Nixxy, Inc. quarterly report, Q2 FY2016

Nixxy, Inc. — filing identity and reporting period

Important identity discrepancy: The supplied filing is a Form 10-Q for Truli Media Group, Inc., not Nixxy, Inc. It covers the quarter and six months ended September 30, 2015; the financial statements are unaudited. The company described a faith- and family-oriented digital media platform and reported no revenue since inception.

Key financial results

Gross margin is not meaningful because the company had no revenue. Net results included a $115,981 gain from settling and extinguishing convertible debt. No income tax provision was recorded.

Liquidity, cash flow and debt

• At September 30, 2015, cash and total assets were each $39,363. Current liabilities were $2,306,178, resulting in a working-capital deficit of $2,266,815. Stockholders’ deficit was $2,266,815.
• For the six months, operating activities used $207,530 of cash; financing activities provided $233,500, including $348,500 in advances from the CEO and $45,000 in debt-settlement payments. Cash increased by $25,970 from $13,393 at March 31, 2015.
• Notes payable to the CEO were $1,777,109 at quarter-end, bearing 4% interest. The filing states that no payments had been made on this note, which was repayable over 36 months beginning in September 2012. Accrued related-party interest was $123,745.
• Other notes payable of $82,975 were in default; the filing says the notes matured December 31, 2014 and no principal or interest payments had been made. Debt-settlement payable was $90,000, being paid in monthly installments.
• The company reported total liabilities of $2,306,178 and separately stated aggregate indebtedness of $2,084,137 in principal and interest. The filing does not clearly reconcile these figures.

Changes versus the prior comparable period

• Second-quarter operating expenses fell 24% from $134,725 to $101,894; six-month expenses decreased 1% from $177,431 to $174,859.
• Interest expense declined to $34,020 for the quarter and $73,967 for the six months, from $207,485 and $276,102, respectively, in 2014; management attributed the decrease mainly to lower debt.
• Net income in 2014 became a net loss in 2015: the prior-year periods benefited from substantially larger gains on derivative fair-value changes and debt extinguishments. For the six months, the derivative item shifted from a $1,139,415 gain in 2014 to a $13,009 loss in 2015; the debt-extinguishment gain declined from $751,250 to $115,981.
• Cash used in operations increased to $207,530 from $145,717 in the prior-year six-month period.

Outlook, risks and unusual items

• Management provided no quantified revenue, earnings or cash-flow guidance. It expected operating losses to continue and said it expected no revenue for the foreseeable future.
• The company said it needed additional debt or equity financing and had no firm funding commitments. It warned that it might need to curtail or stop operations, or file for bankruptcy, if it could not raise funds. The filing states that these conditions raise substantial doubt about its ability to continue as a going concern; the financial statements contain no related adjustments.
• Marketing was limited because of insufficient capital. The CEO and certain consultants were working without pay. Management depended on CEO advances for working capital.
• On August 31, 2015, the company settled $92,500 of convertible-note principal and related accrued interest and penalties for $70,000. The settlement generated the $115,981 gain, and related derivatives were extinguished and reclassified to additional paid-in capital.
• A lawsuit filed by Asher Enterprises alleging note-related contract breaches and breach of fiduciary duty sought damages exceeding $150,000. The parties settled on August 31, 2015; the lawsuit was withdrawn with prejudice.
• Management concluded disclosure controls and procedures were ineffective due to material weaknesses in internal control over financial reporting. The filing also identifies financing, default, dilution, competition, technology, content-rights and limited-trading-market risks.

Investor verification priorities

1. Confirm the issuer identity: this filing names Truli Media Group, Inc., despite the request identifying Nixxy, Inc.
2. Verify current funding, cash runway and whether the company continued as a going concern after September 30, 2015.
3. Reconcile reported indebtedness, total liabilities, CEO-note balances and accrued interest; confirm the status of the $82,975 defaulted notes and $90,000 settlement payable.
4. Confirm that the Asher settlement was fully performed and that no related claims remain.
5. Review the material weaknesses and any subsequent remediation of disclosure controls and financial reporting.