250 for the fiscal years ended March 31, 2016 and 2015, respectively, and a loss on debt conversion of $1,121 for the fiscal year ended March 31, 2015. For more information on our convertible notes and derivative liabilities, please refer to Notes 4 and 5 to the accompanying consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $13,245 and $13,393 as of March 31, 2016 and 2015, respectively. The Company’s working capital requirements arose principally from costs associated with website development, marketing and general and administrative costs for both fiscal years ended March 31, 2016 and 2015. The Company has liabilities of $2,345,910 and $2,454,365 as of March 31, 2016 and 2015, respectively. The decrease in liabilities is primarily attributable to payments on debt and the voluntary extinguishment of debt during the period and the elimination of the derivative liability related to convertible notes, offset by working capital advances received from our Chief Executive Officer.
The Company owes principal and interest of $105,698 pursuant to a 4% unsecured term note representing advances made by its Chief Executive Officer as well as $1,982,084 in principal and interest pursuant to a 4% unsecured, convertible promissory note issued on December 1, 2015 as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding under the Note. The Company received advances of $498,500 and $755,000 during the years ended March 31, 2016 and 2015, respectively.
The Company additionally has an unsecured line of credit with $82,975 that was outstanding as of March 31, 2015, that has been forgiven by the note holder during the year ended March 31, 2016.
The Company owed $45,000 in principal at March 31, 2016 as a result of a debt settlement incurred with the extinguishment of debentures. This amount is being paid in monthly installments over a 24 month period. The balance at March 31, 2015 was $135,000.
The Company spent in operating activities $338,648 and $359,519, respectively for the years ended March 31, 2016 and 2015, respectively. The decrease is primarily attributable to a decrease in loss (after adjusting for non-cash items) of approximately $168,000 partially offset by a decrease in accounts payable of approximately $147,000.
Financing activities provided $338,500 and $368,663 to the Company during the years ended March 31, 2016 and 2015, respectively, respectively. The decrease is attributable to decreases in stockholder working capital advances and in payments on debt.
As of March 31, 2016, we had an accumulated deficit of $5,316,667 compared to $5,010,816 as of March 31, 2015. The increase is attributable to the net loss for year ended March 31, 2016.
The Company does not currently have sufficient capital in its accounts, nor sufficient firm commitments for capital to assure its ability to meet its current obligations or to continue its planned operations. The Company is continuing to pursue working capital sources and additional revenue through the seeking of the capital it needs to carry on its planned operations. However, based on its current expected level of operating expenditures, we do not believe we will be able to fund our operations in the short term without raising additional capital. There is no assurance that any of the planned activities will be successful.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
With the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the year ended March 31, 2016 that are of significance or potential significance to the Company.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 supersedes the previous revenue recognition requirements, along with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue arising from contracts with customers. In August 2015, the FASB issued guidance approving a one-year deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods beginning after December 15, 2016. In March 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross rather than net, with the same deferred effective date. In April 2016, the FASB issued guidance to clarify the identification of performance obligations and licensing arrangements. The Company has not determined the impact of adopting ASU No. 2014-09 on our consolidated financial statements and currently plan to complete our evaluation by late 2017.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements, Going Concern (Subtopic 205-40) which requires management to evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about the entity's ability to continue as a going concern. The guidance 1) provides a definition for the term “substantial doubt,” 2) requires an evaluation every reporting period, interim periods included, 3) provides principles for considering the mitigating effect of management's plans to alleviate the substantial doubt, 4) requires certain disclosures if the substantial doubt is alleviated as a result of management's plans, 5) requires an express statement, as well as other disclosures, if the substantial doubt is not alleviated, and 6) requires an assessment period of one year from the date the financial statements are issued. The standard is effective for the annual reporting period beginning after December 31, 2016. Early adoption is permitted. The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes, or ASU No. 2015-17. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted. The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We are currently evaluating the impact of adopting ASU No. 2015-17 on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable as we are a smaller reporting company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information required by this Item is included in our Financial Statements and Supplementary Data listed in Item 15 of Part IV of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between us and our accountants on any matter of accounting principles, practices or financial statement disclosure.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer who also serves as our Chief Financial Officer, has concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of March 31, 2016, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of material weaknesses.
While we have engaged a third party accountant who is a certified public accountant to provide accounting and financial reporting services to us, we lack both an adequate number of personnel with requisite expertise in the key functional areas of finance and accounting and an adequate number of personnel to properly implement control procedures. In addition, while we have an independent director, we do not have an audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. These factors represent material weaknesses in our internal controls over financial reporting.
This Annual Report does not include an attestation of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names, ages and positions of our directors and executive officers as of March 31, 2016.
