NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2017
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Truli
Media Group, Inc., a Delaware corporation initially incorporated on July 28, 2008 (the “Company”) is a holding company
based in Englewood Cliffs, New Jersey. In October, 2016, the Company transferred all of its operating assets to a newly formed,
wholly-owned subsidiary, Truli Media Corp., a California corporation (“TMC”) headquartered in Beverly Hills, California.
TMC is operated by the Company’s founder, Mr. Michael J. Solomon, who is responsible for day-to-day operations. Mr. Solomon
has agreed to pay all operating liabilities of the Company, excluding its outstanding Convertible Notes and public company expenses.
For further information see Note 2. Prior to the transfer of its operating assets to TMC, the Company was, and TMC is, focused
on the on-demand media and social networking markets. TMC, with a website and multi-screen platform, has commenced operations
as an aggregator of family-friendly, faith-based Christian content, media, music and Internet Protocol Television (“IPTV”)
programming. “Truli”, “our”, “us”, “we” or the “Company” refer to
Truli Media Group, Inc. and its subsidiary, TMC. In discussing the business of the Company, we refer to the business now operated
by TMC except as otherwise made clear from the context.
From
commencement of its current business operations through a merger with Truli Media Group, LLC on June 13, 2012 through the date
of these 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.
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 the
beneficial conversion feature 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 benefits 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, 2017 and 2016, 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 105,809,140 and 105,463,984 outstanding common share
equivalents at March 31, 2017 and 2016, respectively.
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
193,040
|
|
|
|
93,040
|
|
Warrants
|
|
|
-
|
|
|
|
6,266,715
|
|
Convertible notes payable
|
|
|
105,616,100
|
|
|
|
99,104,229
|
|
|
|
|
105,809,140
|
|
|
|
105,463,984
|
|
Web-site
Development Costs
The
Company has elected to expense web-site development costs as 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 preferred shares transaction and the effective conversion
price embedded in the note.
ASC
815-40 provides that, among other things, generally, if an event is not within the entity’s control or could require
net cash settlement, then the contract shall be classified as an asset or a liability.
Derivative
Instruments
The
Company’s derivative financial instruments consist of embedded derivatives related to the convertible debt and conversion
features embedded within our convertible debt. The accounting treatment of derivative financial instruments requires that we record
the derivatives at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance
sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each balance sheet date. If
the fair value of the derivatives was higher at the subsequent balance sheet date, we recorded a non-operating, non-cash charge.
If the fair value of the derivatives was lower at the subsequent balance sheet date, we recorded non-operating, non-cash income.
Stock-Based
Compensation
The
Company utilizes the Black-Scholes option-pricing model to determine fair value of options and warrants granted as stock-based
compensation, which requires us to make judgments relating to the inputs required to be included in the model. In this regard,
the expected volatility is based on the historical price volatility of the Company’s common stock. The dividend yield represents
the Company’s anticipated cash dividend on common stock over the expected life of the stock options. The U.S. Treasury bill
rate for the expected life of the stock options is utilized to determine the risk-free interest rate. The expected term of stock
options represents the period of time the stock options granted are expected to be outstanding.
Recently
Issued Accounting Pronouncements
With
the exception of those discussed below, there have not been any recent changes in accounting pronouncements and Accounting Standards
Update (ASU) issued by the Financial Accounting Standards Board (FASB) during the year ended March 31, 2017 that are of significance
or potential significance to the Company.
In
August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and
how to disclose going-concern uncertainties in the financial statements. The standard requires management to perform interim and
annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's
financial statements and provide certain disclosure if conditions or events raise substantial doubt about the entity's ability
to continue as a going concern. The Company adopted ASU 2014-15 in the fourth quarter of 2017, and it did not have any effect
on the Company's disclosures.
In
March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation – Improvements to Employee Share-Based
Payment Accounting. ASU 2016-09 simplifies the accounting for 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. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those
annual periods, which would be the Company's fiscal year ending March 31, 2018. The Company does not expect the adoption of ASU
2016-09 to have a material effect on its business, its financial position, results of operations or cash flows.
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, which would be the Company's fiscal year ending March 31, 2020. The Company does not expect the adoption of ASU 2016-09
to have a material effect on its business, its financial position, results of operations or cash flows.
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash
Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement
of cash flows. The Company does not expect the adoption of ASU 2016-15 to have a material effect on its business, its financial
position, results of operations or cash flows.
