NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 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 Bristol, Connecticut. Immediately following the October 30, 2017 closing
of the License Agreement and issuance of preferred shares described below and in Note 2, Mr. Michael Solomon, then a director of
the Company, exercised his option, granted to him in September 2016, to purchase the Company’s subsidiary, Truli Media Corp
(“TMC”) for $5,000. As a result, TMC is no longer a subsidiary of the Company. See Note 2 and Note 10 for additional
information on the sale of TMC.
On October 17, 2017, the Company formed
a new, wholly owned subsidiary, VocaWorks, Inc. (“VocaWorks”), a New Jersey corporation.
Prior
to the exercise of the option by Mr. Solomon to purchase TMC, the Company was focused on the on-demand media and social networking
markets as an aggregator of family-friendly, faith-based Christian content, media, music and Internet Protocol Television (“IPTV”)
programming. With the exercise of the option by Mr. Solomon, the Company has exited those activities.
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, a license to use certain of Recruiter’s
proprietary software and related intellectual property. The Company is rebranding itself under the "VocaWorks" brand
name and moving into the rapidly expanding field of online and mobile-enabled staffing and talent acquisition solutions through
its entry into the License with Recruiter. VocaWorks will offer a native mobile iOS app solution, as well as a web-based SaaS platform
offering and will facilitate the hiring of personnel, including project-based consultants, focusing initially on specialized technology
talent.
“Truli”,
“our”, “us”, “we” or the “Company” refer to Truli Media Group, Inc. and its subsidiaries.
The operations of TMC are included through the date of the exercise of the purchase option by Mr. Solomon. In discussing the business
of the Company, we refer to the business now operated by VocaWorks except as otherwise made clear from the context.
From
commencement of its former and current business operations through the date of these unaudited condensed consolidated financial
statements, the Company has not generated any revenues and has incurred significant expenses.
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 nine months ended December 31, 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 nine months ended December 31, 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 December 31, 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 estimate useful lives of intangible assets, calculate the beneficial conversion
feature of convertible notes payable and convertible preferred stock, 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 365,034,400 and 104,782,090 outstanding common share
equivalents at December 31, 2017 and 2016, respectively.
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Options
|
|
|
80,000
|
|
|
|
193,040
|
|
Warrants
|
|
|
120,000,000
|
|
|
|
-
|
|
Convertible preferred stock
|
|
|
244,954,400
|
|
|
|
-
|
|
Convertible notes payable
|
|
|
-
|
|
|
|
104,589,050
|
|
|
|
|
365,034,400
|
|
|
|
104,782,090
|
|
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.
Intangible Assets
Intangible assets consist of a license
agreement and related software, website and iPhone App development costs. These costs will be amortized over their estimated economic
lives once placed in service. The assets have not been placed in service as of December 31, 2017.
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 nine months ended December 31, 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.
In July 2017, the FASB issued Accounting
Standards Update No. (“ASU’’) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity
(Topic 480) and Derivatives and Hedging (Topic 815). The amendments in this Update provide guidance about:
1. Accounting for certain financial instruments
with down round features
2. Replacement of the indefinite deferral
for mandatorily redeemable financial instruments of certain non-public entities and certain non-controlling interests
The amendments in Part I of this Update
change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.
When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round
feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock.
The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked
financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as
a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require
entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when
it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.
Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance
for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including
related EPS guidance (in Topic 260).
The amendments in Part II of this Update
recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification,
to a scope exception. Those amendments do not have an accounting effect.
The amendments in Part I of this Update
are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption
is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim
period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments
in Part 1 of this Update should be applied in either of the following ways: 1. Retrospectively to outstanding financial instruments
with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning
of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective 2. Retrospectively
to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the
guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The Company has adopted this update during the quarter
ended December 31, 2017. The Company has retrospectively applied amendments in Part I of ASU 2017-11 to outstanding financial instruments
with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning
of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective. On the date
of adoption, there were no previously issued outstanding financial instruments with a down round feature.
The amendments in Part II of this Update
do not require any transition guidance because those amendments do not have an accounting effect.
NOTE
2 — NOTES PAYABLE
Note
Payable – Related Party
Michael Solomon, the Company’s founder
and former Chief Executive Officer (the “Founder”), advanced funds to TMC, evidenced by an unsecured term note (the
“Note”), with an outstanding principal amount of $572,301 and $457,801 on October 31, 2017 (the date that Mr. Solomon
exercised his option to purchase TMC) and March 31, 2017, respectively. The Note was without recourse to Truli Media Group, Inc.