Biographical information for our directors and executive officers are as follows:
Michael Jay Solomon has served as, President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors, Principal Executive Officer and Principal Financial Officer since June 13, 2012. Michael began his career in film distribution by loading films onto trucks for United Artists at the age of 18. By age 30, he had become MCA/Universal’s youngest vice president, and eventually shouldered all international responsibilities for the studio. After 8 years with United Artists and 14 years with MCA, he co-founded Telepictures Corporation, responsible for creating TV syndication. Telepictures went on to become the largest U.S. television syndication company and one of the largest international television distribution companies, as well as the owner and operator of six television stations in the U.S. Telepictures became a public company (NASDAQ) after only 14 months under Michael’s leadership as Chairman and CEO. When Telepictures merged with Lorimar to form Lorimar Telepictures Corp. (American Stock Exchange), he became the new company’s President and served on its Board of Directors. He led Lorimar Telepictures to become the largest television production and distribution company in the world, producing TV series such as Dallas, Falcon Crest, Knot’s Landing and many more at their studios (formerly the MGM Studios, now SONY Studios). When Warner Bros. acquired Lorimar Telepictures, Michael became President of Warner Bros. International Television, heading up the company’s sales and marketing to television, cable and satellite companies internationally. Under his leadership, Warner Bros. became the largest TV program distribution company in the world by a full 250 percent over its competitors. Michael was a co-founder of HBO OLE (now HBO Latin America), the leading premium-TV service in Latin America, and opened the door to Western programming in China, Russia, India and many more third-world countries. Michael serves on the Board of Overseers of New York University’s Stern School of Business (25 years), is a Founder of The Sam Spiegel Film & Television School in Jerusalem, and was Founding Chairman of The Jerusalem Foundation of the West Coast of the United States. He was educated at New York University’s Stern School of Business and Boston’s Emerson College, where he was awarded an honorary Doctor of Law degree. He is a member of the international honor society Beta Gama Sigma where membership is the highest recognition a business student can receive. Mr. Solomon was selected to serve as a director due to his deep familiarity with our business, our industry and his extensive entrepreneurial background.
Irving Pompadur has serviced as a director of the Company since January 24, 2013. Mr. Pompadur joined News Corporation in June 1998 as its Executive Vice President, and as President of News Corporation Eastern and Central Europe, and was a member of News Corporation's Executive Management Committee. He was appointed Chairman of News Corp. Europe in January 2000, a position he held until 2008. Mr. Pompadur was Chairman and Chief Executive Officer of RP Companies from 1982 to 2007, and has held executive positions at several other media companies including American Broadcasting Companies, Inc. and the Ziff Corporation. He is currently Senior Advisor to Oliver Wyman; Global Vice Chairman of Media and Entertainment at Macquarie Capital Advisors; and Chairman of Metan Development Group, a company engaged in various media activities in China. He also serves on the Board and audit and governance committees of Nexstar Broadcasting Group, Inc. and the Board and compensation committee of IMAX Corporation. Mr. Pompadur was selected to serve as a director due to his vast business and broadcasting experience.
Board Committees
Our Board of Directors does not currently have any committees and as such the Board as a whole carries out the functions of audit, nominating and compensation committees due to our limited size, resources and due to the fact that we only have two employees. The Board of Directors has determined that the functions of such committees will be undertaken by the entire board.
Director Terms
All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers are elected annually by the board of directors and serve at the discretion of the board.
Director Independence
The Company is not listed on any national exchange, or quoted on any inter-dealer quotation service, that imposes independence requirements on any committee of the Company’s directors, such as an audit, nominating or compensation committee. For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rules 4200. Pursuant to the definition, the Company has determined that Mr. Pompadur is an independent director.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors, and stockholders owning more than ten percent of our common stock, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of such reports. Based solely on our review of Form 3, 4 and 5’s, we have determined that the following reports required to be filed during the Year end March 31, 2016, were filed late:
Family Relationships
There are no family relationships between any director, executive officer, or person nominated or chosen by the registrant to become a director or executive officer.
Code of Ethics
We have not adopted a Code of Ethics that applies to our chief executive officer because he is the sole employee of the company. We expect to consider adopting such a code if and when we retain more management personnel.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the total compensation paid during our fiscal year ended March 31, 2016, and our fiscal year ended March 31, 2015, for (i) our Chief Executive Officer, Michael Jay Solomon.
* Michael Jay Solomon has forgone payment of $375,000 per annum due to the limited capital of the company.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS
We currently have a written contract with our CEO, Michael Jay Solomon. Mr. Solomon has forgone payments for the last two fiscal years ended March 31, 2016 and 2015 respectively of $375,000 per annum due to the limited capital of the company.
DIRECTOR COMPENSATION
Director Compensation
Non-employee director compensation for a new director is determined on a case by case basis by the existing members of the board of directors at the time a director is elected. Future awards are determined on an ad-hoc basis by the members of the board of directors.
Board Compensation for year end March 31, 2016
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities authorized for issuance under equity compensation plans
Information regarding shares authorized for issuance under equity compensation plans approved and not approved by stockholders required by this Item are incorporated by reference from Item 5 of this Annual Report from the section entitled “Equity Compensation Plan Information.”
The following table presents information regarding the beneficial ownership of our capital stock as of June 15, 2016 by:
● Each person, or group of affiliated persons, known by us to be the beneficial owners of 5% or more of any class of our voting securities;
● Each person who beneficially owns outstanding shares of our preferred stock;
● Each of our current directors and nominees;
● Each named executive officer; and
● All directors and officers as a group.
Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership means that a person has or shares voting or investment power of a security and includes any securities that person or group has the right to acquire within 60 days after the measurement date. This table is based on information supplied by officers and directors. Except as otherwise indicated, we believe that each of the beneficial owners of the common stock listed below, based on the information such beneficial owner has given to us, has sole investment and voting power with respect to such beneficial owner’s shares, except where community property laws may apply.
