Securities registered under Section 12(g)
of the Exchange Act: Common Stock
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to the Form 10-K. ☒
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of a “large accelerated filer,” “accelerated filer” and “smaller reporting company,”
and emerging growth company in Rule 12b-2 of the Exchange Act. (Check One)
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of September 30, 2017, the last business
day of the registrant’s most recently completed second quarter, the aggregate market value of the shares of common stock
held by non-affiliates of the registrant was approximately $48,700 based on the closing price of the registrant’s common
stock on that date ($0.04).
As of June 20, 2018, the Company had 131,554,197
shares of its common stock, $0.0001 par value per share, outstanding.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Truli Technologies, Inc., a Delaware corporation
initially incorporated on July 28, 2008, (the “Company”) is a holding company based in Bristol, Connecticut. Immediately
following the October 30, 2017 closing of the License Agreement and issuance of preferred shares described below and in Note 2,
Mr. Michael Solomon, then a director of the Company, exercised his option, granted to him in September 2016, to purchase the Company’s
subsidiary, Truli Media Corp (“TMC”) for $5,000. As a result, TMC is no longer a subsidiary of the Company. See Note
2 and Note 11 for additional information on the sale of TMC.
On October 17, 2017, the Company formed
a new, wholly-owned subsidiary, VocaWorks, Inc. (“VocaWorks”), a New Jersey corporation.
Prior to the exercise of the option by
Mr. Solomon to purchase TMC, the Company was focused on the on-demand media and social networking markets as an aggregator of
family-friendly, faith-based Christian content, media, music and Internet Protocol Television (“IPTV”) programming. With
the exercise of the option by Mr. Solomon, the Company has exited those activities.
Effective October 30, 2017, the Company
entered into a License Agreement (the “License”) with Recruiter.com, Inc., a Delaware corporation (“Recruiter”)
under which Recruiter granted the Company’s newly created subsidiary, VocaWorks, a license to use certain of Recruiter’s
proprietary software and related intellectual property. The Company is rebranding itself under the “VocaWorks” brand
name and moving into the rapidly expanding field of online and mobile-enabled staffing and talent acquisition solutions through
its entry into the License with Recruiter. VocaWorks will offer a native mobile iOS app solution, as well as a web-based SaaS platform
offering and will facilitate the hiring of personnel, including project-based consultants, focusing initially on specialized technology
talent.
“Truli”, “our”,
“us”, “we” or the “Company” refer to Truli Technologies, Inc. and its subsidiaries. The operations
of TMC are included through the date of the exercise of the purchase option by Mr. Solomon. In discussing the business of the
Company, we refer to the business now operated by VocaWorks except as otherwise made clear from the context.
From commencement of its former and current
business operations through the date of these consolidated financial statements, the Company has not generated any revenues and
has incurred significant expenses.
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. Cash and
cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company
has not experienced any losses related to these balances.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from
those estimates. Included in these estimates are assumptions used to estimate useful lives of intangible assets, calculate the
beneficial conversion feature of convertible notes payable and convertible preferred stock, 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, 2018 and 2017, 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. Common share equivalents of 369,416,250 and 105,809,140 were excluded from the computation of diluted
earnings per share for the years ended March 31, 2018 and 2017, respectively, because their effect is anti-dilutive.
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Options
|
|
|
2,505,000
|
|
|
|
193,040
|
|
Warrants
|
|
|
120,000,000
|
|
|
|
-
|
|
Convertible preferred stock
|
|
|
246,911,250
|
|
|
|
-
|
|
Convertible notes payable
|
|
|
-
|
|
|
|
105,616,100
|
|
|
|
|
369,416,250
|
|
|
|
105,809,140
|
|
Fair Value
Accounting Standards Codification subtopic
825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments.
The carrying amount reported in the condensed consolidated balance sheet for accounts payable and accrued expenses and notes payable
approximates fair value because of the immediate or short-term maturity of these financial instruments.
Convertible Instruments
The Company evaluates and accounts for
conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives and Hedging”.
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 preferred shares.
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.
Intangible Assets
Intangible assets consist of a license
agreement and related software, website and iPhone App development costs. These costs will be amortized over their estimated economic
lives once placed in service. The assets have not been placed in service as of March 31, 2018.
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 nine months ended December 31, 2017 that are of significance or potential
significance to the Company.