In
October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, to
improve and simplify the accounting for the income tax consequences of intra-entity transfers of assets other than inventory,
requiring companies to recognize income tax consequences upon the transfer of the asset to a third party. ASU 2016-16 is effective
for annual periods beginning after December 15, 2017, and interim periods within those annual periods, which would be the Company's
fiscal year ending March 31, 2019. While the Company does not expect the adoption of ASU 2016-16 to have a material effect on
its business, the Company is still evaluating any potential impact that adoption of ASU 2016-16 may have on its financial position,
results of operations or cash flows.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting
standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods
or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services.
In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim
reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods
beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively
to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application
(modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of 2018 and apply the full retrospective approach.
Until such time as the Company makes an acquisition or commences monetizing its assets, the Company does not know what the impact
of this new standard will be or if it will impact the Company’s disclosure.
In
May 2017, FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which
amends the scope of modification accounting surrounding share-based payment arrangements as issued in ASU 2016-09 by providing
guidance on the various types of changes which would trigger modification accounting for share-based payment awards. ASU 2017-09
is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, which would
be the Company's fiscal year ending March 31, 2019. Early adoption is permitted, including adoption in any interim period, for
public business entities for reporting periods for which financial statements have not yet been issued. While the Company does
not expect the adoption of ASU 2017-09 to have a material effect on its business, the Company is still evaluating any potential
impact that adoption of ASU 2017-09 may have on its financial position, results of operations or cash flows.
NOTE
2 — NOTES PAYABLE
Note
Payable – Related Party
The
Company’s founder and former Chief Executive Officer (the “Founder”) has advanced funds to Truli Media Corp,
evidenced by an unsecured term note (the “Note”), with an outstanding principal amount of $457,801 and $105,000 on
March 31, 2017 and 2016, respectively. The Note is without recourse to Truli Media Group, Inc. The Note bears interest at 4% per
annum. The Company recorded interest expense of $11,979 and $42,210 for the years ended March 31, 2017 and 2016, respectively.
Accrued interest payable is $12,677 and $698 at March 31, 2017 and 2016, respectively. As discussed below, the Founder has
agreed to pay this Note.
Convertible
Notes Payable – Related Party and Other
On
December 1, 2015, the Company issued an unsecured, convertible promissory note (the “Convertible Note”) to the Founder
with a principal amount of $1,955,934, as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding
under the Note described above. The Convertible Note, which carries interest at the rate of 4% per annum, matures on December
1, 2020. The Convertible Note and related accrued interest is convertible into shares of the Company’s common stock at the
rate of $0.02 per share, subject to certain restrictions of beneficial ownership. The Company recorded interest expense of $78,238
and $26,150 for the years ended March 31, 2017 and 2016, respectively. Accrued interest payable is $104,388 and $26,150 at March
31, 2017 and 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 for $102,500 from each investor, each of whom acquired
a convertible note for one-half of the principal (together the “Convertible Notes”). The NPA included a provision
under which the Founder has an option to purchase all of the Company’s current operating assets for $5,000. The option is
exercisable through March 23, 2017 with the consent of one of the investors, and thereafter through September 23, 2017 without
the consent of the investors. Subsequent to September 30, 2016, Truli transferred the Company’s operating assets to its
newly-formed, wholly-owned subsidiary, TMC. Under the NPA, the Company agreed with the Founder that it will be an Event of Default
under the Convertible Notes if the Founder does not pay all operating costs of the Company, which essentially are the operating
expenses of TMC. The NPA clearly indicates that public company compliance costs, including accounting, auditing and legal fees
relating to securities matters are not operating costs. In addition, the Founder agreed to assume and pay all of the Company’s
liabilities arising prior to the date of the NPA, except for the Convertible Notes and pay operating liabilities thereafter. The
Purchasers of the Convertible Note agreed to pay all of the public company costs for a period of one year following the date of
the NPA. The Founder remains Chairman of the Board of Directors and no changes were made to the Board of Directors prior to or
following the execution of the NPA.
On
November 8, 2016, the Company sold an aggregate of $50,000 principal amount of its convertible promissory notes (the “November
2016 Notes”, and each, a “Note”) to certain accredited investors and received $50,000 in gross proceeds. The
Notes are convertible, at the option of the holder, into shares of the Company’s common stock, par value $0.001 per share,
at a per share price of $0.02, subject to adjustment as provided in the Notes and subject to a total beneficial ownership limitation
of 9.99% of the Company’s issued and outstanding common stock. Each Note has a maturity date that is five months from the
issue date. The maturity dates of each note have been extended to October 8, 2017. The Maturity Date may be accelerated, at the
option of the holder, upon the occurrence of a Fundamental Transaction (as defined in the Note). The Company recorded interest
expense of $2,000 for the year ended March 31, 2017. Accrued interest payable is $2,000 and $0 at March 31, 2017 and 2016, respectively.