(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is Truli Media Group, Inc., 1638 Tower Grove Drive, Beverly Hills, CA 90210.
(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There are 2,553,990 shares of common stock issued and outstanding as of June 15, 2016.
(3) Includes 892,676 shares owned directly by Michael Jay Solomon and 444,000 shares owned by Solomon Family Trust dated December 21, 1989.
(4) Broadway, 32nd Floor, New York, New York 10006.
(5) Represents shares of common stock issuable upon conversion of a 4% unsecured promissory note. As of June 15, 2016, the principal and interest underlying the note was $1,988,375. The note is convertible into shares of common stock at a price per share of $0.02.
* Less than one percent.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding disclosure of an employment relationship or transaction involving our chief executive officer and any related compensation solely resulting from that employment relationship or transaction is incorporated by reference from the section of this annual report entitled in Item 11 entitled “Executive Compensation.”
● The Company currently is in debt to its founder and Chief Executive Officer, principal and interest of $105,000 pursuant to a 4% unsecured term note representing advances (“Note”). The Note, which may be increased as additional funds may be advanced to the Company by the Company’s Chief Executive Officer, bears interest at 4% per annum commencing from September 30, 2012. The Company charged to operations interest expense of $42,210 and $43,190 for the fiscal years ended March 31, 2016 and 2015, respectively. Accrued interest payable is $698 and $92,313 at March 31, 2016 and 2015, respectively.
● The Company issued an unsecured, convertible promissory note (“Convertible Note”) to its Chief Executive Officer in the original amount of $1,955,934, as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding under the Note described above. The Convertible Note, which carries interest at the rate of 4% per annum, matures on December 1, 2020. The Convertible Note and related accrued interest is convertible into shares of the Company’s common stock at the rate of $0.02 per share, subject to certain restrictions of beneficial ownership. The Company recorded interest expense of $26,150 for the year ended March 31, 2016. Accrued interest payable is $26,150 at March 31, 2016.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees
Aggregate fees for professional services rendered to us by RBSM LLP, our independent registered public accounting firm engaged to provide accounting services for the fiscal years ended March 31, 2016 and 2015 were:
Policy on Pre-Approval of Audit and Permissible Non-audit Services of Independent Auditors
Consistent with the SEC policies regarding auditor independence, our Board of Directors has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, our Board of Directors has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.
Prior to engagement of the independent auditor for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of the following four categories of services to the Board of Directors for approval.
1. Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.
2. Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3. Tax services include all services performed by the independent auditor’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
4. Other Fees are those associated with services not captured in the other categories.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements: See “Index to Financial Statements” in Part II, Item 8 of this Form 10-K.
2. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.
Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
● may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
● may apply standards of materiality that differ from those of a reasonable investor;
● and were made only as of specified dates contained in the agreements and are subject to later developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.
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.
Dated: June 29, 2016 TRULI MEDIA GROUP, INC.
By: /s/ Michael Solomon
Michael Solomon
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Michael Jay Solomon
Chief Executive Officer, President, Chief Financial Officer and Chairman
June 29, 2016
Michael Jay Solomon
(Principal Executive Officer, Principal Financial and Accounting Officer)
/s/ Irving Pompadur
Director
June 29, 2016
Irving Pompadur
TRULI MEDIA GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Truli Media Group, Inc.
We have audited the accompanying consolidated balance sheets of Truli Media Group, Inc. (the “Company”) as of March 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two years in the period ended March 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We have conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). 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 audits 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Truli Media Group, Inc. as of March 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the two years in the period ended March 31, 2016 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 7 to the accompanying consolidated financial statements, the Company has incurred operating losses, has accumulated deficit and working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are described in Note 7. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RBSM LLP
New York, New York
June 29, 2016
Truli Media Group, Inc.
Consolidated Balance Sheets
The accompanying notes are an integral part of these consolidated financial statements.
Truli Media Group, Inc.
Consolidated Statements of Operations
The accompanying notes are an integral part of these consolidated financial statements.
Truli Media Group, Inc.
Consolidated Statement of Stockholders' Deficit
For the Two Years ended March 31, 2016
The accompanying notes are an integral part of these consolidated financial statements.
Truli Media Group, Inc.
Consolidated Statements of Cash Flows
The accompanying notes are an integral part of these consolidated financial statements.
TRULI MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Truli Media Group, Inc., headquartered in Beverly Hills, California, is focused on the on-demand media and social networking markets. Truli, with a website and multi-screen platform, has commenced operations as an aggregator of family-friendly, faith-based Christian content, media, music and Internet Protocol Television (“IPTV”) programming. From its inception (October 19, 2011) through the date of these consolidated financial statements, the Company has not generated any revenues and has incurred significant expenses. The Company is in the process of attempting to raise additional debt or equity capital to support the completion of its development activities. Consequently, its operations are subject to all the risks and uncertainties inherent in the establishment of a new business enterprise, including failing to secure additional funding to carry out the Company’s business plan.