In May 2017, the FASB issued ASU 2017-09,
“Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account
for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification
accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result
of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies
that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification.
This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods
within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its
financial statements.
In July 2017, the FASB issued Accounting
Standards Update No. (“ASU’’) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity
(Topic 480) and Derivatives and Hedging (Topic 815). The amendments in this Update provide guidance about:
1. Accounting for certain financial instruments
with down round features
2. Replacement of the indefinite deferral
for mandatorily redeemable financial instruments of certain non-public entities and certain non-controlling interests
The amendments in Part I of this Update
change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.
When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round
feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock.
The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked
financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value
as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments
require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round
feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders
in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized
guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options),
including related EPS guidance (in Topic 260).
The amendments in Part II of this Update
recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification,
to a scope exception. Those amendments do not have an accounting effect.
The amendments in Part I of this Update
are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption
is permitted for all entities, including adoption in an interim 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. The amendments
in Part 1 of this Update should be applied in either of the following ways: 1. Retrospectively to outstanding financial instruments
with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning
of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective 2. Retrospectively
to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the
guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The Company has adopted this update during the quarter
ended December 31, 2017. The Company has retrospectively applied amendments in Part I of ASU 2017-11 to outstanding financial
instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of
the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective.
On the date of adoption, there were no previously issued outstanding financial instruments with a down round feature.
The amendments in Part II of this Update
do not require any transition guidance because those amendments do not have an accounting effect.
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 fiscal 2019 and apply the full retrospective approach.
The Company does not expect the adoption of ASU 2014-09 to have a material effect on its business, its financial position, results
of operations or cash flows.
NOTE 2 — NOTES PAYABLE
Note Payable – Related Party
Michael Solomon, the Company’s founder
and former Chief Executive Officer (the “Founder”), advanced funds to TMC, evidenced by an unsecured term note (the
“Note”), with an outstanding principal amount of $572,301 and $457,801 on October 31, 2017 (the date that Mr. Solomon
exercised his option to purchase TMC) and March 31, 2017, respectively. The Note was without recourse to Truli Technologies, Inc.
The Note bore interest at 4% per annum. The Company recorded interest expense of $12,123 and $11,979 for the years ended March
31, 2018 and 2017, respectively. As a result of Mr. Solomon’s exercise of the purchase option to acquire TMC, this note
and the related accrued interest of $24,800 is no longer a liability of the Company. Accrued interest payable was $12,677 at March
31, 2017.
Convertible Notes Payable – Related
Party
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 carried interest at the rate of 4% per annum, matures on December 1, 2020. The Convertible Note and related accrued
interest was 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 $45,871 and $78,238 for the years ended March 31, 2018 and 2017,
respectively. Accrued interest payable was $150,259 and $104,388 at October 30, 2017 (the date of the exchange of the Note into
Series C Convertible Preferred Stock) and March 31, 2017, respectively.
Effective September 21, 2016, the Company,
the Founder and two institutional investors (the “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 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 “Investor Convertible Notes”). The Investor Convertible Notes each
had beneficial ownership limitations of 4.99%. The NPA included a provision under which the Founder had an option to purchase all
of the Company’s current operating assets for $5,000. The option was exercisable through September 23, 2017. Effective as
of September 23, 2017, the Company agreed to extend the option held by the Founder through October 31, 2017, and the option was
exercised on that date. On October 30, 2017, the Investors exchanged the Convertible Notes for 102,099.752 shares of Series C Convertible
Preferred Stock.
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 indicated 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 Investors agreed to pay all of the public company costs for a period of one
year following the date of the NPA.
Convertible Notes Payable – Other
On November 8, 2016, the Company sold
an aggregate of $50,000 principal amount of its convertible promissory notes (the “November Notes”) to the Investors
and received $50,000 in gross proceeds. The Notes were convertible, at the option of the holder, into shares of the Company’s
common stock, par value $0.0001 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 date of each November Note has been extended to October
31, 2017. The Company recorded interest expense of $2,972 and $2,000 for the years ended March 31, 2018 and 2017, respectively.
Accrued interest payable was $4,972 and $2,000 at October 30, 2017 (the date of the exchange of the notes into Series C-1 Convertible
Preferred Stock) and March 31, 2017, respectively.