The Note bore interest at 4% per annum. The Company recorded interest expense of $1,910 and $3,639 for the three months ended December
31, 2017 and 2016, respectively. The Company recorded interest expense of $12,123 and $7,699 for the nine months ended December
31, 2017 and 2016, respectively. As a result of Mr. Solomon’s exercise of the purchase option to acquire TMC, this note and
the related accrued interest of $24,800 is no longer a liability of the Company. Accrued interest payable was $12,677 at March
31, 2017.
Convertible
Notes Payable – Related Party
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 carried 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 $6,645
and $19,720 for the three months ended December 31, 2017 and 2016, respectively. The Company recorded interest expense of $45,871
and $58,946 for the nine months ended December 31, 2017 and 2016, respectively. Accrued interest payable was $150,259 and $104,388
at October 30, 2017 (the date of the exchange of the notes into Series C Convertible Preferred Stock) 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, and the option was exercised on that date. On October 30, 2017, the Investors
exchanged the Convertible Notes for 102,099.752 shares of Series C Convertible Preferred Stock.
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.
Convertible
Notes Payable – Other
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 $430 and $2,973 for the three and nine months ended
December 31, 2017, respectively. Accrued interest payable was $4,972 and $2,000 at October 30, 2017 (the date of the exchange
of the notes into Series C-1 Convertible Preferred Stock) 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 $345 and $2,322 for the
three and nine months ended December 31, 2017. Accrued interest payable was $2,322 and $0 at October 30, 2017 (the date of the
exchange of the notes into Series C-1 Convertible Preferred Stock) and March 31, 2017, respectively.
On October 30, 2017, the Investors exchanged
the November and April Notes and related accrued interest for 18,839 shares of Series C-1 Convertible Preferred Stock. We recorded
a gain of $634,435 as a result of the conversion of the debt and related derivative liabilities during the three and nine months
ended December 31, 2017.
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 the 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 nine months ended
December 31, 2016, the Company recorded income of $0 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 nine months ended December 31, 2017, $0 and $48 was
charged to interest expense, respectively.
We
have recorded additions to our derivative conversion liabilities related to the conversion feature attributable to interest accrued
during the period. These additions totaled $2,808 and $4,173 for the three and nine months ended December 31, 2017, respectively,
and were charged to interest expense.
During
the three and nine months ended December 31, 2017, the Company recorded expense of $301,070 and $320,837 related to the change
in the fair value of the derivative. The fair value of the embedded derivative was $358,462 at October 30, 2017 (the date of the
exchange of the notes into Series C-1 Convertible Preferred Stock), determined using the Black Scholes Model with the following
assumptions: (1) risk free interest rate of 0.97%; (2) dividend yield of 0%; (3) volatility factor of the expected market price
of our common stock of 353%; 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 nine months ended
December 31, 2017, $0 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 $2,246 and $3,269 for the three and nine months ended December 31, 2017, respectively,
and were charged to interest expense.
During
the three and nine months ended December 31, 2017, the Company recorded expense of $231,718 and $261,588 related to the change
in the fair value of the derivative. The fair value of the embedded derivative was $275,974 at October 30, 2017 (the date of the
exchange of the notes into Series C-1 Convertible Preferred Stock), determined using the Black Scholes Model with the following
assumptions: (1) risk free interest rate of 0.97%; (2) dividend yield of 0%; (3) volatility factor of the expected market price
of our common stock of 353%; 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 December 31, 2017:
|
|
|
|
|
Fair Value Measurements at
December 31, 2017 using:
|
|
|
|
December 31,
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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 nine
months ended December 31, 2017 and 2016:
|
|
December 31,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Balance, beginning of period
|
|
$
|
33,452
|
|
|
$
|
336
|
|
Additions
|
|
|
18,558
|
|
|
|
2,018
|
|
Extinguishment of derivative liabilities
|
|
|
(634,435
|
)
|
|
|
-
|
|
Change in fair value of derivative liabilities
|
|
|
582,425
|
|
|
|
69,832
|
|
|
|
$
|
-
|
|
|
$
|
72,186
|
|
NOTE
5 — GOING CONCERN
The Company’s management has evaluated
whether there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial
doubt existed as of the date of the end of the period covered by this Quarterly Report on Form 10-Q. This determination was based
on the following factors: (i) the Company’s available cash as of the date of this filing will not be sufficient to fund its
anticipated level of operations for the next 12 months; (ii) the Company may require additional financing for the remainder of
fiscal 2018 to continue at its expected level of operations; and (iii) if the Company fails to obtain the needed capital, it will
be forced to delay, scale back, or eliminate some or all of its development activities or perhaps cease operations. In the opinion
of management, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern
as of the date of the end of the period covered by this Quarterly Report on Form 10-Q.
