The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2017
(Unaudited)
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Truli Media Group,
Inc., a Delaware corporation, (the “Company”) is a holding company based in Englewood Cliffs, New Jersey. In October
2016, the Company transferred all of its operating assets to a newly formed, wholly-owned subsidiary, Truli Media Corp., a California
corporation (“TMC”) headquartered in Beverly Hills, California. TMC is operated by the Company’s founder, Mr.
Michael J. Solomon, who is responsible for day-to-day operations. Mr. Solomon has agreed to pay all operating liabilities of the
Company, excluding its outstanding convertible notes and public company expenses. See Note 2 for further information and Note 9
for information on the sale of TMC.
Prior to the transfer
of its operating assets to TMC, the Company was, and TMC is, focused on the on-demand media and social networking markets. TMC,
with a website and multi-screen platform, has commenced operations as an aggregator of family-friendly, faith-based Christian content,
media, music and Internet Protocol Television (“IPTV”) programming. “Truli”, “our”, “us”,
“we” or the “Company” refer to Truli Media Group, Inc. and its subsidiary, TMC. In discussing the business
of the Company, we refer to the business now operated by TMC except as otherwise made clear from the context.
From commencement of
its current business operations through a merger with Truli Media Group, LLC on June 13, 2012 through the date of these unaudited
condensed consolidated financial statements, the Company has not generated any revenues and has incurred significant expenses.
The Company acquired an unrelated business subsequent to the date of these unaudited condensed consolidated financial statements.
See Note 9 for further information.
The Company’s
operations are subject to all the risks and uncertainties inherent in the establishment of a new business enterprise, including
failing to secure additional funding to carry out the Company’s business plan.
Basis of Presentation
The accompanying condensed consolidated
financial statements are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP") and pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual consolidated
financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the information not misleading.
These interim financial statements as
of and for the three and six months ended September 30, 2017 and 2016 are unaudited; however, in the opinion of
management, such statements include all adjustments (consisting of normal recurring accruals) necessary to present fairly the
financial position, results of operations and cash flows of the Company for the periods presented. The results for the three
and six months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending
March 31, 2018 or for any future period. All references to September 30, 2017 and 2016 in these footnotes are
unaudited.
These unaudited condensed consolidated
financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for
the year ended March 31, 2017, included in the Company’s annual report on Form 10-K filed with the SEC on June
30, 2017.
The condensed consolidated balance sheet
as of March 31, 2017 has been derived from the audited consolidated financial statements at that date but does not include all
disclosures required by the accounting principles generally accepted in the United States of America.
Cash and Cash Equivalents
The Company considers all short-term highly
liquid investments with a remaining maturity at the date of purchase of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Included in these estimates are assumptions used to calculate the beneficial conversion feature of convertible notes payable, deferred
income tax asset valuation allowances, and valuation of derivative liabilities.
Earnings (Loss) Per Share
The Company follows ASC 260, “Earnings
Per Share” for calculating the basic and diluted earnings (loss) per share. Basic earnings (loss) per share are computed
by dividing earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding. Diluted
earnings (loss) per share is computed similar to basic loss per share except that the denominator is increased to include the number
of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Common share equivalents are excluded from the diluted earnings (loss) per share computation if their
effect is anti-dilutive. There were 109,985,440 and 101,258,540 outstanding common share equivalents at September 30, 2017 and
2016, respectively.
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
182,040
|
|
|
|
193,040
|
|
Convertible notes payable
|
|
|
109,803,400
|
|
|
|
101,065,500
|
|
|
|
|
109,985,440
|
|
|
|
101,258,540
|
|
Fair Value
Accounting Standards Codification subtopic
825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments.
The carrying amount reported in the condensed consolidated balance sheet for accounts payable and accrued expenses and notes payable
approximates fair value because of the immediate or short-term maturity of these financial instruments.
Convertible Instruments
The Company evaluates and accounts for
conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for
Derivative Instruments and Hedging Activities”.
Professional standards generally provides
three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them
as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of
the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be
considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument
is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument”.
The Company accounts for convertible instruments
(when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance
with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those
professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary,
discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences
between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion
price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest
date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded
in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of
the preferred shares transaction and the effective conversion price embedded in the preferred shares.