On April 6, 2017, the Company sold an aggregate
of $40,000 principal amount of its convertible promissory notes (the “April Notes”) to the holders of the Convertible
Note and received $40,000 in gross proceeds. The Notes were convertible, at the option of the holder, into shares of the Company’s
common stock, par value $0.0001 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 April Note
had a maturity date that was four months from the issue date. The maturity date of each April Note was extended to October 31,
2017. The Company recorded interest expense of $2,322 for the year ended March 31, 2018. Accrued interest payable was $2,322 and
$0 at October 30, 2017 (the date of the exchange of the notes into Series C-1 Convertible Preferred Stock) and March 31, 2017,
respectively.
On October 30, 2017, the Investors exchanged
the November and April Notes and related accrued interest for 18,839 shares of Series C-1 Convertible Preferred Stock. We recorded
a gain of $637,534 as a result of the conversion of the debt and related derivative liabilities during the year ended March 31,
2018.
NOTE 3 — DERIVATIVES
The Company has identified certain embedded
derivatives related to its convertible notes and common stock purchase warrants. Since certain of the notes are convertible
into a variable number of shares or have a price reset feature, the conversion features of those debentures are recorded as derivative
liabilities. Since the warrants have a price reset feature, they are recorded as derivative liabilities. The accounting treatment
of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and
to adjust to fair value as of each subsequent balance sheet date.
Compensation Warrants (issued on September
10, 2013):
On September 10, 2013, the Company issued
50,134 warrants as compensation for consulting services. The warrants had an initial exercise price of $2.50 per shares and a
term of three years. The Company identified embedded derivatives related to these warrants, due to the price reset features of
these instruments. As a result, we have classified these instruments as derivative liabilities in the financial statements.
During the year ended March 31, 2016,
the warrants were adjusted upon the subsequent issuance of debt in accordance with the terms of the warrants. The number of warrants
was increased to a total of 6,266,715 and the exercise price was reduced to $0.02. During the year ended March 31, 2017,
the Company recorded income of $336 related to the change in the fair value of the derivative. The warrants expired unexercised
on September 10, 2016.
November 2016 Notes
The Company identified embedded derivatives
related to the conversion features of the November 2016 Notes. The accounting treatment of derivative financial instruments
requires that the Company record the fair value of the derivatives as of the inception date of the note and to adjust the fair
value as of each subsequent balance sheet date. The Company calculated the fair value of the embedded derivative at the inception
of the Notes as $951, using a valuation 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 years ended March 31, 2018 and 2017, $48 and $903, respectively, 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
$4,173 and $1,871 for the years ended March 31, 2018 and 2017, respectively, and were charged to interest expense.
During the years ended March 31, 2018
and 2017, the Company recorded expense of $320,837 and $30,630, respectively, related to the change in the fair value of the derivative.
The fair value of the embedded derivative was $358,462 at October 30, 2017 (the date of the exchange of the notes into Series
C-1 Convertible Preferred Stock), determined using a valuation model with the following assumptions: (1) risk free interest rate
of 0.97%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 353%; and (4) an
expected life of 1 month.
April 2017 Notes
The Company identified embedded derivatives
related to the conversion features of the April 2017 Notes. The accounting treatment of derivative financial instruments
requires that the Company record the fair value of the derivatives as of the inception date of the note and to adjust the fair
value as of each subsequent balance sheet date. The Company calculated the fair value of the embedded derivative at the inception
of the Notes as $11,117, using a valuation model based on the following assumptions: (1) risk free interest rate of 0.838%; (2)
dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 339%; and (4) an expected life
of 4 months. The initial fair value of the embedded debt derivative was allocated as debt discount, which has been amortized
to interest expense over the term of the Notes. During the year ended March 31, 2018, $11,117 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
$3,269 for the year ended March 31, 2018 and were charged to interest expense.
During the year ended March 31, 2018,
the Company recorded expense of $261,588 related to the change in the fair value of the derivative. The fair value of the embedded
derivative was $275,974 at October 30, 2017 (the date of the exchange of the notes into Series C-1 Convertible Preferred Stock),
determined using a valuation model with the following assumptions: (1) risk free interest rate of 0.97%; (2) dividend yield of
0%; (3) volatility factor of the expected market price of our common stock of 353%; and (4) an expected life of 1 month.
NOTE 4 — FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 825-10 defines fair value as the price
that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded
at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may
be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets
or liabilities.
Level 2 - Observable inputs other than
Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived
principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation
methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based
on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined
based on the lowest level input that is significant to the fair value measurement.
