NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2016
(Unaudited)
Note
1 — Organization and Summary of Significant Accounting Policies
General
Truli Media Group, Inc., a Delaware
corporation initially incorporated on July 28, 2008 (the “Company”) is a holding company based in Englewood Cliffs,
New Jersey. In October, 2016, the Company transferred all of its assets to a newly formed, wholly-owned subsidiary, Truly Media
Corp., a California corporation (“TMC”) headquartered in Beverly Hills, California. TMC is operated by the Company’s
founder, Mr. Michael J. Solomon, who is responsible for day-to-day operations. Mr. Solomon has agreed to pay all operating liabilities
of the Company, excluding its outstanding Convertible Notes and public company expenses. For further information see Note 2. Prior
to the transfer of its operating assets to TMC, the Company was, and TMC is, focused on the on-demand media and social networking
markets. TMC, with a website and multi-screen platform, has commenced operations as an aggregator of family-friendly, faith-based
Christian content, media, music and Internet Protocol Television (“IPTV”) programming. “Truli”, “our”,
“us”, “we” or the “Company” refer to Truli Media Group, Inc. and its subsidiary, TMC. In discussing
the business of the Company, we refer to the business now operated by TMC except as otherwise made clear from the context.
From commencement of its current business
operations through a merger with Truli Media Group, LLC on October 19, 2011 through the date of these unaudited condensed consolidated
financial statements, the Company has not generated any revenues and has incurred significant expenses. The Company is in the process
of seeking an acquisition of an unrelated business, which likely would result in a change of control of the Company and dilution
to current shareholders. In order to accomplish this goal, the Company must locate an acquisition target and raise additional debt
or equity capital to support the operations of the target and completion of TMC’s development activities. Consequently, the
Company’s operations are subject to all the risks and uncertainties inherent in the establishment of a new business enterprise,
including failing to secure additional funding to carry out the Company’s business plan.
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared
in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules
and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures
normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted
pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information
not misleading.
These
interim financial statements as of and for the three and six months ended September 30, 2016 and 2015 are unaudited; however,
in the opinion of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position, results of operations and cash flows of the Company for the periods presented. The results for
the three and six months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year
ending March 31, 2017 or for any future period. All references to September 30, 2016 and 2015 in these footnotes are unaudited.
These
unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial
statements and the notes thereto for the year ended March 31, 2016, included in the Company’s annual report on Form 10-K
filed with the SEC on June 29, 2016.
The
condensed consolidated balance sheet as of March 31, 2016 has been derived from the audited consolidated financial statements
at that date but does not include all disclosures required by the accounting principles generally accepted in the United States
of America.
Cash
and Cash Equivalents
The
Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or
less to be cash equivalents.
Use
of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Included in these estimates are judgements about assumptions used to calculate beneficial conversion of convertible notes payable,
deferred income tax asset valuation allowances, and valuation of derivative liabilities.
Earnings
(Loss) Per Share
The Company follows ASC 260, “Earnings
Per Share” for calculating the basic and diluted earnings (loss) per share. Basic earnings (loss) per share are computed
by dividing earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted
earnings (loss) per share is computed similar to basic loss per share except that the denominator is increased to include the number
of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Common share equivalents are excluded from the diluted earnings (loss) per share computation if their
effect is anti-dilutive. There were 101,258,540 and 451,245 outstanding common share equivalents at September 30, 2016 and 2015,
respectively.
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Options
|
|
|
193,040
|
|
|
|
93,040
|
|
Warrants
|
|
|
-
|
|
|
|
358,205
|
|
Convertible notes payable
|
|
|
101,065,500
|
|
|
|
-
|
|
Total
|
|
|
101,258,540
|
|
|
|
451,245
|
|
Fair
Value of Financial Instruments
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
Management
does not believe that any recent changes in accounting pronouncements and Accounting Standards Updates (ASU) issued by the Financial
Accounting Standards Board (FASB) are of significance or potential significance to the Company.