ASC 815-40 provides that, among other things,
generally, if an event is not within the entity’s control or could require net cash settlement, then the contract shall be
classified as an asset or a liability.
Derivative Instruments
The Company’s derivative financial
instruments consist of embedded derivatives related to the convertible debt and conversion features embedded within our convertible
debt. The accounting treatment of derivative financial instruments requires that we record the derivatives at their fair values
as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. Any change in fair
value was recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives
was higher at the subsequent balance sheet date, we recorded a non-operating, non-cash charge. If the fair value of the derivatives
was lower at the subsequent balance sheet date, we recorded non-operating, non-cash income.
Stock-Based Compensation
The Company utilizes the Black-Scholes
option-pricing model to determine fair value of options and warrants granted as stock-based compensation, which requires us to
make judgments relating to the inputs required to be included in the model. In this regard, the expected volatility is based on
the historical price volatility of the Company’s common stock. The dividend yield represents the Company’s anticipated
cash dividend on common stock over the expected life of the stock options. The U.S. Treasury bill rate for the expected life of
the stock options is utilized to determine the risk-free interest rate. The expected term of stock options represents the period
of time the stock options granted are expected to be outstanding.
Recently Issued Accounting Pronouncements
With the exception of those discussed below,
there have not been any recent changes in accounting pronouncements and Accounting Standards Update (ASU) issued by the Financial
Accounting Standards Board (FASB) during the six months ended September 30, 2017 that are of significance or potential significance
to the Company.
In May 2017, the FASB issued ASU 2017-09,
“Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account
for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification
accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of
the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies
that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification.
This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods
within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its financial
statements.
NOTE 2 — NOTES PAYABLE
Note Payable – Related Party
The Company’s founder and former Chief
Executive Officer (the “Founder”) has advanced funds to TMC, evidenced by an unsecured term note (the “Note”),
with an outstanding principal amount of $562,301 and $457,801 on September 30, 2017 and March 31, 2017, respectively. The Note
is without recourse to Truli Media Group, Inc. The Note bears interest at 4% per annum. The Company recorded interest expense
of $5,362 and $2,601 for the three months ended September 30, 2017 and 2016, respectively. The Company recorded interest expense
of $10,213 and $4,060 for the six months ended September 30, 2017 and 2016, respectively. Accrued interest payable is $22,890
and $12,677 at September 30, 2017 and March 31, 2017, respectively.
Convertible Notes Payable – Related
Party and Other
On December 1, 2015,
the Company issued an unsecured, convertible promissory note (the “Convertible Note”) to the Founder with a principal
amount of $1,955,934, as satisfaction of $1,822,109 of principal and $133,825 of accrued interest outstanding under the Note described
above. The Convertible Note, which carries interest at the rate of 4% per annum, matures on December 1, 2020. The Convertible Note
and related accrued interest is convertible into shares of the Company’s common stock at the rate of $0.02 per share, subject
to certain restrictions of beneficial ownership. The Company recorded interest expense of $19,720 and $19,720 for the three months
ended September 30, 2017 and 2016, respectively. The Company recorded interest expense of $39,226 and $39,226 for the six months
ended September 30, 2017 and 2016, respectively. Accrued interest payable is $143,614 and $104,388 at September 30, 2017 and March
31, 2017, respectively.
Effective September
21, 2016, the Company, the Founder and two institutional investors (the “Investors”) entered into a Note Purchase Agreement
(the “NPA”) pursuant to which the Founder sold the Convertible Note with a principal amount of $1,955,934 previously
issued by the Company to the Founder to the Investors in equal amounts in exchange for $102,500 from each Investor, each of whom
acquired a convertible note for one-half of the principal (together the “Investor Convertible Notes”). The NPA included
a provision under which the Founder has an option to purchase all of the Company’s current operating assets for $5,000. The
option is exercisable through March 23, 2017 with the consent of one of the Investors, and thereafter through September 23, 2017
without the consent of the Investors. Effective as of September 23, 2017, the Company agreed to extend the option held by the Founder
through October 31, 2017. On October 30, 2017, the Investors exchanged the Convertible Notes for shares of Series C Convertible
Preferred Stock. See Note 9 for further information.