Items recorded or measured at fair value
on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of March 31,
2018:
|
|
|
|
|
Fair Value Measurements at
March 31, 2018 using:
|
|
|
|
March 31,
2018
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2018 and 2017:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Balance, beginning of year
|
|
$
|
33,452
|
|
|
$
|
336
|
|
Additions
|
|
|
18,559
|
|
|
|
2,822
|
|
Extinguished derivative liability
|
|
|
(634,436
|
)
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
582,425
|
|
|
|
30,294
|
|
|
|
$
|
-
|
|
|
$
|
33,452
|
|
NOTE 5 — GOING CONCERN
The Company’s management has
evaluated whether there is substantial doubt about the Company’s ability to continue as a going concern and has
determined that substantial doubt existed as of the date of the end of the period covered by this Annual Report on Form 10-K.
This determination was based on the following factors: (i) the Company’s available cash as of the date of this filing
will not be sufficient to fund its anticipated level of operations for the next 12 months; (ii) the Company may require
additional financing for the fiscal 2019 to continue at its expected level of operations; and (iii) if the Company fails to
obtain the needed capital, it will be forced to delay, scale back, or eliminate some or all of its development activities or
perhaps cease operations. In the opinion of management, these factors, among others, raise substantial doubt about the
ability of the Company to continue as a going concern as of the date of the end of the period covered by this Annual Report
on Form 10-K and for one year from the issuance of the financial statements.
There is no assurance that the Company
will be successful in any capital-raising efforts that it may undertake to fund operations during the next 12 months. The Company
anticipates that it will issue equity and/or debt securities as a source of liquidity, until it begins to generate positive cash
flow to support its operations. Any future sales of securities to finance operations will dilute existing stockholders’ ownership.
The Company cannot guarantee when or if it will generate positive cash flow.
The Company is currently in negotiations
for another round of funding anticipated for the first quarter of fiscal 2019. However, there is no assurance that the Company
will be successful in this or any other capital-raising efforts that it may undertake to fund operations during the next 12 months.
The Company anticipates that it will issue equity and/or debt securities as a source of liquidity, until it begins to generate
positive cash flow to support its operations. Any future sales of securities to finance operations will dilute existing stockholders’
ownership. The Company cannot guarantee when or if it will generate positive cash flow.
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 — INTANGIBLE ASSETS
Intangible assets consist of a License
Agreement (the “License”) with Recruiter.com, Inc. (“Recruiter”), under which Recruiter granted VocaWorks
a license to use certain of Recruiter’s proprietary software and related intellectual property. In consideration for the
License, the Company issued to Recruiter 125,000,000 shares of common stock. We have valued the license at $625,000. Recruiter
will receive 625,000 shares of Series B Preferred Stock upon the launch of a functional software platform and receipt of $10,000
in sales revenue. Recruiter is entitled to receive up to an additional 1,250,000 shares of Series B Preferred Stock following
the achievement of certain milestones as provided for in the License. Recruiter shall provide VocaWorks with support services
free of charge, which shall include (i) a total of 2,400 hours of Technology and Development Services to be provided by Recruiter
personnel during the two year period following the effective date, with a total value of $200,000; and (ii) marketing and advertising
services, which are available to Recruiter’s general customers, and strategic marketing services, to be provided by Recruiter
each year during the four year period following the effective date, with a total value of $500,000.
We also have capitalized software costs
of $57,500 related to the development of our website and iPhone app, both to be used in conjunction with the License acquired from
Recruiter.
These assets have not been placed in service
at March 31, 2018.
NOTE 7 — SHAREHOLDERS EQUITY
Preferred stock
The Company is authorized to issue 10,000,000
shares of $0.0001 par value preferred stock. As of March 31, 2018 and 2017, the Company has 716,938.752 and no shares of preferred
stock issued and outstanding, respectively.
Series A Convertible Redeemable Preferred
Stock
On October 24, 2017, the Company filed
a Certificate of Designations with the Delaware Secretary of State designating 700,000 shares of the Company’s authorized
preferred stock as Series A Convertible Preferred Stock (the “Series A”), which is convertible into shares of common
stock at $0.005 per share, subject to adjustment in the event of stock splits, stock dividends or reverse splits and issuances
of securities at prices below the prevailing conversion price of the Series A. The Company entered into Securities Purchase Agreements
(each a “SPA”) with the two Investors who converted their Notes into Series C and Series C-1 (described below and
in Note 2). Pursuant to the SPAs, the Investors paid the Company a total of $600,000 and purchased in the aggregate 600,000 of
shares of Series A and Warrants to purchase 120,000,000 shares of the Company’s common stock.
