PART
I
Forward
Looking Statements
Information
included in this Annual Report on Form 10-K (the “Form 10-K”) contains forward-looking statements. All statements,
other than statements of historical facts included in this Form 10-K regarding our strategy, future operations, future financial
position, projected expenses, prospects and plans and objectives of management are forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements
to be materially different from our future results, performance or achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,”
“estimate,” “believe,” “intend,” “future,” “plan,” or “project”
or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements are based
on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any
forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the
forward-looking statements as a result of various factors, including, but not limited to, decreased demand for our products and
services; market acceptance of our products; the ability to protect our intellectual property rights; impact of any litigation
or infringement actions brought against us; competition from other providers and products; risks in product development; inability
to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions
and capital raising transactions, and other factors, including the risk factors described in greater detail in Item 1A of this
Form 10-K under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated,
expected, intended or planned. Except as required by applicable laws, we undertake no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
As
used in this Form 10-K, the terms "we", "us", "our", “Truli”, and the "Company"
means Truli Media Group, Inc., an Delaware corporation, its wholly-owned subsidiary Truli Media Group, LLC, a Delaware limited
liability company
.
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. 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:
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occasional
scheduled maintenance;
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equipment
failure;
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traffic
volume to our websites that exceed our infrastructure’s capacity; and
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natural
disasters, telecommunications failures, power failures, other system failures, maintenance, viruses, hacking or other events
outside of our control.
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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. 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. 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. MINE SAFETY DISCLOSURES
Not
applicable.
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.
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Options
|
|
|
93,040
|
|
|
|
93,040
|
|
Warrants
|
|
|
6,266,715
|
|
|
|
358,205
|
|
Convertible notes payable
|
|
|
99,104,229
|
|
|
|
3,914,579
|
|
|
|
|
105,463,984
|
|
|
|
4,365,824
|
|
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:
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Convertible notes payable
|
|
$
|
-
|
|
|
$
|
92,500
|
|
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:
|
|
|
|
|
Fair Value Measurements at
March 31, 2016 using:
|
|
|
|
March 31,
2016
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt and Warrant Derivative Liabilities
|
|
$
|
336
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
336
|
|
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:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance, beginning of year
|
|
$
|
284,033
|
|
|
$
|
2,075,434
|
|
Additions
|
|
|
24,038
|
|
|
|
148,375
|
|
Extinguished derivative liability
|
|
|
(320,011
|
)
|
|
|
(852,501
|
)
|
Change in fair value of derivative liabilities
|
|
|
12,276
|
|
|
|
(1,087,275
|
)
|
|
|
$
|
336
|
|
|
$
|
284,033
|
|
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,
$16,250 was reclassified to additional paid in capital.
NOTE
9 — STOCK OPTIONS AND WARRANTS
Stock
options
The
following table summarizes the changes in options outstanding and the related exercise prices for the shares of the Company’s
common stock issued to employees and consultants at March 31, 2016:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise
Prices ($)
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
|
|
Weighted
Average
Exercise
Price ($)
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.35
- 0.50
|
|
|
|
19,000
|
|
|
|
1.94
|
|
|
$
|
0.41
|
|
|
|
19,000
|
|
|
$
|
0.41
|
|
$
|
8.50
|
|
|
|
74,040
|
|
|
|
1.72
|
|
|
$
|
8.50
|
|
|
|
74,040
|
|
|
$
|
8.50
|
|
The
stock option activity for the two years ended March 31, 2016 is as follows:
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at March 31, 2014
|
|
|
74,760
|
|
|
$
|
8.50
|
|
Granted
|
|
|
19,000
|
|
|
|
0.41
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
(720
|
)
|
|
|
8.50
|
|
Outstanding at March 31, 2015
|
|
|
93,040
|
|
|
|
6.85
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
|
93,040
|
|
|
$
|
6.85
|
|
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:
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Warrants
Outstanding
Weighted Average
Remaining
Contractual Life
(years)
|
|
|
Weighted
Average
Exercise
price
|
|
|
Number
Exercisable
|
|
|
Warrants
Exercisable
Weighted
Average
Exercise
Price
|
|
$
|
0.02
|
|
|
|
6,266,715
|
|
|
|
0.45
|
|
|
$
|
0.02
|
|
|
|
6,266,715
|
|
|
$
|
0.02
|
|
Warrant
activity for the two years ended March 31, 2016 is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Price Per
Share
|
|
Outstanding at March 31, 2014
|
|
|
1,378,785
|
|
|
$
|
1.00
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Modifications
|
|
|
232,763
|
|
|
|
0.35
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or cancelled
|
|
|
(1,253,343
|
)
|
|
|
(1.00
|
)
|
Outstanding at March 31, 2015
|
|
|
358,205
|
|
|
|
0.35
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Modifications
|
|
|
5,908,618
|
|
|
|
0.02
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or cancelled
|
|
|
(108
|
)
|
|
|
(0.50
|
)
|
Outstanding at March 31, 2016
|
|
|
6,266,715
|
|
|
$
|
0.02
|
|
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:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Legal and professional fees payable
|
|
$
|
156,742
|
|
|
$
|
148,373
|
|
Consulting fees payable
|
|
|
-
|
|
|
|
38,500
|
|
Accrued interest
|
|
|
-
|
|
|
|
87,975
|
|
Other payables
|
|
|
56,050
|
|
|
|
64,087
|
|
|
|
$
|
212,792
|
|
|
$
|
338,935
|
|
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:
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
1,468,000
|
|
|
$
|
1,311,000
|
|
Valuation allowance
|
|
|
(1,468,000
|
)
|
|
|
(1,311,000
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
(35
|
)%
|
|
|
(35
|
)%
|
State income taxes, net of federal taxes
|
|
|
(6
|
)%
|
|
|
(6
|
)%
|
Valuation allowance
|
|
|
41
|
%
|
|
|
41
|
%
|
Effective income tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
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.