TripBorn, Inc. - Quarter Report: 2019 December (Form 10-Q)

On April 1, 2019, the Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating prior periods. Results and disclosure requirements for reporting periods beginning after April 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.

The Company elected the package of practical expedients permitted under the transition guidance, which allowed for the carry forward of historical lease classification, on whether a contract was or contains a lease, and of the assessment of initial direct costs for any leases that existed prior to April 1, 2019. The Company also elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

The adoption did not impact our beginning or prior period consolidated condensed balance sheets, statement of equity / (deficit), statement of operations and statement of cash flows.

Under Topic 842, the Company determines if an arrangement is a lease and classifies that lease as either an operating or finance lease at inception. If an arrangement is a lease or contains a lease, we then determine whether the lease meets the criteria of a finance lease or an operating lease. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, only payments that are fixed and determinable at the time of commencement are considered. As the rate implicit in certain of the Company's leases is not easily determinable, the Company’s applicable incremental borrowing rate is used in calculating the present value of the sum of the lease payments. The right-of-use asset is recognized at the amount of the lease liability with certain adjustments, if applicable. These adjustments include lease incentives, prepaid rent, and initial direct costs. We reassess if an arrangement is or contains a lease upon modification of the arrangement. At the commencement date of a lease, we recognize a lease liability for contractual fixed lease payments and a corresponding right-of-use asset representing our right to use the underlying asset during the lease term. The lease liability is measured initially as the present value of the contractual fixed lease payments during the lease term. The lease term additionally includes renewal periods only if it is reasonably certain that we will exercise the options. Contractual fixed leases payments are discounted at the rate implicit in the lease when readily determinable. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the options will be exercised.

Operating leases are included in Operating lease right-of-use assets, Other current liabilities, and Operating lease liabilities, due after one year, in our Consolidated Condensed Balance Sheets.

Employee Benefits

PRAMA has employee benefit plans in the form of statutory and welfare schemes covering statutorily eligible employees which are accounted for in accordance with ASC 715 Compensation – Retirement benefits.

Gratuity

In accordance with the Indian Payment of Gratuity Act, 1972, PRAMA provides for gratuity, a defined benefit retirement plan (the Gratuity Plan) covering eligible employees. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employee’s salary and the tenure of employment. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation. The Gratuity Plan is unfunded. The current service costs for defined benefit plans are accrued in the year to which they relate. Prior service costs, if any, resulting from amendments to the plans are recognized and amortized over the remaining period of service of such employees.

Provident

In accordance with Indian law, all eligible employees of the Company, are entitled to receive benefits under the Provident Fund, a defined contribution plan in which both the employee and the Company, contribute monthly at a determined rate (currently twelve percent of contributory wages subject to a maximum cap). These contributions are made to the Government Provident Fund and the Company has no further obligation under Provident Fund, beyond its monthly contributions. The amount contributed for the nine months ended December 31, 2019 and 2018, amounted to $203,850 and $Nil, respectively.

Vacation

Accruals for Indian statutory vacation pay is determined at the actuarial estimate for the entire unutilized leave balance standing to the credit of the employees at the period end. The amount accrued as of December 31, 2019 and 2018, amounted to $82,247 and $Nil, respectively.

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.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it  recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Non Income Taxes

The Company is subject to India Goods and Services Tax and other local duties and non-income taxes on its transactions in India. The Company collects such taxes from customers, and pays such taxes on applicable supplies and inputs, and remits the net amounts to the respective local tax authorities on an accrual basis.

Equity-method Investments

Through PRAMA, the Company has an approximately 15% equity interest in PCW, a non-trading company formed to develop a potential hotel in Bengaluru, India. The Company exercises significant influence over PCW but does not control the investee and the Company is not the primary beneficiary of the investee’s activities. PCW is accounted for using the equity method.

Equity investments are accounted for using the equity-method of accounting if the investment gives us the ability to exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees, including identifiable intangible assets, deferred tax liabilities and goodwill, is included within “Other noncurrent assets” on our consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of the related intangible assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on our consolidated statements of operations. Our share of the net income or loss of our equity-method investees may in the future include operating and non-operating gains and charges, which may have a significant impact on our reported equity-method investment activity and the carrying value of those investments. We regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment.

We record purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in our ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between fair value and our recorded cost reflected as a gain or loss in our equity-method investment activity. In the event we no longer have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the investment under the equity method.

Included in Other Non Current Assets as of December 31, 2019, is $343,744 relating to the fair value of equity-method investments and $454,425 relating to the fair value of amounts due from equity-method investee, in aggregate $798,169. During the period April 22, 2019, through December 31, 2019, there was no recorded impairment for the equity investee. Also, there was no activity in the equity method investee and so no equity-method investment activity, net of tax, was recorded in our Statement of Operations for the respective three and nine month periods.

The Company may record impairments to the fair value of equity-method investments and the fair value of amounts due from equity-method investee as of March 31, 2020, reflecting the impact of covid-19, but has not done so as of December 31, 2019, as the covid-19 pandemic was a non-adjusting post balance sheet event as of December 31, 2019.