Dividends accrue on the Series A at a
rate of 10% per annum. Holders of Series A are entitled to vote together with holders of the common stock on an as-converted basis,
subject to a beneficial ownership limitation of 4.99%. The Series A is redeemable in the same manner as the Series C and C-1,
defined below. The Series A is senior to all other preferred stock and the common stock upon liquidation of the Company. The Warrants
have a five year term and an exercise price of $0.01 per share, subject to adjustment in the event of stock splits, stock dividends
or reverse splits and issuances of securities at prices below the prevailing exercise price of the Warrants.
Series B Convertible Preferred Stock
On October 24, 2017, the Company filed
a Certificate of Designations with the Delaware Secretary of State designating 1,875,000 shares of the Company’s authorized
preferred stock as Series B Convertible Preferred Stock (“Series B”) which is convertible into common stock at $0.005
per share, subject to adjustments in the event of stock splits, stock dividends and reverse splits. Recruiter will receive 625,000
shares of Series B upon the launch of a functional software platform and receipt of $10,000 in sales revenue. Recruiter is entitled
to receive up to an additional 1,250,000 shares of Series B following the achievement of certain milestones as provided for in
the License.
Series C and Series C-1 Convertible
Redeemable Preferred Stock
On October 24, 2017, the Company filed
a Certificate of Designations with the Delaware Secretary of State designating 102,100 shares of the Company’s authorized
preferred stock as Series C Convertible Preferred Stock (“Series C”) which is convertible into common stock at $0.02
per share, subject to adjustments in the event of stock splits, stock dividends and reverse splits and issuances of securities
at prices below the prevailing conversion price of the Series C. In accordance with the terms of the License, on October 30, 2017
holders of the Company’s outstanding 4% Convertible Notes converted their 4% Convertible Notes and accrued interest into
102,099.752 shares of Series C.
Also on October 24, 2017, the Company
filed a Certificate of Designations with the Delaware Secretary of State designating 18,839 shares of the Company’s authorized
preferred stock as Series C-1 Convertible Preferred Stock (“Series C-1”) which is convertible into common stock at
$0.005 per share, subject to adjustments in the event of stock splits, stock dividends and reverse splits and issuances of securities
at prices below the prevailing conversion price of the Series C-1. In accordance with the terms of the License, on October 30,
2017 holders of the Company’s 10% Convertible Notes converted their 10% Convertible Notes and accrued interest into 18,839
shares of Series C-1.
Holders of shares of Series C and Series
C-1 may cause the Company to redeem in cash the outstanding shares of Series C and C-1 beginning on October 30, 2019, and earlier
than that date upon the occurrence of certain triggering events contained in the Certificate of Designations for the Series C
and Series C-1, at a redemption price based upon a formula contained in the Certificate of Designations for each series. Subject
to the prior conversion, the total redemption price if redeemed after two years from issuance is equal to the amount of the principal
and accrued interest on the 4% Convertible Notes and 10% Convertible Notes due as of the closing date plus potential additional
amounts.
During February 2018, the Company filed
an amendment to the Certificates of Designations for the Series C and Series C-1 extending the redemption date to October 2022
and reducing the redemption amount of the preferred shares then outstanding at a redemption price equal to one-half of the Conversion
Amount (as defined) of such preferred shares. We recorded a credit to additional paid in capital of $1,071,932 as a result of
the reduction in the redemption amount.
On February 1, 2018, the Company
issued 4,000,000 shares of common stock upon the conversion of 4,000 shares of Series C preferred stock.
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, 2018 and 2017 the Company had 131,554,197 and 2,554,197 shares
of common stock issued and outstanding, respectively.
In consideration for the acquisition of
the license described in Note 6, the Company issued 125,000,000 shares of common stock.
As a result of Mr. Solomon’s exercise
of his option to purchase TMC, as described in Note 1, the ownership of TMC was transferred to Mr. Solomon on October 31, 2017.
We have recorded a credit of $616,719 to additional paid in capital to reflect the net liabilities transferred.
On February 1, 2018, the Company issued
4,000,000 shares of common stock upon the conversion of 4,000 shares of Series C preferred stock.
