UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2017

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from:

 

Commission file number: 000-53641

 

TRULI MEDIA GROUP, INC

(Exact name of registrant as specified in its charter)

 

Delaware		26-3090646
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
550 Sylvan Avenue, Suite 101, Englewood Cliffs, NJ		07632
(Address of principal executive offices)		(Zip Code)

 

Issuer’s telephone number (201) 608-5101

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐    No ☒

 

As of August 14, 2017 the number of shares of the registrant’s common stock outstanding was 2,554,197.

 

 

 

TABLE OF CONTENTS

 

		Page
		number
Part I -	Financial Information
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2017 (unaudited) and March 31, 2017	1
	Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2017 and 2016	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2017 and 2016	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
	Forward-Looking Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.	Controls and Procedures	13
Part II -	Other Information
Item 1.	Legal Proceedings	14
Item 1A.	Risk Factors	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	15

 

 

Truli Media Group, Inc.

Condensed Consolidated Balance Sheets

  

		June 30, 2017				March 31, 2017
Assets		(Unaudited)
Current Assets
Cash and cash equivalents		$	18,644			$	1,983
Total Current Assets			18,644				1,983
Total Assets		$	18,644			$	1,983
Liabilities and Stockholders’ Deficit
Current Liabilities:
Accounts payable and accrued liabilities		$	185,785			$	160,781
Accrued interest, related party			17,528				12,677
Accrued interest - other			128,113				106,388
Note payable - related party			518,801				457,801
Convertible notes payable - others, net of discount of $3,474 and $48			86,526				49,952
Derivative liability			3,617				33,452
Total Current Liabilities			940,370				821,051
Long-Term Liabilities:
Convertible note payable - other			1,955,934				1,955,934
Total Liabilities			2,896,304				2,776,985
Commitments and Contingencies
Stockholders’ Deficit:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of June 30, 2017 and March 31, 2017			-				-
Common stock, $0.0001 par value; 250,000,000 shares authorized; 2,554,197 shares issued and outstanding as of June 30, 2017 and March 31, 2017			255				255
Additional paid in capital			2,984,202				2,984,108
Accumulated deficit			(5,862,117	)			(5,759,365	)
Total stockholders’ deficit			(2,877,660	)			(2,775,002	)
Total Liabilities and Stockholders’ Deficit		$	18,644			$	1,983

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  

Truli Media Group, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months ended June 30,				Three Months ended June 30,
		2017				2016
Operating expenses:
Selling, general and administrative		$	108,320			$	78,783
Total operating expenses			108,320				78,783
Loss from operations			(108,320	)			(78,783	)
Other income (expenses):
Interest expense			(35,470	)			(22,304	)
Gain (loss) on change in fair value of derivative liability			41,038				(1,142	)
Total other income (expenses)			5,568				(23,446	)
Loss from operations before income taxes			(102,752	)			(102,229	)
Provision for income taxes			-				-
Net loss		$	(102,752	)		$	(102,229	)
Net loss per share – basic and diluted		$	(0.04	)		$	(0.04	)
Weighted average common shares – basic and diluted			2,554,197				2,553,990

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Truli Media Group, Inc.

Condensed Consolidated Statements of Cash Flows

 

		Three Months ended June 30,				Three Months ended June 30,
		2017				2016
Cash Flows from Operating Activities
Net loss		$(102,752)				$(102,229)
Adjustments to reconcile net loss to net cash used in operating activities
Equity based compensation expense			94				79
Change in fair market value of derivative liability			(41,038	)			1,142
Loss on excess fair value of derivative liability at inception			87				-
Amortization of debt discount			7,690				-
Changes in operating assets and liabilities:
Increase in accounts payable and accrued liabilities			25,004				7,287
Increase in accrued interest			26,576				20,965
Net cash used in operating activities			(84,339	)			(72,756	)
Cash Flows from Investing Activities			-				-
Cash Flows from Financing Activities
Proceeds from notes payable, related party			61,000				85,000
Proceeds from convertible notes			40,000				-
Payments on debt settlement			-				(22,500	)
Net cash provided by financing activities			101,000				62,500
Net increase (decrease) in cash and cash equivalents			16,661				(10,256	)
Cash and Cash Equivalents, beginning of period			1,983				13,245
Cash and Cash Equivalents, end of period		$	18,644			$	2,989
Supplemental disclosures of cash flow information:
Cash paid during the period for interest		$	1,118			$	1,340
Cash paid during the period for income taxes		$	-			$	-
Supplemental Disclosure of non-cash investing and financing activities:
Discount attributable to derivative liability		$	11,117			$	-