There is no assurance that the Company
will be successful in any capital-raising efforts that it may undertake to fund operations during the next 12 months. The Company
anticipates that it will issue equity and/or debt securities as a source of liquidity, until it begins to generate positive cash
flow to support its operations. Any future sales of securities to finance operations will dilute existing stockholders' ownership.
The Company cannot guarantee when or if it will generate positive cash flow.
The Company is currently in negotiations
for another round of funding anticipated for the fourth quarter of fiscal 2018. However, there is no assurance that the Company
will be successful in this or any other capital-raising efforts that it may undertake to fund operations during the next twelve
months. The Company anticipates that it will issue equity and/or debt securities as a source of liquidity, until it begins to generate
positive cash flow to support its operations. Any future sales of securities to finance operations will dilute existing stockholders'
ownership. The Company cannot guarantee when or if it will generate positive cash flow.
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 — INTANGIBLE ASSETS
Intangible assets consist of a License
Agreement (the “License”) with Recruiter.com, Inc. (“Recruiter”), under which Recruiter granted VocaWorks
a license to use certain of Recruiter’s proprietary software and related intellectual property. In consideration for the
License, the Company issued to Recruiter 125,000,000 shares of common stock. We have valued the license at $625,000. Recruiter
will receive 625,000 shares of Series B Preferred Stock 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 Preferred Stock following the
achievement of certain milestones as provided for in the License. Recruiter shall provide VocaWorks with support services free
of charge, which shall include (i) a total of 2,400 hours of Technology and Development Services to be provided by Recruiter personnel
during the two year period following the effective Date, with a total value of $200,000; and (ii) marketing and advertising services,
which are available to Recruiter’s general customers, and strategic marketing services, to be provided by Recruiter each
year during the four year period following the effective date, with a total value of $500,000.
We also have capitalized software costs
of $28,750 related to the development of our website and iPhone app, both to be used in conjunction with the license acquired from
Recruiter.
These
assets have not been placed in service at December 31, 2017.
NOTE
7 — SHAREHOLDERS EQUITY
Preferred
stock
The
Company is authorized to issue 10,000,000 shares of $0.0001 par value preferred stock. As of December 31, 2017 and March 31, 2017
the Company has 720,938.752 and no shares of preferred stock issued and outstanding, respectively.
Series
A Convertible Redeemable Preferred Stock
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. The Company entered
into Securities Purchase Agreements (each a “SPA”) with the two Investors who converted their Notes into Series C
and Series C-1 (described below and in Note 2). Pursuant to the SPAs, 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.
Series
B Convertible Preferred 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.
Series
C and Series C-1 Convertible Redeemable Preferred Stock
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 and issuances of securities
at prices below the prevailing conversion price of the Series C. 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 and accrued interest 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 and issuances of securities
at prices below the prevailing conversion price of the Series C-1. 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 and accrued interest 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.
Subsequent to December 31, 2017, filed
an amendment to the Certificates of Designations for the Series C and Series C-1 extending the redemption date to October 2022
and reducing the redemption amount to $1 million (see Note 12).
Common
stock
The
Company is authorized to issue 250,000,000 shares of common stock, par value $0.0001 per share. As of December 31, 2017 and March
31, 2017 the Company had 127,554,197 and 2,554,197 shares of common stock issued and outstanding, respectively.
In
consideration for the acquisition of the license described in Note 6, the Company issued 125,000,000 shares of common stock.
As
a result of Mr. Solomon’s exercise of his option to purchase TMC, as described in Note 1, the ownership of TMC was transferred
to Mr. Solomon on October 31, 2017. We have recorded a credit of $616,719 to additional paid in capital to reflect the net liabilities
transferred.
Common
stock warrants
In connection with the sale of our Series
A preferred stock, we issued an aggregate of 120,000,000 common stock purchase warrants to the purchasers of the preferred stock.
The warrants are immediately exercisable at an exercise price of $0.01 and expire, if unexercised, on October 30, 2022. The exercise
price and number of warrants are 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 warrants.