Related Parties

The Company follows FASB ASC subtopic 850-10 for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20, the Company’s related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

Recent Accounting Pronouncements

New Accounting Pronouncements Recently Adopted

On April 1, 2019 the Company adopted ASU No. 2016-2, Leases (Topic 842) (ASU 2016-2), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provides an additional, optional transition method with which to adopt the new leases standard. This additional transition method allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, rather than in the earliest period presented in the financial statements, as originally required by ASU 2016-2.

Adoption of the standard did not result in adjustment to our prior period Balance Sheets, Statements of Operations or Statements of Cash Flows. When we adopted ASU 2016-02, we applied the package of practical expedients allowed by the standard, and therefore, we did not reassess: a) Whether any expired or existing contracts are or contain leases under the new definition; b) The lease classification for any expired or existing leases; or c) Whether previously capitalized costs continue to qualify as initial direct costs.

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. Management is currently evaluating this ASU to determine its impact to the Company's financial statements but does believe it is expected to have a minimal impact on the Company’s financial statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted 

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 condensed financial statements.

4. CUSTOMER CONCENTRATION

Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases. A significant portion of the Company’s Hospitality revenue has been derived from two customers, which were acquired as part of the PRAMA acquisition on April 22, 2019 and so were not present in the comparable period. For the three months and nine months ended December 31, 2019, the two largest customers accounted for 43% and 53%, respectively, of the Company's total revenue. As of December 31, 2019, one significant customer accounted for 16% of the Company’s total receivables. There were no significant revenue and receivable concentrations as of and for the periods ended December 31, 2018, or March 31, 2019. Changes in the relationship with these customers could materially and adversely affect the Company’s financial performance and going concern status.

5. EMPLOYEE BENEFITS

The change in benefit obligation of the gratuity and vacation statutory plans are as follows:

The components of net periodic pension costs for the gratuity and vacation statutory plans are as follows:

There were no amounts recognized in accumulated other comprehensive income.

The range of assumptions used for benefit obligations and net periodic benefit cost are as follows:

Discount rate 7.95 to 8.07% per annum

Rate of compensation increase 6% to 8% per annum

Retirement range of 58 to 65 years.

PRAMA evaluates these assumptions based on its employee demographics, budgets and industry standards.

6. LEASES

Balance sheet information related to our leases is included in the following table:

Operating lease liabilities, due within one year are included in Other current liabilities on our Consolidated Condensed Balance Sheet as of December 31, 2019.

The components of lease expense during the quarter ended and nine month period ended December 31, 2019 is included in the following table:

Lease expense is included in Cost of revenue in our Consolidated Condensed Statement of Operation for the periods ended December 31, 2019.

Supplemental other information related to leases were as follows:

The future maturities of lease liabilities as of December 31, 2019, are as indicated below:

The Company expects to record impairments to Operating Lease, Rightof-Use of Assets, net as of March 31, 2020, reflecting the impact of covid-19, but has not done so as of December 31, 2019, as the covid-19 pandemic was a non-adjusting post balance sheet event as of December 31, 2019.

7. PROPERTY AND EQUIPMENT, NET

Property and Equipment consists of the following as of December 31 and March 31, 2019.

Depreciation expense for the three and nine months ended December 31, 2019 was $70,371 and $188,505, respectively. Depreciation expense for the three and nine months ended December 31, 2018 was $917 and $2,900, respectively.

The Company expects to record impairments to Property and Equipment as of March 31, 2020, reflecting the impact of covid-19, but has not done so as of December 31, 2019, as the covid-19 pandemic was a non-adjusting post balance sheet event as of December 31, 2019.

8. INTANGIBLE ASSETS

Intangible assets with definite lives consist of the following as of December 31 and March 31, 2019: 

Amortization expense for the three and nine months ended December 31, 2019 was $70,916 and $223,939 respectively. Amortization expense for the three and nine months ended December 31, 2018 were $32,648 and $103,528 respectively. The Company has no impairment charge for definite lived intangible assets for the above periods.

Intangible assets with indefinite lives consist of the following as of December 31 and March 31, 2019: 

Intangible assets with indefinite lives are not amortized, they are reviewed for impairment annually, or 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.

The Company expects to record impairments to Intangible Assets as of March 31, 2020, reflecting the impact of covid-19, but has not done so as of December 31, 2019, as the covid-19 pandemic was a non-adjusting post balance sheet event as of December 31, 2019.

9. AMOUNTS DUE TO AND FROM RELATED PARTIES

 Amounts due from related parties

The following originally were included on PRAMA’s opening balance sheet on acquisition and have been unchanged apart from foreign exchange differences, they are all denominated in Indian rupees, unsecured and non-interest bearing:

The balances above are denominated in Indian Rupees and the above amounts are translated into US dollars at the closing rate as of December 31, 2019. The movement from the September 30, 2019 balance to the December 31, 2019 balance relates to foreign exchange translation only, with no change in the Indian Rupee amount.

Included in the September 30, 2019 amounts due from related parties was a $14,364 balance recorded in Sunalpha, this was collected in the period ended December 31, 2019 and so is no longer included in the December 31, 2019 balance sheet.

