Business context and reporting period
Filing identity differs from the request: the supplied 10-Q is for Truli Media Group, Inc. (formerly SA Recovery Corp.), not Nixxy, Inc. It reports the quarter and six months ended September 30, 2013; the company’s fiscal year ended March 31. Truli described itself as a development-stage operator of an on-demand, family-friendly and faith-based media and social-networking platform. Its website had launched in July 2012, but it had not generated revenue since inception.
Financial performance and position
- Revenue: $0 for the three and six months ended September 30, 2013, and for the comparable 2012 periods.
- Loss: quarterly net loss was $837,465, versus $222,130 in 2012; six-month net loss was $957,980, versus $427,110. Six-month operating expenses were $744,795, including SG&A, versus $392,908 in 2012. No meaningful revenue margin can be calculated.
- Interest and other items: six-month interest expense was $232,678, partly offset by a $19,493 noncash gain from remeasuring a derivative liability. Quarterly interest expense was $226,517.
- Cash flow: six-month operating cash use was $392,176; financing provided $575,999; investing cash flow was $0. Cash rose from $1,296 at March 31 to $185,119 at September 30.
- Liquidity and liabilities: current assets were $331,432 and current liabilities $929,449, a working-capital deficit of $598,017. Total liabilities were $972,424. The balance sheet reported $593,609 in officer notes, $42,975 in long-term notes, a $543,837 convertible-note face amount shown net of a $511,266 discount, and a $49,995 derivative liability.
- Equity and dilution: stockholders’ deficit was $640,992. Shares outstanding increased to 87,551,493 from 83,651,493 at March 31. The company reported 30,783,389 potential common shares from options, warrants and convertible notes; these were excluded from diluted loss per share as anti-dilutive.
Material changes and financing
Compared with the prior-year periods, losses and SG&A rose substantially; management attributed the SG&A increase to professional fees and administrative costs. Financing activity included $400,000 of cash proceeds and conversion of $101,337 of principal and interest into September 2013 debentures, totaling $501,337. These debentures bear 12% interest, mature September 10, 2014, and include conversion terms that may reset to a discounted market price after 180 days. Investors also received warrants for up to 25,066,850 shares, exercisable at $0.05 and permitting cashless exercise. A subsequent $32,500 convertible note was issued October 2, 2013.
Outlook, risks and controls
The filing provides no quantified revenue or earnings guidance. Management said additional financing would be required over the next 12 months and disclosed only a nonbinding commitment from a potential funding source. The company had no established revenue source, recurring losses, a $3.13 million accumulated development-stage deficit, and dependence on its founder for working capital. Management stated these conditions raise substantial doubt about the company’s ability to continue as a going concern; financing may be unavailable or dilutive, and operations could need to be curtailed.
The company reported ineffective disclosure controls and two material weaknesses: inadequate documentation of certain debt and equity transactions, and insufficient internal financial-reporting personnel. It said transaction documentation procedures had been substantially enhanced and an outsourced accounting group engaged, but the staffing weakness remained. The filing reported no legal proceedings or off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the filing is the intended issuer and period: this document names Truli Media Group, Inc., not Nixxy, Inc.
- Review the terms, conversion mechanics, maturity and potential dilution of the convertible notes and the 25.1 million warrants issued with the September debentures.
- Assess near-term cash needs, the status and terms of the nonbinding financing commitment, and the going-concern risk.
- Verify remediation of the reported material weaknesses and the accuracy of the company’s debt, derivative and equity accounting.