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

  

TRULI MEDIA GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(Unaudited)

 

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

General

 

Truli Media Group, Inc., a Delaware corporation initially incorporated on July 28, 2008 (the “Company”) is a holding company based in Englewood Cliffs, New Jersey. In October, 2016, the Company transferred all of its operating assets to a newly formed, wholly-owned subsidiary, Truli Media Corp., a California corporation (“TMC”) headquartered in Beverly Hills, California. TMC is operated by the Company’s founder, Mr. Michael J. Solomon, who is responsible for day-to-day operations. Mr. Solomon has agreed to pay all operating liabilities of the Company, excluding its outstanding Convertible Notes and public company expenses. For further information see Note 2. Prior to the transfer of its operating assets to TMC, the Company was, and TMC is, focused on the on-demand media and social networking markets. TMC, 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. “Truli”, “our”, “us”, “we” or the “Company” refer to Truli Media Group, Inc. and its subsidiary, TMC. In discussing the business of the Company, we refer to the business now operated by TMC except as otherwise made clear from the context.

 

From commencement of its current business operations through a merger with Truli Media Group, LLC on June 13, 2012 through the date of these unaudited condensed consolidated financial statements, the Company has not generated any revenues and has incurred significant expenses. The Company is in the process of seeking an acquisition of an unrelated business, which likely would result in a change of control of the Company and dilution to current shareholders. In order to accomplish this goal, the Company must locate an acquisition target and raise additional debt or equity capital to support the operations of the target and completion of TMC’s development activities. Consequently, the Company’s 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.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

 

These interim financial statements as of and for the three months ended June 30, 2017 and 2016 are unaudited; however, in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for the three months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending March 31, 2018 or for any future period. All references to June 30, 2017 and 2016 in these footnotes are unaudited.

 

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the year ended March 31, 2017, included in the Company’s annual report on Form 10-K filed with the SEC on June 30, 2017.

 

The condensed consolidated balance sheet as of March 31, 2017 has been derived from the audited consolidated financial statements at that date but does not include all disclosures required by the accounting principles generally accepted in the United States of America.

 

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 used to calculate the beneficial conversion feature of convertible notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilities.  

 

 

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 108,895,440 and 106,539,255 outstanding common share equivalents at June 30, 2017 and 2016, respectively.

 

		June 30,				June 30,
		2017				2016
Options			193,040				193,040
Warrants			-				6,266,715
Convertible notes payable			108,702,400				100,079,500
			108,895,440				106,539,255

 

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 condensed 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 preferred shares 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 or could require net cash settlement, then the contract shall be classified as an asset or a liability.

 

Derivative Instruments

 

The Company’s derivative financial instruments consist of embedded derivatives related to the convertible debt and conversion features embedded within our convertible debt. The accounting treatment of derivative financial instruments requires that we record the derivatives at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives was higher at the subsequent balance sheet date, we recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, we recorded non-operating, non-cash income.

 

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 three months ended June 30, 2017 that are of significance or potential significance to the Company.

 

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its financial statements. 

 

NOTE 2 — NOTES PAYABLE

 

Note Payable – Related Party 

 

The Company’s founder and former Chief Executive Officer (the “Founder”) has advanced funds to Truli Media Corp, evidenced by an unsecured term note (the “Note”), with an outstanding principal amount of $518,801 and $457,801 on June 30, 2017 and March 31, 2017, respectively. The Note is without recourse to Truli Media Group, Inc. The Note bears interest at 4% per annum. The Company recorded interest expense of $4,851 and $1,459 for the three months ended June 30, 2017 and 2016, respectively. Accrued interest payable is $17,528 and $12,677 June 30, 2017 and March 31, 2017, respectively. As discussed below, the Founder has agreed to pay this Note.

 

Convertible Notes Payable – Related Party and Other 

 

On December 1, 2015, the Company issued an unsecured, convertible promissory note (the “Convertible Note”) to the Founder with a 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 $19,506 and $19,506 for the three months ended June 30, 2017 and 2016, respectively. Accrued interest payable is $123,894 and $104,388 at June 30, 2017 and March 31, 2017, respectively.