Amounts due to related parties

The $866,544 balance of amounts due to related party balance from the consolidated balance sheet as of December 31, 2019 is comprised of $864,853 of PRAMA related balances and a $1,691 non-PRAMA brought forward balance from the previous period. The PRAMA related balances are described below:

The above balances in Indian Rupee have not changed, with the translated amounts in U.S. dollars changing, due to changes in the closing balance sheet exchange rate.

Included in the September 30, 2019 amounts due from related parties, was a balance of $12,673 recorded in Sunalpha which was paid in the three month period ended December 31, 2019. There is a remaining balance of $1,691 as of December 31, 2019, payable to Mr. Sachin Mandloi included in Sunalpha which is a brought forward balance, which is denominated in Indian rupees and is non interest bearing.

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

10. LOANS WITH THIRD PARTIES

Loans and borrowings with third parties are discussed below:

On March 16, 2019 the Company obtained a $250,000 convertible note from United Techno Solutions, Inc with a maturation date of April 1, 2020 and an embedded interest rate of 8%. The note may convert into 357,143 shares of common stock at the noteholder’s option. The balance outstanding as of December 31, 2019 amounted to $250,000. No interest has been paid on this note.

On November 29, 2019 IHPL, a subsidiary of PRAMA and the Company took out a loan of 2,500,000 Indian Rupees ($35,036) from HDFC Bank Limited. The balance outstanding as of December 31, 2019 was $35,036. The loan is repaid over 36 equal installments of 87,893 Indian Rupees (approximately $1,232) with cumulative payments of interest and principal of 3,164,148 Indian Rupee (approximately $44,344) and is unsecured with maturation on December 6, 2022.

As part of the acquisition of PRAMA on April 22, 2019, the Company assumed a loan with NeoGrowth Credit Private Limited, with a maturation of March 21, 2020, which is included in short term borrowings as of December 31, 2019. The loan has an embedded finance charge of 18% interest over an 18 month period. The loan is paid in daily installments, interest is paid in Indian Rupees and interest approximates $23 per day.

As part of the acquisition of PRAMA on April 22, 2019, the Company assumed a loan with Small Industries Development Bank of India. The original principal was $969,932 (60 million Indian Rupees), on December 31, 2013, there are no repayments scheduled for the first twelve months of the loan, with monthly payments commencing in January 2015 and ending on December 31, 2021. The bank has the right to convert the loan into equity capital of PRAMA. The rate of interest is 15.5% per annum. The loan is secured by: a) A senior secured charge on all moveable assets located at a contract hotel in Ahmedabad, India; b) Pledged deposit of $80,828 (5 million Indian Rupees); c) mortgage of leasehold rights in the lease contract for the contract hotel in Ahmedabad, India; d) Guarantee of Prama Consultancy Services Pvt. Ltd a related party of the Company; and e) the personal guarantees of Messrs. Mahesh Gandhi and Pravin Rathod. During the three months ended December 31, 2019, the balance on the loan decreased by $59,872 due to repayments.

As part of the acquisition of PRAMA, the Company assumed an amount owing to Advance Finstock Private Limited for $71,905 as of April 22, 2019. This is an undocumented informal loan agreement. The informal arrangement incurs interest at 18% per annum. The amounts due were not collateralized. The accrued interest has not been paid as of December 31, 2019.

11. LOANS WITH RELATED PARTIES

Loans and borrowings with related parties are discussed below:

On December 31, 2016, the Company issued a convertible note to Takniki Communications, Inc, an affiliate owned by Sachin Mandloi, our Vice President and a director, totaling $695,000. This note was issued pursuant to a Software Development Agreement dated September 23, 2016 between Takniki Communications, Inc and the Company to finance the upgrade of our Travelcord operating software.  The note has a maturation of December 31, 2019, and bears interest at the rate of ten percent payable at maturity. The principal amount of this note is convertible into 10,303,070 shares of the Company’s common stock at the noteholder’s option at maturity. There was no movement in this note during the period. This loan has not been currently been re-paid and is technically currently callable by the holder, however, the Company expects the note to be extended.

The loan from Mr. Mahesh Gandhi was assumed as a result of the purchase of PRAMA on April 22, 2019. The loan decreased from $394,211 as of September 30, 2019 to $379,813, a net decrease of $14,398, was comprised of payments of $23,136 and foreign exchange effects of $3,923, offset by accrued interest and taxes of $12,661. The counterparty is Mr. Mahesh Gandhi, a shareholder in PRAMA. This is an informal loan agreement. The loan bears interest at the rate of 15% per annum and is callable on demand. The accrued but not paid interest on this loan included in the balance as of December 31, 2019 amounted to $15,437.

The convertible note to Arna Global LLC matured on March 7, 2019, bore interest at the rate of ten percent and was converted into common stock at the noteholders option. The convertible notes to Messrs. Sachin Mandloi and Deepak Sharma matured on March 8, 2019, bore interest at the rate of ten percent and were converted into common shares at the noteholders’ option.

12. STOCKHOLDERS’ EQUITY 

During the nine month period ended December 31, 2019, the Company issued an aggregate of 35,741,724 of common shares these events are described in further detail below.

