Item 1. Business
Overview
We are Last Mile Commerce and Connectivity aggregator that delivering the product and services to offline consumer using service agent network in India through our website, www.tripborn.com. Currently, we operate as a business to business, or B2B, Last Mile Commerce platform that serves business agents and companies based in India in providing travel and financial services products for their offline customers. Through our internet-based platform, our business or travel agents can search and book domestic and international air tickets, hotels, vacation packages, rail tickets and bus tickets, as well as ancillary travel-related services and financial services including money transfer bill payment, and Micro ATM products. We serve approximately 9000 business agents across India. We plan to expand our presence throughout pan-India as opportunities present, with an immediate focus on the states of Gujarat, Maharashtra, Rajasthan, Delhi, Bihar, Jharkhand, Orissa, and Madya Pradesh and South India. Sometimes we also referred as an Online Travel Agency (“OTA”), that offers travel reservations and related travel services and products to travel agents in India through our website, www.tripborn.com.
We are a holding company organized in Delaware in 2010. Our president and director, Deepak Sharma formed our operating subsidiary, Sunalpha Green Technologies Private Limited (“Sunalpha”), under the laws of the Republic of India in 2010. Sunalpha commenced operations as an Online Travel Agency (“OTA”) in India in February 2014.
We engineered our internet-based platform, Travelcord using multiple systems platforms with an emphasis on scalability, performance and reliability. We integrated other software platforms, applications and database systems into Travelcord. We designed these internal platforms to include open application protocol interfaces that can provide connectivity to our travel services suppliers. Our travel services suppliers include aggregators and individual providers, such as individual hotels. Our applications use secure communications and transactions, as appropriate.
Our Market
India’s rapidly growing economy and rising middle class are driving growth in India’s travel and tourism industry. According to the World Bank India will continue to be the fastest growing major economy in the world, according to world bank India’s gross domestic product (“GDP”) is expected to grow at 7.3 % in fiscal year 2018-2019 and accelerate to 7.5% in fiscal year 2019 and 2020. The World Bank has forecast, attributing it to an upswing in consumption and investment where “India’s long-term growth has become more steady, stable, diversified, and resilient,” according to the World Bank. A November 2016 World Economic Forum report stated that the Indian middle class doubled in size over an eight -year period from 300 million in 2004 to 600 million in 2012 and half of the 1.2 billion population is now middle class. The report further states that by 2027, India’s population will overtake China’s and India’s middle class will overtake the middle classes of the United States, Europe, and China. According to an April 2018 report by the International Monetary Fund, nominal per capita income of the Indian population continues to increase. All of these factors tend to increase discretionary spending in areas such as travel and leisure. According to Word Travel & Tourisms Council Economic Impact 2018, the travel and tourism sector in India has been increasingly contributing to overall GDP, accounting for 9.4% in 2017 and forecasting to rise by 7.5% to approximately 10.1% in 2018. Domestic tourists accounted for over 88% of the travel and tourism spending in 2017.
Although internet penetration and use of debit and credit cards is rapidly increasing, India continues to have a significant unbanked population, particularly outside of urban areas. According to an October 2015 report prepared by PricewaterhouseCoopers, 233 million households in India did not have access to banking services at that time, down from 557 million in 2011. According to Global Findex database it is estimated that in June 2018 there were still 191 million individuals in India who do not have bank accounts. According to India’s 2011 Census, 69% of India’s population lives in rural areas, while 5% live in semi-urban areas. In addition, lower internet penetration and literacy rates in more rural areas mean that OTAs are unable to reach a significant portion of the population directly. Due to a combination of these factors, semi-urban and rural travelers are more likely to require an intermediary to book travel related services and products.
Our Strategy
We manage our OTA business through Travelcord, our proprietary internet-based online transaction platform. Through our website, www.tripborn.com, we offer a wide inventory of travel services and products to travel agents who serve the growing middle class of largely offline travelers in semi-urban and rural regions of India. Through our proprietary technology, we consolidate and provide our travel agents with access to travel bookings and hotel reservations that otherwise would be costly and time-consuming to obtain for their customers in an often -fragmented marketplace. While some of our more established competitors have focused on selling directly to consumers in urban areas, our travel agent partners tend to be small, brick and mortar establishments that serve travelers who rely on more personalized transactions for their travel booking needs due to language barriers and lack of access to the internet or credit cards. We have grown our operations through referrals and a focus on addressing our customers’ needs through sophisticated technology. In the development stages, we have relied on user feedback to enhance our core technology. As internet penetration in India continues to increase, we anticipate that we will be able to use our established platform to offer travel services and products directly to consumers. During our fiscal year ended March 31, 2018 (“fiscal year 2018”), we launched a new money transfer product on our established platform. This product allows users to electronically transfer money and is a value-added service to our existing customers. We plan to grow our processing volume by increasing the number of services offered on our network, increasing the number of travel agents on our platform, and increasing the value-added services offered through our network, including financial products.
We are working with a number of banks to become their banking correspondents and payment processors to increase our travel agent service offerings, and we plan to continue to expand our number of partners in order to provide more value to our travel agent base. Our travel agent growth is directly attributable to our organic sales efforts through our sales team; at the same time, we also grow the number of travel agents on our platform by signing up existing organizations or cooperatives to our service. Our rapid growth in gross revenue is the result of two key factors: increasing the number of deposits collected from our travel agents on a daily basis, and by our travel agents offering a diverse and profitable mix of ticketing services.
Corporate History
Tripborn, Inc. (“Company”) was incorporated under the law of the state of Delaware in January 2010 office is located at 762 Perthshire Pl, Abingdon, MD 21009. The Company provides Online Travel Agency (OTA) and related services and selling its services to directly to Business customers. The Company primarily operates in India. Tripborn, Inc. formerly known as PinstripesNYC, Inc was operating as a shell company with nominal or no assets or operations until December 14, 2015. Tripborn Inc. was known as PinstripesNYC, Inc. until January 2016.
On December 14, 2015, a PinstripesNYC, Inc. (the “Registrant”) executed an agreement and Plan of Merger (the, “Agreement”) with Sunalpha Green Technologies Private Limited. (the, “Sunalpha”) registered under the Company Act of 1956, India with principle office located at 812, Venus Atlantis Corporate Park, Near Prahalad Nagar Garden, Satellite, Ahmedabad, Gujarat, India 380 015.
As a result of the Merger, Sunalpha became a wholly owned subsidiary of the Registrant (Pinstripes NYC Inc.) now Tripborn Inc. and following the consummation of the Merger and giving effect to the issuance of the Merger Shares 76,804,914 shares issued and outstanding of the Registrant by its principle stockholders.
For accounting purposes, Sunalpha was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of the Company. Accordingly, Sunalpha’s assets, liabilities, and results of operations are the historical consolidated financial statements of the Company and Company’s assets, liabilities and results of operations are consolidated with Tripborn Inc. effective as of the date of the Merger. No step-up in basis or intangible assets or goodwill was recorded in this transaction.
Since commencing operations as an OTA in February 2014, we have grown our business by initially processing a few transactions a day to processing approximately 8,000 transactions per day in March 2019. In our fiscal year ended March 31, 2019 we processed 1,553,759 transactions and 19.4 million searches have been performed on our platform compared to 1.0 million plus transactions and 16.9 million searches in March 31, 2018. During fiscal 2019, we have experienced increased traffic on our website due to our efforts in marketing and branding. Our agent customers log in nearly 3,142 times per day, up from 2,701 at March 31, 2018. We have steadily worked to add suppliers in order to provide additional services and better pricing for our travel agent customers. In the development stages, we have relied on user feedback to enhance our core technology. As internet penetration in India continues to increase, we anticipate that we will be in a position to use our established platform to offer travel services and related services directly to consumers. We believe our online platform is capable of managing hundreds of suppliers and millions of transactions in furtherance of our growth strategies.
Change in Control Transaction and Reverse Recapitalization
The audited consolidated financial statements include the financial statements of the Company and Sunalpha, our wholly owned operating subsidiary. All significant related party accounts and transactions between the Company and Sunalpha have been eliminated upon consolidation.
The Company was formed by two transactions, the first being a change in control transaction on December 8, 2015, whereby Arna Global LLC (“Arna”), which is wholly owned by our president and director, Deepak Sharma, received 71,428,570 shares of our common stock, or 93% of the then-outstanding shares, for cash consideration of $95,500 pursuant to the Stock Purchase Agreement among us, Arna, and Maxim Kelyfos, LLC dated December 8, 2015. In the second transaction, which was completed on December 14, 2015, we acquired substantially all of the outstanding shares of Sunalpha, which was incorporated under the laws of the Republic of India on November 2010. Sunalpha is the acquirer for financial reporting purposes, and TripBorn (formerly known as PinstripesNYC, Inc.) is the acquired company.
Increase in Authorized Shares
The Company amended its certificate of incorporation on January 13, 2016 to (a) increase the total number of authorized shares of capital stock of the Corporation to Two Hundred Ten Million (210,000,000) with Two Hundred Million (200,000,000) shares designated as common stock at $.0001 par value and Ten Million (10,000,000) shares designated s preferred stock at $.0001 par value. and (b) change its name from PinstripesNYC. Inc. to Tripborn, Inc.
Our Services and Products
Our internet-based platform at www.tripborn.com provides participating business or travel agents, travel managers, arrangers and corporations with the ability to quickly search and book the services described below for their largely offline customers. Many of our arrangements with our service suppliers are informal and provide our counterparties with the ability to terminate or suspend the arrangements with little or no notice. Our arrangements with our service suppliers with respect to the terms of our sales targets, incentives, commissions and discounts often are subject to change at the discretion of our supplier and are negotiated periodically on a quarterly or yearly basis, if not more frequently. Our systems are connected to booking or reservation systems of our service suppliers. Our suppliers can charge fees, surcharge or commission for accessing there on an initial and/or ongoing basis. These arrangements are documented using contracts or service agreements.
Air ticketing
Our travel agent customers can book domestic or international flights through our website. We have agreements with India’s three domestic low-cost carriers. In addition, through our website, we offer our travel agents access to international air tickets to destinations worldwide as an approved agent of the International Association of Travel Agents, or “IATA,” and through our aggregators, which have agreed to provide us with access to their airline ticket inventory.
Our platform at www.tripborn.com allows our customers to search for available tickets based on their customers’ requirements. Our platform quickly processes the available inventory of our aggregators and suppliers and displays the results, including availability, schedules and prices. The prices displayed include the commission that our customers will earn on the ticket sales.
We typically procure tickets from our suppliers and sell them to our travel agent customers. We earn revenue by charging a markup or adding fees to the ticket price and by charging booking fees, service charges and/or payment gateway charges for using our website. We also receive revenue from our suppliers by earning incentives and/or commissions based on the volume of tickets we purchase from our suppliers. We may pre-purchase blocks of air tickets from our suppliers and hold them to resell within specified time periods. If we are not able to sell these pre-purchased tickets, we recognize a loss. We also may pay in advance for air tickets to receive a discount on purchases from our suppliers. These advance payments are credited toward future air ticket sales.
Hotel reservations
We offer access to reservations with 400,000 hotels across the world, including hotels in India through aggregators that we have directly connected into our booking system. Our platform allows our travel agent customers to meet their customers’ needs by searching for hotel availability by location and sorting search results by star ratings and price. Our search results include photos and descriptions of the hotels’ amenities. We arrange for hotel bookings for our travel agent customers by securing the booking at base rates and earn revenue by including a markup or fees on the rates billed to our travel agent customers and by charging booking fees, service charges and/or payment gateway charges for using our website. We also may earn incentives and/or commissions from our suppliers for completing bookings. In some cases, our employees may arrange for hotel bookings directly with individual hotels. In addition, we may pre-purchase blocks of reservations from our suppliers and hold them to resell within specified time periods. If we are not able to sell these reservations, we recognize a loss.
Bus ticketing
Our travel agent customers can book bus tickets in India on our website through an aggregator that is directly connected into our booking system. Our platform consolidates ticketing for largely unorganized regional bus services for the benefit of our travel agent customers and their customers. As a value -added service, our platform allows our travel agent customers to select specific seats by gender, which is of interest to their Indian customers. We may also procure bus tickets offline from individual bus operators for our travel agent customers. We procure bus tickets for our travel agent customers at base rates and earn revenue by including a markup or fees on the tickets. We also earn incentives and commissions from our supplier for completing bookings.
Rail ticketing
We are a B2B Agent of the Indian Railway Catering and Tourism Corporation, or IRCTC, which is a government entity that allows us to offer reservations through Indian Railways’ passenger reservation system on our webpage. Indian Railways is India’s state-owned railway, which owns and operates most of India’s rail transportation. We have integrated our system with IRCTC’s to provide a seamless booking process for our travel agent customers. According to the 2016-2017 annual report of the Ministry of Railways, Indian Railways sold 209 million tickets in 2016-2017 and carries approximately 23 million passengers daily. Rail travel is the primary mode of transportation for Indians, particularly in rural areas.
As a Principal Agent, we enroll our travel agent customers to book rail tickets for their customers through our platform. We earn revenue by collecting enrollment fees from our travel agent customers, by collecting service charges on each seat booked and by collecting payment gateway charges on the amount of the transaction. The IRCTC determines ticket prices and the maximum amount of the service charge (currently, between approximately $0.30 and $0.60 per ticket). We also may charge our travel agent customers a fee based on the percentage of the transaction value for payment gateway charges (currently, up to two percent).
Sunalpha entered into an agreement with IRCTC for a one-year term that expired in October 2018. On September 30, 2018, Sunalpha renewed its agreement with the IRCTC. The agreement will expire on October 5, 2019 and may be renewed for an additional annual term in the discretion of the IRCTC. The IRCTC may terminate or temporarily suspend the agreement without prior notice.