 

Effective September 21, 2016, the Company, the Founder and two institutional investors entered into a Note Purchase Agreement (the “NPA”) pursuant to which the Founder sold the Convertible Note with a principal amount of $1,955,934 previously issued by the Company to the Founder to the institutional investors in equal amounts in exchange for $102,500 from each investor, each of whom acquired a convertible note for one-half of the principal (together the “Convertible Notes”). The NPA included a provision under which the Founder has an option to purchase all of the Company’s current operating assets for $5,000. The option is exercisable through March 23, 2017 with the consent of one of the investors, and thereafter through September 23, 2017 without the consent of the investors. Subsequent to September 30, 2016, Truli transferred the Company’s operating assets to its newly-formed, wholly-owned subsidiary, TMC. Under the NPA, the Company agreed with the Founder that it will be an Event of Default under the Convertible Notes if the Founder does not pay all operating costs of the Company, which essentially are the operating expenses of TMC. The NPA clearly indicates that public company compliance costs, including accounting, auditing and legal fees relating to securities matters are not operating costs. In addition, the Founder agreed to assume and pay all of the Company’s liabilities arising prior to the date of the NPA, except for the Convertible Notes and pay operating liabilities thereafter. The Purchasers of the Convertible Note agreed to pay all of the public company costs for a period of one year following the date of the NPA. The Founder remains Chairman of the Board of Directors and no changes were made to the Board of Directors prior to or following the execution of the NPA.

 

On November 8, 2016, the Company sold an aggregate of $50,000 principal amount of its convertible promissory notes (the “November 2016 Notes”, and each, a “Note”) to the holders of the Convertible Notes and received $50,000 in gross proceeds. The Notes are convertible, at the option of the holder, into shares of the Company’s common stock, par value $0.001 per share, at a per share price of $0.02, subject to adjustment as provided in the Notes and subject to a total beneficial ownership limitation of 9.99% of the Company’s issued and outstanding common stock. Each Note has a maturity date that is five months from the issue date. The maturity dates of each note have been extended to October 8, 2017. The Maturity Date may be accelerated, at the option of the holder, upon the occurrence of a Fundamental Transaction (as defined in the Note). The Company recorded interest expense of $1,264 for the three months ended June 30, 2017. Accrued interest payable is $3,264 and $2,000 at June 30, 2017 and March 31, 2017, respectively.

 

On April 6, 2017, the Company sold an aggregate of $40,000 principal amount of its convertible promissory notes (the “April 2017 Notes”, and each, a “Note”) to the holders of the Convertible Note and received $40,000 in gross proceeds. The Notes are convertible, at the option of the holder, into shares of the Company’s common stock, par value $0.001 per share, at a per share price of $0.02, subject to adjustment as provided in the Notes and subject to a total beneficial ownership limitation of 9.99% of the Company’s issued and outstanding common stock. Each Note has a maturity date that is four months from the issue date. The Maturity Date may be accelerated, at the option of the holder, upon the occurrence of a Fundamental Transaction (as defined in the Note). The Company recorded interest expense of $955 for the three months ended June 30, 2017. Accrued interest payable is $955 and $0 at June 30, 2017 and March 31, 2017, respectively.

 

 

NOTE 3 — 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. 

  

Compensation Warrants (issued on September 10, 2013):

 

On September 10, 2013, the Company issued 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 warrants, due to 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 warrants were adjusted upon the subsequent issuance of debt in accordance with the terms of the warrants. The number of warrants was increased to a total of 6,266,715 and the exercise price was reduced to $0.02. 

 

During the three months ended June 30, 2016, the Company recorded expense of $1,142 related to the change in the fair value of the derivative. The warrants expired unexercised on September 10, 2016.

  

November 2016 Notes

 

The Company identified embedded derivatives related to the conversion features of the November 2016 Notes. 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. The Company calculated the fair value of the embedded derivative at the inception of the Notes as $951, using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.64%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 247%; and (4) an expected life of 5 months. The initial fair value of the embedded debt derivative was allocated as debt discount, which has been amortized to interest expense over the original term of the Notes. During the three months ended June 30, 2017, $48 was charged to interest expense.

 

We have recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest accrued during the period. These additions totaled $86 for the three months ended June 30, 2017, and were charged to interest expense.