Subsequent to September
30, 2016, Truli transferred the Company’s operating assets to its newly-formed, wholly-owned subsidiary, TMC. Under the
NPA, the Company agreed with the Founder that it will be an Event of Default under the Convertible Notes if the Founder does not
pay all operating costs of the Company, which essentially are the operating expenses of TMC. The NPA clearly indicates that public
company compliance costs, including accounting, auditing and legal fees relating to securities matters are not operating costs.
In addition, the Founder agreed to assume and pay all of the Company’s liabilities arising prior to the date of the NPA,
except for the Convertible Notes and pay operating liabilities thereafter. The Investors agreed to pay all of the public company
costs for a period of one year following the date of the NPA.
On November 8, 2016,
the Company sold an aggregate of $50,000 principal amount of its convertible promissory notes (the “November Notes”,)
to the Investors and received $50,000 in gross proceeds. The Notes are convertible, at the option of the holder, into shares of
the Company’s common stock, par value $0.001 per share, at a per share price of $0.02, subject to adjustment as provided
in the Notes and subject to a total beneficial ownership limitation of 9.99% of the Company’s issued and outstanding common
stock. Each Note has a maturity date that is five months from the issue date. The maturity date of each November Note has been
extended to October 31, 2017. The Company recorded interest expense of $1,278 and $2,542 for the three and six months ended September
30, 2017, respectively. Accrued interest payable is $4,542 and $2,000 at September 30, 2017 and March 31, 2017, respectively.
On April 6, 2017, the
Company sold an aggregate of $40,000 principal amount of its convertible promissory notes (the “April Notes”) to the
holders of the Convertible Note and received $40,000 in gross proceeds. The Notes are convertible, at the option of the holder,
into shares of the Company’s common stock, par value $0.001 per share, at a per share price of $0.02, subject to adjustment
as provided in the Notes and subject to a total beneficial ownership limitation of 9.99% of the Company’s issued and outstanding
common stock. Each April Note has a maturity date that is four months from the issue date. The maturity date of each April Note
has been extended to October 31, 2017. The Company recorded interest expense of $1,022 and $1,977 for the three months ended September
30, 2017. Accrued interest payable is $1,977 and $0 at September 30, 2017 and March 31, 2017, respectively.
On October 30, 2017, the
Investors exchanged the November and April Notes for shares of Series C-1 Convertible Preferred Stock. See Note 9 for further
information.
NOTE 3 — DERIVATIVES
The Company has identified certain embedded
derivatives related to its convertible notes and common stock purchase warrants. Since certain of the notes are convertible
into a variable number of shares or have a price reset feature, the conversion features of those debentures are recorded as derivative
liabilities. Since the warrants have a price reset feature, they are recorded as derivative liabilities. The accounting treatment
of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and
to adjust to fair value as of each subsequent balance sheet date.
Compensation Warrants (issued on September
10, 2013):
On September 10, 2013, the Company issued
50,134 warrants as compensation for consulting services. The warrants had an initial exercise price of $2.50 per shares and a term
of three years. The Company identified embedded derivatives related to these warrants, due to the price reset features of these
instruments. As a result, we have classified these instruments as derivative liabilities in the financial statements.
During the year ended March 31, 2016, the
warrants were adjusted upon the subsequent issuance of debt in accordance with the terms of the warrants. The number of warrants
was increased to a total of 6,266,715 and the exercise price was reduced to $0.02.
During the three and six months ended September
30, 2016, the Company recorded income of $1,478 and $336, respectively, related to the change in the fair value of the derivative.
The warrants expired unexercised on September 10, 2016.
November Notes
The Company identified embedded derivatives
related to the conversion features of the November 2016 Notes. The accounting treatment of derivative financial instruments
requires that the Company record the fair value of the derivatives as of the inception date of the note and to adjust the fair
value as of each subsequent balance sheet date. The Company calculated the fair value of the embedded derivative at the inception
of the Notes as $951, using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.64%; (2)
dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 247%; and (4) an expected life
of 5 months. The initial fair value of the embedded debt derivative was allocated as debt discount, which has been amortized
to interest expense over the original term of the Notes. During the three and six months ended September 30, 2017, $48 was charged
to interest expense.