Common stock options
The Company granted to its chief executive
officer 500,000 options to purchase common stock, exercisable at $0.08 per share, under the terms of the 2017 Equity Incentive
Plan. The options vest 41,667 upon grant and the remaining options shall vest quarterly in equal amounts over a 33-month period
with the first vesting date being April 30, 2018.
The Company granted to two current directors
(then designees) an aggregate of 2,000,000 options to purchase common stock, exercisable at $0.08 per share, under the terms of
the 2017 Equity Incentive Plan. The options have a term of five years. The options vest quarterly in equal amounts over a one
year period with the first vesting to occur on June 30, 2018.
Common stock warrants
In connection with the sale of our Series
A preferred stock, we issued an aggregate of 120,000,000 common stock purchase warrants to the purchasers of the preferred stock.
The warrants are immediately exercisable at an exercise price of $0.01 and expire, if unexercised, on October 30, 2022. The exercise
price and number of warrants are subject to adjustment in the event of stock splits, stock dividends or reverse splits and issuances
of securities at prices below the prevailing conversion price of the warrants.
NOTE 8 — STOCK OPTIONS AND WARRANTS
2017 Equity Incentive Plan
In October 2017, our board of directors
and stockholders authorized the 2017 Equity Incentive Plan, which we refer to as the 2017 Plan, covering 38,000,000 shares of
common stock. The purpose of the 2017 Plan is to advance the interests of the Company and our related corporations by enhancing
the ability of the Company to attract and retain qualified employees, consultants, officers, and directors, by creating incentives
and rewards for their contributions to the success of the Company and its related corporations. The 2017 Plan is administered
by our board of directors or by the Compensation Committee. Plan options may either be:
|
●
|
incentive
stock options (ISOs),
|
|
●
|
non-qualified
options (NSOs),
|
|
●
|
awards
of our common stock,
|
|
●
|
stock
appreciation rights (SARs),
|
|
●
|
restricted
stock units (RSUs),
|
Any option granted under the 2017 Plan
must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant
and not less than $0.02 per share, but the exercise price of any ISO granted to an eligible employee owning more than 10% of our
outstanding common stock must not be less than 110% of fair market value on the date of the grant. The plans further provide that
with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option
holder during any calendar year cannot exceed $100,000. The exercise price of any NSO granted under the 2017 Plan is determined
by the Board at the time of grant, but must be at least equal to fair market value on the date of grant. The term of each plan
option and the manner in which it may be exercised is determined by the board of directors or the compensation committee, provided
that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted
to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. The terms
of grants of any other type of award under the 2017 Plan is determined by the Board at the time of grant. Subject to the limitation
on the aggregate number of shares issuable under the plans, there is no maximum or minimum number of shares as to which a stock
grant or plan option may be granted to any person.
Stock options
The following table summarizes the changes
in options outstanding and the related exercise prices for the shares of the Company’s common stock issued to employees
and consultants at March 31, 2018:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise
Prices
($)
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
($)
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.08
|
|
|
|
2,500,000
|
|
|
|
4.90
|
|
|
$
|
0.08
|
|
|
|
41,667
|
|
|
$
|
0.08
|
|
$
|
0.35
|
|
|
|
5,000
|
|
|
|
1.35
|
|
|
$
|
0.35
|
|
|
|
5,000
|
|
|
$
|
0.35
|
|
The stock option activity for the two
years ended March 31, 2018 is as follows:
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
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
|
|
Granted
|
|
|
2,500,000
|
|
|
|
0.08
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or canceled
|
|
|
(188,040
|
)
|
|
|
(3.39
|
)
|
Outstanding at March 31, 2018
|
|
|
2,505,000
|
|
|
$
|
0.08
|
|
The Company granted to its chief executive
officer 500,000 options to purchase common stock, exercisable at $0.08 per share, under the terms of the 2017 Equity Incentive
Plan. The options have a term of five years. The options vest 41,667 upon grant and the remaining options shall vest quarterly
in equal amounts over a 33-month period with the first vesting date being April 30, 2018. We valued the option at $39,998, by
using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 2.26%; (2) dividend yield of 0%;
(3) volatility factor of the expected market price of our common stock of 471%; and (4) an expected life of 3 years. We have
recorded compensation expense of $5,555 related to the options during the year ended March 31, 2018.