Vacation packages
Our travel agent customers can search our platform for available vacation packages or submit inquiries regarding their customers’ preferences to be fulfilled by us and/or our third-party suppliers. Our call center also is available to our travel agent customers to facilitate these requests. We arrange for vacation package bookings for our travel agent customers by securing the booking at base rates and earn revenue by including a markup or fees on the rates billed to our travel agent customers and by charging booking fees, service charges and/or payment gateway charges for using our website. We also may earn incentives and/or commissions from our suppliers for completing bookings. In addition, we may create packages based on our travel agent customers’ specifications by purchasing the components of the package from our suppliers as necessary.
Pre- and post-paid services and utilities
As a value-added service, our travel agent customers may use our internet platform to pay make pre- and post-paid mobile payments and payments for television service and data cards on behalf of their customers. We pay our suppliers for the services and earn a commission as a percentage of the price of the services. We also pass a service charge on to our travel agent customers.
Money transfer service
As a value-added service, our business agent customers may use our internet platform which is connected to intermediary bank settlement system to make cash transfers on behalf of their customers. We pay our suppliers for the services and earn a commission as a percentage of the price of the services. We also collect a service charge or fees on to our business agent customers for performing the money transfer services for their customers. We originate domestic remittance transactions using intermediary banking system, and bank sends money to end customer bank account.
Distribution
Our travel agent customers search and book travel services and products for their clients through our internet-based Travelcord platform at www.tripborn.com. Our sales and marketing team enrolls the new travel agent customers and distributors. We train these travel agent customers to use our systems and processes. The travel agent customers can enroll with us to access some or all of the booking services available on our platform. For example, some travel agent customers may choose only to access rail ticketing, while others may choose to access our entire offering of services. We do not have formal arrangements with our travel agent customers, but we evaluate each travel agent customer prior to enrolling them into our system to assess their credit-worthiness and negotiate payment terms. We require our travel agent customers to provide payment for services booked through us from within one to ten days. We also charge our travel agent customers a one-time non-refundable enrollment fee of $75 - $100.
We engineered our internet-based platform using multiple systems platforms with an emphasis on scalability, performance and reliability to ensure our platform is always available for our customers. We primarily host our systems infrastructure and web and database servers of our operations through IBM, which provides network connectivity, networking infrastructure, uninterruptable power supply and 24-hour monitoring and engineering support typical of hosted data centers. All data center facilities have a continuous power supply system, generators, redundant servers and multiple back-up systems. Although we take steps to mitigate the effects of any loss or reduction in service at one of our hosting facilities, if a hosting facility were inaccessible or otherwise experienced a disruption in service for any reason, we could experience a disruption to our services, loss of transactions and revenue and consumer complaints.
We also maintain a call center to provide customer support and troubleshooting solutions.
Sales and Marketing
We facilitate the sale of third parties’ travel services and products through our internet website to travel agents, who book hotels and tickets for their largely offline customers. In the past three years, we have built a network of over 9000 plus service agents by reputation and word of mouth. Our agent customers are primarily based in and around the city of Ahmedabad in Gujarat, but also operate in the other states across India. We are expanding our sales team and hiring employees to expand our marketing and sales efforts.
Competition
The market for travel services and products in India is highly competitive. We currently compete with both established and other emerging providers of travel services and products, including other online travel agencies, as well as traditional travel agencies, tour operators, travel suppliers and operators of travel industry reservation databases. Large, established internet search engines have also launched applications offering travel itineraries in destinations around the world, and meta-search companies who can aggregate travel search results also compete with us for customers.
Established OTAs such as makemytrip.com, cleartrip.com, expedia.co.in, travelocity.co.in, yatra.com, goibibo.com, booking.com and agoda.com have achieved strong brand recognition and reliability in India. Since the travel industry is a high-volume, low-margin business, it can be difficult for emerging participants, such as us, to capture a meaningful share of the market from OTAs with established brands and resources. We intend to build our brand in the underserved rural and semi-rural markets through our superior service-oriented travel portal. We believe that being a later market entrant allows us to develop a superior platform with upto-date technologies.
Certain of our travel service suppliers have also been steadily focusing on increasing online demand on their own websites and decreasing or eliminating their dependence on third-party distributors like us. For instance, many low-cost airlines may, subject to applicable regulations, reduce or eliminate commissions to agents such as us or restrict the amount of service fees we are able to charge customers. Suppliers who sell on their own websites typically do not charge a processing fee, and, in some instances, offer advantages such as their own bonus miles or loyalty points, which could make their offerings more attractive to customers than offerings like ours. See “Risk Factors - Risks Related to Our Industry - The travel industry in India is highly competitive, and we may not be able to compete effectively.”
Intellectual Property
Our affiliate Arna Global LLC (“Arna”), which is wholly-owned by our president and director, Deepak Sharma, acquired the rights to the Travelcord software from Takniki Communications, which is wholly-owned by our vice president and director, Sachin Mandloi, pursuant to a Software Development Agreement dated January 26, 2015 (the “Software Development Agreement”). Under this Software Development Agreement, Takniki Communications agreed to develop Travelcord and provide support for a maximum fee of $906,000. In turn, Arna licensed Travelcord to Sunalpha under a Software Licensing Agreement dated April 1, 2015 (the “Software Licensing Agreement”). Pursuant to a Software Agreement with Arna dated December 16, 2015 (the “Software Agreement”), we acquired Arna’s ownership and development rights to the Travelcord software. Under the Software Agreement, Arna also transferred its right to license the software to Sunalpha under the Software Licensing Agreement. As a result of these transactions, we agreed to pay Arna $956,000 for Travelcord, which we provided in the form of a convertible promissory note. By virtue of a letter agreement, we license Travelcord to our operating subsidiary, Sunalpha. Sunalpha has agreed to pay us a one-time implementation and customization user fee of $956,000 and a fee of $215,000 for each five-year term under the Software Licensing Agreement. Pursuant to a Software Development Agreement between us and Takniki Communications dated September 23, 2016, the Travelcord software was upgraded, with additional features and capabilities added.
We rely on confidentiality and non-compete agreements and provisions to protect our intellectual property rights. Our trademark registration in India for our name, TripBorn was approved on May 30, 2019.
Employees
We currently have 44 employees based in our Ahmedabad, Gujarat and Bangalore, Karnataka, India offices, all of which are full time employees. None of our employees are represented by a labor union. We have not experienced any work stoppages and believe that we have satisfactory employee relations.
Government Regulation
In the United States and India, we are subject to or affected by international, federal, state and local laws, regulations and policies, including anti-bribery rules, trade sanctions, data privacy requirements, labor laws and anti-competition regulations, which are constantly subject to change. The descriptions of the laws, regulations and policies that follow are summaries and should be read in conjunction with the texts of the laws and regulations. The descriptions do not purport to describe all present and proposed laws, regulations and policies that affect our businesses.
We believe that we are in compliance with these laws, regulations and policies. Although we cannot predict the effect of changes to the existing laws, regulations and policies or of the proposed laws, regulations and policies that are described below, we are not aware of proposed changes or proposed new laws, regulations and policies that will have a material adverse effect on our business.
Under the Indian Information Technology Act, 2000, as amended, we are subject to civil liability to compensate for wrongful loss or gain to any person arising from negligence in implementing and maintaining reasonable security practices and procedures with respect to sensitive personal data or information that we possess, deal with or handle in our computer systems, networks, databases and software. India has also implemented privacy laws, including the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, which impose limitations and restrictions on the collection, use and disclosure of personal information.
The consolidated foreign direct investment policy, or the “FDI Policy,” issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India and the Foreign Exchange Management Act, 1999, as amended, and the regulations framed thereunder, regulates foreign investment in India. In addition, the regulations have certain requirements with respect to downstream investments by Indian companies that are owned or controlled by foreign entities, as well as investments and acquisition by foreign entities in certain sectors with caps on foreign investments. These requirements currently include restrictions on issuances, pricing and valuation of shares of Indian companies and sources of funding for such investments, which may, in certain cases, require prior notice to or approval of the Government of India.
The Companies Act, 2013 and the rules thereunder, or the “new Companies Act,” contains significant changes to Indian company law, including in relation to the issue of capital by companies, related party transactions, corporate governance, audit matters, shareholder class actions, restrictions on the number of layers of subsidiaries, corporate social responsibility spending and a penal provision with respect to non-compliance with the provisions of the new Companies Act. While several provisions of the new Companies Act are currently effective, the existing Companies Act, 1956 remains in effect with respect to other provisions.
We operate in jurisdictions in which local business practices may be inconsistent with international regulatory requirements, including anti-corruption and anti-bribery regulations prescribed under the U.S. Foreign Corrupt Practices Act (“FCPA”), which, among other things, prohibits giving or offering to give anything of value with the intent to influence the awarding of Government contracts. Also, India’s Prevention of Corruption (Amendment) Bill 2013 (“PCA”) prohibits giving bribe to a public servant. To help ensure compliance with these laws and regulations, we have adopted specific risk management and compliance practices and policies, including a specific policy addressing the FCPA.
Item 1A.
Item 1A. Risk Factors
The following are factors that could have a significant impact on our operations and financial results and could cause actual results or outcomes to differ materially from those discussed in any forward-looking statement.
The travel industry in India is highly competitive and fragmented, and we may not be able to compete effectively as Sales and Marketing efforts requires deep understanding of local demographics and local demand. We intend to build our brand in the underserved rural and semi-rural markets through our superior service-oriented travel portal, which requires technology adoption and internet infrastructure to access our services in those areas.
Certain of our travel service suppliers have also been steadily focusing on increasing online demand on their own websites and decreasing or eliminating their dependence on third-party distributors like us. For instance, many low-cost airlines may, subject to applicable regulations, reduce or eliminate commissions to agents such as us or restrict the amount of service fees we are able to charge customers. For instance, local suppliers who sell on their own websites typically do not charge a processing fee, and, in some instances, offer advantages such as their own bonus miles or loyalty points, which could make their offerings more attractive to customers than offerings like ours.
Risks Related to Our Business
We are a development stage company with a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.
We have a limited operating history upon which you can evaluate our future performance. Our operating subsidiary was incorporated under the laws of India in 2010, and it began to focus its operations on the online travel industry in February 2014. Our senior management has limited experience in the online travel industry, and we still are in the process of fully developing our online platform and product offerings. We have generated revenues over a limited operating history and have incurred net losses since our inception. As a result of our short operating history, we have only limited financial data and business information with which to evaluate our business strategies, performance and investment in our common stock.
We have incurred net losses since our inception and anticipate that we will continue to incur net losses for the foreseeable future.
We expect to incur operating losses in future periods as we incur significant expenses associated with the initial startup of our business. Our expenses will continue to increase as we continue to develop the operations necessary to further our business plan. We cannot now determine the amount by which our expenses will increase as we grow and hire additional employees, implement our sales, marketing and distribution plans, pursue contractual arrangements and partnerships and develop our internet-based infrastructure. Further, we cannot guarantee that we will be successful in achieving or sustaining positive cash flow at any time in the future. Any such failure could result in the possible closure of our business and a complete loss of our stockholder’s investment.
We will require additional financing to support our operations, which financing may not be available on favorable terms or at all; any new equity financing could have a dilutive effect on our existing stockholders.
We will require additional financing to sustain our business, which may not be available on favorable terms, if at all. We estimate that we will require approximately $5,000,000 and $8,000,000 in the next 12 and 24 months respectively, to continue and grow our business. We may seek additional funding through a combination of equity offerings, debt financings or other third-party funding and other collaborations, strategic alliances and licensing arrangements to fully implement our business plan. For instance, in fiscal years 2016 and 2017, we issued convertible notes, which may convert into shares of our common stock in the future. We have also sold shares of our common stock to certain investors pursuant to subscription agreements in a private placement. If we raise additional funds through the issuance of equity or convertible debt securities, our stockholders may experience significant dilution. In addition, these new securities may contain certain rights, preferences or privileges that are senior to those of the shares of our common stock, which may decrease the value of an investment in our common stock. If we cannot obtain additional financing, we will not be able to achieve the necessary sales growth to cover our costs, and our results of operations would be negatively affected.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiary to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers from our Indian operating subsidiary to meet our obligations. The deterioration of income from, or other available assets of, our Indian operating subsidiary for any reason could limit or impair its ability to pay dividends or other distributions to us, which in turn could adversely affect our financial condition and results of operations.
Our lack of insurance leaves us exposed to significant liabilities.
We do not carry insurance for the risks that our business may encounter. Any significant liability may require us to pay substantial amounts, which would adversely affect our financial condition and results of operations, if we are able to continue in business at all.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost effective manner.
As a newly public company we now are required to comply with new laws, regulations, requirements and certain corporate governance provisions under the Exchange Act and the Sarbanes-Oxley Act. Complying with these statutes, regulations and requirements will occupy a significant amount of time of our board of directors and management and will significantly increase our costs and expenses and will make some activities more time-consuming and costly. In connection with becoming a reporting company, we need to:
Ÿinstitute a more comprehensive compliance function;
Ÿprepare and distribute periodic and current reports under the federal securities laws;
Ÿestablish new internal policies; and
Ÿinvolve and retain to a greater degree outside counsel and accountants.
Our ongoing compliance efforts will increase general and administrative expenses and may divert management’s time and attention from the development of our business, which may adversely affect our financial condition and results of operations. We estimate that we may incur approximately $200,000 in costs during the fiscal year ending March 31, 2019 and $250,000 in the fiscal year ending March 31, 2020 in connection with operating as a public company.
Our lack of experienced accounting staff may impact our ability to report our future financial results on a timely and accurate basis, and we need to retain the services of additional accountants and consultants with required accounting experience and expertise.