In June 2019, the Company issued 25,462,167 common shares and reduced its liabilities by approximately $1,150,483 in connection with three separate related parties who converted their notes. There were no cash proceeds from the conversion of the notes.

On April 22, 2019, the Company issued 2,632,653 common shares to the shareholders of PRAMA, at a price of $0.28 per share, as part of the consideration for the PRAMA acquisition.

In June 2019, the Company issued 1,571,430 common shares when the warrant holders exercised their warrants and received approximately $15,714 in cash, at an exercise price of $0.01 per warrant.

During the quarter ended June 30, 2019 the Company issued and sold 775,157 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 $542,610 to the Company. The Company issued warrants to acquire approximately 1,550,314 common shares pursuant to the 775,157 units listed above during the quarter ended June 30, 2019. These warrants shall be exercisable, in whole or in part, during the three-year term commencing from the issuance date at an exercise price of $0.01.

During the quarter ended September 30, 2019 the Company issued and sold 714,286 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 $500,000 to the Company. The Company issued warrants to acquire approximately 1,428,572 common shares pursuant to the 714,286 units listed above during the quarter ended December 31, 2019. These warrants shall be exercisable, in whole or in part, during the three-year term commencing from the issuance date at an exercise price of $0.01.

On October 21, 2019 the Company issued and sold 535,715 units comprising one share and warrant to purchase two shares 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 $375,001 to the Company. The Company issued warrants to acquire approximately 1,071,430 common shares pursuant to the 535,715 units listed above during the quarter ended December 31, 2019. These warrants shall be exercisable, in whole or in part, during the three-year term commencing from the issuance date at an exercise price of $0.01.

On October 27, 2019, the Company issued 4,050,316 common shares when the warrant holders exercised their warrants and received approximately $40,503 in cash, an exercise price of $0.01 per warrant.

Warrants:

The following table is the summary of warrant activities during the period:

Aggregate intrinsic value represents the difference between the Company’s estimate of the fair value of its common shares and the exercise price of outstanding, in-the-money warrants. The Company is not actively traded on the Over the Counter Market. The fair value of warrants granted during the nine month period ended December 31, 2019 approximated $0.23 per warrant, or an intrinsic value of approximately $0.22 per warrant.

13. INCOME TAX 

US taxes

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.

The Company files its income tax returns on a fiscal year basis.

The future effective income tax rate depends on various factors, such as the Company’s income (loss) before taxes, tax legislation and the geographic composition of pre-tax income. The Company files income tax returns in the U.S. Federal jurisdiction and various State jurisdictions. Sunalpha and PRAMA file tax returns in India and due to losses, no tax liability or deferred tax asset, net of valuation allowance, is recorded. The Company is generally subject to U.S. Federal, State and local examinations by tax authorities for the past three years.

Indian taxes

Historically, the Company has not paid Indian income taxes because of taxable losses. For the period April 22, 2019 to December 31, 2019, the Company believes the PRAMA results of operations would not have resulted in an income tax liability, due to the calculation of a pro forma tax loss for the period and the availability of prior period tax losses.

14. COMMITMENTS AND CONTINGENCIES

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, 2019 and 2020, 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.

Through Sunalpha, the Company currently occupies approximately 2,455 square feet of office space owned by the CEO of the Company on a rent-free basis.

The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business. On the acquisition of PRAMA, on April 22, 2019, the Company assumed an interest in an arbitration claim. PRAMA made an arbitration claim of approximately $300,000 (21.2 million Indian Rupees) against Ms. Khurana Hotels and Apartments Private Limited in the Civil Court Senior Division of Amritsar, India. The claim is based on the asserted failure of Ms. Khurana Hotels and Apartments Private Limited, as lessor, to comply with the terms of the lease. As of the date of this filing, the arbitration proceedings are on-going. Otherwise, there were no significant commitments or contingencies for PRAMA as of December 31, 2019.

Although litigation and arbitration are inherently uncertain, based on the information currently available, management does not believe that the currently pending arbitration will have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations.

15. BUSINESS SEGMENTS 

Prior to the acquisition of PRAMA, a hospitality company, the Company was a one segment company. Following, the acquisition of PRAMA, the Company’s chief operating decision maker changed the information he receives to manage, assess, operate the business and to allocate capital. Accordingly, the Company changed its operating segments to comprise: eCommerce aggregation services and Hospitality, respectively. The Company management reviews and evaluates the operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing financial performance. The reportable segments reflect the internal organization of the Company and are strategic businesses that offer different products and services. The Company reports financial information and evaluates its operations by revenues. Management, including the chief operating decision maker, reviews operating results solely by revenue and operating results.

All net revenues are derived from transactions with third party customers, there are no inter-segment revenues. All of the net revenue is derived from operations in India, substantially all of the expenses are borne in India, with certain expenses borne in the US. The Company measures segment performance based on loss from continuing operations. Summarized financial information concerning each of the Company's reportable segments is as follows:

During the quarter ended December 31, 2019, the Company derived approximately 92% and 8% of its revenue from its Hospitality and eCommerce Aggregation segments, respectively, compared to 100% of its business from its eCommerce Aggregation segment solely, for the quarter ended December 31, 2018.