The Company granted to two current directors
(then designees) an aggregate of 2,000,000 options to purchase common stock, exercisable at $0.08 per share, under the terms of
the 2017 Equity Incentive Plan. The options have a term of five years. The options vest quarterly in equal amounts over a one
year period with the first vesting to occur on June 30, 2018. We valued the options at $159,993, by using the Black Scholes Model
with the following assumptions: (1) risk free interest rate of 2.39%; (2) dividend yield of 0%; (3) volatility factor of the expected
market price of our common stock of 470%; and (4) an expected life of 3 years. We have recorded compensation expense of $22,856
related to the options during the year ended March 31, 2018.
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 $188 and $361 related to the option during the
years ended March 31, 2018 and 2017, respectively. All vested and unvested options were forfeited during the year ended March
31, 2018.
As of March 31, 2018, unrecognized compensation
cost related to non–vested stock–based compensation arrangements was approximately $172,000, and is expected to be
recognized $151,000 during fiscal 2019, $13,000 during fiscal 2020 and $8,000 during fiscal 2021.
At March 31, 2018, the total intrinsic
value of options outstanding and exercisable was $0.
Warrants
Warrant activity for the two years ended March 31, 2018 is
as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Price Per
Share
|
|
Outstanding at March 31, 2016
|
|
|
6,266,715
|
|
|
$
|
0.35
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or cancelled
|
|
|
(6,266,715
|
)
|
|
|
(0.02
|
)
|
Outstanding at March 31, 2017
|
|
|
-
|
|
|
|
-
|
|
Issued
|
|
|
120,000,000
|
|
|
|
0.01
|
|
Modifications
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired or cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2018
|
|
|
120,000,000
|
|
|
$
|
0.01
|
|
In connection with the sale of our Series
A preferred stock, we issued an aggregate of 120,000,000 common stock purchase warrants to the purchasers of the preferred stock.
The warrants are immediately exercisable at an exercise price of $0.01 and expire, if unexercised, on October 30, 2022. The exercise
price and number of warrants are subject to adjustment in the event of stock splits, stock dividends or reverse splits and issuances
of securities at prices below the prevailing conversion price of the warrants.
NOTE 9 — REDEEMABLE CONVERTIBLE
PREFERRED STOCK
As described in Note 7, we have issued
shares of Series A, Series C, and Series C-1 convertible preferred stock. Since the convertible preferred stock may ultimately
be redeemable at the option of the holder, the carrying value of the preferred stock has been classified as temporary equity on
the balance sheet at March 31, 2018.
A portion of the proceeds from the sale
of our Series A preferred stock were allocated to the warrants based on their relative fair value, which totaled $580,645 using
the Black Scholes option pricing model. Further, we attributed a beneficial conversion feature of $34,492,426 to the Series A,
Series C and Series C-1 preferred shares based upon the difference between the effective conversion price of those shares and
the closing price of our common shares on the date of issuance. The assumptions used in the Black Scholes model are as follows:
(1) dividend yield of 0%; (2) expected volatility of 353%, (3) risk-free interest rate of 2%, (4) expected term of 5 years. The
amount attributable to the warrants and beneficial conversion feature, aggregating $35,073,071, has been recorded as a deemed
dividend to the preferred shareholders and as a charge to additional paid-in capital (since there is a deficit in retained earnings).
For the year ended December 31, 2018, we have
accrued dividends in the amount of $112,675. The accrued dividends have been charged to additional paid-in capital (since there
is a deficit in retained earnings) and the net unpaid accrued dividends have been added to the carrying value of the preferred
stock. Further, we attributed a beneficial conversion feature of $866,381 to the preferred dividends based upon the difference
between the effective conversion price of those dividends and the closing price of our common shares on the dates of accrual. The
amount attributable to the beneficial conversion feature has been recorded as a deemed dividend to the preferred shareholders and
as a charge to additional paid-in capital (since there is a deficit in retained earnings).
NOTE 10 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of March 31, 2018 and 2017, accounts
payable and accrued liabilities for the period ending are comprised of the following:
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Legal and professional fees payable
|
|
$
|
60,363
|
|
|
$
|
100,782
|
|
Other payables
|
|
|
33,522
|
|
|
|
59,999
|
|
|
|
$
|
93,885
|
|
|
$
|
160,781
|
|
NOTE 11 — RELATED PARTY TRANSACTION
Immediately following the closing of the
license agreement and issuance of preferred shares described elsewhere, Mr. Solomon, a director of the Company exercised his option,
granted to him in September 2016, to purchase the Company’s subsidiary, TMC for $5,000. As a result, cash of $9,040 and
payables of $23,658 were transferred with TMC. Additionally, notes and accrued interest due to Mr. Solomon, aggregating $597,101,
were also transferred with TMC. We recorded a credit to additional paid in capital of $616,719 as a result of this transaction.
