Filing summary
Entity and period: The supplied filing is a Truli Technologies, Inc. Form 10-Q for the three months ended June 30, 2018 (fiscal Q1 2019), filed August 14, 2018. This does not match the request metadata naming Nixxy, Inc. and “2018 Q1.” The filing says the company changed its name from Truli Media Group, Inc. to Truli Technologies, Inc. on June 21, 2018.
Business context
Truli was developing VocaWorks, an online and mobile staffing and talent-acquisition platform focused initially on specialized technology talent. It had exited its former media business after a subsidiary was sold in October 2017. The company reported an alpha launch in June 2018, planned beta testing during 2018, and targeted a final platform launch by the end of fiscal 2019. It had not generated revenue from either business strategy.
Financial results and position
| Metric | Three months ended June 30, 2018 | Prior comparable period |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $280,603 | $108,320 |
| Operating loss | $280,603 | $108,320 |
| Net loss before preferred dividends | $280,603 | $102,752 |
| Preferred dividends and deemed dividends | $8,077,600 | $0 |
| Net loss attributable to common shareholders | $8,358,203 | $102,752 |
| Basic and diluted loss per common share | $0.06 | $0.04 |
| Net cash used in operating activities | $213,093 | $84,339 |
At June 30, 2018, cash was $289,007, current assets were $306,288, current liabilities were $94,413, and total assets were $1,000,288. The balance sheet reported no debt. Redeemable preferred stock was classified as temporary equity at $2,040,135; stockholders’ deficit was $1,134,260. The company had $625,000 of license assets and $69,000 of capitalized software development, neither placed in service. Gross margin and other revenue-based margins are not meaningful because revenue was zero.
Investing cash outflow was $11,500, principally software development. Financing provided $300,000 from the sale of preferred stock. Cash increased by $75,407 during the quarter, from $213,600 to $289,007.
Material changes and unusual items
- Operating expenses rose about 159% year over year, which management attributed mainly to higher compensation, including stock-based compensation, professional fees, and other fees.
- The $8.08 million preferred dividend charge included accrued dividends and deemed dividends related to preferred-stock conversion features. It substantially increased the loss attributable to common shareholders compared with the $280,603 operating-period net loss.
- The company raised $300,000 through Series A-1 preferred stock and issued warrants to purchase 60 million common shares at $0.01 per share, exercisable beginning 90 days after issuance and expiring in 2023. The preferred shares carry a 10% annual dividend and specified redemption rights.
- Common shares outstanding were 131,554,197 at June 30 and August 14, 2018. A reverse split in a range of 1-for-50 to 1-for-100 had been approved but was not yet implemented.
Outlook, risks, and controls
Management stated that available cash would not fund anticipated operations for the next 12 months and concluded that substantial doubt existed about the company’s ability to continue as a going concern. Additional financing was required for fiscal 2019; management expected to seek equity and/or debt financing, which could dilute existing shareholders. Without funding, the company might delay, scale back, or eliminate development activities or cease operations. Management gave no assurance about when or whether the company would generate positive cash flow.
Key business risks identified included software development delays or functionality problems, competition, management conflicts of interest, and capital-market conditions. The company reported that disclosure controls and procedures were ineffective because of material weaknesses in internal control over financial reporting. It reported no material pending legal proceedings, no defaults upon senior securities, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer and period: the supplied 10-Q is for Truli Technologies, Inc., not Nixxy, Inc.
- Assess the timing and likelihood of financing sufficient to support operations, and the associated dilution and preferred-stock redemption obligations.
- Verify VocaWorks development, beta-testing, launch milestones, and whether the platform has begun generating sales.
- Review the nature and accounting of the $8.08 million preferred dividend/deemed-dividend charge and the conversion, warrant, and redemption terms.
- Follow remediation of the disclosed material weaknesses in internal control and the implementation status of the approved reverse split.