With the exception of our CEO and Chief Financial Officer, our accounting and finance staff lacks depth and skill in the application of generally accepted accounting principles with respect to external financial reporting for Exchange Act reporting companies. We also do not have an audit committee or a member of our board of directors who would satisfy the definition of an audit committee financial expert. We intend to engage the services of additional accounting personnel to assist with our financial accounting and reporting requirements to develop our internal control over financial reporting and to produce timely financial reports. Until we do so, we may experience difficulty producing reliable and timely financial statements, which could cause investors to lose confidence in our reported financial information and the market price of our stock to decline significantly. We also may be unable to obtain additional financing on acceptable terms, and our business and financial condition could be harmed.
If we fail in implementing appropriate internal financial control over financial reporting, the price of our common stock may be adversely affected.
We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosure regarding our business, financial condition or results of operations. In addition, our future assessments of internal control over financial reporting may identify additional weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any material weakness that needs to be addressed in management’s assessment of our internal control over financial reporting or in the report on the effectiveness of our internal controls by our independent registered public accounting firm, when may have an adverse impact on our common stock.
We may not be successful in implementing our growth strategies.
Our growth strategies involve expanding our network of travel agents, expanding our service and product offerings, expanding supplier relationships, enhancing our service platforms by investing in technology and expanding into new geographic markets within India. The following factors may affect our success in implementing our growth strategies:
Ÿour ability to increase the number of suppliers, especially suppliers that are directly-connected to us, which depends on the willingness of such suppliers to invest in new technology;
Ÿour ability to continue to expand our distribution channels, and market and cross-sell our travel services and products to facilitate the expansion of our business;
Ÿour ability to build or acquire the required technology;
Ÿthe general condition of the global and Indian economy and continued growth in demand for travel services, particularly online;
Ÿour ability to compete effectively with existing and new entrants to the Indian travel industry, including both online travel companies as well as traditional travel agents and tour providers; and
Ÿthe growth of the internet as a medium for commerce in India.
Many of these factors are beyond our control and there can be no assurance that we will succeed in implementing our strategy.
We depend on certain related persons transactions and may continue to rely on related persons for key development and support activities.
As described more fully in “Certain Relationships and Related Person Transactions,” we have entered into, and may continue to enter into, transactions with related persons. We rely on associates and enterprises that our president and vice president control for key development and support activities. While we believe that our related persons’ interests align with our own, we may not have entered into such transactions on an arm’s-length basis. While we presently benefit from free services or deferred payments, in the long-term, we may have achieved more favorable terms had we entered into such transactions with unrelated parties. In addition, if these related persons withdrew their support from our business, the associated loss of preferential business arrangements could significantly increase our operating costs and adversely affect our results of operations to the point that we might be forced to cease operations.
We will not be able to develop or continue our business if we fail to attract and retain key personnel.
Our future success depends on our ability to attract, hire, train and retain a skilled senior management team and other key personnel. The loss of the services of our executive officers or other key employees could adversely affect our business. We face competition in securing qualified personnel possessing the skills necessary to implement our strategy, and we may fail to attract or retain the employees necessary to execute our business model successfully.
Our success depends to a significant degree upon the continued contributions of our key management and other personnel. In particular, we believe that our future success is highly dependent on the technical expertise, financial support and key contracts and arrangements of our executive officers and directors, Deepak Sharma and Sachin Mandloi. Messrs. Sharma and Mandloi may voluntarily terminate their services at any time. We have not entered into employment agreements with them and do not expect to enter into such agreements. If Messrs. Sharma, Mandloi or any other key members of our management team leave the company, our business could suffer and the value of our common stock would likely decline, if we are able to continue in business at all.
U.S. Federal Income Tax Reforms could adversely affect us.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “TCJ Act”). The TCJ Act makes broad and complex changes to the U.S. corporate income tax system and includes a Transition Toll Tax (the “Toll Charge”), which is a one-time mandatory deemed repatriation tax on accumulated foreign subsidiaries’ previously untaxed foreign earnings. The Toll Charge will be paid over an eight-year period, starting in 2018, and will not accrue interest. The TCJ Act also imposed a global intangible low-taxed income tax (“GILTI”), which is a new tax on certain off-shore earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits. As our foreign owned subsidiary has no history of operating income our preliminary estimate is that we will not be subject to the Toll Charge. Management is still finalizing their analysis related to certain matters, such as developing interpretations of the provisions of the TCJ Act, changes to certain estimates and evaluating amounts related to the earnings and profits of our foreign subsidiary, and the filing of our tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the TCJ Act may require changes in our estimates, which could have a material adverse effect on our business, results of operations or financial conditions. We do not have any material impact on our financial results for the fiscal year ended March 31,2019.
Third parties claiming that we infringe on their proprietary rights could cause us to incur significant legal expenses and prevent us from operating our business.
From time to time, we may receive claims that we have infringed the intellectual property rights of others, including claims regarding copyrights and trademarks. Former employers of our former, current, or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of these former employers. Any such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations. If we are not successful in defending such claims, we could be required to suspend certain services, redesign our platform, pay monetary damages or enter into royalty or licensing arrangements. We cannot assure you that any royalty or licensing arrangements that we may seek in such circumstances will be available to us on commercially reasonable terms or at all. We may incur significant expenditures to investigate, defend and settle claims related to the use of technology and intellectual property rights.
We cannot be sure that our intellectual property is protected from copying or use by others, including current or potential competitors.
Our websites rely on content, brands and technology, much of which is proprietary. We protect our proprietary content, brands and technology by relying on a combination of trademarks, copyrights, trade secrets, patents and confidentiality agreements. Any misappropriation or violation of our rights could have a material adverse effect on our business. Even with these precautions, it may be possible for another party to copy or otherwise obtain and use our proprietary technology, content or brands without authorization or to develop similar technology, content or brands independently.
Effective intellectual property protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and expenses and the costs of defending our rights. In addition, effective intellectual property protection may not be available in every jurisdiction in which our services are made available and policing unauthorized use of our intellectual property is difficult and expensive. Therefore, in certain jurisdictions, we may be unable to protect our intellectual property adequately against unauthorized third-party copying or use, which could adversely affect our business or ability to compete. We cannot be sure that the steps we have taken will prevent misappropriation or infringement of our intellectual property. Furthermore, we may need to go to court or other tribunals or administrative bodies in order to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. These proceedings might result in substantial costs and diversion of resources and management attention. Our failure to protect our intellectual property in a cost-effective or effective manner could have a material adverse effect on our business and ability to protect our technology, content and brands.
A failure of one or more key information technology systems, networks, processes, associated sites or service providers could have a material adverse impact on the Company’s business or reputation.
The Company relies extensively on information technology (IT) systems, networks and services, including Internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third parties or their vendors, to assist in conducting business. The various uses of these IT systems, networks and services include, but are not limited to:
·booking and managing our services from suppliers;
·collecting and storing customer, consumer, employee, investor and other stakeholder information and personal data;
·processing transactions;
·summarizing and reporting results of operations;
·marketing and selling products and services to consumers;
·hosting, processing and sharing confidential and proprietary research, business plans and financial information;
·complying with regulatory, legal or tax requirements;
·providing data security; and
·handling other processes necessary to manage the Company’s business.
Increased IT security threats and more sophisticated computer crime, including advanced persistent threats, pose a potential risk to the security of the Company’s IT systems, networks and services, as well as the confidentiality, availability and integrity of the Company’s data. The Company’s operations, especially its retail operations, involve the storage and transmission of employees’, customers’ and consumers’ proprietary information, such as credit card and bank account numbers. The Company’s payment services may be susceptible to credit card and other payment fraud schemes, including unauthorized use of credit cards, debit cards or bank account information, identity theft or merchant fraud. If the IT systems, networks or service providers relied upon fail to function properly, or if the Company suffers a loss or disclosure of customers’ and consumers’ data, business or stakeholder information, due to any number of causes, ranging from catastrophic events to power outages to security breaches, and business continuity plans do not effectively address these failures on a timely basis, the Company may suffer interruptions in its ability to manage operations, a risk of government enforcement action, litigation and possible liability, and reputational, competitive and/or business harm, which may adversely impact the Company’s results of operations and/or financial condition.
As techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, the Company may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of the Company’s security occurs, the public perception of the effectiveness of the Company’s security measures could be harmed and the Company could lose customers and consumers, which could adversely affect its business.
We need to expand our sales, marketing and support organizations and our distribution arrangements to increase market acceptance of our products and services.
We currently have a limited number of sales, marketing, customer service and support personnel and will need to increase our staff to generate a greater volume of sales and to support any new customers or the expanding needs of existing customers. The employment market for sales, marketing, customer service and support personnel in our industry is very competitive, and we may not be able to hire the kind and number of sales, marketing, customer service and support personnel we are targeting. Our inability to hire qualified sales, marketing, customer service and support personnel may harm our business, operating results and financial condition.
Litigation and legal proceedings and the impact of any finding of liability or damages could adversely impact the Company and its financial condition and operating results.
The Company may from time to time become subject to litigation and other legal proceedings. Litigation and other legal proceedings may require the Company to incur significant expenses, including those relating to legal and other professional fees. In addition, litigation and other legal proceedings are inherently uncertain, and adverse outcomes in litigation or other legal proceedings could adversely affect the Company’s financial condition, cash flows, and operating results.
Risks Related to Operations in India
Our operations in India may be adversely affected by social and political uncertainties or change, military activity, health-related risks or acts of terrorism.
From time to time India has experienced instances of civil unrest, terrorism and hostilities among neighboring countries, including Pakistan. Terrorist attacks, military activity, rioting, or civil or political unrest in the future could influence the Indian economy and our operations by disrupting operations and communications and making travel within India more difficult and less desirable. Our industry is particularly sensitive to actual or perceived safety concerns such as these, as well as health-related risks such as the influenza A virus (H1N1), avian flu (H5N1 and H7N9) and Severe Acute Respiratory Syndrome or other epidemics or pandemics. Any of these events in or around India could cause the demand for travel-related services to decline. Political or social tensions also could create a greater perception that investments in companies with Indian operations involve a high degree of risk, which could adversely affect the market and price for our common stock. We do not have insurance for losses and interruptions caused by terrorist attacks, military conflicts and wars, which could subject us to significant financial losses. The realization of any of these risks could cause a material adverse effect on our business, financial condition, results of operations, cash flows, and/or share price.
The Indian government’s implementation of a new indirect tax regime may adversely affect our business and financial performance.
The Government of India has rolled out a comprehensive national goods and services tax, or GST, law that combines taxes and levies by the Central and State Governments into a unified tax structure with an effective date of July 1, 2017. The implementation of GST has significant impact on overall tax computation and compliance. We have implemented necessary changes to our business processes, accounting and IT systems in compliance with GST law. However, some of our suppliers are still in process of making necessary changes to their pricing strategies, product designs and IT systems, which may pose additional challenges to us in the near term. We will also likely incur additional tax compliance costs under the new tax law.
Our bank accounts in India are not insured or protected against loss, and the failure of any bank in which we deposit our funds could affect our ability to continue in business.
We maintain our cash in India with both private and state-owned banks located in India. These cash accounts are not insured or otherwise protected against loss. Should any bank holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we would lose the cash on deposit with that particular bank. Loss of cash deposits or the inability to access such cash deposits could impair our operations, and if we are not able to access funds to pay our service providers and employees, we may be unable to continue in business.
If we violate applicable anti-corruption laws or our internal policies designed to ensure ethical business practices, we could face financial penalties and/or reputational harm that would negatively impact our financial condition and results of operations.
We are subject to anti-corruption and anti-bribery laws in the United States and India. India’s reputation for potential corruption and the challenges presented by India’s complex business environment may increase our risk of violating applicable anti-corruption laws. Our commercial relationships with state-owned enterprises may further intensify this risk. We face the risk that we, our employees or any third parties such as our sales agents and distributors that we engage to do work on our behalf may take action determined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business, including the Foreign Corrupt Practices Act of 1977 (“FCPA”), India’s Prevention of Money Laundering Act, 2002 and Indian Penal Code. Any violation of the FCPA or any similar anticorruption law or regulation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations that might harm our business, financial condition or results of operations. In addition, we have internal ethics policies with which we require our employees to comply in order to ensure that we conduct our business in a manner that our management deems appropriate. If these anti-corruption laws or internal policies were to be violated, our reputation and operations could also be substantially harmed. Further, detecting, investigating and resolving actual or alleged violations is expensive and may consume a significant amount of our senior management’s time and attention.
Natural disasters could have a negative impact on the Indian economy and cause our business to suffer.
India has experienced natural disasters such as earthquakes, tsunamis, floods and drought in the past few years. For example, in November and December 2015, Chennai, the frequently visited capital city of Tamil Nadu, experienced historic flooding that closed its airport for several days and suspended rail service. In addition, in September 2014, the state of Jammu and Kashmir in northern India, another popular tourism destination, experienced widespread floods and landslides. The extent and severity of these natural disasters determines their impact on the Indian economy. Substantially all of our operations and employees are located in India and our operations may be adversely affected by natural disasters in the future. Furthermore, if any of these natural disasters occur in tourist destinations in India, travel within India could be adversely affected, which could have an adverse impact on our business and financial performance.
Necessary infrastructure upgrades in India may not keep pace with increasing internet penetration, which may adversely affect our operations and require us to make additional investments and expenditures.
Our customers complete their bookings through our Indian website. According to Cisco’s Visual Networking Index (VNI) Forecast, India will India’s internet users will grow from 373 million (28% of the population) in 2016 to 829 million (59% of the population by 2021. Slowdowns or disruptions in upgrading India’s internet-based infrastructure to meet this demand could reduce the rate of expected increases in the use of the internet and our internet-based services, which may adversely affect our business and results of operations. In addition, any slowdown or negative deviation in the anticipated increase in internet penetration in India may require us to make additional investments in alternative distribution channels, which could strain our financial and human resources, causing our operations and financial condition to suffer.
Restrictions on foreign investment in India may prevent us from making future acquisitions or investments in India, including with respect to our operating subsidiary, which may adversely affect our results of operations, financial condition and financial performance.