Merger and Reverse Stock Split
Truli Media Group, Inc. (“Truli OK”), formerly known as SA Recovery Corp., was incorporated on July 28, 2008 in the State of Oklahoma. On March 17, 2015 (“Effective Date”), Truli OK effected a merger with its newly formed wholly-owned subsidiary, Truli Media Group, Inc., a Delaware corporation (“TMG”, “Truli” or, the “Company”) for the purposes of changing its state of incorporation to Delaware (the “Merger”). On the Effective Date, Truli OK also completed a reverse stock split as described below. Prior to the Merger, Truli OK was the sole stockholder of TMG. Upon completion of the Merger, TMG will be the surviving entity. The Merger was effected through an agreement and plan of merger (“Merger Agreement”).
The Merger, including the Merger Agreement, was approved by the board of directors of the Company and a majority of the outstanding capital stock pursuant to a written consent of the stockholders.
A certificate of merger was filed with both the Oklahoma Secretary of State and the Delaware Secretary of State on February 27, 2015. As a result of the Merger, the Company is subject to the certificate of incorporation and bylaws of TMG and shall be further governed by the Delaware General Corporation Law.
On the Effective Date, every fifty shares of Truli OK’s issued and outstanding common stock (“Common Stock”) was converted into one share of TMG common stock (“TMG Stock”) (the “Stock Split”). Every option and right to acquire Truli OK’s Common Stock and every outstanding warrant or right outstanding to purchase Truli OK’s Common Stock was automatically converted into options, warrants and rights to purchase TMG Stock whereby each option, warrant or right to purchase fifty shares of Common Stock was converted into an option, warrant or right to purchase one share of TMG Stock at 5,000% of the applicable exercise, conversion or strike price of such converted securities. The stockholders of the Company received no fractional shares of TMG and instead had every fractional share, option, warrant or right to purchase TMG Stock rounded up to the next whole number. Additionally, all debts and obligations of Truli OK were assumed by TMG.
All references to common stock, share and per share amounts have been retroactively restated to reflect the 1:50 reverse stock split as if it had taken place as of the beginning of the earliest period presented.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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. Included in these estimates are assumptions about assumptions used to calculate beneficial conversion of convertible notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilities.
Income Taxes
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and relate primarily to stock based compensation basis differences. As of March 31, 2016 and 2015, the Company has provided a 100% valuation against the deferred tax benefits.
Earnings (Loss) Per Share
The Company follows ASC 260, “Earnings Per Share” for calculating the basic and diluted earnings (loss) per share. Basic earnings (loss) per share are computed by dividing earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Common share equivalents are excluded from the diluted earnings (loss) per share computation if their effect is anti-dilutive. There were 105,463,984 and 4,365,824 outstanding common share equivalents at March 31, 2016 and 2015, respectively.
Web-site Development Costs
The Company has elected to expense web-site development costs as incurred.
Research and Development
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.
Fair Value
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying amount reported in the consolidated balance sheet for accounts payable and accrued expenses and notes payable approximates fair value because of the immediate or short-term maturity of these financial instruments.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.
Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument”.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Stock-Based Compensation
The Company utilizes the Black-Scholes option-pricing model to determine fair value of options and warrants granted as stock-based compensation, which requires us to make judgments relating to the inputs required to be included in the model. In this regard, the expected volatility is based on the historical price volatility of the Company’s common stock. The dividend yield represents the Company’s anticipated cash dividend on common stock over the expected life of the stock options. The U.S. Treasury bill rate for the expected life of the stock options is utilized to determine the risk-free interest rate. The expected term of stock options represents the period of time the stock options granted are expected to be outstanding.
Recently Issued Accounting Pronouncements
With the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the year ended March 31, 2016 that are of significance or potential significance to the Company.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 supersedes the previous revenue recognition requirements, along with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue arising from contracts with customers. In August 2015, the FASB issued guidance approving a one-year deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods beginning after December 15, 2016. In March 2016, the FASB issued guidance to clarify the implementation guidance on principal versus agent considerations for reporting revenue gross rather than net, with the same deferred effective date. In April 2016, the FASB issued guidance to clarify the identification of performance obligations and licensing arrangements. The Company has not determined the impact of adopting ASU No. 2014-09 on our consolidated financial statements and currently plan to complete our evaluation by late 2017.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements, Going Concern (Subtopic 205-40) which requires management to evaluate on a regular basis whether any conditions or events have arisen that could raise substantial doubt about the entity's ability to continue as a going concern. The guidance 1) provides a definition for the term “substantial doubt,” 2) requires an evaluation every reporting period, interim periods included, 3) provides principles for considering the mitigating effect of management's plans to alleviate the substantial doubt, 4) requires certain disclosures if the substantial doubt is alleviated as a result of management's plans, 5) requires an express statement, as well as other disclosures, if the substantial doubt is not alleviated, and 6) requires an assessment period of one year from the date the financial statements are issued. The standard is effective for the annual reporting period beginning after December 31, 2016. Early adoption is permitted. The Company is currently evaluating the impact, if any, that this new accounting pronouncement will have on its financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes, or ASU No. 2015-17. To simplify the presentation of deferred income taxes, the amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted. The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. We are currently evaluating the impact of adopting ASU No. 2015-17 on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this Update supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of adopting ASU No. 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer and provides additional guidance about how to apply the control principle when services are provided and when goods or services are combined with other goods or services. The effective date for ASU 2016-08 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-08 on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation, or ASU No. 2016-09. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating the impact of adopting ASU No. 2016-09 on our consolidated financial statements.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which provides further guidance on identifying performance obligations and improves the operability and understandability of licensing implementation guidance. The effective date for ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company has not yet determined the impact of ASU 2016-10 on its consolidated financial statements.
