NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Truli
Media Group, Inc., a Delaware corporation initially incorporated on July 28, 2008 (the “Company”) is a holding company
based in Englewood Cliffs, New Jersey. In October, 2016, the Company transferred all of its operating assets to a newly formed,
wholly-owned subsidiary, Truli Media Corp., a California corporation (“TMC”) headquartered in Beverly Hills, California.
TMC is operated by the Company’s founder, Mr. Michael J. Solomon, who is responsible for day-to-day operations. Mr. Solomon
has agreed to pay all operating liabilities of the Company, excluding its outstanding Convertible Notes and public company expenses.
For further information see Note 2. Prior to the transfer of its operating assets to TMC, the Company was, and TMC is, focused
on the on-demand media and social networking markets. TMC, with a website and multi-screen platform, has commenced operations
as an aggregator of family-friendly, faith-based Christian content, media, music and Internet Protocol Television (“IPTV”)
programming. “Truli”, “our”, “us”, “we” or the “Company” refer to
Truli Media Group, Inc. and its subsidiary, TMC. In discussing the business of the Company, we refer to the business now operated
by TMC except as otherwise made clear from the context.
From
commencement of its current business operations through a merger with Truli Media Group, LLC on June 13, 2012 through the date
of these unaudited condensed consolidated financial statements, the Company has not generated any revenues and has incurred significant
expenses. The Company is in the process of seeking an acquisition of an unrelated business, which likely would result in a change
of control of the Company and dilution to current shareholders. In order to accomplish this goal, the Company must locate an acquisition
target and raise additional debt or equity capital to support the operations of the target and completion of TMC’s development
activities. Consequently, the Company’s operations are subject to all the risks and uncertainties inherent in the establishment
of a new business enterprise, including failing to secure additional funding to carry out the Company’s business plan.
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. The unaudited interim financial statements have been prepared
in accordance with accounting principles generally accepted in the United States ("GAAP") and pursuant to the rules
and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures
normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted
pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information
not misleading.
These
interim financial statements as of and for the three months ended June 30, 2017 and 2016 are unaudited; however, in the opinion
of management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the
financial position, results of operations and cash flows of the Company for the periods presented. The results for the three months
ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending March 31, 2018 or for
any future period. All references to June 30, 2017 and 2016 in these footnotes are unaudited.
These
unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial
statements and the notes thereto for the year ended March 31, 2017, included in the Company’s annual report on Form 10-K
filed with the SEC on June 30, 2017.
The
condensed consolidated balance sheet as of March 31, 2017 has been derived from the audited consolidated financial statements
at that date but does not include all disclosures required by the accounting principles generally accepted in the United States
of America.
Cash
and Cash Equivalents
The
Company considers all short-term highly liquid investments with a remaining maturity at the date of purchase of three months or
less to be cash equivalents.
Use
of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Included in these estimates are assumptions used to calculate the beneficial conversion feature of convertible notes payable,
deferred income tax asset valuation allowances, and valuation of derivative liabilities.
Earnings
(Loss) Per Share
The
Company follows ASC 260, “Earnings Per Share” for calculating the basic and diluted earnings (loss) per share. Basic
earnings (loss) per share are computed by dividing earnings (loss) available to common shareholders by the weighted-average number
of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. Common share equivalents are excluded from the diluted earnings
(loss) per share computation if their effect is anti-dilutive. There were 108,895,440 and 106,539,255 outstanding common share
equivalents at June 30, 2017 and 2016, respectively.
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
193,040
|
|
|
|
193,040
|
|
Warrants
|
|
|
-
|
|
|
|
6,266,715
|
|
Convertible notes payable
|
|
|
108,702,400
|
|
|
|
100,079,500
|
|
|
|
|
108,895,440
|
|
|
|
106,539,255
|
|
Fair
Value
Accounting
Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value
of certain financial instruments. The carrying amount reported in the condensed consolidated balance sheet for accounts payable
and accrued expenses and notes payable approximates fair value because of the immediate or short-term maturity of these financial
instruments.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional
standards for “Accounting for Derivative Instruments and Hedging Activities”.
Professional
standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the
economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host
contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in
fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule
when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional
Convertible Debt Instrument”.
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with
Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.”
Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary
deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between
the fair value of the underlying common stock at the commitment date of the preferred shares transaction and the effective conversion
price embedded in the note.