2013
Convertible Notes Payable
The
Company entered into three convertible notes in August, October and November 2013. These notes had an outstanding balance of $92,500
as of March 31, 2015. 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 3 were also extinguished. An aggregate of $320,011
has been reclassified from derivative liability to additional paid in capital during the year ended March 31, 2016.
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.
August
2013 Note (issued on August 28, 2013):
The
Company identified embedded derivatives related to the August 2013 Note.
During
the year ended March 31, 2016 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 for the year ended March
31, 2016.
During
the year ended March 31, 2016, the Company recorded expense of $7,096 related to the change in the fair value of the derivative.
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.
Compensation
Warrants (issued on September 10, 2013):
On
September 10, 2013, the Company issued 50,134 warrants as compensation for consulting services. The warrants had an initial exercise
price of $2.50 per shares and a term of three years. The Company identified embedded derivatives related to these warrants, due
to the price reset features of these instruments. As a result, we have classified these instruments as derivative liabilities
in the financial statements.
During
the year ended March 31, 2016, the warrants were adjusted upon the subsequent issuance of debt in accordance with the terms of
the warrants. The number of warrants was increased to a total of 6,266,715 and the exercise price was reduced to $0.02. 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 years ended March 31, 2017 and 2016, the Company recorded income of $336 and $22,534, respectively, related to the change
in the fair value of the derivative. The warrants expired unexercised on September 10, 2016.
October
2013 Note (issued on October 2, 2013):
The
Company identified embedded derivatives related to the October 2013 Note.
During
the year ended March 31, 2016, 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 for the year ended March 31,
2016 which has been charged to interest expense.
During
the year ended March 31, 2016, the Company recorded expense of $12,142 related to the change in the fair value of the derivative.
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.
During
the year ended March 31, 2016, 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 for the year ended March
31, 2016, which has been charged to interest expense.
During
the year ended March 31, 2016, the Company recorded expense of $15,572 related to the change in the fair value of the derivative.
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.
November
2016 Notes
The
Company identified embedded derivatives related to the conversion features of the November 2016 Notes. The accounting treatment
of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date
of the note and to adjust the fair value as of each subsequent balance sheet date. The Company calculated the fair value
of the embedded derivative at the inception of the Notes as $951, using the Black Scholes Model based on the following assumptions:
(1) risk free interest rate of 0.64%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common
stock of 247%; and (4) an expected life of 5 months. The initial fair value of the embedded debt derivative was allocated
as debt discount, which will be amortized to interest expense over the term of the Notes. During the year ended March 31, 2017,
$903 was charged to interest expense.
We
have recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest accrued
during the period. These additions totaled $1,871 for the year ended March 31, 2017, and were charged to interest expense.
During
the year ended March 31, 2017, the Company recorded expense of $30,630 related to the change in the fair value of the derivative.
The fair value of the embedded derivative was $33,452 at March 31, 2017, determined using the Black Scholes Model with the following
assumptions: (1) risk free interest rate of 0.993%; (2) dividend yield of 0%; (3) volatility factor of the expected market price
of our common stock of 258%; and (4) an expected life of 6 months.
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 consolidated financial statements consisted of
the following items as of March 31, 2017:
|
|
|
|
|
Fair Value Measurements at
March 31, 2017 using:
|
|
|
|
March 31,
2017
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Derivative Liabilities
|
|
$
|
33,452
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
33,452
|
|
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, 2017 and 2016:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of year
|
|
$
|
336
|
|
|
$
|
284,033
|
|
Additions
|
|
|
2,822
|
|
|
|
24,038
|
|
Extinguished derivative liability
|
|
|
-
|
|
|
|
(320,011
|
)
|
Change in fair value of derivative liabilities
|
|
|
30,294
|
|
|
|
12,276
|
|
|
|
$
|
33,452
|
|
|
$
|
336
|
|
NOTE
5 — 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, 2017. The Company has recurring net losses, an accumulated deficit of $5,759,365 and a working
capital deficit (current liabilities exceeded current assets) at March 31, 2017 of $819,068. Additionally, the current development
stage of the Company and current economic conditions create significant challenges to attaining sufficient funding for the Company
to continue as a going concern. The Company’s ability to continue existence is dependent upon commencing its planned operations,
management’s ability to identify an attractive acquisition target, obtain additional financing to close the acquisition
as well as fund the future operating results of the target, develop and achieve profitable operations and obtain additional financing
to carry out its planned business. The Company intends to fund its business development, acquisition endeavors and operations
through equity and debt financing arrangements. There can be no assurance that the Company will be successful in obtaining additional
funding sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these
matters cannot be predicted at this time. These matters raise substantial doubt about the Company’s ability to continue
as a going concern for one year from the issuance of the consolidated financial statements. The accompanying 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 March 31, 2017 and 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 March 31, 2017 and 2016
the Company had 2,554,197 and 2,553,990 shares of common stock issued and outstanding, respectively.