India regulates ownership of Indian companies by foreigners. These regulations and restrictions may apply to acquisitions by us of shares in Indian companies or the provision of funding by us to our Indian operating subsidiary. For example, under its consolidated foreign direct investment policy, the Government of India has set out criteria for foreign investments in India, including requirements with respect to downstream investments by Indian companies owned or controlled by foreign entities and the transfer of ownership or control of Indian companies in sectors with caps on foreign investment from resident Indian persons or entities to foreigners. These requirements, which currently include restrictions on valuations and sources of funding for such investments and may include prior approval from the Foreign Investment Promotion Board, may adversely affect our ability to make investments in India, including through our operating subsidiary in India. There can be no assurance that we will be able to obtain any required approvals for future acquisitions or investments in India, or that we will be able to obtain such approvals on satisfactory terms.
We may incur expenses, including penalties imposed by the Reserve Bank of India if we do not comply, or timely comply, with reporting requirements in connection with the acquisition and transfer of our securities by our Indian employees.
Under regulations of the Reserve Bank of India, our operating subsidiary is subject to periodic reporting requirements in connection with the acquisition and transfer of our securities by Indian residents, including with respect to our employees who acquire our shares under employee stock option plans. If we fail to meet our reporting requirements, the Reserve Bank of India may impose penalties or take other action that could adversely affect our financial position and results of operations.
We are subject to regulatory and political uncertainties in India.
We conduct substantially all of our business and operations in India. Consequently, government policies and regulations, including tax policies, in India will impact our financial performance and the market price of our common stock. The Government of India has exercised and continues to exercise significant influence over many aspects of the Indian economy. Since 1991, successive Indian governments have generally pursued policies of economic liberalization and financial sector reforms, including by significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant and we cannot assure you that such liberalization policies will continue. The present government has continued to take initiatives that support the economic growth of the country that have been pursued by previous governments. However, there is no assurance that it will be able to generate sufficient crossparty support to implement such initiatives. The rate of economic liberalization could change, and specific laws and policies affecting travel service companies, foreign investments, currency exchange rates and other matters affecting investments in India could change as well. A significant change in India’s policy of economic liberalization and deregulation or any social or political uncertainties could adversely affect business and economic conditions in India generally and our business and prospects.
We may have exposure to additional tax liabilities.
As a U.S.-based holding company that provides services in India through our operating subsidiary, we are subject to income taxes and non-income based taxes in the United States and in India. Due to economic and political conditions, tax rates and tax regimes in the jurisdictions in which we are located and operate may be subject to significant change. Our future effective tax rates could be affected by changes in the valuation of deferred tax assets or changes in tax laws or their interpretation. Although we believe that our tax filing positions are reasonable and comply with applicable laws, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions and accruals. If our effective tax rates were to increase, our cash flows, financial condition and results of operations would be adversely affected.
Judgments that our stockholders obtain against us may not be enforceable.
Substantially all of our assets are located outside of the United States and substantially all of our revenue is derived outside of the United States. In addition, our vice president and director, Sachin Mandloi resides in India and our president and director, Deepak Sharma spends a significant amount of time in India. As a result, it may be difficult for stockholders to effect service of process within the United States upon these persons. It is uncertain whether the courts of India would recognize or enforce judgments of United States or state courts against us or such persons predicated upon the civil liability provisions of the laws of the United States or any state. In addition, there is uncertainty as to whether such Indian courts would be competent to hear original actions brought in India against us or such persons predicated upon the laws of the United States or any state.
Risks Related to Our Industry
We rely on information technology to operate our business and maintain our competitiveness, and any failure to adapt to technological developments or industry trends could harm our business.
We depend on the use of sophisticated information technology and systems, which we have customized for search and reservation for flights and hotels, as well as payments, refunds, customer relationship management, communications and administration. As our operations grow in both size and scope, we must continuously improve and upgrade our systems and infrastructure to offer our customers enhanced services, features and functionality, while maintaining the reliability and integrity of our systems and infrastructure in a cost-effective manner. Our future success also depends on our ability to upgrade our services and infrastructure ahead of rapidly evolving consumer demands while continuing to improve the performance, features and reliability of our service in response to competitive offerings.
If the number of travel agents using our services increases substantially, or if critical third-party systems stop operating as designed, we may need to significantly expand and upgrade our technology, transaction processing systems, financial and accounting systems and other infrastructure. We may not be able to upgrade our systems and infrastructure to accommodate such conditions in a timely manner, and, depending on the third-party systems affected, our transactional, financial and accounting systems could be impacted for a meaningful amount of time before upgrade, expansion or repair.
We may not be able to use new technologies effectively, or we may fail to adapt our website, transaction processing systems and network infrastructure to meet consumer requirements or emerging industry standards. If we face material delays in introducing new or enhanced solutions, our customers may forego the use of our services in favor of those of our competitors. Any of these events could have a material adverse effect on our operations.
The travel industry in India is highly competitive, and we may not be able to compete effectively.
The travel market in India is highly competitive. Factors affecting our competitive success include, price, availability and breadth of choice of travel services and products, brand recognition, customer service, fees charged to travelers, ease of use, accessibility and reliability. We currently compete with both established and other emerging providers of travel services and products, including other online travel agencies in India and abroad, such as makemytrip.com, cleartrip.com, expedia.co.in, travelocity.co.in, yatra.com, goibibo.com, booking.com and agoda.com, as well as traditional travel agencies, tour operators, travel suppliers and operators of travel industry reservation databases. Large, established internet search engines have also launched applications offering travel itineraries in destinations around the world, and meta-search companies that can aggregate travel search results also compete against us for customers. Certain of our competitors have launched brand marketing campaigns to increase their visibility with customers. For example, trivago.com has commenced a television advertising campaign in India. Some of our competitors have significantly greater financial, marketing, personnel and other resources than us and certain of our competitors have a longer history of established businesses and reputations in the Indian travel market (particularly in the hotels and vacation packages business) as compared with us. From time to time we may be required to reduce service fees and net revenue margins in order to compete effectively and maintain or gain market share.
Some travel suppliers are seeking to decrease their reliance on distribution intermediaries such as us, by promoting direct distribution channels. Many airlines, hotels, car rental companies and tour operators have call centers and have established their own travel distribution websites and mobile applications. From time to time, travel suppliers offer advantages, such as bonus loyalty awards and lower transaction fees or discounted prices, when their services and products are purchased from supplier-related channels. We also compete with competitors who may offer less content, functionality and marketing reach but at a relatively lower cost to suppliers. If our access to supplier-provided content or features were to be diminished either relative to our competitors or in absolute terms or if we are unable to compete effectively with travel supplier-related channels or other competitors, our business could be materially and adversely affected.
We depend on and expect to continue to depend on a small number of low cost airlines in India for a significant percentage of our air ticketing revenue.
Four low cost airlines dominate India’s domestic air travel industry. As we derive a substantial portion of our air ticketing revenue through the base commissions and incentive payments of these domestic airlines, our dependence on a limited number of domestic airlines means that a reduction or elimination in base commissions and incentive payments by any one or all of these airlines could have a material adverse effect on our revenue.
In addition, our reliance on a small number of airline suppliers in India gives those airline suppliers additional bargaining power in negotiating agreements with us. A reduction or elimination of base commissions and incentive payments by any of these domestic airline suppliers, the loss of any of these domestic airline suppliers or a domestic airline supplier exerting significant price and margin pressure on us could materially and adversely affect our business, financial condition and results of operations.
Our processing, storage, use and disclosure of customer data of our travel agent customers or visitors to our website could give rise to liabilities as a result of governmental regulation, conflicting legal requirements such as General Data Protection Regulations, differing views of personal privacy rights or data security breaches.
In the processing of our agent transactions, we receive and store a large volume of customer information. Such information increasingly is subject to legislation and regulations in various jurisdictions and governments are increasingly acting to protect the privacy and security of personal information that is collected, processed and transmitted in or from the governing jurisdiction. We could be adversely affected if legislation or regulations are expanded or amended to require changes in our business practices or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, financial condition and results of operations. As privacy and data protection become more sensitive issues in India, we may also become exposed to potential liabilities. For example, under the Indian Information Technology Act, 2000, as amended, our operating subsidiary is subject to civil liability for wrongful loss or gain arising from any negligence in implementing and maintaining reasonable security practices and procedures with respect to sensitive personal data or information on our computer systems, networks, databases and software. India has also implemented privacy laws, including the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, which impose limitations and restrictions on the collection, use and disclosure of personal information. Any liability we may incur for violation of such laws and regulations and related costs of compliance and other burdens may adversely affect our business and profitability.
We cannot guarantee that our security measures will prevent data breaches. Companies that handle such information have also been subject to investigations, lawsuits and adverse publicity due to allegedly improper disclosure of personally identifiable information. Security breaches could damage our reputation, cause interruptions in our operations, expose us to a risk of loss or litigation and possible liability, and could also cause customers and potential customers to lose confidence in the security of our transactions, which would have a negative effect on the demand for our services and products. Moreover, public perception concerning security and privacy on the internet could adversely affect customers’ willingness to use our websites. A publicized breach of security in India, even if it only affects other companies conducting business over the internet, could inhibit the growth of the internet as a means of conducting commercial transactions, and, therefore, the prospects of our business.
These and other privacy and security developments that are difficult to anticipate could adversely affect our business, financial condition and results of operations.
If we are unable to maintain existing, or establish new arrangements with our travel service suppliers, our business may be adversely affected.
Our business depends on our ability to maintain our relationships and arrangements with existing suppliers, as well as our ability to establish and maintain relationships with new travel suppliers. A substantial portion of our revenue less service cost derives from fees and commissions negotiated with travel suppliers for bookings made through our website. Many of our agreements with our travel service suppliers are short-term contracts that require periodic renewal on a quarterly or yearly basis and provide our counterparties with a right to terminate on short notice or without notice. Adverse changes in existing arrangements, including an inability by any travel supplier to fulfill its payment obligation to us in a timely manner, increasing industry consolidation or our inability to enter into or renew arrangements with these parties on favorable terms, if at all, could reduce the amount, quality, pricing and breadth of the travel services and products that we are able to offer, which could adversely affect our business and financial performance.
We do not have formal arrangements with many of our service suppliers.
We rely on our suppliers to facilitate the sale of our travel and money transfer services . We do not have formal agreements with many of our travel service suppliers, including many hotels, whose booking systems or central reservations systems we rely on for bookings and confirmation as well as certain payment gateway arrangements. In addition, the IRCTC may terminate or temporarily suspend our agreement with them without prior notice. We cannot assure you that these third parties will not terminate these arrangements with us on short notice or without notice. Termination, non-renewal or suspension or an adverse amendment of any of these arrangements could have a material adverse effect on our business, financial condition and results of operations.
Our business and results of operations could be adversely affected by global and/or domestic economic conditions.
Due to the discretionary nature of travel expenditures, the travel industry tends to experience weak or reduced demand during economic downturns. Unfavorable changes in the business and economic conditions affecting our market could result in fewer reservations made through our websites and/or lower our net revenue margins and have a material adverse effect on our financial condition and results of operations. In addition, during periods of poor economic conditions, airlines and hotels tend to reduce rates or offer discounted sales to stimulate demand, thereby reducing our commission-based income. The weakness and uncertainty in the global economy have negatively impacted both corporate and consumer spending patterns and demand for travel services, globally and in India, and may continue to do so in the future. These poor economic conditions could adversely impact our growth plans, business, financial condition and results of operations.
Risks Related to Our Common Stock
There is not now, and there may never be, an active, liquid and orderly trading market for our common stock, which may make it difficult for stockholders to sell their shares of our common stock.
Our common stock quoted on the OTC Markets OTCQB tier, or OTCQB, of OTC Markets Group Inc., an over-the-counter quotation system, and there is not now, nor has there been since our inception, any significant trading activity in our common stock or a market for shares of our common stock, and an active trading market for our shares may never develop or be sustained. As a result, investors in our common stock must bear the economic risk of holding those shares for an indefinite period of time. We do not now, and may not in the future, meet the initial listing standards of any national securities exchange, and our common stock may be quoted on the OTCQB or another over-the-counter quotation system for the foreseeable future. In those venues, our stockholders may find it difficult to obtain accurate quotations as to the market value of their shares of our common stock and may find few buyers to purchase their stock and few market makers to support its price. As a result of these and other factors, stockholders may be unable to resell their shares of our common stock at or above the price for which they purchased them, at or near quoted bid prices, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our common stock as consideration.
Our significant stockholders exercise significant influence over our company and may have interests that are different from those of our other stockholders.
Our executive officers and directors, Deepak Sharma and Sachin Mandloi, beneficially own 90% of the issued and outstanding shares of our common stock. By virtue of such holdings, they have the ability to exercise significant influence over our company and our affairs and business, including the election of directors, amendments to our charter and bylaws, the approval of a merger or sale of substantially all our assets and the approval of most other actions requiring the approval of our stockholders. The interests of these stockholders may be different from or conflict with the interests of our other stockholders and their influence may result in the delay or prevention of a change of management or control of our company.
The reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors, which may lead to volatility and a decrease in the price of our common stock.
For as long as we continue to be an emerging growth company, we may take advantage of exemptions from reporting requirements that apply to other public companies that are not emerging growth companies. Investors may find our common stock less attractive because we may rely on these exemptions, which include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to opt out of the extended transition period for complying with the revised accounting standards. If investors find our common stock less attractive as a result of exemptions and reduced disclosure requirements, there may be a less active trading market for our common stock and our stock price may be more volatile or may decrease.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future; therefore, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.
We have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.
Stockholders may be subject to Indian taxes on income arising through the sale of our common stock.