We have recorded additions to our derivative
conversion liabilities related to the conversion feature attributable to interest accrued during the period. These additions totaled
$1,279 and $1,365 for the three and six months ended September 30, 2017, respectively, and were charged to interest expense.
During the three and six months ended September
30, 2017, the Company recorded expense of $49,688 and $19,767 related to the change in the fair value of the derivative. The fair
value of the embedded derivative was $54,583 at September 30, 2017, determined using the Black Scholes Model with the following
assumptions: (1) risk free interest rate of 0.96%; (2) dividend yield of 0%; (3) volatility factor of the expected market price
of our common stock of 52%; and (4) an expected life of 1 month.
April Notes
The Company identified embedded derivatives
related to the conversion features of the April 2017 Notes. The accounting treatment of derivative financial instruments requires
that the Company record the fair value of the derivatives as of the inception date of the note and to adjust the fair value as
of each subsequent balance sheet date. The Company calculated the fair value of the embedded derivative at the inception of
the Notes as $11,117, using the Black Scholes Model based on the following assumptions: (1) risk free interest rate of 0.838%;
(2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 339%; and (4) an expected life
of 4 months. The initial fair value of the embedded debt derivative was allocated as debt discount, which has been amortized
to interest expense over the term of the Notes. During the three and six months ended September 30, 2017, $3,475 and $11,117 was
charged to interest expense.
We have recorded additions to our derivative
conversion liabilities related to the conversion feature attributable to interest accrued during the period. These additions totaled
$1,023 and $1,023 for the three and six months ended September 30, 2017, respectively, and were charged to interest expense.
During the three and six months ended September
30, 2017, the Company recorded expense of $40,987 and $29,870 related to the change in the fair value of the derivative. The fair
value of the embedded derivative was $42,010 at September 30, 2017, determined using the Black Scholes Model with the following
assumptions: (1) risk free interest rate of 0.96%; (2) dividend yield of 0%; (3) volatility factor of the expected market price
of our common stock of 52%; and (4) an expected life of 1 month.
NOTE 4 — FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 825-10 defines fair value as the price
that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded
at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be
used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets
or liabilities.
Level 2 - Observable inputs other than
Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived
principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation
methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on
models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined
based on the lowest level input that is significant to the fair value measurement.
Items recorded or measured at fair value
on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following
items as of September 30, 2017:
|
|
|
|
|
Fair Value Measurements at
September 30, 2017 using:
|
|
|
|
September 30,
2017
|
|
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Derivative Liabilities
|
|
$
|
96,593
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
96,593
|
|
The debt derivative liabilities are
measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s
common stock and are classified within Level 3 of the valuation hierarchy.
The following table provides a summary
of changes in fair value of the Company’s Level 3 derivative liabilities for the six months ended September 30, 2017 and
2016:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of period
|
|
$
|
33,452
|
|
|
$
|
336
|
|
Additions
|
|
|
13,504
|
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
49,637
|
|
|
|
(336
|
)
|
|
|
$
|
96,593
|
|
|
$
|
-
|
|
NOTE 5 — GOING CONCERN
The accompanying unaudited condensed consolidated
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has not yet established any sources of revenue to cover its operating
expenses. The Company has not generated any revenue for the period from October 19, 2011 (date of inception) through September
30, 2017. The Company has recurring net losses, an accumulated deficit of $6,098,682 and a working capital deficit (current liabilities
exceeded current assets) at September 30, 2017 of $1,158,197. Additionally, the current development stage of the Company and current
economic conditions create significant challenges to attaining sufficient funding for the Company to continue as a going concern.
The Company’s ability to continue
existence is dependent upon commencing its planned operations, management’s ability to identify an attractive acquisition
target, obtain additional financing to close the acquisition as well as fund the future operating results of the target, develop
and achieve profitable operations and obtain additional financing to carry out its planned business. The Company intends to fund
its business development, acquisition endeavors and operations through equity and debt financing arrangements. The Company acquired
an unrelated business subsequent to the date of these unaudited condensed consolidated financial statements. See Note 9 for further
information.