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 $94,147 has been credited to additional paid in capital.
NOTE
7 — STOCK OPTIONS AND WARRANTS
Stock
options
The
following table summarizes the changes in options outstanding and the related exercise prices for the shares of the Company’s
common stock issued to employees and consultants at March 31, 2017:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise
Prices
($)
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
($)
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.02
|
|
|
|
100,000
|
|
|
|
2.04
|
|
|
$
|
0.02
|
|
|
|
100,000
|
|
|
$
|
0.02
|
|
$
|
0.35 - 0.50
|
|
|
|
19,000
|
|
|
|
0.94
|
|
|
$
|
0.41
|
|
|
|
19,000
|
|
|
$
|
0.41
|
|
$
|
8.50
|
|
|
|
74,040
|
|
|
|
0.72
|
|
|
$
|
8.50
|
|
|
|
74,040
|
|
|
$
|
8.50
|
|
The
stock option activity for the two years ended March 31, 2017 is as follows:
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at March 31, 2015
|
|
|
93,040
|
|
|
$
|
6.85
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
|
93,040
|
|
|
|
6.85
|
|
Granted
|
|
|
100,000
|
|
|
|
0.02
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2017
|
|
|
193,040
|
|
|
$
|
3.31
|
|
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 $361 related to
the option during the year ended March 31, 2017. As of March 31, 2017, unrecognized compensation costs related to non–vested
stock–based compensation arrangements was $393, and is expected to be recognized over a weighted average period of 2.01
years.
At
March 31, 2017, the total intrinsic value of options outstanding and exercisable was $10.
Warrants
Warrant
activity for the two years ended March 31, 2017 is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Price Per
Share
|
|
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
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Modifications
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or cancelled
|
|
|
(6,266,715
|
)
|
|
|
(0.02
|
)
|
Outstanding at March 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
NOTE
8 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of March 31, 2017 and 2016, accounts payable and accrued liabilities for the period ending are comprised of the following:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Legal and professional fees payable
|
|
$
|
100,782
|
|
|
$
|
156,742
|
|
Other payables
|
|
|
59,999
|
|
|
|
56,050
|
|
|
|
$
|
160,781
|
|
|
$
|
212,792
|
|
NOTE
9 — 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, “Accounting for 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, 2017, the Company
has available for federal income tax purposes a net operating loss carry forward of approximately $4,014,000, which expire in
the year 2036, that may be used to offset future taxable income. Management has provided a valuation reserve against the full
amount of the net operating loss benefit, since the Company has no earnings history; 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 particular years. All or a 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. Management
has not evaluated if an ownership change has occurred but has provided a full valuation reserve.
At
March 31, 2017 and 2016, the significant components of the deferred tax assets (liabilities) are summarized below:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
1,636,000
|
|
|
$
|
1,468,000
|
|
Valuation allowance
|
|
|
(1,636,000
|
)
|
|
|
(1,468,000
|
)
|
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. Tax returns
for all years are subject to audit by the taxing authorities.
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
10 — 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
11 — SUBSEQUENT EVENTS
Effective
April 6, 2017, the Company issued Convertible Promissory Notes (the “Notes”) to two institutional investors in exchange
for loans totaling $40,000. The Notes accrue interest at the rate of 10% per annum and mature August 6, 2017. At the option of
the lenders, the principal and accrued interest under the Notes is convertible into common stock of the Company at $0.02 per share.
The Company will use the proceeds of the loans represented by the Notes for working capital.
The Company has entered into
a non-binding letter of intent to acquire another business. However, the letter of intent is subject to a number of significant
contingencies including due diligence, preparation, negotiation and execution of a definitive agreement, and our obtaining financing
of at least $600,000. In addition, the shareholder of the company to be acquired must provide $700,000 of services over a four
year period. It cannot be assured that the Company will be successful in consummating the acquisition and obtaining additional
financing.