During the nine month period ended December 31, 2019, the Company derived approximately 92% and 8% of its revenue from its Hospitality and eCommerce Aggregation segments, respectively, compared to 100% of its business from its eCommerce Aggregation segment solely, for the nine month period ended December 31, 2018.

16. SUBSEQUENT EVENTS 

The loan due to Takniki Communications, Inc, a related party for $695,000 as of September 30, 2019, with maturation December 31, 2019 was extended with no formal maturity date, the note was not converted into share capital. Takniki Communications, Inc is an entity controlled by the Company’s Director, Mr. Sachin Mandloi.

On March 26, 2020, the Company re-paid United Techno Solutions, Inc., $250,000, representing the repayment of principal on the $250,000 loan note which was originally extended on March 16, 2019.  The accrued interest has not currently been re-paid.

The loan with NeoGrowth Credit Private Limited with $22,735 owing as of September 30, 2019 and maturation of March 21, 2020 was repaid in March 2020.

See Note 2 Liquidity and Going concern for a discussion of the Coronavirus pandemic which is a non adjusting post balance sheet event for the three and nine months ended and as of December 31, 2019, financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

In the accompanying analysis of financial information, we sometimes use information derived from consolidated unaudited financial data but not presented in our financial statements prepared in accordance with U.S. GAAP. Certain of these data are considered “non-GAAP financial measures” under SEC rules. See the Non-GAAP Financial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures. Certain columns and rows within the tables may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers. Discussions throughout this Management Discussion & Analysis (“MD&A”) are based on continuing operations unless otherwise noted. The Management Discussion and Analysis should be read in conjunction with the unaudited consolidated condensed financial statements and notes to the unaudited consolidated condensed financial statements.

Promoters

The promoters and founders of the Company are Deepak Sharma, president and CEO / CFO and Sachin Mandloi, vice president and director. Transactions with the promoters are disclosed in the financial statements.

Forward-Looking Statements

The Company makes forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this report, including, without limitation, statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements. These statements include declarations regarding our management’s beliefs and current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could”, “intend,” “consider,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable terminology. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Our business has been undergoing substantial change, which has magnified such uncertainties. Readers should bear these factors in mind when considering forward-looking statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those suggested by such statements.

Any number of risks and uncertainties could cause actual results to differ materially from those we express in our forward-looking statements, including the risks and uncertainties we describe below and other factors we describe from time to time in our periodic filings with the SEC. We therefore caution you not to rely unduly on any forward-looking statement. Important factors that could cause actual results to differ include, but are not limited to, the risks discussed in “Risk Factors” and the following:

Further information on the risks specific to our business is detailed within this report, including under “Risk Factors.” Forward-looking statements speak only as of the date they were made, and we disclaim any obligation to update or revise forward-looking statements whether because of new information, future events or otherwise.

Substantial doubt is deemed to exist concerning our ability to continue as a going concern

Management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.    Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

The Company has historically incurred operating losses and experienced cash outflows from operations and has an accumulated deficit. The Company has also been historically reliant on loans from related parties, loans from third parties and sales of equity securities to fund operations, working capital and complete acquisitions. These trends are expected to continue for the medium term. To the extent that sales of equity securities are not sufficient, the Company expects to curtail or defer discretionary expenses.

Beginning in December 2019, after September 30, 2019, China, experienced an outbreak of a highly infectious form of a respiratory infection caused by a novel Coronavirus. The disease caused by the novel Coronavirus was later termed Covid-19. On March 11, 2020 the World Health Organization declared the Coronavirus outbreak a global pandemic. India reported its first Covid-19 infection in the city of Thrissur, in the state of Kerala, India on January 30, 2020 and the first case fatality on March 10, 2020 in the state of Karnataka, India. On March 25, 2020, India’s Prime Minister Narendra Modi announced a 21-day nationwide lockdown in response to the Covid-19 pandemic. To comply with the Indian lockdown, the Company closed all of its hotel operations, which impacts the Hospitality segment. Also as a result of the Indian lockdown, the Indian government temporarily suspended flights, trains and buses which impacts the e-Commerce Aggregator segment. On June 1, 2020, India partially lifted its lockdown, however the Hospitality and e-Commerce Aggregator segments are still materially adversely impacted by Covid-19. As of the date of filing this Form 10-Q, hotels, flights, trains and buses are operating to varying degrees by region.

The Company does not have operations in China and the Coronavirus pandemic did not have any impact on the operations or financial results of the Company for the three and nine month periods ended December 31, 2019. However, the pandemic did have a material adverse effect to the Company’s Indian operations, vendors, customers, lessors and employees’ health, balance sheet, liquidity, statement of operations and future prospects for the period ended March 31, 2020 and onwards. Management is in the process of finalizing its quarterly and annual financial statements as of and for the year ended March 31, 2020 and report the degree and severity of the adverse impact in those financial statements. As of today’s date, management is in the process of implementing various cost reduction efforts to conserve cash and liquidity, including reducing staffing levels and potentially closing certain hotels permanently, but has not reached fixed conclusions.