ASC
815-40 provides that, among other things, generally, if an event is not within the entity’s control or could require net
cash settlement, then the contract shall be classified as an asset or a liability.
Derivative
Instruments
The
Company’s derivative financial instruments consist of embedded derivatives related to the convertible debt and conversion
features embedded within our convertible debt. The accounting treatment of derivative financial instruments requires that we record
the derivatives at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance
sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each balance sheet date. If
the fair value of the derivatives was higher at the subsequent balance sheet date, we recorded a non-operating, non-cash charge.
If the fair value of the derivatives was lower at the subsequent balance sheet date, we recorded non-operating, non-cash income.
Stock-Based
Compensation
The
Company utilizes the Black-Scholes option-pricing model to determine fair value of options and warrants granted as stock-based
compensation, which requires us to make judgments relating to the inputs required to be included in the model. In this regard,
the expected volatility is based on the historical price volatility of the Company’s common stock. The dividend yield represents
the Company’s anticipated cash dividend on common stock over the expected life of the stock options. The U.S. Treasury bill
rate for the expected life of the stock options is utilized to determine the risk-free interest rate. The expected term of stock
options represents the period of time the stock options granted are expected to be outstanding.
Recently
Issued Accounting Pronouncements
With the exception of those discussed below,
there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial
Accounting Standards Board (FASB) during the three months ended June 30, 2017 that are of significance or potential significance
to the Company.
In May 2017, the FASB issued ASU 2017-09,
“Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account
for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification
accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result
of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies
that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification.
This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods
within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its
financial statements.
NOTE
2 — NOTES PAYABLE
Note
Payable – Related Party
The
Company’s founder and former Chief Executive Officer (the “Founder”) has advanced funds to Truli Media Corp,
evidenced by an unsecured term note (the “Note”), with an outstanding principal amount of $518,801 and $457,801 on
June 30, 2017 and March 31, 2017, respectively. The Note is without recourse to Truli Media Group, Inc. The Note bears interest
at 4% per annum. The Company recorded interest expense of $4,851 and $1,459 for the three months ended June 30, 2017 and 2016,
respectively. Accrued interest payable is $17,528 and $12,677 June 30, 2017 and March 31, 2017, respectively. As discussed
below, the Founder has agreed to pay this Note.
Convertible
Notes Payable – Related Party and Other
On
December 1, 2015, the Company issued an unsecured, convertible promissory note (the “Convertible Note”) to the Founder
with a principal amount of $1,955,934, as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding
under the Note described above. The Convertible Note, which carries interest at the rate of 4% per annum, matures on December
1, 2020. The Convertible Note and related accrued interest is convertible into shares of the Company’s common stock at the
rate of $0.02 per share, subject to certain restrictions of beneficial ownership. The Company recorded interest expense of $19,506
and $19,506 for the three months ended June 30, 2017 and 2016, respectively. Accrued interest payable is $123,894 and $104,388
at June 30, 2017 and March 31, 2017, respectively.
Effective
September 21, 2016, the Company, the Founder and two institutional investors entered into a Note Purchase Agreement (the “NPA”)
pursuant to which the Founder sold the Convertible Note with a principal amount of $1,955,934 previously issued by the Company
to the Founder to the institutional investors in equal amounts in exchange for $102,500 from each investor, each of whom acquired
a convertible note for one-half of the principal (together the “Convertible Notes”). The NPA included a provision
under which the Founder has an option to purchase all of the Company’s current operating assets for $5,000. The option is
exercisable through March 23, 2017 with the consent of one of the investors, and thereafter through September 23, 2017 without
the consent of the investors. Subsequent to September 30, 2016, Truli transferred the Company’s operating assets to its
newly-formed, wholly-owned subsidiary, TMC. Under the NPA, the Company agreed with the Founder that it will be an Event of Default
under the Convertible Notes if the Founder does not pay all operating costs of the Company, which essentially are the operating
expenses of TMC. The NPA clearly indicates that public company compliance costs, including accounting, auditing and legal fees
relating to securities matters are not operating costs. In addition, the Founder agreed to assume and pay all of the Company’s
liabilities arising prior to the date of the NPA, except for the Convertible Notes and pay operating liabilities thereafter. The
Purchasers of the Convertible Note agreed to pay all of the public company costs for a period of one year following the date of
the NPA. The Founder remains Chairman of the Board of Directors and no changes were made to the Board of Directors prior to or
following the execution of the NPA.