Note
2 — Notes Payable, Related Party
Note
Payable
The
Company’s founder and former Chief Executive Officer (the “Founder”) has advanced funds to the Company, evidenced
by an unsecured term note (the “Note”), with an outstanding principal amount of $332,000 and $105,000 on September
30, 2016 and March 31, 2016, respectively. The Note bears interest at 4% per annum. The Company recorded interest expense of $2,601
and $16,374 for the three months ended September 30, 2016 and 2015, respectively, and $4,060 and $31,432 for the six months ended
September 30, 2016 and 2015, respectively. Accrued interest payable is $4,758 and $698 at September 30, 2016 and March 31, 2016,
respectively. As discussed below, the Founder has agreed to pay this Note.
Convertible
Note Payable
On
December 1, 2015, the Company issued an unsecured, convertible promissory note (the “Convertible Note”) to the Founder
with a principal amount of $1,955,934, as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding
under the Note described above. The Convertible Note, which carries interest at the rate of 4% per annum, matures on December
1, 2020. The Convertible Note and related accrued interest is convertible into shares of the Company’s common stock at the
rate of $0.02 per share, subject to certain restrictions of beneficial ownership. The Company recorded interest expense of $19,720
and $39,226 for the three and six months ended September 30, 2016, respectively. Accrued interest payable is $65,376 and $26,150
at September 30, 2016 and March 31, 2016, respectively.
Effective September 21, 2016, the Company,
the Founder and two institutional investors entered into a Note Purchase Agreement (the “NPA”) pursuant to which the
Founder sold the Convertible Note with a principal amount of $1,955,934 previously issued by the Company to the Founder to the
institutional investors in equal amounts in exchange of $102,500 from each investor, each of whom acquired a separate interest
in the Convertible Note. The NPA included a provision under which the Founder has an option to purchase all of the Company’s
current operating assets for $5,000. The option is exercisable through March 23, 2017 with the consent of one of the investors,
and thereafter through September 23, 2017 without the consent of the investors. Subsequent to September 30, 2016, Truli transferred
the Company’s operating assets to its newly-formed, wholly-owned subsidiary, TMC. Under the NPA, the Company agreed with
the Founder that it will be an Event of Default under the Convertible Note if the Founder does not pay all operating costs of
the Company, which essentially are the operating expenses of TMC. The NPA clearly indicates that public company compliance costs,
including accounting, auditing and legal fees relating to securities matters are not operating costs. In addition, the Founder
agreed to assume and pay all of the Company’s liabilities arising prior to the date of the NPA, except for the Convertible
Notes and pay operating liabilities thereafter. The Purchasers of the Convertible Notes agreed to pay all of the public company
costs for a period of one year following the date of the NPA. The Founder remains Chairman of the Board of Directors and no changes
were made to the Board of Directors prior to or following the execution of the NPA.
Note 3 — Derivatives
The Company has identified certain embedded
derivatives related to its convertible notes and common stock purchase warrants. Since certain of the notes are convertible
into a variable number of shares or have a price reset feature, the conversion features of those debentures are recorded as derivative
liabilities. Since the warrants have a price reset feature, they are recorded as derivative liabilities. The accounting treatment
of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and
to adjust to fair value as of each subsequent balance sheet date.
Compensation Warrants
On September 10, 2013, the Company issued
50,134 warrants as compensation for consulting services. The warrants had an initial exercise price of $2.50 per shares and a term
of three years. The Company identified embedded derivatives related to these warrants, 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
warrants were adjusted due to subsequent issuance of debt. The number of warrants was increased to a total of 6,266,715 and the
exercise price was reduced to $0.02.
During the three months ended September
30, 2016 and 2015, the Company recorded income of $1,478 and expense of $369, respectively, related to the change in the fair
value of the derivative. During the six months ended September 30, 2016 and 2015, the Company recorded income of $336 and $21,801,
respectively, related to the change in the fair value of the derivative. The warrants expired unexercised on September 10, 2016.