Without new equity or loan support and reductions in operating expenses, the Company would not be able to support the current operating plan through twelve months after the date the financial statements are issued. No assurance can be given at this time, however, as to whether we will be able to raise new equity or loan support and / or reduce operating expenses. In addition, because these plans have not been finalized, receipt of additional funding is not considered probable. If the Company does not obtain sufficient funds when needed, the Company expects it would reduce its operating expenses and defer vendor payments. Because such contingency plans have not been finalized (because the specifics would depend on the situation at the time), such actions also are not considered probable. Because, neither receipt of future equity or loan support, nor management’s contingency plans to mitigate the risk and extend cash resources through twelve months after the date the financial statements are issued, are considered probable, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern. The financial statements for the three and nine months ended December 31, 2019, do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Owing to the effects of the pandemic, potential investors and readers of these financial statements should not rely on the consolidated condensed statement of operations, balance sheet, cash flow, equity / deficit and comprehensive loss as being indicative of current trading and or liquidity and balance sheet. Management does expect to record material adverse effects to the statement of operations, balance sheet, comprehensive loss as of and for the periods ended March 31, 2020 but as of the date of filing these financial statements management has not concluded on the adjustments and amounts.

Overview 

The Company is an eCommerce aggregator and a hospitality management company. An aggregator model is a form of eCommerce whereby our website, www.tripborn.com aggregates, information on various travel and hospitality vendors and presents them on a single platform, to ease, facilitate, coordinate and effectuate consumer travel and hospitality needs. The Hospitality segment is an Indian based operator of 24 hotel properties in 18 cities with 1,230 keys under 4 brands (Mango Hotels, Mango Suites, Mango Hotels Select, i-Stay Hotels) as of December 31, 2019. Mango Suites Select and Apodis Collection are brands under development. APODIS and IntelliStay function as umbrella brands.

The eCommerce aggregator business functions as a Last Mile Commerce and Connectivity aggregator that delivers product and services to offline consumers using a service agent network in India through our website. 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 website, 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. The eCommerce Aggregator segment operates through Sunalpha Green Technologies Private Limited (“Sunalpha”), a wholly owned subsidiary.

The hospitality business is comprised of our 51% equity interest in our subsidiary, PRAMA, which was acquired on April 22, 2019. Our brands strive to highlight friendly service and reflects a local spin on the travel experience in an environment that allows customers to feel welcome and at home while paying a budget price. For the periods included in this discussion our focus was to anticipate guest needs and pleasantly surprise them with our customer service. Under our asset-light business model, we manage hotels, rather than owning them. Currently, due to the covid-19 pandemic, we are seeking to minimize operating costs and manage occupancy to minimize cash flow losses.

eCommerce Aggregator business overview

We have built, advanced and secure, service-oriented technology platforms, that integrate our sales, customer service and fulfillment operations. Our website is hosted in the cloud and is used by our B2B customers or service agents to enable them to sell our full suite of online travel services to their customers. Our technology platforms are scalable and can be augmented to handle increased traffic and complexity of products with limited additional investment, an example of which is the high traffic generated by promotional rates offered simultaneously by multiple travel operators and suppliers. Our website facilitates the requirements of the growing Indian middle-class travel market, which is characterized by lower rates of internet penetration and digital technology, when compared to more developed countries. We have approximately 13,000 registered agents in India as of December 31, 2019.

We have designed our customer facing websites to be user-friendly to our B2B customer, providing our customers with extensive low-price options and alternative routings. We continuously make improvements to our online booking platforms to enhance the user experience by focusing on automation. Our cloud-based platform has been designed to link to our multiple suppliers’ systems either through “direct connects” or a global distribution system (“GDS”), we use both Amadeus and Galileo, and are capable of delivering real-time availability and pricing information for multiple options simultaneously. Our platform is hosted by a cloud-based IBM service, which provides a high degree of reliability, security and scalability and helps us to maintain adequate capacity. Since commencing operations as an online travel agent, we have steadily worked to add suppliers in order to provide additional services and better pricing for our service agent customers. 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 scalable for suppliers and transactions.

Currently, due to the covid-19 pandemic, we are seeking to minimize operating costs to minimize cash flow losses.

eCommerce Aggregator operating metrics

In evaluating our eCommerce Aggregator business, we use operating metrics, including gross bookings and revenue margin. Gross bookings are a measure of the total dollar volume of transactions that we process and is used by us to measure our scale and growth. We calculate revenue margin as revenue as a percentage of gross bookings.

^1* Gross 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. Gross bookings differ from the Company’s net revenues, which reflect the revenue earned by the Company.

^2* Revenue margin is defined as Net revenues as a percentage of gross bookings.

Gross Bookings increased for the three and nine month period ended December 31, 2019 compared to the comparable periods in 2018 due to increased transaction volume. Net revenues increased for the three and nine month period ended December 31, 2019 compared to the comparable periods in 2018 due to increases in money transfer revenues included in Other revenues and increased transaction volume.

Money transfer revenues, where the Company receives a commission on the amount of money transferred, may be associated with travel booked, or independent of travel booked and reflects an increasing component of the total net revenues for the eCommerce Aggregator segment. Money transfer is a volatile and fast changing sector within India and is subject to high levels of volatility and seasonality.

