Filing identity and reporting period
Important identity discrepancy: The supplied filing is for Truli Media Group, Inc., not Nixxy, Inc. It is a Form 10-Q for the three months ended June 30, 2014, Truli’s fiscal first quarter for the year ending March 31, 2015. The interim financial statements are unaudited.
Truli described itself as a pre-revenue provider of family-friendly and faith-based digital media. It reported a library of about 8,000 items, roughly 200 affiliated ministries and churches, and a Spanish-language library of about 2,000 items.
Financial results and liquidity
| Metric | Three months ended June 30, 2014 | Prior-year quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $42,706 | $114,354 |
| Operating loss | $42,706 | $114,354 |
| Interest expense | $68,617 | $6,161 |
| Gain on change in derivative fair value | $933,415 | $0 |
| Net income (loss) | $820,971 | $(120,515) |
| Net cash used in operating activities | $55,239 | $30,462 |
The reported profit was primarily the result of a non-cash fair-value gain on derivative liabilities, not revenue or positive operating performance. Operating expenses fell about 63%, which management attributed mainly to reduced marketing, investor-relations, professional and consulting spending amid limited capital.
- Cash and total assets: $3,010 at June 30, 2014, down from $4,249 at March 31, 2014.
- Current and total liabilities: $3,094,655, compared with $3,972,855 at March 31; the decline was mainly from lower derivative-liability fair value.
- Working capital: Deficit of $3,091,645. Stockholders’ deficit was $3,091,645, and accumulated deficit was $5,292,986.
- Cash flows: Operating activities used $55,239; financing provided $54,000, including $94,000 of related-party advances and $40,000 of convertible-note repayments. Ending cash was $3,010.
- Debt and related-party funding: The CEO’s unsecured 4% note was $767,609, with $56,329 accrued related-party interest; the filing says no scheduled payments had been made. Other notes payable were $82,975. Convertible notes had a $751,342 carrying amount, net of discount.
- Margins: Not meaningful because the company had no revenue.
Material changes, outlook and risks
- The company reported no revenue from inception through June 30, 2014 and expected operating losses and no revenue for the foreseeable future. Its business plan depended on attracting users and eventually earning from advertising, pay-per-view, donations and merchandise; it gave no quantified forecast or financing commitment.
- Management said the company lacked sufficient capital to fund near-term operations and was uncertain it could fund operations through the fiscal year-end. It warned that failure to raise financing could force it to curtail or stop operations or seek bankruptcy protection.
- The 12% debentures had previously defaulted, triggering an increase in principal to 150% of face value, an 18% interest rate and acceleration. Subsequent to quarter-end, on August 7, 2014, Truli entered a settlement with holders reporting an aggregate outstanding amount of $780,513: it paid $301,337 initially and owed a further $180,000 in 24 monthly payments beginning October 10, 2014. Default under the settlement could trigger substantial penalties and interest.
- Under that settlement, 62,667,125 warrants were cancelled, and Truli became contractually obligated to issue 31,530,629 common shares. Separately, 2,000,000 shares were issued during the quarter on conversion of $15,000 of note principal. Shares outstanding were 96,151,666 as of August 6, 2014.
- Potential dilution was substantial: the filing disclosed 254,019,300 common-stock equivalents at June 30, including warrants and shares issuable on convertible notes. Many conversion terms were variable or included price resets.
- The filing identified substantial doubt about the company’s ability to continue as a going concern. It also reported that disclosure controls and procedures were not effective because of material weaknesses in internal control over financial reporting; no material control changes were reported during the quarter.
- Management cited risks including inability to raise capital or monetize the platform, dependence on the CEO and unpaid consultants, competition, limited stock liquidity, technology and cybersecurity disruptions, content-rights claims, and lack of commercial and directors’ and officers’ insurance. It reported no material off-balance-sheet arrangements and stated that ordinary-course legal matters were not expected to materially affect the company.
Key facts investors should verify
- Whether this Truli Media Group filing is the intended filing for the Nixxy, Inc. request.
- The settlement’s actual payments, remaining obligations, penalties and accounting treatment, as well as whether the promised 31,530,629 shares were issued.
- Current cash, financing availability and ability to meet obligations, given the $3,010 quarter-end cash balance and going-concern warning.
- The composition, valuation assumptions and potential dilution from derivative liabilities, variable-price notes and other share equivalents.
- Whether internal-control weaknesses were remediated and whether the company generated revenue or achieved sustainable operations after the reporting period.