Mr. Miles Jennings, the Company’s
Chief Executive Officer, is a director and one of the principal shareholders of Recruiter.
NOTE 12 — INCOME TAXES
As of March 31, 2018, the Company had
accumulated federal net operating loss carryovers (“NOLs”) of approximately $4,493,000, which expire through the year
2038, that may be used to offset future taxable income.. These NOLs begin to expire in 2033, and the utilization of NOLs may be
subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined
under the regulations. Management has not evaluated if an ownership change has occurred but has provided a full valuation reserve.
The Tax Cuts and Jobs Act (the “Act”)
was enacted on December 22, 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 34 percent to 21
percent, eliminates the alternative minimum tax (“AMT”) for corporations, and creates a one-time deemed repatriation
of profits earned outside of the U.S. The tax rate reduction also resulted in a write-down of the net deferred tax asset of approximately
$500,000. The write-down of the net deferred tax asset related to the rate reduction resulted in a corresponding write-down of
the valuation allowance of approximately $500,000. The Company fully reserves its deferred tax assets and there was no impact.
In assessing the realization of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has
established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more
likely than not that all of the deferred tax asset will not be realized.
At March 31, 2018 and 2017, the significant components of the
deferred tax assets (liabilities) are summarized below:
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
1,325,000
|
|
|
$
|
1,176,000
|
|
Valuation allowance
|
|
|
(1,325,000
|
)
|
|
|
(1,176,000
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
(35
|
)%
|
|
|
(35
|
)%
|
State income taxes, net of federal taxes
|
|
|
(7
|
)%
|
|
|
(6
|
)%
|
Nondeductible items
|
|
|
(3
|
)%
|
|
|
|
|
Valuation allowance
|
|
|
45
|
%
|
|
|
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 13 — 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.
Recruiter will receive 625,000 shares
of Series B Preferred Stock upon the launch of a functional software platform and receipt of $10,000 in sales revenue. Recruiter
is entitled to receive up to an additional 1,250,000 shares of Series B Preferred Stock following the achievement of certain milestones
as provided for in the License.
NOTE 14 — SUBSEQUENT EVENTS
On May 25, 2018, the Company filed a Certificate of Designation
(the “COD”) authorizing 600,000 shares of the Company’s preferred stock as the new Series A-1 Convertible Preferred
Stock (the “Series A-1”). The Series A-1 has a stated value of $1.00 and is convertible into shares of Common Stock
at $0.005 per share, subject to adjustment in the event of stock splits, stock dividends or reverse splits, and issuances of securities
at prices below the prevailing conversion price of the Series A-1. Dividends accrue on
the
Series A-1 at a rate of 10% per annum. Holders of Series A-1 are entitled to vote together with holders of the Common Stock on
an as-converted basis, subject to a beneficial ownership limitation of 4.99%.
The Series A-1 is redeemable upon the occurrence
of certain triggering events.
On June 1, 2018, the Company entered into
Securities Purchase Agreements (each a “SPA”) with the two Holders of the Company’s Series A Convertible Preferred
Stock (the “Series A”). Together the Holders also hold all outstanding shares of the Company’s Series C Convertible
Preferred Stock (the “Series C”), and the Series C-1 Convertible Preferred Stock (the “Series C-1”). Pursuant
to the SPA, the Holders purchased a total of 300,000 of shares of Series A-1 and Warrants to purchase 60,000,000 shares of the
Company’s Common Stock in exchange for a total of $300,000.
The Warrants have a five year term and
an exercise price of $0.01 per share, subject to adjustment in the event of stock splits, stock dividends or reverse splits and
issuances of securities at prices below the prevailing exercise price of the Warrants.
On June 21, 2018, pursuant to shareholder
approval, the Company changed its name to Truli Technologies, Inc. The shareholders also approved a reverse stock split in the
range of one-for-50 to one-for-100 or any amount in between and a reduction of its authorized common stock in order to save annual
fees in Delaware. These proposals have not been implemented.