CONSOLIDATED RESULTS OF OPERATIONS

Acquisition of PRAMA

The acquisition of PRAMA on April 22, 2019, had a material impact on the results of operations, for the quarter ended December 31, 2019 and the nine month period ended December 31, 2019. Accordingly, the comparable results for the periods ended December 31, 2018 and the nine month period ended December 31, 2018, which do not include PRAMA are not comparable to the results for the quarter ended and nine month period ended December 31, 2019, which do include the results of PRAMA, on a post-close basis. Equally, the PRAMA acquisition had a material impact on the liquidity and capital resources of the Company. The impact of the PRAMA acquisition on the post close results and the balance sheet is shown in the Company’s segmental disclosure. PRAMA’s results, scale and operations are significantly larger than the eCommerce Aggregator segment. Also, the effects of the PRAMA acquisition impacted every significant line item in the statements of operations and balance sheet.

The pro forma combined revenues and net loss before income taxes, for the combined entity, as though the acquisition of PRAMA had occurred on April 1, 2018, for the respective periods are shown in Note 1 of our Consolidated Condensed Financial Statements (unaudited). The Company does not believe that presenting pro forma information for PRAMA, over and above what is disclosed in the segmental information above, would be meaningful at this time.

The eCommerce Aggregator segment results improved at the net revenue line, but deteriorated at the loss from operations level, but overall, compared to the PRAMA acquisition did not have a meaningful impact on the results of the Company. The eCommerce Aggregator business is not of a sufficient scale to bear the demands of being a publicly listed company with material financial reporting and internal control weaknesses.

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements and Our Credit Facility

The Company does not maintain a credit or borrowing facility. The Company has $995,665 of cash and cash equivalents as of December 31, 2019 but its current liabilities of $8,057,872, exceeded its current assets of $4,827,061 as of December 31, 2019.

As of December 31, 2019, the Company has loans due to related parties, with Takniki Communications, Inc for $695,000, which had an original maturation of December 31, 2019 but this has been informally extended, and with Mr. Mahesh Ghandi for $379,813 with no formal maturity date. Takniki Communications, Inc is an entity controlled by the Company’s Director, Mr. Sachin Mandloi and Mr. Mahesh Ghandi is a principal shareholder in PRAMA and in the Company. The Company is confident that the loan with Takniki Communications, Inc, could be converted by the loan holder into common shares of the Company or its maturation can be extended. The Company is confident, but has no assurance, that the loan with Mr. Mahesh Ghandi can be settled when the Company has sufficient funds to do so.

The loans with third parties do not include financial covenants or a requirement that the Company maintains certain financial ratios, however the loan of $462,119 as of December 31, 2019 with Small Industries Development Bank of India, whereby the counterparty has the right to convert the loan into equity capital of PRAMA and is secured by: a) A senior secured charge on all moveable assets located at a contract hotel in Ahmedabad, India; b) Pledged deposit of approximately $80,000 (5 million Indian Rupees); c) mortgage of leasehold rights in the lease contract for the contract hotel in Ahmedabad, India; d) Guarantee of Prama Consultancy Services Pvt. Ltd a related party of the Company; and e) the personal guarantees of Messrs. Mahesh Gandhi and Pravin Rathod. The loan has a maturation of December 31, 2021 and bears interest at 15.5% per annum.

The loan with NeoGrowth Credit Private Limited with $10,197 owing as of December 31, 2019, matures March 21, 2020. The loan has an embedded finance charge of 18% interest. The loan was paid off as of March 31, 2020.

As part of the acquisition of PRAMA, the Company assumed an amount owing to Advance Finstock Private Limited, the balance as of December 31, 2019 was $78,782. This is an undocumented informal loan agreement. The informal arrangement incurs interest at 18% per annum. The amounts due were not collateralized and the accumulated interest has not been paid and is included in the loan balance of $78,782.

On November 29, 2019 IHPL, a subsidiary of PRAMA and the Company took out a loan of 2,500,000 Indian Rupees ($35,036) from HDFC Bank Limited. The balance outstanding as of December 31, 2019 was $35,037. The loan is repaid over 36 equal installments of 87,893 Indian Rupees (approximately $1,232) with cumulative payments of interest and principal of 3,164,148 Indian Rupee (approximately $44,344) and is unsecured with maturation on December 6, 2022.

The Company has historically incurred operating losses and experienced cash outflows from operations. The Company has also been historically reliant on loans from related parties, loans from third parties and sales of equity securities to fund operations, working capital and complete acquisitions. These trends are expected to continue for the medium term. The Company continues to raise funds from the sale of equity securities. To the extent that sales of equity securities are not sufficient, the Company expects to curtail or defer discretionary expenses and, or curtail or scale back future acquisitions.

If conditions in the travel and hospitality lodging industry deteriorate, or if disruptions in the capital markets take place as they did in the immediate aftermath of both the 2008 worldwide financial crisis and the events of September 11, 2001, we may be unable to fund operations on a temporary or extended basis. However, we believe our access to capital markets, remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth and acquisition plans, meet debt service, and fulfill other cash requirements. We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to execute our growth and acquisition plans and fund our liquidity needs. Our financial objectives raising new capital, minimizing costs, managing the temporary closure of certain properties due to the Coronavirus pandemic.