In India, the Income Tax Act (1961) provides that income arising directly or indirectly through the sale of a capital asset, including shares of a company incorporated outside of India, will be subject to tax in India, if such shares derive, directly or indirectly their value substantially from assets located in India, whether or not the seller of such shares has a residence, place of business, business connection, or any other presence in India, if, on the specified date, the value of such assets located in India (i) exceeds a specified amount, or (ii) represents at least fifty per cent of the value of all the assets owned by the company. Further, the amendment does not deal with the interplay between this provision of Indian tax law and the existing double tax avoidance treaties that India has entered into with the United States. If the Indian tax authorities determine that our common stock derives its value substantially from assets located in India and the provisions of any relevant double tax avoidance treaty are deemed to be inapplicable in this context, stockholders may be subject to Indian income taxes on the income arising, directly or indirectly, through the sale of our common stock.
Stockholders may incur dilution. Our restated certificate of incorporation authorizes the issuance of shares of “blank check” preferred stock.
We are authorized to issue up to 200,000,000 shares of common stock, par value $0.0001 per share, and up to 10,000,000 shares of preferred stock, $0.0001 par value, in one or more series and with such rights, preferences and privileges as our board of directors may determine. The issuance of additional securities may cause substantial dilution to our stockholders.
Our board of directors has authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series. Our board of directors has the authority to determine the terms of each series of preferred stock, within the limits of the restated certificate of incorporation and the laws of the State of Delaware. These terms include the number of shares in a series, dividend rights, liquidation preferences, terms of redemption, conversion rights and voting rights. The issuance of any preferred stock may negatively affect the holders of our common stock. These possible negative effects include diluting the voting power of shares of our common stock and affecting the market price of our common stock.
Our failure to adopt certain corporate governance procedures may prevent us from obtaining a listing on a national securities exchange.
We have only two directors, and each one is not “independent” as that term is defined in the rules of any national securities exchange. As a result, we do not have an Audit or Compensation Committee. The functions of those committees are conducted by the Board. Consequently, there is a potential conflict of interest in Board decisions that may adversely affect our ability of our common stock to be listed on a national securities exchange and, as a result, may adversely affect the liquidity of our common stock.
Our common stock will be and may continue to be subject to the “penny stock” rules of the SEC, which could make transactions in our common stock more cumbersome and may reduce the value of our stockholders’ investment in our common stock.
Rule 15g-9 under the Exchange Act defines a “penny stock” as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. To the extent a market develops for our common stock, we anticipate that our common stock will be, and may continue to be considered a penny stock. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and could depress the market value of our common stock, to the extent a market develops.
Shares of our common stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
Prior to acquiring our Indian operating subsidiary we were a “shell company” under applicable SEC rules and regulations because we had no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets. Resales pursuant to Rule 144 promulgated under the Securities Act of the securities of a former shell company, such as us, are not permitted (i) until at least 12 months have elapsed from the April 18, 2016 initial filing of our Registration Statement on Form S-1, which reflected our status as a nonshell company and (ii) unless at the time of a proposed sale, we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports. As a result, sales may not be made under Rule 144 unless we and the selling stockholders are in compliance with the requirements of Rule 144. Further, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities unless we agree to register such securities under the Securities Act, which could cause us to expend significant time and cash resources. Additionally, our previous status as a shell company could also limit our use of our securities to pay for any acquisitions we may seek to pursue in the future (although none are currently planned). The lack of liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period than a non-former shell company could make an investment in our securities less attractive and could cause the share price of our common stock to decline. Currently our stock is trading under $5 and we have no trading volume.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
If we fail to maintain an effective system in internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect the investor confidence in the us and, as result, the value of our common stock.
The Company has material weakness to maintain an effective system in internal control over financial reporting. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. We are required under Section 404(a) of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins its Section 404(b) attestations, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, investor groups like Institutional Shareholder Services could initiate a withhold vote campaign with respect to the re-election of the members of our audit committee, and we could be subject to sanctions or investigations by the Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Provisions in our charter documents or Delaware law may inhibit a takeover or make it more difficult to effect a change in control, which could adversely affect the value of our common stock.
Our certificate of incorporation and bylaws contain, and Delaware corporate law contains, provisions that could delay or prevent a change of control or changes in our management. These provisions will apply even if some of our stockholders consider the offer to be beneficial or favorable. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.
Raising additional capital by issuing securities may cause dilution to our stockholders.
We may need or desire to raise substantial additional capital in the future. Our future capital requirements will depend on many factors, including, among others:
·Research and development investments (including our investment in fine powder capabilities for direct printing and our development efforts tied to large format direct and indirect 3D printing machines);
·Our degree of success in capturing a larger portion of the industrial products production market;
·The costs of establishing or acquiring sales, marketing, and distribution capabilities for our products;
·The costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our issued patents, and defending intellectual property-related claims;
·The extent to which we acquire or invest in businesses, products or technologies and other strategic relationships; and
·The costs of financing unanticipated working capital requirements and responding to competitive pressures.
If we raise additional funds by issuing equity or convertible debt securities, we will reduce the percentage ownership of our then-existing stockholders, and the holders of those newly-issued equity or convertible debt securities may have rights, preferences, or privileges senior to those possessed by our then-existing stockholders. Additionally, future sales of a substantial number of shares of our common stock or other equity-related securities in the public market could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities. We cannot predict the effect that future sales of our common stock or other equity-related securities would have on the market price of our common stock.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
We lease approximately 2,455 square feet of office space for our principal executive officers in Ahmedabad, India. Currently, our president and director, Deepak Sharma leases this space to us at no charge.
Since March 2016, we also lease approximately 4,080 square feet of office space for our technology center in Bangalore, Karnataka India, for which we currently pay approximately $6,270 per month including annual maintenance charges. This lease is continued with expiration dates through December 2024. We believe these properties suit our operations and business needs and that adequate, suitable lease space will continue to be available to meet our needs. Following table describes our obligation for the next five year from the lease.
Fiscal Year Estimated Lease Charges
$75,272
$80,067
$85,116
$90,549
$96,401
$72,301
Item 3.
Item 3. Legal Proceedings
We are not currently involved in any material legal proceedings. From time-to-time, we anticipate we will be involved in legal proceedings, claims and litigation arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. We could be forced to incur material expenses with respect to these legal proceedings, and in the event, there is an outcome in any that is adverse to us, our financial position and prospects could be harmed.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchaser of Equity Securities
Our common stock is quoted on the OTC Markets OTCQB tier, or OTCQB, of OTC Markets Group, Inc. under the symbol “TRRB.” As of March 31, 2019, the closing sale price for our common stock as reported on the OTCQB system was $1.25 per share. Our common stock commenced public trading on October 16, 2017 the OTCQB. Although our common stock is quoted on the OTCQB, there is a limited trading market for our common stock and there have been few trades in our common stock to date. Because our common stock is thinly traded, any reported sale prices may not be a true market-based valuation of our common stock. The following table sets forth, for the periods indicated, the high and low closing bid quotations for our common stock, as reported by OTCQB, since the common stock commenced public trading. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Holders
As of that date, there were approximately 42 stockholders of record for our common stock. This does not include beneficial owners holding common stock in street name in brokerage accounts. Currently no employee have granted any Equity from the Employee Stock Option Plan from the company.
Dividends
We have never paid cash dividends on our common stock, have no plans to pay any dividends, and it is unlikely that we will pay any dividends in the foreseeable future. We currently intend to invest future earnings, if any, to finance expansion of our business. Any payment of cash dividends in the future will be dependent upon our earnings, financial condition, capital requirements, and other factors determined by our board of directors.
Unregistered Sales of Equity Securities
On August 21, 2018, we have issued the consulting advisory shares of an aggregate of 478,560 shares of the Company’s common.
On December 21, 2018, we closed on the sale of an aggregate of 214,286 shares of the Company’s common stock pursuant to subscription agreements between us and one investor, resulting in gross proceeds to us of $150,000.
On March 25, 2019, we closed on the sale of an aggregate of 428,571 shares of the Company’s common stock pursuant to subscription agreements between us and one investor, resulting in gross proceeds to us of $300,000.
On March 29, 2019, we closed on the sale of an aggregate of 357,144 shares of the Company’s common stock pursuant to subscription agreements between us and two investors, resulting in gross proceeds to us of $250,000.
These shares of the Company’s common stock were issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) thereof, which exempts transactions by an issuer not involving any public offering. The issuance of these shares of common stock was not a public offering for purposes of Section 4(a)(2) because the offerees status as “accredited investors, and the manner of the issuance, including that the Company did not engage in general solicitation or advertising with regard to the issuance of such shares and did not offer any such shares to the public in connection with the issuance.
Securities authorized for issuance under equity compensation plans
See Part III, Item 12 of this annual report for information regarding securities authorized for issuance under the Company’s equity compensation plan.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled “Risk Factors” beginning on page 11 of this annual report.
Our audited consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
We are an “emerging growth company,” as defined under the federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this and future filings. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from reporting requirements that apply to other public companies that are not emerging growth companies. Investors may find our common stock less attractive because we may rely on these exemptions, which include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to opt out of the extended transition period for complying with the revised accounting standards. If investors find our common stock less attractive as a result of exemptions and reduced disclosure requirements, there may be a less active trading market for our common stock and our stock price may be more volatile or may decrease.
ACQUISITION
The Company will make acquisitions at prices above the determined fair value of the acquired identifiable net assets, resulting in goodwill, due to expectations of the synergies that will be realized by the combining the businesses. These synergies include hotel brands, its customers and its operations; use of the Company’s existing technology to expand sales of the acquired business’s services; and create operational and financial efficiencies of the acquired businesses to cost-effectively expand sales of company products and services. Acquisition will be accounted for by using the purchase method of accounting, and the acquired company’s results will be included in the accompanying financial statements from their respective dates of acquisition. Acquisition transaction costs will be recorded in selling, general and administrative expenses as incurred.
The Company has entered into an agreement to acquire 51% of PRAMA Hotels and Resorts Limited (“PRAMA”) for approximately $3,242,857, consisting of $1,400,000 in cash and $1,842,857 in common stock (2,632,653 shares). PRAMA is engaged in the business of owning, managing asset light affordable hotel brands across India. PRAMA, through its wholly owned subsidiaries, APODIS and IntelliStay, owns emerging and leading budget hotel brands including Mango Hotels, Mango Suites, Mango Hotels Select, Mango Suites Select, i-Stay Hotels and Apodis Collection, which are presently spread across 21 cities in India under its IntelliStay Hotels vertical. The transaction is subject to customary closing conditions, including regulatory approvals. The Company closed on its acquisition on April 22, 2019, whereby the company acquired 51% of PRAMA. The Company expects to determine the preliminary purchase price allocation prior to the end of the first quarter of FYE 2020.
OPERATING METRICS
In evaluating our business, we use operating metrics, including gross bookings and revenue margin. Gross bookings is a measure of total dollar volume of transactions that we process. This metric is an operating metric used by management, the investor community, and analysts who follow the travel industry to measure our market share and to measure our scale and growth. We calculate revenue margin as revenue as a percentage of gross bookings.
1Gross bookings represent the total retail value of transactions booked through us, generally including taxes, fees and other charges, and are generally reduced for cancellations and refunds.
2Revenue margin is defined as net revenue as a percentage of gross bookings. The increase in gross bookings is driven by increased Money transfer services and incentives, fees, penalty income, and surcharges as we increase our agent network and expand our geographic reach. Revenue margin decreased during the twelve months ended March 31, 2019 to 0.7 % from 1.2% in the prior year. While gross bookings have increased, this decrease in margins primarily driven by lower margin offerings such as money transfer service.
RESULTS OF OPERATIONS
The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended March 31, 2019 and 2018, which are included herein.
Our operating results for the years ended March 31, 2019 and 2018 and the changes between those periods for the respective items are summarized as follows:
Revenue
Net revenues for the fiscal year ended March 31, 2019 were $472,052 compared to $349,818 for the twelve months ended March 31, 2018. Revenue for the year ended March 31, 2019 consisted from air ticketing, rail ticketing, hotel and holiday packages booking, payment services and incentives from our aggregators and suppliers and fees, penalty income and surcharges from our business agent customers.
Revenue increased by $122,234 or 34.94% for the year ended March 31, 2019 compared to fiscal year ending March 31, 2018. The increase is primarily driven by commission earned from money transfer services and other travel related services.
While there was increased transaction volume through the addition of more agents and an increased geographical reach but at lower margins. Our primary focus has been on growing our fee revenue for our services, which has been accomplished by our increased brand recognition with our agents and suppliers and is driving more customers to us.
Cost of Revenue and Gross Profit
The cost of revenue for the twelve months ended March 31, 2019 was $376,207 compared to $260,769 for the year ended March 31, 2018. The cost of revenue represents fees charged by our suppliers and fees paid to agent. The cost of revenue increased by $115,438 or 44.27% for the year ended March 31, 2019 compared to fiscal year ending March 31, 2018. This increase in cost of revenue primarily from increased volume in sales of money transfer services.
Gross profit from net revenues for the fiscal year ended March 31, 2019 was $95,845 or 20.30% of net revenue compared to $89,049 or 25.46 % of net revenue for the fiscal year ended March 31, 2018. Our gross profit increased by $6,796 or 7.63% for the year ended March 31, 2019 compared to fiscal year ending March 31, 2018. Our net revenue increased by $122,234 for the fiscal year ended March 31, 2019. However, our gross profit margins percentage to net revenue declined primarily due to lower margin from our money transfer services which is approximately 5 % for the fiscal year ended March 31, 2019.
Selling, General and Administration Expenses
Total selling, general and administration expenses for the fiscal ended March 31, 2019 were $1,236,182 compared to $1,974,733 for the fiscal year ended March 31, 2018. The Company has spent $150,733 in legal and consulting expenses for the year ending March 31, 2019. In addition, we had approximately $205,780 in stock compensation consulting expenses in the fiscal year ending March 31, 2019. The Company has begun the investment in a new sales and marketing initiative.