There can be no assurance that the Company
will be successful in obtaining additional funding sufficient to fund its ongoing capital expenditures, working capital, and other
cash requirements. The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about
the Company’s ability to continue as a going concern for one year from the issuance of the consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
NOTE 6 — SHAREHOLDERS EQUITY AND
CONTROL
Preferred stock
The Company is authorized to issue 10,000,000
shares of $0.0001 par value preferred stock. As of September 30, 2017 and March 31, 2017 the Company has no shares of preferred
stock issued and outstanding.
Common stock
The Company is authorized to issue 250,000,000
shares of common stock, par value $0.0001 per share. As of September 30, 2017 and March 31, 2017 the Company had 2,554,197 shares
of common stock issued and outstanding.
NOTE 7 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of September 30, 2017 and March 31,
2017, accounts payable and accrued liabilities for the period ending are comprised of the following:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Legal and professional fees payable
|
|
$
|
181,182
|
|
|
$
|
100,782
|
|
Other payables
|
|
|
70,165
|
|
|
|
59,999
|
|
|
|
$
|
251,347
|
|
|
$
|
160,781
|
|
NOTE 8 — COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings
and claims from time to time which arise in the ordinary course of its business. Although occasional adverse decisions or settlements
may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its consolidated
financial position, results of operations or liquidity.
As of June 20, 2017, the Company has
entered into a non-binding letter of intent to acquire another business. However, the letter of intent is subject to a number of
significant contingencies including due diligence, preparation, negotiation and execution of a definitive agreement, and our obtaining
financing of at least $600,000. In addition, the shareholder of the company to be acquired must provide $700,000 of services over
a four year period. It cannot be assured that the Company will be successful in consummating the acquisition and obtaining additional
financing.
NOTE 9 — SUBSEQUENT EVENTS
Management evaluated all activities of
the Company through the issuance date of the Company’s interim unaudited condensed consolidated financial statements and
concluded that no subsequent events have occurred that would require adjustments or disclosure into the interim unaudited condensed
consolidated financial statements except as described below.
Licensing Agreement with Recruiter.com
Effective October 30, 2017, the Company
entered into a License Agreement (the “License”) with Recruiter.com, Inc., a Delaware corporation (“Recruiter”)
under which Recruiter granted the Company’s newly created subsidiary, VocaWorks, Inc., a New Jersey corporation, a license
to use certain of Recruiter’s proprietary software and related intellectual property (the “License”). In consideration
for the License, the Company issued to Recruiter 125,000,000 shares of its common stock.
On October 24, 2017, the Company filed
a Certificate of Designations with the Delaware Secretary of State designating 1,875,000 shares of the Company’s authorized
preferred stock as Series B Convertible Preferred Stock (“Series B”) which is convertible into common stock at $0.005
per share, subject to adjustments in the event of stock splits, stock dividends and reverse splits. Recruiter will receive 625,000
shares of Series B upon the launch of a functional software platform and receipt of $10,000 in sales revenue. Recruiter is entitled
to receive up to an additional 1,250,000 shares of Series B following the achievement of certain milestones as provided for in
the License.
Also on October 24, 2017, the Company filed
a Certificate of Designations with the Delaware Secretary of State designating 102,100 shares of the Company’s authorized
preferred stock as Series C Convertible Preferred Stock (“Series C”) which is convertible into common stock at $0.02
per share, subject to adjustments in the event of stock splits, stock dividends and reverse splits. In accordance with the terms
of the License, on October 30, 2017 holders of the Company’s outstanding 4% Convertible Notes converted their 4% Convertible
Notes into 102,099.752 shares of Series C.
Also on October 24, 2017, the Company filed
a Certificate of Designations with the Delaware Secretary of State designating 18,839 shares of the Company’s authorized
preferred stock as Series C-1 Convertible Preferred Stock (“Series C-1”) which is convertible into common stock at
$0.005 per share, subject to adjustments in the event of stock splits, stock dividends and reverse splits. In accordance with the
terms of the License, on October 30, 2017 holders of the Company’s 10% Convertible Notes converted their 10% Convertible
Notes into 18,839 shares of Series C-1.
