Filing identity and reporting period
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, 2016, compared with the same periods in 2015; the filing does not identify this as “2016 Q2.” The financial statements are unaudited. Amounts below are as reported in the filing.
Business context
Truli described a pre-revenue digital platform for faith-based and family-friendly media, including video, streaming channels, and Spanish-language content. It reported no revenue from inception of its current business through September 30, 2016. Management also said it was seeking an acquisition target, which could result in a change of control and dilution.
Financial performance and liquidity
| Metric | Three months ended Sep. 30, 2016 | Six months ended Sep. 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $70,598 | $149,381 | $101,894 and $174,859, respectively |
| Operating loss | $(70,598) | $(149,381) | $(101,894) and $(174,859), respectively |
| Net loss | $(92,904) | $(195,133) | $(20,018) and $(145,854), respectively |
| Net loss per share | $(0.04) | $(0.08) | $(0.01) and $(0.06), respectively |
| Operating cash used | $188,038 for six months | $207,530 for six months |
Margins are not meaningful because the company had no revenue. For the six-month period, SG&A fell 15% year over year, while net loss increased about $49,000. The prior-year comparison included a $115,981 gain on extinguishment of debt; there was no such gain in 2016. Lower interest expense partly offset this, and derivative fair-value changes also affected reported results.
At September 30, 2016, cash was $7,207, down from $13,245 at March 31, 2016. Current liabilities were $578,898 against current assets of $7,207, producing a reported working-capital deficit of $571,691. Total liabilities were $2,534,832, versus $2,345,910 at March 31. The balance sheet reported a stockholders’ deficit of $2,527,625 and accumulated deficit of $5,511,800. No revenue-based margin was reported.
Financing provided $182,000 of net cash during the six months, including $232,000 in related-party note proceeds, offset by $5,000 in related-party note repayments and $45,000 to settle debt. The debt settlement was fully satisfied by September 30. The company had $332,000 outstanding on an unsecured, 4% related-party note and a $1,955,934 convertible note bearing 4% interest, due December 1, 2020 and convertible at $0.02 per share, subject to restrictions.
Material changes, outlook, and risks
- On September 21, 2016, the founder sold the $1,955,934 convertible note to two institutional investors for $102,500 each. The founder and an affiliate also sold their controlling shareholding to the new CEO/CFO for $6,000. The founder remained board chairman.
- The note purchase agreement makes the founder responsible for operating costs and certain pre-agreement liabilities; note purchasers agreed to cover public-company costs for one year. Failure by the founder to pay operating costs may trigger default under the convertible notes. The founder also received an option to acquire the operating assets for $5,000, exercisable through 2017 under specified terms.
- After quarter-end, the company transferred its operating assets to newly formed, wholly owned Truli Media Corp. The filing says the founder operates that subsidiary and agreed to pay its operating liabilities, excluding convertible notes and public-company expenses.
- On November 8, 2016, the company raised $50,000 gross through five-month convertible notes, convertible at $0.02 per share subject to adjustment and a 9.99% beneficial-ownership limit. Proceeds were intended for general corporate purposes.
- Management said cash was nominal and the company relied on the founder for operating costs and note purchasers for public-company expenses. It was uncertain it could fund operations through fiscal year-end and warned that unavailable financing could force it to curtail or cease operations or seek bankruptcy protection.
- The filing states that recurring losses, no revenue, a $5,511,800 accumulated deficit, and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. No assurance was given that additional financing or a suitable acquisition could be obtained.
- Disclosure controls and procedures were reported ineffective due to material weaknesses in internal control over financial reporting. Management reported no material control changes during the quarter.
- No material pending legal proceedings were reported. Management said ordinary-course claims were not expected to materially affect financial position, operations, or liquidity.
Most important facts for investors to verify
- Confirm the issuer and reporting period: this filing names Truli Media Group, Inc., not Nixxy, Inc.
- Review the convertible-note terms, conversion dilution, default provisions, and the note purchasers’ funding commitments. The filing lists 101,065,500 common-share equivalents from convertible notes at September 30, 2016, compared with 2,553,990 common shares outstanding.
- Verify whether the founder met the operating-cost obligations and whether public-company expenses were funded after the one-year commitment.
- Confirm the status and terms of the post-quarter $50,000 financing and the transfer of operating assets to Truli Media Corp.
- Assess the going-concern warning, extremely limited cash, and the reported material weaknesses in disclosure controls.