The Company have developed our internet-based platform (“Travelcord”) using multiple systems platforms with an emphasis to scale our distribution and agent network by integrated other software platforms, applications and database systems into Travelcord. We designed these internal platforms to include open application protocol interfaces that can provide connectivity to our travel services suppliers such Airlines, travel service aggregators and other suppliers. We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed indefinite. The cost of intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life, except that individually significant customer-related intangible assets are amortized in relation to total related sales. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required.
We determined that certain intangible assets, primarily technology were impaired. Therefore, included within amortization expense for the twelve months ended March 31, 2018, was a $696,949 non-cash impairment charge recorded. This charge was recorded within the caption "Selling, general and administrative expense" caption in our Consolidated Statements of Operations and Comprehensive Loss. The Company has no impairment charges for fiscal year ended March 31, 2019.
We also provide sales and support by telephone or via e-mail. For purposes of operational flexibility, we use an in-house call center. Our call centers are in India. We invested significantly in our call center technologies, with the goal of improving customer experience and increasing the efficiency of our call center agents and have plans to continue reaping the benefits of these investments going forward. Cost of running and utilizing call center infrastructure and staff is included in our selling, general and administration expenses.
LIQUIDITY AND CAPITAL RESOURCES
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with existing cash on hand, cash flow from operations and short-term debt from the factoring of receivables. Management believes the Company will only need to raise additional capital for acquisitions, sales initiatives and unexpected decreases in operating cashflow. If the Company must raise capital, there is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance operations over the next twelve months.
As of March 31, 2019, we had $1,230,012 in cash and cash equivalents, compared to $1,155,367 as of March 31, 2018. This $74,645 increase in cash is a result of common stock sales of $700,000 during fiscal 2019 offset by operating losses generated during the year ended March 31, 2019. As of March 31, 2019, we have total stockholders’ deficit of $1,078,970 compared to a deficit of $741,656 as of March 31, 2018. Our stockholders’ deficit is result of our operating losses offset by our common stock sales.
Cash Flows: The following table is a summary of our Consolidated Statements of Cash Flows:
Operating Activities: The net cash used in operating activities for the fiscal year ending March 31, 2019 and 2018 was $637,991 and $459,174 respectively. The year-over-year increase in cash used in operations is primarily driven by current year losses and changes in current operating assets and liabilities.
Investing Activities: During the twelve months ended March 31, 2019 cash used in investing activities was $250,428 compared to a cash use from investing activities of $7,971 in the prior year. Primarily this was due to deposit of $250,000 in year 2019 for a pending acquisition.
Financing Activities: Net cash flows provided by financing activities for the fiscal year ended March 31, 2019 and 2018 was $950,000 and $1,098,000 respectively. The Company had issued common stock and received approximately $700,000 and $1,098,000 respectively in fiscal year ending March 31, 2019 and 2018 with no material fees. The Company has received $250,000 for convertible notes in 2019.
We presently do not have a senior credit or revolving credit facility and do not expect to obtain one in the foreseeable future. We will require additional capital to continue to fund our operations and will look to raise funds through public and private offerings of our securities. We estimate that we will require approximately $5.0 million and $8.0 million in the next 12 and 24 months, respectively to support our continued operations and growth of the business. To address the future additional funding requirements of the consolidated entity, since March 31, 2019, the directors have undertaken the following initiatives:
·We continue to employ “on demand” procurement processes for travel products that we sell to our customers. We also continue our attempts to collect customer payments promptly based on their payment terms, which has helped us manage our working capital needs.
·The consolidated entity has successfully negotiated a twelve-month extension of this maturity date of the convertible notes.
·Entered discussions to secure additional equity funding from current or new shareholders.
·Undertaken a program to continue to monitor the consolidated entity’s ongoing working capital.
·Management also considered the impact of maturity and conversion into shares of convertible debt.
There are no assurances that these steps will generate enough cash flow from operations or that we will be able to obtain sufficient financing necessary to support our working capital requirements. The Company exhausted a majority of its cash balances that existed at year-end for the acquisition of PRAMA as discussed above. We can give no assurance that additional capital financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available, we may not be able to continue our operations or execute our business plan.
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, intangible assets, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
We have identified below the accounting policies, related to what we believe are most critical to our business operations and are discussed throughout Management’s Discussion and Analysis of Financial Condition or Plan of Operation where such policies affect our reported and expected financial results.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”): Topic 606 which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining customer contracts.
Topic 606 was effective as of April 1, 2018, for the Company, using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date of initial application and providing certain additional disclosures as defined per Topic 606. We adopted Topic 606 pursuant to the method (2) and we determined that any cumulative effect for the initial application did not require an adjustment to accumulated deficit at April 1, 2018.
For revenue recognition arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Air Ticketing. Revenue from airline tickets is recognized on net commission basis which includes our nonrefundable surcharges and fees to our service agents. For certain airline transactions, we also receive fees from global distribution systems partners that control the computer systems through which these reservations are booked.
Vacation Packages. Revenue from vacation packages, including revenue on airline tickets sold to customers as a part of vacation packages, is accounted for on the gross basis as we are determined to be the primary obligor in the arrangement i.e., the risks and responsibilities are taken by us, including the responsibility for delivery of services.
Rail Ticketing. Revenue from rail ticket reservations is recognized on net basis which includes our nonrefundable surcharges and fees to our service agents. We recognized revenue on gross basis for railway service setup fees, which is non-refundable and collected from our service agent at the time of agent enrollment.
Money Transfer. To our service agent we provide system connectivity using our internet platform so our service agent can perform Money Transfer services behalf of their customers. Our internet platform facilitates connectivity between Bank and Service Agent. We recognized revenue on the net basis, we collect service charge or fees to our service agent for performing the money transfer services for their customers. Performance linked incentives from Banks or suppliers are recognized upon achievement of performance obligations and amount is billed to suppliers.
Other Revenue. Revenue from other sources, primarily comprising revenue from bus tickets booking fees, visa processing fees, and pre-and post-paid expenses are recognized after the services are being performed.
In the event of cancellation of tickets, revenue recognized with respect to gross amounts earned by us on such tickets is reversed, and we recognize a liability with respect to the refund due to our customers, net of penalties, if any. Airlines may charge penalties for cancellations. We recognize penalties we collect from our customers as income, and recognize penalties paid to the airlines or suppliers as expenses at the time of cancellation. In addition, a liability is recognized in respect of the refund due to our customers for the gross amount charged to such customers net of cancellation fees.
Cost of Revenue
Cost of revenue is the amount paid or accrued against procurement of these services and products from the respective suppliers and do not include any other operating cost to provide these services or products. Cost of revenue is recognized when incurred, which coincides with the recognition of the corresponding revenue.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could differ significantly from those estimates. The estimates underlying the Company’s financial statements relate to accruals for travel transactions, valuation of accounts receivable, useful life of long-lived assets and income taxes.
Accounts Receivables and Credit Policies
Accounts receivable are stated at the amount’s management expects to collect. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is considered to be doubtful due to credit issues. These allowances together reflect the Company's estimate of potential losses inherent in accounts receivable balances, based on historical loss and known factors impacting its customers. Management has determined that their allowance of $ 58,507 for the fiscal year ended March 31, 2019. There was no bad debt allowance for the fiscal year ended March 31, 2018. The Company does not accrue interest on past due receivables.
The Company performs periodic analysis of each customer’s outstanding accounts receivable balance and assesses, on an account-by-account basis, whether the allowance for doubtful accounts needs to be adjusted based on currently available evidence such as historical collection experience, current economic trends and changes in customer payment terms. In accordance with the Company’s policy, if collection efforts have been pursued and all reasonable and contractually available avenues for collections exhausted, accounts receivable would be written off as uncollectible. The Company does use estimate to use a general reserve methodology when estimating the level of allowance for doubtful accounts because the Company believes, due to the unique circumstances of each customer and a limited number of customers, a general reserve methodology would not provide a reasonable estimate of potentially uncollectible accounts.
Intangible Assets
Intangible assets with indefinite useful lives are tested for impairment at least annually. Intangible assets that have limited useful lives are amortized on a straight-line basis over the shorter of their useful or legal lives.
Impairment of Long-lived Assets
The Company records an impairment of long-lived assets used in operations, other than goodwill, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is computed on a straight-line basis over the estimated useful lives of the assets. The Company charges repairs and maintenance costs that do not extend the lives of the assets to expenses as incurred.
Foreign Currency Translation
The Company translates the foreign currency financial statements into U.S. Dollars using the year or reporting period end or average exchange rates in accordance with the requirements of ASC 830, Foreign Currency Matters. Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within stockholders’ equity (deficit).
Recent Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
We adopted Revenue Recognition April 1, 2018 - Revenue from Contracts with Customers (ASU 2014-09) and its effective as of year ended March 31, 2019, which amends the guidance in former ASC 605, Revenue Recognition and found no impact on the revenue recognition. We have adopted ASC 2014-09 accounting pronouncement.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This update addresses several aspects of the accounting for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b) classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an estimated basis and (d) classification of excess tax impacts on the statement of cash flows. The Company adopted this guidance in the first quarter of its fiscal year ended March 31, 2019, which did not have a material impact on the consolidated financial statements and related disclosures. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively.
New Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, "Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet with a corresponding liability and disclosing key information about leasing arrangements. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of the adoption of this revised guidance on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory”, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The amendments in this ASU should be adopted on a modified retrospective basis. The Company does not expect that adoption of this guidance will have a material impact on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control”. The amendments affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. As of fiscal year, ending March 31, 2019 and 2018 we have no variable interest entity under common control with the reporting entity.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will be effective for the Company in the first quarter of 2019. Early adoption is permitted.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount. The new rules will be effective for the Company in the first quarter of 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The standard will be effective in the first quarter of fiscal year 2020, although early adoption is permitted. Management believes the effect on the consolidated financial statements will not be material.
No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company's present or future consolidated financial statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company”, the Company is not required to provide the information required by this Item.
Item 8.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of TripBorn Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of TripBorn, Inc. and Subsidiary (the “Company”) as of March 31, 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for the year ended March 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2019, and the results of its operations and its cash flows for year ended March 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit of $4,355,630 and suffered recurring losses from operations and has a net working capital deficiency as of March 31, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters also are described in Note 2. The financial statements do not include any adjustments that may result from the outcome of these uncertainties. If the company is unable to successfully raise additional capital to satisfy their obligations, there could be a material adverse effect on the company.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Tripborn, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tripborn, Inc. (the “Company”) as of March 31, 2018 and 2017, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the two years in the period ended March 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2018, in conformity with U.S. generally accepted accounting principles.
Restatement of Previously Issued Financial Statements
As discussed in Note 2 to the consolidated financial statements, the Company has restated its March 31, 2018 financial statements to correct misstatements.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ram Associates
Hamilton, NJ
June 29, 2018, except for the effects of the restatement discussed in consolidated financial statements, as to which the date is September 06, 2019
We have served as the Company’s auditor since 2015.
TRIPBORN, INC.
Consolidated Balance Sheets
The accompanying notes are an integral part of these consolidated financial statements.
TRIPBORN, INC.
Consolidated Statements of Operations and Comprehensive Loss
The accompanying notes are an integral part of these consolidated financial statements.
TRIPBORN, INC.
Consolidated Statements of Stockholders' Deficit
Years Ended March 31, 2019 and 2018
The accompanying notes are an integral part of these consolidated financial statements.
TRIPBORN, INC.
Consolidated Statements of Cash Flows
Years Ended March 31,
The accompanying notes are an integral part of these consolidated financial statements.
TRIPBORN, INC.
Notes to Audited Consolidated Financial Statements
March 31, 2019 and 2018
1. DESCRIPTION OF BUSINESS
TripBorn, Inc. (“TripBorn” or the “Company”) is a Last Mile eCommerce aggregator that delivers the products and services to offline consumers using a service agent network in India through our website, www.tripborn.com. Currently, we operate as a business to business, or B2B, Last Mile Commerce platform that serves business agents and companies based in India in providing travel and financial services products for their offline customers offering travel reservations and related travel services and products to travel agents in India through its proprietary internet-based platform at www.tripborn.com.
Tripborn, Inc. (“Company”) was incorporated under the law of the state of Delaware in January 2010 office is located at 762 Perthshire Pl, Abingdon, MD 21009. The Company provides Online Travel Agency (OTA) and related services and selling its services to directly to Business customers. The Company primarily operates in India. Tripborn, Inc. formerly known as PinstripesNYC, Inc was operating as a shell company with nominal or no assets or operations until December 14, 2015. Tripborn Inc. was known as PinstripesNYC, Inc. until January 2016.
On December 14, 2015, PinstripesNYC, Inc. (the “Registrant”) executed and agreement and Plan of Merger (the, “Agreement”) with Sunalpha Green Technologies Private Limited (“Sunalpha”). Sunalpha registered under the Company Act of 1956, India with principle office located at 812, Venus Atlantis Corporate Park, Near Prahalad Nagar Garden, Satellite, Ahmedabad, Gujarat, India 380 015.
As a result of the Merger, Sunalpha became a wholly owned subsidiary of the Registrant (Pinstripes NYC Inc.) now Tripborn Inc. and following the consummation of the Merger and giving effect to the issuance of 76,804,914 Merger Shares by its principle stockholders.
For accounting purposes, Sunalpha was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of the Company. Accordingly, Sunalpha’s assets, liabilities, and results of operations are the historical consolidated financial statements of the Company and Company’s assets, liabilities and results of operations are consolidated with Tripborn Inc. effective as of the date of the Merger. No step-up in basis or intangible assets or goodwill was recorded in this transaction. The acquisition of all of the outstanding shares of common stock of Sunalpha by TripBorn on December 14, 2015 is being accounted for as a reverse recapitalization.