NOTE 2 - NOTES PAYABLE, RELATED PARTY
Note Payable:
The Company’s Founder and Chief Executive Officer has advanced funds to the Company in the form of an unsecured term note (the “Note”, aggregating $105,000 and $1,428,609 payable as of March 31, 2016 and 2015, respectively. The note, which may be increased as additional funds may be loaned to the Company by the Company’s Chief Executive Officer, bears interest at 4% per annum. The Company recorded interest expense of $42,210 and $43,190 for the years ended March 31, 2016 and 2015, respectively. Accrued interest payable is $698 and $92,313 at March 31, 2016 and 2015, respectively.
On December 1, 2015 the Company issued an unsecured, convertible promissory note (the “Convertible Note”) to its sole executive officer, in the original principal amount of $1,955,934, as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding under the Note.
Convertible Note Payable:
On December 1, 2015 the Company issued an unsecured, convertible promissory note (the “Convertible Note”) to its sole executive officer, in the original principal amount of $1,955,934, as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding under the Note described above. The Convertible Note, which carries interest at the rate of 4% per annum, matures on December 1, 2020. The Convertible Note and related accrued interest is convertible into shares of the Company’s common stock at the rate of $0.02 per share, subject to certain restrictions of beneficial ownership. The Company recorded interest expense of $26,150 for the year ended March 31, 2016. Accrued interest payable is $26,150 at March 31, 2016.
NOTE 3 - NOTES PAYABLE, OTHER
On December 1, 2012, the Company entered into Unsecured Line of Credit agreement with an investor. Pursuant to the terms of the agreement, the Company promised to pay the sum up to $500,000, or the total sums advanced, together with accrued interest at the rate of 5% per annum from the date of the advance. The Company had issued nine 5% promissory notes to the investor aggregating $82,975 as of March 31, 2015. The notes matured on December 31, 2014. On December 14, 2015 the stockholder, voluntarily and without consideration, forgave the notes payable of $82,975 plus related accrued interest of $11,172. The aggregate amount of $94,147 has been credited to additional paid in capital.
NOTE 4 - CONVERTIBLE NOTES
At March 31, 2016 and 2015 convertible notes and debentures consisted of the following:
The Company entered into three convertible notes in August, October and November 2013, as described below. These notes had an outstanding balance of $92,500. On August 31, 2015 the Company and the note holders reached an agreement to settle the outstanding balance of the notes and all related accrued and unpaid interest and penalties for a payment of $70,000. At the time of settlement, accrued interest and penalties aggregated $93,481. The Company has recorded a gain on extinguishment of debt of $115,981 during the year ended March 31, 2016.
As a result of the extinguishment of debt, the related derivatives described in Note 5 were also extinguished. An aggregate of $320,011 has been reclassified from derivative liability to additional paid in capital.
Note issued on August 28, 2013:
On August 28, 2013, the Company issued an 8% convertible promissory note in the aggregate principal amount of $42,500 to an accredited investor (“August 2013 Note”). The note had a maturity date of May 30, 2014. The note was convertible into shares of our common stock at a conversion price of 55% of the average of the three lowest per share market values during the ten trading days immediately preceding a conversion date. We were in default on this convertible note and, accordingly, the Company charged to operations penalty at 50% of unpaid principal and accrued interest on the date of default of $9,886 during the year ended March 31, 2015. The Company recorded interest at 22% from the date of default. The note and accrued interest and penalties were settled on August 31, 2015 pursuant to the agreement described above.
During April 2014, $15,000 of principal was converted into 40,000 shares of common stock, with a value of $24,000. The Company recorded a loss on conversion of $1,121 during the year ended March 31, 2015.
During the year ended March 31, 2015 the Company recorded amortization of debt discount of $5,454 as interest expense.
Note issued on October 2, 2013:
On October 2, 2013, the Company issued an 8% convertible promissory note in the aggregate principal amounts of $32,500 to an accredited investor (“October 2013 Note”). The note had a maturity date of July 5, 2014. The note was convertible into shares of common stock at a conversion price of 55% of the average of the three lowest per share market values during the ten trading days immediately preceding a conversion date. We were in default on this convertible note and, accordingly, the Company charged to operations penalty at 50% of unpaid principal and accrued interest on the date of default of $17,233 during the year ended March 31, 2015. The Company recorded interest at 22% from the date of default. The note and accrued interest and penalties were settled on August 31, 2015 pursuant to the agreement described above.
During the year ended March 31, 2015 the Company amortized debt discount of $11,304 to current period operations as interest expense.
Note issued on November 7, 2013:
On November 7, 2013, the Company issued an 8% convertible promissory note in the aggregate principal amount of $42,500 to an accredited investor (“November 2013 Note”). The note had a maturity date of August 12, 2014. The note was convertible into shares of our common stock at a conversion price of 55% of the average of the three lowest per share market values during the ten trading days immediately preceding a conversion date. We were in default on this convertible note and, accordingly, the Company charged to operations penalty at 50% of unpaid principal and accrued interest on the date of default of $22,545 during the year ended March 31, 2015. The Company recorded interest at 22% from the date of default. The note and accrued interest and penalties were settled on August 31, 2015 pursuant to the agreement described above.