On November 8, 2016, the Company sold an aggregate
of $50,000 principal amount of its convertible promissory notes (the “November 2016 Notes”, and each, a “Note”)
to the holders of the Convertible Notes and received $50,000 in gross proceeds. The Notes are convertible, at the option of the
holder, into shares of the Company’s common stock, par value $0.001 per share, at a per share price of $0.02, subject to
adjustment as provided in the Notes and subject to a total beneficial ownership limitation of 9.99% of the Company’s issued
and outstanding common stock. Each Note has a maturity date that is five months from the issue date. The maturity dates of each
note have been extended to October 8, 2017. The Maturity Date may be accelerated, at the option of the holder, upon the occurrence
of a Fundamental Transaction (as defined in the Note). The Company recorded interest expense of $1,264 for the three months ended
June 30, 2017. Accrued interest payable is $3,264 and $2,000 at June 30, 2017 and March 31, 2017, respectively.
On April 6, 2017, the Company sold an aggregate
of $40,000 principal amount of its convertible promissory notes (the “April 2017 Notes”, and each, a “Note”)
to the holders of the Convertible Note and received $40,000 in gross proceeds. The Notes are convertible, at the option of the
holder, into shares of the Company’s common stock, par value $0.001 per share, at a per share price of $0.02, subject to
adjustment as provided in the Notes and subject to a total beneficial ownership limitation of 9.99% of the Company’s issued
and outstanding common stock. Each Note has a maturity date that is four months from the issue date. The Maturity Date may be
accelerated, at the option of the holder, upon the occurrence of a Fundamental Transaction (as defined in the Note). The Company
recorded interest expense of $955 for the three months ended June 30, 2017. Accrued interest payable is $955 and $0 at June 30,
2017 and March 31, 2017, respectively.
NOTE
3 — DERIVATIVES
The
Company has identified certain embedded derivatives related to its convertible notes and common stock purchase warrants. Since
certain of the notes are convertible into a variable number of shares or have a price reset feature, the conversion features of
those debentures are recorded as derivative liabilities. Since the warrants have a price reset feature, they are recorded as derivative
liabilities. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives
as of the inception date and to adjust to fair value as of each subsequent balance sheet date.
Compensation
Warrants (issued on September 10, 2013):
On
September 10, 2013, the Company issued 50,134 warrants as compensation for consulting services. The warrants had an initial exercise
price of $2.50 per shares and a term of three years. The Company identified embedded derivatives related to these warrants, due
to the price reset features of these instruments. As a result, we have classified these instruments as derivative liabilities
in the financial statements.
During
the year ended March 31, 2016, the warrants were adjusted upon the subsequent issuance of debt in accordance with the terms of
the warrants. The number of warrants was increased to a total of 6,266,715 and the exercise price was reduced to $0.02.
During
the three months ended June 30, 2016, the Company recorded expense of $1,142 related to the change in the fair value of the derivative.
The warrants expired unexercised on September 10, 2016.
November
2016 Notes
The
Company identified embedded derivatives related to the conversion features of the November 2016 Notes. The accounting treatment
of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date
of the note and to adjust the fair value as of each subsequent balance sheet date. The Company calculated the fair value
of the embedded derivative at the inception of the Notes as $951, using the Black Scholes Model based on the following assumptions:
(1) risk free interest rate of 0.64%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common
stock of 247%; and (4) an expected life of 5 months. The initial fair value of the embedded debt derivative was allocated
as debt discount, which has been amortized to interest expense over the original term of the Notes. During the three months ended
June 30, 2017, $48 was charged to interest expense.
We
have recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest accrued
during the period. These additions totaled $86 for the three months ended June 30, 2017, and were charged to interest expense.
During
the three months ended June 30, 2017, the Company recorded income of $29,921 related to the change in the fair value of the derivative.
The fair value of the embedded derivative was $3,617 at June 30, 2017, determined using the Black Scholes Model with the following
assumptions: (1) risk free interest rate of 1.062%; (2) dividend yield of 0%; (3) volatility factor of the expected market price
of our common stock of 383%; and (4) an expected life of 3 months.