 

During the three months ended June 30, 2017, the Company recorded income of $29,921 related to the change in the fair value of the derivative. The fair value of the embedded derivative was $3,617 at June 30, 2017, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 1.062%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 383%; and (4) an expected life of 3 months. 

 

April 2017 Notes

 

The Company identified embedded derivatives related to the conversion features of the April 2017 Notes. 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. The Company calculated the fair value of the embedded derivative at the inception of the Notes as $11,117, using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.838%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 339%; and (4) an expected life of 4 months. The initial fair value of the embedded debt derivative was allocated as debt discount, which has been amortized to interest expense over the term of the Notes. During the three months ended June 30, 2017, $7,642 was charged to interest expense.

 

During the three months ended June 30, 2017, the Company recorded income of $11,117 related to the change in the fair value of the derivative. The fair value of the embedded derivative was $0 at June 30, 2017, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.964%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 100%; and (4) an expected life of 1 month. 

 

 

NOTE 4 — 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 unaudited condensed consolidated financial statements consisted of the following items as of June 30, 2017:

 

						Fair Value Measurements at June 30, 2017 using:
		June 30, 2017				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Liabilities:
Debt Derivative Liabilities		$	3,617			$	-			$	-			$	3,617

 

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 three months ended June 30, 2017 and 2016:

 

		June 30,				June 30,
		2017				2016
Balance, beginning of period		$	33,452			$	336
Additions			11,203				-
Change in fair value of derivative liabilities			(41,038	)			1,142
		$	3,617			$	1,478

 

NOTE 5 — GOING CONCERN

 

The accompanying unaudited condensed 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 June 30, 2017. The Company has recurring net losses, an accumulated deficit of $5,862,117 and a working capital deficit (current liabilities exceeded current assets) at June 30, 2017 of $921,726. 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 identify an attractive acquisition target, obtain additional financing to close the acquisition as well as fund the future operating results of the target, develop and achieve profitable operations and obtain 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. There can be no assurance that the Company will be successful in obtaining additional funding 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 for one year from the issuance of the consolidated financial statements. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 

 

 

NOTE 6 — SHAREHOLDERS EQUITY AND CONTROL

 

Preferred stock

 

The Company is authorized to issue 10,000,000 shares of $0.0001 par value preferred stock. As of June 30, 2017 and March 31, 2017 the Company has no shares of preferred stock issued and outstanding.

 

Common stock

 

The Company is authorized to issue 250,000,000 shares of common stock, par value $0.0001 per share. As of June 30, 2017 and March 31, 2017 the Company had 2,554,197 shares of common stock issued and outstanding.  

 

NOTE 7 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

As of June 30, 2017 and March 31, 2017, accounts payable and accrued liabilities for the period ending are comprised of the following:

 

		June 30,				March 31,
		2017				2017
Legal and professional fees payable		$	132,386			$	100,782
Other payables			53,399				59,999
		$	185,785			$	160,781

 

NOTE 8 — 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. 

 

On June 20, 2017, the Company has entered into a non-binding letter of intent to acquire another business. However, the letter of intent is subject to a number of significant contingencies including due diligence, preparation, negotiation and execution of a definitive agreement, and our obtaining financing of at least $600,000. In addition, the shareholder of the company to be acquired must provide $700,000 of services over a four year period. It cannot be assured that the Company will be successful in consummating the acquisition and obtaining additional financing.

 

NOTE 9 — SUBSEQUENT EVENTS

 

Management evaluated all activities of the Company through the issuance date of the Company’s interim unaudited condensed consolidated financial statements and concluded that no subsequent events have occurred that would require adjustments or disclosure into the interim unaudited condensed consolidated financial statements. 

 

 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations for the three months ended June 30, 2017 and 2016 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A, Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in our Annual Report on Form 10-K for the year ended March 31, 2017 filed on June 30, 2017 with the Securities and Exchange Commission (“SEC”), this report, and our other filings with the SEC.  We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report. 

 

As used in this report, the terms "Company", "we", "our", "us" and "Truli" refer to Truli Media Group, Inc. and its subsidiary, TMC.

 

Corporate Development

 

Truli Media Group, Inc., an Oklahoma corporation, formerly known as SA Recovery Corp., was incorporated on July 28, 2008. 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”) formed on October 19, 2011, and SA Recovery Merger Subsidiary, Inc., pursuant to an agreement and plan of merger. Under the terms of the Reorganization Agreement and plan of merger, all of Truli LLC’s membership interests were exchanged for shares of the Truli Media Group, Inc. common stock, or, at the time, approximately 74% of the fully diluted issued and outstanding shares of common stock of Truli Media Group, Inc. Prior to the merger, the company was a publicly traded corporation with nominal operations. For accounting purposes, Truli LLC was the surviving entity.