2. LIQUIDITY AND GOING CONCERN
The Company has experienced significant losses and negative cash flows from operations and reported net loss of $1,268,047, accumulated deficit of $4,355,630 and negative cash flow from operations of $637,991 as of and for the year ended March 31, 2019. Management has implemented a strategy which includes cost reduction efforts. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. If the Company must raise capital, there is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance operations over the next twelve months.
The Company’s operations are subject to number of factors that can affect it operating results and financial conditions. Such factors include, but not limited to: the continuous enhancement of the current products and services; marketing its new services; continue to invest in new technologies; change in domestic and foreign regulations; the price of, and demand for, the company’s products and services and its ability to raise the capital to support its operations.
The Company sold 1,000,001 shares of common stock at a price of approximately $0.70 and received approximately $700,000 during fiscal year ended March 31, 2019.
The Company has issued convertible note for $250,000 in the fourth quarter of fiscal 2019. The principal amount of the note will convert into 357,143 shares of the Company’s common stock at fair value of $0.70 to the noteholder’s option at maturity on April 1, 2020.
The Company exhausted a majority of its cash balances that existed at year-end for the acquisition of PRAMA as discussed in Note 13.
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months from the date of the issuance of these consolidated financial statements with the private placement of common stock. There is, however, no assurance that the Company will be able to raise any additional capital through any type of offering on terms acceptable to the Company, as existing cash on hand will be insufficient to finance operations over the next twelve months.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States.
Principles of Consolidation
The consolidated financial statements include the accounts and transactions of the Company and its wholly owned subsidiary, Sunalpha Green Technologies Private Limited. All significant inter-company accounts and transactions are eliminated in consolidation.
Reclassification
For the fiscal year ending March 31, 2018 certain accounts have been reclassified to conform to the current year's presentation. Such reclassification had no impact on net loss or total assets.
Use of Estimates
The preparation of financial statements in US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto, those estimates, and assumptions affect the reported amounts assets, liabilities and disclosure of contingent assets and liabilities and revenue. Actual results could differ significantly from those estimates.
Our significant estimates include elements of revenue recognition, the realization of deferred tax assets, amounts that may be due under the tax sharing agreement, impairment of long-lived assets, costs to be capitalized as well as the useful life of capitalized software, and contingent liabilities, including taxes related to hotel occupancy. Actual amounts may differ from these estimates. The use of different estimates or assumptions in determining the fair value of our goodwill, indefinite-lived and definite-lived intangible assets may result in different values for these assets, which could result in an impairment or, in the period in which an impairment is recognized, could result in a materially different impairment charge. The Company has no impairment charge for the fiscal year ending March 31, 2019.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”): Topic 606 which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining customer contracts.
Topic 606 was effective as of April 1, 2018, for the Company, using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of initially applying Topic 606 recognized at the date of initial application and providing certain additional disclosures as defined per Topic 606. We adopted Topic 606 pursuant to the method (2) and we determined that any cumulative effect for the initial application did not require an adjustment to accumulated deficit at April 1, 2018.
For revenue recognition arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we evaluate the goods or services promised within each contract related performance obligation and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Air Ticketing. Revenue from airline tickets is recognized on net commission basis which includes our nonrefundable surcharges and fees to our service agents. For certain airline transactions, we also receive fees from global distribution systems partners that control the computer systems through which these reservations are booked.
Vacation Packages. Revenue from vacation packages, including revenue on airline tickets sold to customers as a part of vacation packages, is accounted for on the gross basis as we are determined to be the primary obligor in the arrangement i.e., the risks and responsibilities are taken by us, including the responsibility for delivery of services.
Rail Ticketing. Revenue from rail ticket reservations is recognized on net basis which includes our nonrefundable surcharges and fees to our service agents. We recognized revenue on gross basis for railway service setup fees, which is non-refundable and collected from our service agent at the time of agent enrollment.
Money Transfer. To our service agent we provide system connectivity using our internet platform so our service agent can perform Money Transfer services on behalf of their customers. Our internet platform facilitates connectivity between Bank and Service Agent. We recognized revenue on the net basis, we collect service charge or fees to our service agent for performing the money transfer services for their customers. Performance linked incentives from Banks or suppliers are recognized upon achievement of performance obligations and amount is billed to suppliers.
Other Revenue. Revenue from other sources, primarily comprising net commission and fees from bus tickets booking fees, visa processing fees, and pre-and post-paid expenses are recognized after the services are being performed.
Cash and Cash Equivalents
The Company maintains its cash in bank deposit accounts in India and USA, Indian bank accounts are not insured. The Company has not experienced any losses in such accounts. The Company maintains cash balances, which may exceed federally insured limits. Sunalpha has thirteen and eleven accounts denominated in Indian Rupees at March 31, 2019 and 2018, respectively. As of March 31, 2019, and 2018, the cash balance in financial institutions in India was USD $303,971 and $478,254, respectively.
Accounts Receivable
Accounts receivable are stated at the amount’s management expects to collect. An allowance for doubtful accounts is recorded, as a charge to bad debt expense, where collection is doubtful due to credit issues. These allowances together reflect the Company's estimate of potential losses inherent in accounts receivable balances, based on historical loss and known factors impacting its customers. Management has determined the bad debt allowance of $58,507 for the fiscal year ended March 31, 2019 with no bad debt allowance for the fiscal year ended March 31, 2018. The Company does not accrue interest on past due receivables.
The Company performs periodic analysis of each customer’s outstanding accounts receivable balance and assesses, on an account-by-account basis, whether the allowance for doubtful accounts needs to be adjusted based on currently available evidence such as historical collection experience, current economic trends and changes in customer payment terms. In accordance with the Company’s policy, if collection efforts have been pursued and all reasonable and contractually available avenues for collections exhausted, accounts receivable would be written off as uncollectible. The Company does use estimate to use a general reserve methodology when estimating the level of allowance for doubtful accounts because the Company believes, due to the unique circumstances of each customer and a limited number of customers, a general reserve methodology would not provide a reasonable estimate of potentially uncollectible accounts.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is computed on a straight-line basis over the estimated useful lives of the assets. The Company charges repairs and maintenance costs that do not extend the lives of the assets to expense as incurred.
Intangible Assets
Intangible assets with definite useful lives are tested for impairment at least annually for their recoverability. We do not have any intangible assets with indefinite lives. Intangible assets that have limited useful lives are amortized on a straight-line basis over their useful lives.
Impairment of Long-lived Assets
The Company records an impairment of long-lived assets used in operations, when events or circumstances indicate that the asset might be impaired and the estimated undiscounted cash flows to be generated by those assets over their remaining lives are less than the carrying amount of those items. The net carrying value of assets not recoverable is reduced to fair value, which is typically calculated using the discounted cash flow method. The Company did not record any impairment during the years ended March 31, 2019 and recorded $696,949 impairment charge for the fiscal year ended March 31, 2018.
Foreign Currency Translation
The Company translates the foreign currency of its foreign subsidiary, whose functional currency is Indian rupee, into US Dollars, the reporting currency using the year or reporting period end or average exchange rates in accordance with the requirements of ASC subtopic 830, Foreign Currency Matters (“ASC 830”). Assets and liabilities are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within shareholders’ equity (deficit).
Earnings and Loss per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding for the period. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation.
Promotion and Advertising Expense
We incur advertising expense consisting of offline costs, including newspaper and media advertising, and online advertising expense to promote our brands. We expense the production costs associated with advertisements in the period in which the advertisement first takes place. We expense the costs of communicating the advertisement (e.g., newspaper, SMS or email campaign) as incurred each time the advertisement or promotion is performed.
Stock-Based Compensation
The Company accounts for stock-based awards to employees and nonemployee consultants in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, including employee stock options, to be measured and recognized in the financial statements based on a determination of the fair value of the stock options over the instruments vesting period.
Leases
Leases of assets where the Company has assumed substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are recognized at the lower of the fair value of the leased assets and the present value of the minimum lease payments.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company has determined the deferred tax assets and liabilities based on the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of operations. If the Company determines that it would be able to realize our deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Recent Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
We adopted Revenue Recognition - Revenue from Contracts with Customers (ASU 2014-09) for the fiscal year ended March 31, 2019, which amends the guidance in former ASC 605, Revenue Recognition and found no significant impact on the revenue recognition.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This update addresses several aspects of the accounting for share-based compensation transactions including: (a) income tax consequences when awards vest or are settled, (b) classification of awards as either equity or liabilities, (c) a policy election to account for forfeitures as they occur rather than on an estimated basis and (d) classification of excess tax impacts on the statement of cash flows. The Company adopted this guidance in the first quarter of its fiscal year ended March 31, 2019, which did not have a material impact on the consolidated financial statements and related disclosures. The amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement will be applied prospectively.
New Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, "Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet with a corresponding liability and disclosing key information about leasing arrangements. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact of the adoption of this revised guidance on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory”, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The amendments in this ASU should be adopted on a modified retrospective basis. The Company reviewing adoption and its impact of this guidance on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control”. The amendments affect reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. As of fiscal year, ending March 31, 2019 and 2018 we have no variable interest entity under common control with the reporting entity.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount. The new rules will be effective for the Company in the first quarter of 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for non-employee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The standard will be effective in the first quarter of fiscal year 2019, although early adoption is permitted. Management believes the effect on the consolidated financial statements will not be material.
No other recent accounting pronouncements were issued by FASB and the SEC that are believed by management to have a material impact on the Company's present or future consolidated financial statements.
4. PROPERTY AND EQUIPMENT, NET
Depreciation expense for the years ended March 31, 2019 and 2018 is $3,865, and $8,236 respectively.
5. INTANGIBLE ASSETS WITH DEFINITE LIVES
Intangible assets consist of the following as of March 31, 2019 and March 31, 2018:
We amortize the cost of other intangibles over their estimated useful lives unless such lives are deemed indefinite. The cost of intangible assets is generally amortized on a straight-line basis over the asset’s estimated economic life. Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In these circumstances, they are tested for impairment based on undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required.
We determined that certain intangible assets, primarily technology were impaired. Therefore, included within amortization expense for the twelve months ended March 31, 2018, was a $696,949 non-cash impairment charge recorded. This charge was recorded within the caption "Selling, general and administrative expense" caption in our Consolidated Statements of Operations and Comprehensive Loss. The Company has no impairment charges for fiscal year ended March 31, 2019.
The amortization expense for the years ended March 31, 2019 and March 31, 2018 was $130,283 and $377,561, respectively. Following table describes future amortization for the next five year for the intangible assets;
Fiscal Year Estimated Amortization
$130,253
$130,253
$58,284
$12,673
$31,254
6. STOCK COMPENSATION
During the current year 2019, company issued 478,560 common shares to an individual for services to be performed on the company’s behalf until June, 2020 of which $77,168 is recorded in Selling, General and Administration expense as of the year ended March 31, 2019 and $128,613 is recorded in prepaid consulting services, representing the remainder of contract period which expires on June, 2020. The issuance of these shares is being made pursuant to certain administrative services, advisory board services, business development services, consulting services, financial consulting services. The Board has equated the number of these shares at fair value of the services to be provided by this individual.
7. CONVERTIBLE NOTES PAYABLE
Related Party Convertible Notes
The consolidated entity has successfully negotiated a twelve-month extension of related party convertible notes from March 8, 2019 to March 7, 2020.
The Company issued an $956,000 convertible note with maturity date of March 7, 2020, with annual rate of 10% from ARNA GLOBAL LLC, wholly owned by the Company’s president. The note converts into 21,194,381 shares of common stock (the “Note Shares”). At March 31, 2019 the total accrued and unpaid interest is $292,824. No interest has been paid on this obligation.
The Company issued an $149,644 convertible note with maturity date of March 7, 2020, with annual rate of 10% from Mr. Sharma, Company’s president. The note converts into 3,432,234 shares of common stock (the “Note Shares”). At March 31, 2019 the total accrued and unpaid interest is $47,908. No interest has been paid on this obligation.
The Company issued an $37,513 convertible note with maturity date of March 7, 2020, with annual rate of 10% from Mr. Mandloi, Company’s vice president. The note converts into 835,552 shares of common stock (the “Note Shares”). At March 31, 2019 the total accrued and unpaid interest is $11,663. No interest has been paid on this obligation.
The Company issued an $695,000 convertible note with maturity date of December 19, 2019, with annual rate of 10% from TAKNIKI COMMUNICATION, wholly owned by the Company’s Vice President. The note converts into 10,303,070 shares of common stock (the “Note Shares”). At March 31, 2019 the total accrued and unpaid interest is $156,136. No interest has been paid on this obligation.
The Company has accrued interest of $508,531 and $323,983 for related parties for the fiscal year ending March 31, 2019 and 2018 respectively.
Non-Affiliate Party Convertible Notes
The Company obtained an $250,000 convertible note with maturity date of April 1, 2020, with annual rate of 8% from UNITED TECHNO SOLITIONS. The note may convert into 357,143 shares of common stock (the “Note Shares”) at holder’s option. At March 31, 2019 the total indebtedness under this agreement was $250,822 which is composed of the principal of $250,000 and accrued and unpaid interest of $822. No interest has been paid on this obligation.
8. RELATED PARTY TRANSACTION
On April 1, 2017, the board approved the compensation of Deepak Sharma, President of the Corporation, be fixed at USD 250,000/- per year for the next three year period beginning April 1, 2017 to year ending March 31, 2020, payments to be made in monthly installments on the last day of each month. The Company has paid $ 75,000 in executive compensation in the financial year ending March 31, 2019 compared to no payments for the fiscal year ending March 31, 2018. The Company accrued the total executive compensation payable of $425,000 and $250,000 for the fiscal year ending March 31, 2019 and 2018 respectively.
The Company has outstanding balance of $14,364 due from our directors or their affiliates for each of the fiscal years ended March 31, 2019 and 2018.
The Company has outstanding balance of $13,828 and $0 due to our directors or their affiliates for the fiscal years ended March 31, 2019 and 2018 respectively.