April
2017 Notes
The
Company identified embedded derivatives related to the conversion features of the April 2017 Notes. The accounting treatment
of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date
of the note and to adjust the fair value as of each subsequent balance sheet date. The Company calculated the fair value
of the embedded derivative at the inception of the Notes as $11,117, using the Black Scholes Model based on the following assumptions:
(1) risk free interest rate of 0.838%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common
stock of 339%; and (4) an expected life of 4 months. The initial fair value of the embedded debt derivative was allocated
as debt discount, which has been amortized to interest expense over the term of the Notes. During the three months ended June
30, 2017, $7,642 was charged to interest expense.
During the three months ended June 30,
2017, the Company recorded income of $11,117 related to the change in the fair value of the derivative. The fair value of the embedded
derivative was $0 at June 30, 2017, determined using the Black Scholes Model with the following assumptions: (1) risk free interest
rate of 0.964%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 100%; and (4)
an expected life of 1 month.
NOTE
4 — FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC
825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes
three levels of inputs that may be used to measure fair value:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant
inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level
3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair
value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Items
recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements
consisted of the following items as of June 30, 2017:
|
|
|
|
|
Fair Value Measurements at
June 30, 2017 using:
|
|
|
|
June 30,
2017
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Derivative Liabilities
|
|
$
|
3,617
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,617
|
|
The
debt derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based
on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.
The
following table provides a summary of changes in fair value of the Company’s Level 3 derivative liabilities for the three
months ended June 30, 2017 and 2016:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of period
|
|
$
|
33,452
|
|
|
$
|
336
|
|
Additions
|
|
|
11,203
|
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
(41,038
|
)
|
|
|
1,142
|
|
|
|
$
|
3,617
|
|
|
$
|
1,478
|
|
NOTE
5 — GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not yet established
any sources of revenue to cover its operating expenses. The Company has not generated any revenue for the period from October
19, 2011 (date of inception) through June 30, 2017. The Company has recurring net losses, an accumulated deficit of $5,862,117
and a working capital deficit (current liabilities exceeded current assets) at June 30, 2017 of $921,726. Additionally, the current
development stage of the Company and current economic conditions create significant challenges to attaining sufficient funding
for the Company to continue as a going concern. The Company’s ability to continue existence is dependent upon commencing
its planned operations, management’s ability to identify an attractive acquisition target, obtain additional financing to
close the acquisition as well as fund the future operating results of the target, develop and achieve profitable operations and
obtain additional financing to carry out its planned business. The Company intends to fund its business development, acquisition
endeavors and operations through equity and debt financing arrangements. There can be no assurance that the Company will be successful
in obtaining additional funding sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements.
The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about the Company’s
ability to continue as a going concern for one year from the issuance of the consolidated financial statements. The accompanying
unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company
be unable to continue as a going concern.
NOTE
6 — SHAREHOLDERS EQUITY AND CONTROL
Preferred
stock
The
Company is authorized to issue 10,000,000 shares of $0.0001 par value preferred stock. As of June 30, 2017 and March 31, 2017
the Company has no shares of preferred stock issued and outstanding.
Common
stock
The
Company is authorized to issue 250,000,000 shares of common stock, par value $0.0001 per share. As of June 30, 2017 and March
31, 2017 the Company had 2,554,197 shares of common stock issued and outstanding.
NOTE
7 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of June 30, 2017 and March 31, 2017, accounts payable and accrued liabilities for the period ending are comprised of the following:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Legal and professional fees payable
|
|
$
|
132,386
|
|
|
$
|
100,782
|
|
Other payables
|
|
|
53,399
|
|
|
|
59,999
|
|
|
|
$
|
185,785
|
|
|
$
|
160,781
|
|
NOTE
8 — COMMITMENTS AND CONTINGENCIES
The
Company is subject to legal proceedings and claims from time to time which arise in the ordinary course of its business. Although
occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should
not have a material adverse effect on its consolidated financial position, results of operations or liquidity.
On June 20, 2017, the Company has entered
into a non-binding letter of intent to acquire another business. However, the letter of intent is subject to a number of significant
contingencies including due diligence, preparation, negotiation and execution of a definitive agreement, and our obtaining financing
of at least $600,000. In addition, the shareholder of the company to be acquired must provide $700,000 of services over a four
year period. It cannot be assured that the Company will be successful in consummating the acquisition and obtaining additional
financing.
NOTE
9 — SUBSEQUENT EVENTS
Management evaluated all activities of the
Company through the issuance date of the Company’s interim unaudited condensed consolidated financial statements and concluded
that no subsequent events have occurred that would require adjustments or disclosure into the interim unaudited condensed consolidated
financial statements.