 

On March 17, 2015, Truli reincorporated in Delaware. Concurrent with the reincorporation, the Company completed a 1-for-50 reverse stock split.

 

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.

 

On September 21, 2016, Michael J. Solomon, the founder and Chairman of the Board of the Company (the “Founder”) sold a convertible note with a principal amount of $1,955,934 previously issued by the Company to the Founder (the “Convertible Note”) to two institutional investors in equal amounts in exchange for payment of $102,500 from each investor. Under the terms of the Note Purchase Agreement (the “NPA”) it will be an Event of Default if the Founder does not pay all operating costs of the Company (other than specified public company costs and the Convertible Note. Additionally, the Founder has a one year option to acquire the Company’s current operating assets for $5,000. The NPA requires the Founder to pay all of the liabilities as of the date of the NPA other than the Convertible Note and public company expenses and continue to pay all operating liabilities other than the public company liabilities, which will be paid by the purchasers of the Convertible Note for one year. If the Founder fails to pay these liabilities, it will be an Event of Default under the Convertible Notes.

 

Concurrent with the sale of the Convertible Note to the two institutional investors, the Founder and an affiliate sold their controlling block of Company Common Stock to the Company’s new Chief Executive Officer and Chief Financial Officer for $6,000. Subsequent to the end of the quarter, in order to simplify accounting and the potential exercise of the option to acquire the Company’s current operating assets, the Company formed a California corporation, Truli Media Corp. (“TMC”) as a wholly-owned subsidiary of the Company, and thereafter the Company transferred its operating assets to TMC and the Founder assumed the operating liabilities other than the Convertible Notes and public company liabilities. In describing the business of the Company below, the description relates to its historical business since October 2011 as operated by the Company through October 2016 and thereafter by TMC. All references to TMC in this context give effect to the operations by Truli prior to the date of the transfer of the assets to TMC.

 

 

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 14,000 videos in its library, with faith-based content currently representing roughly 50% of the Truli Platform with roughly 50% of the platform representing family entertainment such as feature films “G” and “PG” rated, music videos, children’s programming, sports, education, blogs, 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. 

 

Truli has not generated any revenue from these business strategies and there can be no assurances that we will do so in the future.

 

We have had discussions with third parties about acquiring another business. Any acquisition would likely require us to raise capital using common stock or securities convertible into exercisable for and/or exchangeable for common stock. We cannot assure you that we will identify and acquire another business and complete a financing. If we do, terms may be adverse to our current shareholders.

 

Results of Operations

 

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016:  

 

The Company had no revenue for the three month periods ended June 30, 2017 or 2016. 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 $102,752 and $102,229 for the three month periods ended June 30, 2017 and 2016, respectively, resulted from the operational activities described below.

 

Operating expenses totaled $108,320 and $78,783 during the three month periods ended June 30, 2017 and 2016, respectively.  The increase in operating expenses is the result of the following factors.

 

The Company incurred selling, general and administrative expenses of $108,320 and $78,783 for the three month periods ended June 30, 2017 and 2016, respectively, principally comprised of marketing, website development costs, professional fees and consulting fees.  The increase of 37% in 2017 compared to 2016 was primarily attributable to increased professional and consulting fees. The Company does 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) 

		Three Months Ended June 30
		2017				2016				Change
Interest expense		$	(35,470	)		$	(22,304	)		$	(13,166	)
Gain (loss) on change in fair value of warrant derivative liability			41,038				(1,142	)			42,180
Total other income (expense)		$	5,568			$	(23,446	)		$	29,014

 

 

Liquidity and Capital Resources

 

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 founder and former Chief Executive Officer. We expect to continue to incur operating losses for the foreseeable future. As of June 30, 2017 we had an accumulated deficit of $5,862,117 compared to $5,759,365 as of March 31, 2017. The increase is attributable to the net loss for the three month period ended June 30, 2017. Our net cash used in operations was $84,339 and $72,756 for the three months ended June 30, 2017 and 2016, respectively. The increase in cash used is primarily attributable to an increase in loss (after adjusting for non-cash items) of approximately $35,000, partially offset by an increase in accounts payable and accrued expenses of approximately $23,000. Our working capital deficiency was $921,726 as of June 30, 2017. 