Note
4 — Fair Value of Financial Instruments
ASC
825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes
three levels of inputs that may be used to measure fair value:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level
3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Items
recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements
consisted of the following items as of September 30, 2016:
|
|
|
Fair Value Measurements at
September
30, 2016 using:
|
|
|
|
|
September 30,
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
|
|
$
|
-
|
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
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 six
months ended September 30, 2016:
|
|
September 30,
|
|
|
|
2016
|
|
Balance, beginning of year
|
|
$
|
336
|
|
Change in fair value of derivative liabilities
|
|
|
(336
|
)
|
Total
|
|
$
|
-
|
|
Note
5 — Going Concern
The accompanying unaudited condensed consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has not yet established any sources of revenue to cover its operating
expenses. The Company has not generated any revenue for the period from October 19, 2011 (date of inception) through September
30, 2016. The Company has recurring net losses, an accumulated deficit of $5,511,800 and a working capital deficit (current liabilities
exceeded current assets) at September 30, 2016 of $571,691. Additionally, the current development stage of the Company and current
economic conditions create significant challenges to attaining sufficient funding for the Company to continue as a going concern.
The Company’s ability to continue existence is dependent upon commencing its planned operations, management’s ability
to identify an attractive acquisition target, obtain additional financing to close the acquisition as well as fund the future
operating results of the target, develop and achieve profitable operations and obtain additional financing to carry out its planned
business. The Company intends to fund its business development, acquisition endeavors and operations through equity and debt financing
arrangements. There can be no assurance that the Company will be successful in obtaining additional funding sufficient to fund
its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted
at this time. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The
accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should
the Company be unable to continue as a going concern.
Note
6 — Shareholders Equity and Control
As a consequence of the issuance of the Convertible
Note described in Note 2, on December 16, 2015, 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 (the “Restated Certificate”). The Restated Certificate increased the
number of 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.
On September 21, 2016, the Founder
and an affiliate sold their holdings of 1,336,676 shares of the Company’s common stock to Mr. Elliot Maza for $6,000 and,
immediately prior to that time, appointed Mr. Maza Chief Executive Officer and Chief Financial Officer, replacing the Founder,
who remains Chairman of the Board of Directors.
Preferred
stock
The
Company is authorized to issue 10,000,000 shares of $0.0001 par value preferred stock. As of September 30, 2016 and March 31,
2016, the Company has no shares of preferred stock issued and outstanding.
Common
stock
The
Company is authorized to issue 250,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2016 and March
31, 2016 the Company had 2,553,990 shares of common stock issued and outstanding.
Stock
Options
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.
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. We valued the option at $754, by 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 327%; and
(4) an expected life of 3 years. We have recorded compensation expense of $94 and $173 related to the option during the three
and six months ended September 30, 2016, respectively.
Note
7 — Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities for the period ending September 30, 2016 and March 31, 2016, are comprised of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2016
|
|
Legal and professional fees payable
|
|
$
|
122,955
|
|
|
$
|
156,742
|
|
Other payables
|
|
|
53,809
|
|
|
|
56,050
|
|
Total
|
|
$
|
176,764
|
|
|
$
|
212,792
|
|
Note
8 — Commitments and Contingencies
The
Company is subject to legal proceedings and claims from time to time, which arise in the ordinary course of its business. Although
occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should
not have a material adverse effect on its consolidated financial position, results of operations or liquidity.
Note
9 — Subsequent Events
Management
evaluated all activities of the Company through the issuance date of the Company’s interim unaudited condensed consolidated
financial statements and concluded that no subsequent events have occurred that would require adjustments or disclosure into the
interim unaudited condensed consolidated financial statements
other than the following:
On November 8, 2016, the Company sold
an aggregate of $50,000 principal amount of its convertible promissory notes (each, a “Note”) to certain accredited
investors (the “Investors”) and received $50,000 in gross proceeds (the “Financing”).
The Notes are convertible, at the option
of the holder, into shares of the Company’s common stock, par value $0.001 per share, at a per share price of $0.02 (the
“Conversion Price”), subject to adjustment as provided in the Notes and subject to a total beneficial ownership limitation
of 9.99% of the Company’s issued and outstanding common stock. Each Note has a maturity date (the “Maturity Date”)
that is five months from the issue date. The Maturity Date may be accelerated, at the option of the holder, upon the occurrence
of a Fundamental Transaction (as defined in the Note).
The Company intends to use the net
proceeds from the Financing for general corporate purposes.
The Financing was conducted as a private
placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.
See
Note 1
for information concerning TMC.