Business context and reporting period
The supplied filing is a Form 10-Q for the three months ended June 30, 2013, filed August 14, 2013. Although the request metadata names Nixxy, Inc., the filing identifies the issuer as Truli Media Group, Inc. (formerly SA Recovery Corp.); it describes a development-stage company aggregating family-friendly, faith-based media and operating a multi-screen platform. The quarter is the first quarter of the fiscal year ending March 31, 2014.
Financial performance and position
| Metric | Three months ended June 30, 2013 | Comparable 2012 period |
|---|---|---|
| Revenue | $0 | $0 |
| Selling, general and administrative expense | $114,354 | $182,812 |
| Operating loss | $114,354 | $182,812 |
| Interest expense | $6,161 | $22,168 |
| Net loss | $120,515 | $204,980 |
| Basic and diluted loss per share | $0.00 loss per share (rounded) | $0.01 loss per share |
| Net cash used in operating activities | $30,462 | $0 |
With no revenue, the filing does not provide a meaningful operating margin. From inception through June 30, 2013, the company reported no revenue and accumulated development-stage losses of approximately $2.29 million.
- At June 30, 2013, cash was $834, prepaid expenses were $56,983, and total assets were $57,817.
- Current liabilities were $747,407; total liabilities were $790,382. Current liabilities exceeded current assets by $689,590, and stockholders’ deficit was $732,565.
- Debt included $591,446 payable to the founder and CEO under an unsecured note bearing 4% interest, plus $42,975 under investor notes bearing 5%. The company also reported $31,027 of accrued related-party interest.
- Operating activities used $30,462 of cash; financing activities provided $30,000, leaving cash down $462 for the quarter. No cash interest or income taxes were paid.
Material changes versus the prior comparable period
SG&A expense fell by $68,458, which management attributed mainly to lower website development and administrative costs. Interest expense declined by $16,007, which management attributed to the prior-year repayment of $1.2 million of officer debt through a stock issuance. Net loss narrowed by $84,465. Operating cash use was $30,462 versus no operating cash use reported for the 2012 quarter.
During the quarter, the company issued 400,000 shares for services valued at $17,400 and recorded $13,196 of vested stock-option compensation. Shares issued and outstanding at June 30 were 84,051,493.
Outlook, risks, contingencies and unusual items
- Going concern: The company had no established revenue source, recurring losses, a substantial working-capital deficit, and reliance on additional financing and founder support. Management stated these conditions raise substantial doubt about the company’s ability to continue as a going concern. It warned that funding may not be sufficient; no assurance of successful financing or planned operations was given.
- Subsequent financing and dilution: On July 26, 2013, the company issued a $100,000 convertible debenture bearing 8% interest, due at the earlier of July 26, 2014 or one business day after a defined subsequent financing. The investor may convert at 65% of the average of the lowest three closing bid prices during the preceding ten trading days, subject to adjustment. The investor also received a three-year warrant for 500,000 shares at $0.04, exercisable cashlessly. The terms create potential dilution; cashless exercise would provide no proceeds to the company.
- Additional subsequent event: On July 25, 2013, the company issued 200,000 shares for services valued at $8,000. The filing reported 84,251,493 common shares outstanding as of August 6, 2013.
- Controls: Management concluded disclosure controls were ineffective at June 30 and reported two material weaknesses: inadequate documentation of certain debt and equity transactions and insufficient internal financial-reporting personnel. Management said transaction documentation procedures were substantially enhanced, but the staffing weakness remained; an outsourced accounting group was engaged.
- Other matters: The company disclosed ordinary-course legal claims but did not expect their resolution to materially affect its financial position, results or liquidity. It reported no off-balance-sheet arrangements, no material market-risk disclosures, and no legal proceedings in Part II.
No revenue or earnings guidance was provided. Management said the website launched in July 2012 but had not generated revenue; it was continuing to seek working capital and additional revenue, with no assurance those efforts would succeed.
Important facts for investors to verify
- Confirm the issuer and period: the supplied filing is for Truli Media Group, Inc., not Nixxy, Inc., and covers the quarter ended June 30, 2013.
- Assess the company’s ability to fund operations given $834 of quarter-end cash, the $689,590 working-capital deficit, and dependence on financing and founder support.
- Review the convertible debenture’s variable conversion-price formula and warrant terms for potential dilution and financing proceeds.
- Verify remediation of the disclosed material weaknesses and the reliability and timeliness of financial reporting.
- Monitor whether the company begins generating revenue and whether operating costs and cash needs can be sustained.