During the year ended March 31, 2015 the Company amortized debt discount of $20,486 to current period operations as interest expense.
Debentures issued on September 10, 2013:
On September 10, 2013, the Company entered into securities purchase agreements with accredited investors pursuant to which the investors purchased 12% convertible debentures for aggregate gross proceeds of $501,337, which consisted of $400,000 of cash and the exchange and cancellation of an 8% convertible debenture (bearing principal and interest totaling $101,337) (“September 2013 Debentures”).
In connection with the securities purchase agreements and issuance of the September 2013 Debentures, the investors collectively received warrants to purchase an aggregate of 501,337 shares of common stock (“September 2013 Debenture Warrants”). The warrants are exercisable for a period of three years from the date of issuance at an exercise price of $2.50 per share, subject to adjustment. The investors may exercise the warrants on a cashless basis at any time after the date of issuance. In the event the investors exercise the warrants on a cashless basis we will not receive any proceeds.
In connection with the above $501,337 of September 2013 Debentures, the Company made certain statements or omissions in the transaction documents that were incorrect as of the date made. Such statements or omissions resulted in an event of default under the terms of the transaction documents and the September 2013 Debentures. Upon such event of default: (i) the principal and accrued interest balance on the debentures increased to 150% of original face value, (ii) the interest rate increased to 18% (commencing 5 days after the event of default), and (iii) the amounts due under the September 2013 Debentures were accelerated and became immediately due and payable. Accordingly, the Company charged to operations loss on default of convertible note of $250,669 during the year ended March 31, 2014 and increased the principal amount of the September 2013 Debentures to $752,006. During March 2014, the Company repaid $40,000 of principal to the debenture holders.
During April and May of 2014, the Company repaid $40,000 of principal to the September 2013 Debentures holders. Additionally, $6,000 of penalty was forgiven.
On August 7, 2014 we entered into a settlement agreement and release of claims with the holders of our September 2013 Debentures. At the time of settlement, the aggregate outstanding amount due was $780,513. Pursuant to the settlement we paid an initial payment of $301,337. We additionally owe another $180,000 to be paid over 24 monthly payments beginning on October 10, 2014. In the event we default on any payment under this settlement agreement, we would be subject to substantial penalties and interest, which could have a material adverse effect on the Company’s business and financial condition. We have also extinguished the derivative liability associated with the debentures of $452,075. We have recorded a gain of $751,250 as a result of the debt extinguishment during the year ended March 31, 2015. During the years ended March 31, 2016 and 2015, the Company made payments on the settlement amount aggregating $90,000 and $45,000, respectively.
NOTE 5 - DERIVATIVES
The Company has identified certain embedded derivatives related to its convertible notes and common stock purchase warrants. Since certain of the notes are convertible into a variable number of shares or have a price reset feature, the conversion features of those debentures are recorded as derivative liabilities. Since the warrants have a price reset feature, they are recorded as derivative liabilities. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to adjust to fair value as of each subsequent balance sheet date.
August 2013 Note (issued on August 28, 2013):
The Company identified embedded derivatives related to the August 2013 Note. These embedded derivatives included certain conversion features. At the inception of the convertible promissory note, the Company determined a fair value of $69,488 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.11%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 280%; and (4) an expected life of 0.75 year.
During April 2014, $15,000 of principal was converted into 40,000 shares of common stock. The derivative liability was reduced by $9,515 as a result of this conversion.
During the years ended March 31, 2016 and 2015, we recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest and penalties accrued during the periods. These additions aggregated $4,708 and $15,761 for the years ended March 31, 2016 and 2015, respectively, which has been charged to interest expense.
During the years ended March 31, 2016 and 2015, the Company recorded expense of $7,096 and $10,878, respectively, related to the change in the fair value of the derivative.
The fair value of the remaining embedded derivative was $53,312 at March 31, 2015, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.02%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 484%; and (4) an expected life of three months.
The underlying debt was extinguished on August 31, 2015. The fair value of the remaining embedded derivative was $65,116 at August 31, 2015, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.097%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 717%; and (4) an expected life of three months. Upon extinguishment, the derivative value was reclassified to additional paid in capital.
September 2013 Debentures (issued on September 10, 2013):
The Company identified embedded derivatives related to the September 2013 Debentures, resulting from the price reset features of these instruments. At the inception of the debentures, the Company determined a fair value of $1,086,647 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.122%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 195%; and (4) an expected life of 1 year.
During April and May 2014, the Company repaid $40,000 of principal to the 12% debenture holders. As a result, $30,382 of derivative liability was reclassified to paid-in capital. On August 7, 2014, we entered into a settlement agreement with the debenture holders and the convertible debentures were extinguished. As a result, $452,075 of derivative liability was also extinguished.
During the year ended March 31, 2015, the Company recorded $315,860 of income related to the change in the fair value of the derivative.