The Company has accrued interest on notes of $508,531 and $323,983 for related parties for the fiscal year ending March 31, 2019 and 2018 respectively.
The above related party transactions are not necessarily indicative of the amounts and terms that would have been incurred had comparable transactions been entered with independent parties.
9. STOCKHOLDERS’ EQUITY
During fiscal 2019 the Company issued and sold 214,286 share of Company’s common stock; par value $0.0001 pursuant to a private placement. The purchase price per share was $0.70 resulting in aggregate proceeds of $150,000 to the Company.
During fiscal 2019 the Company issued and sold 785,715 units comprising one share and warrant to purchase two share of Company’s common stock; par value $0.0001 pursuant to a private placement. The purchase price per unit was $0.70 resulting in aggregate proceeds of $550,000 to the Company. The Company issued approximately 1,571,430 warrants pursuant to the 785,715 units listed above during fiscal year March 31, 2019, which had minimal impact on the earning per share calculation for the fiscal year ending March 31, 2019. This Warrant shall be exercisable, in whole or in part, during the three-year term commencing from the issuance date of this Warrant at an exercise price of $0.01.
Warrants:
The following table is the summary of warrant activities:
Equity Compensation Plan
On April 15, 2016, we adopted the TripBorn, Inc. 2016 Stock Incentive Plan, which authorized the issuance of 7,680,000 shares of our common stock pursuant to stock options, restricted stock, restricted stock units or other awards authorized under the terms of the plan. No awards have been issued under the plan.
10. INCOME TAX
There were no current or deferred income tax provision for the year ended March 31, 2019 because the Company has incurred operating losses since inception. A reconciliation of the Company's tax provision for (benefit from) income taxes as computed by applying by applying the U.S. statutory income tax rate to the Company's effective income tax rate is as follows:
The net deferred income tax asset balance related to the following:
US Federal net operating loss carry forwards as of March 31, 2019 is $2,562,547. The net operating losses from January 1, 2018 may be carry forward indefinitely and losses prior to January 1, 2018 expire after 20 years under prior law. Foreign subsidiary net operating loss carry forwards as of March 31, 2019 is $527,019. The net operating losses from March 31, 2019 may be carry forward for indefinitely.
Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of March 31, 2019, and 2018, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, which included the results of operations for the current and preceding years. The Company also considered whether there was any currently available information about future years. Because long-term contracts are not a significant part of the Company's business, future results cannot be reliably predicted by considering past trends or by extrapolating past results. Moreover, the Company's earnings are strongly influenced by national economic conditions and have been volatile in the past.
The calculation of our tax liabilities involves uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.
We record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of March 31, 2019, and 2018 we have not recorded any uncertain tax positions in our financial statements.
11. EARNINGS AND LOSS PER SHARE
ASC 260, “Earnings Per Share” requires presentation of basic earnings per share and dilutive earnings per share.
The computation of basic earnings (loss) per share is computed by dividing earnings (loss) available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect.
The Company has outstanding convertible debt of $2,095,483 which converts into 36,122,380 company’s common stock, which may cause diluted earnings per share. Since the Company has only incurred losses, basic and diluted loss per share are the same as potentially dilutive shares have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive.
The Company issued approximately 1,571,430 warrants during fiscal year March 31, 2019, which had minimal impact on the earning per share calculation for the fiscal year ending March 31, 2019.
A reconciliation of net income and weighted average shares used in computing basic and diluted net income per share is as follows:
12. COMMITMENTS
The Company is the B2B Principal Agent of the Indian Railway Catering and Tourism Corporation, or IRCTC, which is a government entity that allows the Company to offer reservations through Indian Railways’ passenger reservation system on the Company’s webpage. Indian Railways is India’s state-owned railway, which owns and operates most of India’s rail transportation. The Company has integrated its online portal with IRCTC’s to provide a seamless booking process. Pursuant to an Application Programming Interface (API) agreement, dated October 5, 2015, the Company is required to pay a minimum annual maintenance fee of $7,500 to IRCTC. In the event the agreement is renewed, the amount based on the number of active railway agents that use the Company rail booking services on the Company’s platform will be payable annually. On September 30, 2018, the Company renewed its agreement with the IRCTC and paid an annual maintenance fee of $8,600 based on the number of active railway agents it has enrolled to book rail tickets.
Since March 2016, we also lease approximately 4,080 square feet of office space for our technology center in Bangalore, Karnataka India, for which we currently pay approximately $6,270 per month including annual maintenance charges. This lease is continued with expiration dates through December 2024. We believe these properties suit our operations and business needs and that adequate, suitable lease space will continue to be available to meet our needs. No lease payment is due as of March 31, 2019. Following table describes our obligation for the next five year from the lease.
Financial Year Estimated Annual Lease Charges
$75,272
$80,067
$85,116
$90,549
$96,401
$72,301
Through Sunalpha, the Company currently occupies approximately 2,455 square feet of office space owned by a CEO of the Company on a rent-free basis. As of March 31, 2019, and 2018, the Company has not paid any rent.
13. SUBSEQUENT EVENTS
The Company will make acquisitions at prices above the determined fair value of the acquired identifiable net assets, resulting in goodwill, due to expectations of the synergies that will be realized by the combining the businesses. Acquisition will be accounted for by using the purchase method of accounting, and the acquired company’s results will be included in the accompanying financial statements from their respective dates of acquisition. Acquisition transaction costs will be recorded in selling, general and administrative expenses as incurred.
The Company has entered into an agreement to acquire 51% of PRAMA Hotels and Resorts Limited (“PRAMA”) for approximately $3,242,857, consisting of $1,400,000 in cash and $1,842,857 in common stock (2,632,653 shares). The transaction is subject to customary closing conditions, including regulatory approvals. The Company closed on its acquisition on April 22, 2019, whereby the company acquired 51% of PRAMA. The Company expects to determine the preliminary purchase price allocation prior to the end of the first quarter of FYE 2020. The Company recorded the issuance of 2,632,653 common shares at a price of $0.70 per shares and equity of approximately $1,842,857 for the acquisition.
The Company issued aggregate of 1,489,443 units at price $0.70 and received approximately $1,042,610. Each unit consists of one share of the Company’s common stock and two warrants to purchase common stock. Each warrant can be exercised at any time prior to June 30, 2022 for the purchase of one share of the Company’s common stock at an exercise price of $0.01.
In June 2019, the Company issued 1,571,430 shares for the warrants that were outstanding and received approximately $15,714.
In June 2019, the Company has issued the 25,462,167 shares of common stock and reduced its liabilities by approximately $1,150,483 in connection with related parties convertible note conversion. The interest on the convertible notes are outstanding and not been paid.
To ensure the Company had adequate near-term liquidity to fund its acquisition, Company borrowed $300,000 from ARNA GLOBAL LLC (“Arna”), which is wholly owned by our president and director. These funds were utilized for working capital and acquisition purposes and entire principle of $300,000 was returned on July 8, 2019.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this Annual Report on Form 10-K (the "Evaluation Date"). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over the Company's financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Our management, with the participation of our principal executive officer and principal financial officer have conducted an assessment, including testing, using the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of March 31, 2019. The ineffectiveness of the Company's internal control over financial reporting was due to the following material weaknesses, which are indicative of many small companies with small staff:
(i)inadequate segregation of duties consistent with control objectives; and
(ii)lack of multiple levels of supervision and review.
A “material weakness” is defined as a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is defined as a control deficiency, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial information reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. Management identified the following material weaknesses in the Company’s internal control over financial reporting as of March 31, 2019:
i.lack of adequate US GAAP accounting knowledge to identify and account significant complex transactions on a timely basis;
ii.unable to report financials in timely manner;
iii.inadequate segregation of duties consistent with control objectives; and
iv.lack of multiple levels of supervision and review.
Deferred Tax Asset
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As a result, we have identified this as a material weakness. The Company has restated its financial year ending March 31, 2018 for valuation allowance of Deferred Tax.
We have identified that our information technology security and environment may have material control deficiencies, including but not limited to a lack of retention policy, lack of an audit log, weak password policies, and a lack of security of physical and file security of system.
We believe that the weaknesses identified above have not had any material effect on our financial results. We are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the current fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management's Remediation Plan
The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.
However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:
(i)Appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies; and
(ii)We will attempt to implement the remediation efforts. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Management believes that despite our material weaknesses set forth above, our financial statements for the year ended March 31, 2019 are fairly stated, in all material respects, in accordance with U.S. GAAP.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the year ended March 31, 2019 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
1. Directors and Executive Officers
All directors of our company hold office until the next annual meeting of the security holders or until their successors have been elected and qualified. The officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office. Our directors and executive officers, their ages, positions held, and duration as such, are as follows:
Business Experience
The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Deepak Sharma has served as our President, Chief Executive Officer and a director since December 2015. He is also serving as our Chief Financial Officer. Mr. Sharma is the President of Alphatech Systems and Consulting Inc., an information technology service company that he founded in 2006. Alphatech provides customer solutions including software development and maintenance services.
The board of directors believes that Mr. Sharma’s institutional knowledge as a founder of the company as well as his experience in business development and software product development are crucial to successfully growing our business.
Sachin Mandloi has served as our Vice President and a director since December 2015. Mr. Mandloi is responsible for technology development, quality assurance and product delivery. Mr. Mandloi is the founder and president of Takniki Communications, an information technology service company formed under the laws of the Republic of India that provides information technology solutions, including software development and maintenance services. Mr. Mandloi has served as the President of Takniki Communications since he founded it in 1998. Mr. Mandloi has served as a director of our Indian operating subsidiary, Sunalpha since 2014.
The board of directors believes that Mr. Mandloi’s experience in software development and maintenance in India, as well as his in-depth knowledge of digital marketing and data analytics are crucial to successfully growing our business.
Employment Agreements
We have no formal employment agreements with any of our directors or officers.
Family Relationships
There are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
1.been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
2.had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
3.been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
4.been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5.been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6.been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Code of Ethics
We have not adopted a Code of Business Conduct and Ethics.
Board and Committee Meetings
Our board of directors held twelve formal meetings and executed eight consents during the year ended March 31, 2019. All proceedings of the board of directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the Delaware Statutes and our Bylaws, as valid and effective as if they had been passed at a meeting of the directors duly called and held.
Director Independence
Although our shares are not listed on The NASDAQ Capital Market or any other exchange, we use the independence standards of the NASDAQ Listing Rules in evaluating the independence of our directors. Our directors, Deepak Sharma and Sachin Mandloi do not meet the definition of “independent directors” as that term is defined in Rule 5605(a)(2) of the NASDAQ Listing Rules due to their relationships with us as founders of our Indian operating subsidiary. In the future, if we list our common stock on The NASDAQ Capital Market or another national securities exchange, we will be required to have a majority of independent directors and we intend to comply with applicable requirements relating to director independence in connection with such listing.
Committees of the Board of Directors
We expect our board of directors, in the future, to appoint an audit committee, nominating committee and compensation committee and to adopt charters relative to each such committee. We intend to appoint such persons to committees of the board of directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek a listing on a national securities exchange. In addition, we intend that at least one of our directors who serves on our audit committee will qualify as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by the Securities and Exchange Commission. We do not currently have an “audit committee financial expert” since we currently do not have an audit committee in place.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The particulars of the compensation paid to our principal executive officers:
SUMMARY COMPENSATION TABLE
Director Compensation
Each of our directors is an employee of the Company, and therefore do not receive any additional compensation for services as a director. The compensation that we pay to each of our directors is disclosed in the Summary Compensation Table.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Beneficial Owners
The following table provides information as of fiscal year ending March 31, 2019, concerning beneficial ownership of our common stock known to us to be held by (1) our named executive officers, (2) our directors, (3) our executive officers and directors as a group and (4) each person or entity we know to beneficially own more than five percent of our common stock. The percentages of shares owned shown in the table below are based on 138,649,198 shares which consist of 97,190,435 of our common stock outstanding as of March 31, 2019 and 41,458,763 of future conversion shares. According to SEC rules, a person is the “beneficial owner” of securities if he, she or it has or shares the power to vote them or to direct their investment or has the right to acquire beneficial ownership of such securities within 60 days through the exercise of an option, warrant or right, the conversion of a security or otherwise.
*ARNA GLOBAL LLC own shares in Tripborn Inc. through features associated with convertible debt. Deepak Sharma is beneficial owner of the ARNA GLOBAL LLC.
* TAKNIKI COMMMUNICATION own shares in Tripborn Inc. through features associated with convertible debt. Sachin Mandloi is beneficial owner of the TAKNIKI COMMMUNICATION.
Equity Compensation Plan Information
The following table set forth certain information, as of March 31, 2019, with respect to securities authorized for issuance under equity compensation plans. The only security being so offered is our common stock.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Person Transactions
Except as disclosed herein, no director, executive officer, shareholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction during the year ended March 31, 2019, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last three completed fiscal years.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal Accountant Fees and Services.
Principal accountant fees for audit for the fiscal year 2019 performed by Friedman LLP and for fiscal year 2018 for audit and for fiscal year 2019 review services performed by Ram Associates is as follows:
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)Financial Statements. See Index to Financial Statements included in Item 8 of Part II of this report.
(b)Financial Statement Schedules. None.
(c)Exhibits. See Index to Exhibits contained in this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates.
Signature
Title
/s/ Deepak Sharma
Deepak Sharma
Chief Executive Officer, President, and Director
(Principal Executive Officer)
/s/ Deepak Sharma
Deepak Sharma
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Sachin Mandloi
Sachin Mandloi
Vice President and Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual reports to security holders covering TripBorn, Inc.’s last fiscal year have been sent to its security holders. No proxy statement, form of proxy or other proxy soliciting material have been sent to TripBorn, Inc.’s security holders during such period.
INDEX OF EXHIBITS
Number Exhibit Description
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002