Filing summary
Issuer and period: The request identifies Nixxy, Inc. and “2016 Q4,” but the supplied filing is Truli Media Group, Inc.’s Form 10-K for the fiscal year ended March 31, 2017. The filing was signed June 30, 2017. The summary below reflects the supplied filing; the issuer and period discrepancy should be verified.
Business context
Truli operated a faith- and family-oriented digital media platform, reporting a library of roughly 14,000 videos, including about 4,500 Spanish-language items, and eight Christian television channels. It had not generated revenue since launching its website in 2012. In October 2016, operating assets were transferred to wholly owned subsidiary Truli Media Corp. (TMC). The company was also pursuing an acquisition and possible reverse merger, which could substantially change its business and ownership.
Financial results and liquidity
| Metric | FY ended March 31, 2017 | FY ended March 31, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $311,974 | $294,928 |
| Operating loss | $311,974 | $294,928 |
| Net loss | $442,698 | $305,851 |
| Net loss per share | $0.17 | $0.12 |
| Cash used in operations | $369,063 | $338,648 |
Operating expenses rose about 6%. Net loss increased about 45%, reflecting higher operating expenses, derivative fair-value expense of $30,294 versus $12,276, and the absence of the prior-year $115,981 gain on extinguishment of debt. Interest expense declined to $100,430 from $114,628. With no revenue, gross margin and revenue-based operating margins are not meaningful.
At March 31, 2017, cash was $1,983 (versus $13,245 a year earlier), current liabilities were $821,051, total liabilities were $2,776,985, and stockholders’ deficit was $2,775,002. Working capital was negative $819,068; accumulated deficit was $5,759,365. The filing separately says cash was approximately $20,000 “as of the filing date.” These are different dates, and the filing does not provide a reconciliation. The auditor reported substantial doubt about the company’s ability to continue as a going concern.
Material changes and capital structure
- In September 2016, the founder sold $1,955,934 principal amount of convertible notes to two institutional investors for $205,000 total. The notes bear 4% interest, mature in 2020, and are convertible at $0.02 per share, subject to ownership limits.
- The founder and an affiliate sold their 1,336,676-share controlling block to CEO/CFO Elliot Maza for $6,000. Maza held about 52.3% of the 2,554,197 shares outstanding as of June 26, 2017.
- The founder received an option, exercisable through September 23, 2017, to acquire the company’s current operating assets for $5,000, and agreed to cover operating liabilities under the stated arrangements.
- Subsequent to year-end, the company borrowed $40,000 from two institutional investors through 10% convertible notes due August 6, 2017, convertible at $0.02 per share.
- Convertible notes, accrued interest, and other potential share issuances create substantial dilution risk. The filing reports approximately 105.8 million common-share equivalents at March 31, 2017, compared with about 2.55 million common shares outstanding.
Outlook, risks, and unusual items
Management said existing capital resources were expected to fund operations into the second quarter of fiscal 2018, but warned that absent additional financing or substantial cash inflows in the coming months, the company might have to cease operations. The auditor’s going-concern warning is based on recurring losses, no revenue, and a significant working-capital deficit.
The company disclosed a non-binding letter of intent to acquire another business. Completion depended on due diligence, definitive agreements, and at least $600,000 of financing; the target’s shareholder was also expected to provide $700,000 of services over four years. The filing cautions that no transaction was assured and that a financing or acquisition could heavily dilute existing shareholders. Its described potential issuance included 500 million shares to the target owner and 180 million shares to investors, excluding shares potentially issuable on existing notes.
Other notable risks include infrequent trading and penny-stock restrictions, dependence on financing and founder support, and material weaknesses in internal controls: insufficient staff to segregate duties and insufficient independent directors for appropriate committees. Management concluded disclosure controls and internal controls over financial reporting were ineffective as of March 31, 2017. The filing reports no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm that Truli Media Group, Inc., rather than Nixxy, Inc., and fiscal 2017 rather than “2016 Q4,” is the intended filing.
- Reconcile the March 31 cash balance of $1,983 with the filing-date estimate of approximately $20,000, and check subsequent cash needs and financing.
- Check the status and terms of the acquisition letter of intent, required financing, and any definitive transaction documents.
- Verify the founder’s asset-purchase option, liability-payment obligations, and whether the option was exercised or expired.
- Assess conversion terms, accrued interest, ownership blockers, and potential dilution from all notes and other securities.
- Review going-concern disclosures, the auditor’s report, and any remediation of the disclosed internal-control weaknesses.