September 2013 Debenture Warrants (issued on September 10, 2013):
The Company issued 501,337 September 2013 Debenture Warrants in conjunction with the September 2013 Debentures. The warrants had an initial exercise price of $2.50 per share and a term of three years. The Company identified embedded derivatives related to these 501,337 September 2013 Warrants, resulting from the price reset features of these instruments. As a result, we have classified these instruments as derivative liabilities in the financial statements. In connection with the issuance of these warrants, we have recorded a warrant liability of $796,471, with a corresponding charge to interest expense. The value of the warrant liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 171%; and (4) an expected life of 3 years.
The warrants issued with the September 2013 Debentures had been adjusted due to the subsequent issuance of debt. As a result, those warrants totaled 1,253,343 with an exercise price of $1.00. The Company has also recorded an expense of $1,416,749 due to the increase in the fair value of the warrants as a result of the modifications.
On August 7, 2014, the warrants were cancelled, in exchange for the issuance of 630,613 shares of our common stock. As a result, $360,529 of derivative liability was reclassified to paid-in capital.
During the year ended March 31, 2015, the Company recorded $679,141 of income related to the change in the fair value of the derivative.
Compensation Warrants (issued on September 10, 2013):
During September 2013 the Company granted 50,134 warrants as compensation for consulting services. The warrants had an initial exercise price of $2.50 per shares and a term of three years. The Company identified embedded derivatives related to these 50,134 September 2013 Compensation Warrants, resulting from the price reset features of these instruments. As a result, we have classified these instruments as derivative liabilities in the financial statements.
During the year ended March 31, 2016, the compensation warrants have been adjusted due to the subsequent issuance of debt. As a result, those warrants total 6,266,715 with an exercise price of $0.02. The Company has recorded an expense of $384 due to the increase in the fair value of the warrants as a result of the modifications during the year ended March 31, 2016.
During the year ended March 31, 2015, the Company recorded adjustments due to the issuance of equity instruments at a price below the exercise price of the warrants. The Company has recorded an expense of $74,485 due to the increase in the fair value of the warrants as a result of the modifications during the year ended March 31, 2015.
During the years ended March 31, 2016 and 2015, the Company recorded income of $22,534 and $155,966, respectively, related to the change in the fair value of the derivative.
The fair value of the embedded derivative was $336 at March 31, 2016, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.391%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 74%; and (4) an expected life of 0.438 years.
October 2013 Note (issued on October 2, 2013):
The Company identified embedded derivatives related to the October 2013 Note. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the note, the Company determined a fair value of $47,967 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.08%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 196%; and (4) an expected life of 0.75 year.
During the years ended March 31, 2016 and 2015, we recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest and penalties accrued during the period. These additions aggregated $8,208 and $26,564 for the years ended March 31, 2016 and 2015, respectively, which has been charged to interest expense.
During the years ended March 31, 2016 and 2015, the Company recorded expense of $12,142 and $26,112, respectively, related to the change in the fair value of the derivative.
The fair value of the described embedded derivative of $91,233 at March 31, 2015 was determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.02%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 484%; and (4) an expected life of three months.
The underlying debt was extinguished on August 31, 2015. The fair value of the remaining embedded derivative was $111,583 at August 31, 2015, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.097%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 717%; and (4) an expected life of three months. Upon extinguishment, the derivative value was reclassified to additional paid in capital.
November 2013 Note (issued on November 7, 2013):
The Company identified embedded derivatives related to the November 2013 Note. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the note, the Company determined a fair value of $62,445 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.10%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 193%; and (4) an expected life of 0.75 year.
During the years ended March 31, 2016 and 2015, we recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest and penalties accrued during the period. These additions aggregated $10,738 and $31,563, respectively, for the years ended March 31, 2016 and 2015, which has been charged to interest expense.
During the years ended March 31, 2016 and 2015, the Company recorded expense of $15,572 and $26,704, respectively, related to the change in the fair value of the derivative.
The fair value of the described embedded derivative of $117,002 at March 31, 2015 was determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.02%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 484%; and (4) an expected life of three months.
The underlying debt was extinguished on August 31, 2015. The fair value of the remaining embedded derivative was $143,312 at August 31, 2015, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.097%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 717%; and (4) an expected life of three months. Upon extinguishment, the derivative value was reclassified to additional paid in capital.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of March 31, 2016:
The debt derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.
The following table provides a summary of changes in fair value of the Company’s Level 3 derivative liabilities for the years ended March 31, 2016 and 2015:
NOTE 7 - GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not yet established any sources of revenue to cover its operating expenses. The Company has not generated any revenue for the period from October 19, 2011 (date of inception) through March 31, 2016. The Company has recurring net losses, an accumulated deficit of $5,316,667 and a working capital deficit (current liabilities exceeded current assets) at March 31, 2016 of $376,731. Additionally, the current development stage of the company and current economic conditions create significant challenges to attaining sufficient funding for the company to continue as a going concern.
The Company’s ability to continue existence is dependent upon commencing its planned operations, management’s ability to develop and achieve profitable operations and/or upon obtaining additional financing to carry out its planned business. The Company intends to fund its business development, acquisition endeavors and operations through equity and debt financing arrangements. The Company is dependent upon its majority shareholder and founder to provide financing for working capital purposes. However, there can be no assurance that these arrangements will be sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might necessary should the Company be unable to continue as a going concern.