 

The Company had cash and cash equivalents of $18,644 and $1,983 as of June 30, 2017 and March 31, 2017, respectively. The Company has liabilities of $2,896,304 and $2,776,985 as of June 30, 2017 and March 31, 2017, respectively. The increase in liabilities is primarily attributable to working capital advances received from our founder and former Chief Executive Officer, advances pursuant to convertible notes, and accrued interest on these advances.

 

As described elsewhere in this Report, the purchasers of the Convertible Note are responsible for public company expenses for one year. They have orally agreed to provide an interim loan to fund the necessary ongoing costs. Under the NPA, the Founder is responsible for ongoing operating costs. We expect that he will pay these costs, but the payments will continue to be recorded as payables of the Company. If the Founder fails to pay the ongoing costs, the NPA provides that such failure is an Event of Default under the Convertible Note, which would in turn require TMC to cease operations. The Company has nominal cash as of the date of this Report and is totally reliant upon receipt of loans from the purchasers of the Convertible Note to meet its public company expenses and payment by the Founder of TMC’s operating expenses. While we believe that the purchasers will fund our public company expenses, our future liquidity is based upon our ability to obtain an acquisition target and obtain sufficient funding. There are no assurances that we will be successful in either regard.

 

Based on our current expected level of operating expenditures, we are 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. We need to raise additional cash through 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 binding commitments for future funding of cash from any source other than the Founder’s payment obligations under the NPA.

 

The independent registered public accounting firm’s report on our March 31, 2017 consolidated financial statements included in our 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 we be unable to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

None

 

Critical Accounting Estimates and Recent Accounting Pronouncements

 

Critical Accounting 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 inputs used to calculate beneficial conversion of convertible notes payable, deferred income tax asset valuation allowances, and valuation of derivative liabilities.

 

 

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 or could require net cash settlement, then the contract shall be classified as an asset or a liability.

 

Derivative Instruments

 

The Company’s derivative financial instruments consist of embedded derivatives related to the convertible debt and conversion features embedded within our convertible debt. The accounting treatment of derivative financial instruments requires that we record the derivatives at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives was higher at the subsequent balance sheet date, we recorded a nonoperating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, we recorded non-operating, non-cash income.

 

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

 

Management does not believe that any recent changes in accounting pronouncements and Accounting Standards Updates (ASU) issued by the Financial Accounting Standards Board (FASB) are of significance or potential significance to the Company.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable as we are a smaller reporting company as defined by Rule 229.10(f) (1).

 

 

ITEM 4. 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 an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, 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.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15f of the Exchange Act) that occurred during the three months ended June 30, 2017 that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

PART II: OTHER INFORMATION

 

ITEM 1 - LEGAL PROCEEDINGS

 

As of the date of this Quarterly 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 1A. - RISK FACTORS

 

Not required as we are a smaller reporting company as defined by Rule 229.10(f) (1).

 

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Not applicable.

 

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5 - OTHER INFORMATION

 

None.

 

 

ITEM 6 - EXHIBITS

 

The following exhibits are filed as part of this quarterly report on Form 10-Q:

 

EXHIBITS INDEX

 

Exhibit				Incorporated by Reference						Filed or Furnished
No.		Exhibit Description		Form		Date		Number		Herewith
3.1		Certificate of Incorporation, as amended		8-K		12/21/15		3.01
3.2		Bylaws		14C		1/26/15		App C
10.1		Stock Purchase Agreement dated 9/21/16		8-K		9/23/16		10.1
10.2		Form of Note Purchase Agreement dated 9/21/16		8-K		9/23/16		10.2
31.1		Certification of Principal Executive and Principal Financial Officer (302)								Filed
32.1		Certification of Principal Executive and Principal Financial Officer (906)								Furnished*
101.INS		XBRL Instance Document								Filed
101.SCH		XBRL Taxonomy Extension Schema Document								Filed
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document								Filed
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document								Filed
101.LAB		XBRL Taxonomy Extension Label Linkbase Document								Filed
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document								Filed

 

 

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: August 14, 2017	TRULI MEDIA GROUP, INC.
	By:	/s/ Elliot Maza
		Elliot Maza
		Chief Executive Officer (Principal Executive and Financial Officer)

 

 

16