Holders
of shares of Series C and Series C-1 may cause the Company to redeem in cash the outstanding shares of Series C and C-1 beginning
on October 30, 2019, and earlier than that date upon the occurrence of certain triggering events contained in the Certificate
of Designations for the Series C and Series C-1, at a redemption price based upon a formula contained in the Certificate of Designations
for each series. The total redemption price if redeemed after two years from issuance is equal to the amount of the principal
and accrued interest on the 4% Convertible Notes and 10% Convertible Notes due as of the closing date plus potential additional
amounts. However, the Company has recently orally agreed with the Investors to modify the Certificate of Designations for the
Series C and C-1 by reducing the redemption amounts to a total of $1 million and extending the redemption date by an additional
three years or to on or after October 30, 2022, subject to prior conversion.
Upon liquidation, dissolution, or winding
up of the Company, the Series B, Series C and Series C-1 rank senior to the Company’s common stock and junior to the Company’s
outstanding Series A Convertible Preferred Stock, described below.
Immediately following the closing of the
Securities Purchase Agreement described below, Michael Solomon, a director of the Company exercised his option, granted to him
in September 2016, to purchase the Company’s subsidiary, TMC for $5,000. As a result, TMC is no longer a subsidiary of the
Company. Mr. Solomon remains a director until he is replaced in compliance with Rule 14f-1 under the Securities Exchange Act of
1934.
On October 24, 2017, the Company filed a Certificate
of Designations with the Delaware Secretary of State designating 700,000 shares of the Company’s authorized preferred stock
as Series A Convertible Preferred Stock (the “Series A”), which is convertible into shares of common stock at $0.005
per share, subject to adjustment in the event of stock splits, stock dividends or reverse splits and issuances of securities at
prices below the prevailing conversion price of the Series A. Immediately following the closing of the License transaction, the
Company entered into a Securities Purchase Agreements (each a “SPA”) with the two Investors who converted their Notes
into Series C and Series C-1, respectively, in accordance with the terms of the License. Pursuant to the SPA, the Investors paid
the Company a total of $600,000 and purchased in the aggregate 600,000 of shares of Series A and Warrants to purchase 120,000,000
shares of the Company’s common stock.
Dividends accrue on the Series A at a rate
of 10% per annum. Holders of Series A are entitled to vote together with holders of the common stock on an as-converted basis,
subject to a beneficial ownership limitation of 4.99%. The Series A is redeemable in the same manner as the Series C and C-1. The
Series A is senior to all other preferred stock and the common stock upon liquidation of the Company. The Warrants have a five
year term and an exercise price of $0.01 per share, subject to adjustment in the event of stock splits, stock dividends or reverse
splits and issuances of securities at prices below the prevailing exercise price of the Warrants.
Net proceeds from the sale of the Series A and Warrants were approximately $481,373, after payment of
legal fees and expenses for the Company and the investors.
Upon execution of the License, Mr. Elliot Maza,
the Company’s Chief Executive Officer, resigned from his position as Chief Executive Officer. Mr. Maza currently remains
Chief Financial Officer of the Company. Mr. Maza expects to resign from his position as Chief Financial Officer after the filing
of the Company’s Form 10-Q due November 14, 2017 because of conflicts with his current employment.
Upon Mr. Maza’s resignation as Chief
Executive Officer of the Company, the Board of Directors of the Company (the “Board”) appointed Mr. Miles Jennings
(“Jennings”) as the Company’s new Chief Executive Officer and a director. Mr. Jennings founded and is currently
the Chief Executive Officer of Recruiter.
Upon execution of the License, Mr. Irving Pompadur
resigned as a director of the Company. Pursuant to the License, Recruiter shall nominate two persons to the Company’s Board
and the investors in the Series A shall nominate one person to the Company’s Board, and Mr. Maza shall become a director
all subject to compliance with Rule 14(f)-1, at which time Mr. Solomon’s resignation will be effective.
Under the terms of the License, Mr. Jennings
entered into a one-year Employment Agreement with the Company. Under the terms of the Employment Agreement, Mr. Jennings will
receive an annual salary of $150,000. The Company agreed to grant Mr. Jennings 500,000 stock options.