NOTE 8 - SHAREHOLDERS EQUITY AND CONTROL
As a consequence of the issuance of the Convertible Note described in Note 2, the Company, pursuant to a written consent of the board of directors of the Company and a written consent of the majority of the stockholders, approved to increase its authorized common stock capital by amending and restating its Certificate of Incorporation on December 16, 2015 (the “Restated Certificate”). Such Restated Certificate increased the number of the shares of the Company’s authorized common stock, par value $0.0001 per share, from 100,000,000 to 250,000,000 upon its filing. The Company filed the Restated Certificate on December 17, 2015. The Restated Certificate did not in any way affect any issued or outstanding shares of the Company’s common stock or its authorized preferred stock.
Preferred stock
The Company is authorized to issue 10,000,000 shares of $0.0001 par value preferred stock. As of March 31, 2016 and 2015 the Company has no shares of preferred stock issued and outstanding. Prior to merger with Truli Delaware on March 17, 2015, Truli OK was authorized to issue 5,000,000 shares of preferred stock, par value $0.0001 per share.
Common stock
The Company is authorized to issue 250,000,000 shares of common stock, par value $0.0001 per share. As of March 31, 2016 and 2015 the Company had 2,553,990 shares of common stock issued and outstanding, respectively. Prior to merger with Truli Delaware on March 17, 2015, Truli OK was authorized to issue 495,000,000 shares of common stock, par value $0.001 per share.
On March 17, 2015, the Company completed a one-for-fifty reverse split of its common stock. All references to common stock, share and per share amounts have been retroactively restated to reflect the 1:50 reverse stock split as if it had taken place as of the beginning of the earliest period presented.
As a result of the extinguishment of convertible debt on August 31, 2015, extinguished derivative liability in the amount of $320,011 was reclassified to additional paid in capital.
On December 14, 2015 a stockholder, voluntarily and without consideration, forgave notes payable of $82,975 plus related accrued interest of $11,172. The aggregate amount of $94,147 has been credited to additional paid in capital.
During April 2014, an aggregate of $15,000 of principal related to the August 2013 Note was converted into 40,000 shares of common stock valued at $24,000.
On August 7, 2014 we issued 630,613 shares of our common stock in exchange for the cancellation of the 1,253,343 September 2013 Debenture Warrants described in Notes 4 and 5. As a result, $360,529 of derivative liability was reclassified to additional paid-in capital.
Stock Options
During August and September 2014 we granted a total of 16,000 stock options to two consultants and a director. Of these grants, 11,000 options vested upon grant and 5,000 vested over a six week period. The options have a weighted average exercise price of $0.40 and a weighted average life of 3.52 years. We have recorded an expense of $5,010 related to these options determined using the Black Scholes Model with the following weighted average assumptions: (1) risk free interest rate of 0.875-1.625%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 184-210%; and (4) an expected life of 3.52 years.
During October 2014 we granted a total of 3,000 stock options to two consultants. These options vested upon grant. The options have an exercise price of $0.50 and a life of 3 years. We have recorded an expense of $794 related to these options determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 210-211%; and (4) an expected life of 3 years.
Common stock to be issued
During the year ended March 31, 2014, the Company charged to operations $16,250 as fair value of 11,938 common shares to be issued to a consultant for services rendered.
During the year ended March 31, 2015, the consultant waived any claim on the shares, pursuant to a debt settlement agreement. As a result, $16,250 was reclassified to additional paid in capital.
NOTE 9 - STOCK OPTIONS AND WARRANTS
Stock options
The following table summarizes the changes in options outstanding and the related exercise prices for the shares of the Company’s common stock issued to employees and consultants at March 31, 2016:
The stock option activity for the two years ended March 31, 2016 is as follows:
Warrants
The following table summarizes the warrants outstanding and the related exercise prices for the shares of the Company’s common stock at March 31, 2016:
Warrant activity for the two years ended March 31, 2016 is as follows:
NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 2016 and 2015, accounts payable and accrued liabilities for the period ending are comprised of the following:
NOTE 11 - INCOME TAXES
The Company has had losses to date, and therefore has paid no income taxes. There is no temporary timing difference in the recognition of income and expenses for financial reporting and tax purposes, and there is no permanent difference. The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes include, but not limited to, accounting for intangibles, debt discounts associated with convertible debt, equity based compensation and depreciation and amortization.
At March 31, 2016, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $3,604,000, which expire in the year 2035, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Based upon the change in ownership rules under section 382 of the Internal Revenue Code of 1986, if in the future the Company issues common stock or additional equity instruments convertible in common shares which result in an ownership change exceeding the 50% limitation threshold imposed by that section, all of the Company’s net operating losses carry forwards may be significantly limited as to the amount of use in a particular years. All or portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.
At March 31, 2016 and 2015, the significant components of the deferred tax assets (liabilities) are summarized below:
The Company has not filed its tax returns for prior years and is in the process of bringing its filings current.
Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims from time to time which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its consolidated financial position, results of operations or liquidity.
NOTE 13 - SUBSEQUENT EVENTS
On April 13, 2016, the Company granted an option to purchase 100,000 shares of common stock as compensation pursuant to an employment agreement with our vice-president. We valued the option at approximately $750. The option has an exercise price of $0.02 per share, a term of five years and vests quarterly over a two year period from April 13, 2016.
INDEX TO EXHIBITS
* Filed Herein
** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
*** Furnished Herein