Stock Option Plan
2017 Equity Incentive Plan
In October 2017, our board of directors
and stockholders authorized the 2017 Equity Incentive Plan, which we refer to as the 2017 Plan, covering 38,000,000 shares of common
stock. The purpose of the 2017 Plan is to advance the interests of the Company and our related corporations by enhancing the ability
of the Company to attract and retain qualified employees, consultants, officers, and directors, by creating incentives and rewards
for their contributions to the success of the Company and its related corporations. The 2017 Plan is administered by our board
of directors or by the Compensation Committee. Plan options may either be:
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incentive stock options (ISOs),
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non-qualified options (NSOs),
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awards of our common stock,
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stock appreciation rights (SARs),
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restricted stock units (RSUs),
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Any option granted under the 2017 Plan
must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant
and not less than $0.02 per share, but the exercise price of any ISO granted to an eligible employee owning more than 10% of our
outstanding common stock must not be less than 110% of fair market value on the date of the grant. The plans further provide that
with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option
holder during any calendar year cannot exceed $100,000. The exercise price of any NSO granted under the 2017 Plan is determined
by the Board at the time of grant, but must be at least equal to fair market value on the date of grant. The term of each plan
option and the manner in which it may be exercised is determined by the board of directors or the compensation committee, provided
that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted
to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. The terms
of grants of any other type of award under the 2017 Plan is determined by the Board at the time of grant. Subject to the limitation
on the aggregate number of shares issuable under the plans, there is no maximum or minimum number of shares as to which a stock
grant or plan option may be granted to any person.
NOTE
8 — REDEEMABLE CONVERTIBLE PREFERRED STOCK
As
described in Note 7, we have issued shares of Series A, Series C, and Series C-1 convertible preferred stock. Since the convertible
preferred stock may ultimately be redeemable at the option of the holder, the carrying value of the preferred stock has been classified
as temporary equity on the balance sheet at December 31, 2017.
A
portion of the proceeds from the sale of our Series A preferred stock were allocated to the warrants based on their relative fair
value, which totaled $580,645 using the Black Scholes option pricing model. Further, we attributed a beneficial conversion feature
of $34,492,426 to the Series A, Series C and Series C-1 preferred shares based upon the difference between the effective conversion
price of those shares and the closing price of our common shares on the date of issuance. The assumptions used in the Black Scholes
model are as follows: (1) dividend yield of 0%; (2) expected volatility of 353%, (3) risk-free interest rate of 2%, (4) expected
term of 5 years. The amount attributable to the warrants and beneficial conversion feature, aggregating $35,073,071, has been
recorded as a deemed dividend to the preferred shareholders and as a charge to additional paid-in capital (since there is a deficit
in retained earnings).
For
the three months ended December 31, 2017, we have accrued dividends in the amount of $45,603. The accrued dividends have been
charged to additional paid-in capital (since there is a deficit in retained earnings) and the net unpaid accrued dividends been
added to the carrying value of the preferred stock.
NOTE
9 — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As
of December 31, 2017 and March 31, 2017, accounts payable and accrued liabilities for the period ending are comprised of the following:
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December 31,
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March 31,
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2017
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2017
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Legal and professional fees payable
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$
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62,507
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$
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100,782
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Other payables
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1,614
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59,999
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$
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64,121
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$
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160,781
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During the three and nine months ended December 31, 2017, we
recorded a gain on reversal of accounts payable and accrued liabilities of $98,593.
NOTE 10 — RELATED PARTY TRANSACTION
Immediately following the closing of the
license agreement and issuance of preferred shares described elsewhere, Mr. 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, cash of $9,040 and payables
of $23,658 were transferred with TMC. Additionally, notes and accrued interest due to Mr. Solomon, aggregating $597,101, were also
transferred with TMC. We recorded a credit to additional paid in capital of $616,719 as a result of this transaction.
NOTE 11 — 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.
Recruiter will receive 625,000 shares of
Series B Preferred Stock 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 Preferred Stock following the achievement of certain milestones
as provided for in the License.
NOTE 12 — 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.
On February 1, 2018 the Company issued
4,000,000 shares of common stock upon the conversion of 4,000 shares of Series C preferred stock.
On February 13, 2018, the Company filed
an amendment to the Certificates of Designations for the Series C and Series C-1 extending the redemption date to October 2022
and reducing the redemption amount to $1 million. See Note 7.
The Company granted to its chief executive
officer 500,000 options to purchase common stock, exercisable at $0.08 per share, under the terms of the 2017 Equity Incentive
Plan. The options vest 41,667 upon grants and the remaining options shall vest quarterly in equal amounts over a 33-month period
with the first vesting date being April 30, 2018.