Cash and cash equivalents totaled $995,665, as of December 31, 2019, a decrease of $234,347 from March 31, 2019, primarily reflecting $1,473,827 of cash proceeds from the issuance of common stock and exercise of warrants, offset by $971,910 net cash paid during the period for the acquisition of a 51% equity interest in PRAMA, $369,424 cash outflow from operations during the period and $211,112 purchase of fixed assets, offset by other movements.

Our ratio of current assets to current liabilities was approximately 0.6 for both December 31, 2019 and March 31, 2019. During the intervening period we acquired PRAMA on April 22, 2019, however, the acquisition of PRAMA did not adversely impact our current ratio.

We do not own hotel properties, and do not plan to own hotel properties in the future. We also do not plan to invest significantly in property, plant and equipment. Our property, plant and equipment purchases tend to be ancillary in nature to the needs of our Hospitality business segment.

We monitor potential new lease and operating management contracts in the Hospitality business segment. These arrangements typically involve a level of upfront costs, which vary through negotiation with property owners. We may make, selective and opportunistic additions to our properties under management or leases to add units to our lodging business. We do not expect such upfront costs to be significant in the near future.

The current focus of management is to minimize operating expenses and limit cash outflows for the duration of the covid-19 pandemic and associated consumer reluctance to travel and spend until vaccines and therapeutic treatments can abate the health consequences of covid-19. We do not know the estimated duration of the pandemic but do not expect the pandemic to end in the short and medium term for India.

We do not believe a discussion of business segment performance for the three and nine month periods ended December 31, 2019 is meaningful given the current economic and operating environment. The historical results are not representative of current or future results as we address the issues raised by covid-19.

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. Our future liquidity needs are largely impacted by the adverse impact of the Coronavirus pandemic on our operations together with legal and professional and sales, general and administrative expenses. There are no assurances that these steps will generate sufficient cash flow from operations or that we will be able to obtain sufficient financing necessary to support our working capital requirements. We can also 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. We expect to continue meeting part of our financing and liquidity needs primarily through related and third party borrowings and access to capital markets.

The Hospitality segment is impacted by seasonality which will be discussed in the financial statements for the year ending March 31, 2020 in accordance with item Item 101(c)(l)(v) of Regulation S-K. There is no requirement to discuss seasonality in interim reports where the disclosure of the effects are not material.

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. 

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Disclosure Controls and Procedures

We maintain “disclosure controls and procedures”, as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by paragraph (b) of Rules 13a-15 under the Securities Exchange Act of 1934, our management, with the participation of our principal executive officer and our principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that as of the end of the period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were not effective.

Management 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 December 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:

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 are committed to maintaining a strong internal control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible. We continue to implement our remediation plan for the previously reported material weakness in internal control over financial reporting, described in Part II, Item 9A of our 2019 Form 10-K, which includes steps to increase dedicated personnel, improve reporting processes, and enhance related supporting technology.

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. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

Management believes that despite our material weaknesses set forth above, our financial statements for the three and nine month periods as of and ended December 31, 2019, are fairly stated, in all material respects, in accordance with U.S. GAAP. Because of the time needed to implement these steps and test the applicable controls in operation, management does not anticipate that the material weaknesses will be fully remediated by March 31, 2020.

Change in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Share-based compensation

See Note 3 of our Consolidated Condensed Financial Statements (unaudited) for more information.

New Accounting Standards

See Note 3 of our Consolidated Condensed Financial Statements (unaudited) for our adoption of new accounting standards.

PART II.

ITEM 1. LEGAL PROCEEDINGS

The Company is party to certain legal proceedings that arise in the ordinary course and are incidental to its business. On the acquisition of PRAMA, on April 22, 2019, the Company assumed an interest in an arbitration claim. PRAMA made an arbitration claim of approximately $300,000 (21.2 million Indian Rupees) against Ms. Khurana Hotels and Apartments Private Limited in the Civil Court Senior Division of Amritsar, India. The claim is based on the asserted failure by PRAMA of Ms. Khurana Hotels and Apartments Private Limited, as lessor, to comply with the terms of the lease. As of the date of this filing, the arbitration proceedings are on-going. Although litigation and arbitration are inherently uncertain, based on the information currently available, management does not believe that the currently pending arbitration will have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On October 21, 2019 the Company issued and sold 535,715 units comprising one share and warrant to purchase two shares 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 $375,001 to the Company. The Company issued warrants to acquire approximately 1,071,430 common shares pursuant to the 535,715 units listed above during the quarter ended December 31, 2019. These warrants shall be exercisable, in whole or in part, during the three-year term commencing from the issuance date at an exercise price of $0.01.

On October 27, 2019, the Company issued 4,050,316 common shares when the warrant holders exercised their warrants and received approximately $40,503 in cash, an exercise price of $0.01 per warrant.

These issuances were made pursuant to the exemptions from registration contained in Regulation D and Regulation S under the Securities Act for sales solely to accredited investors or overseas investors.

ITEM 5. OTHER INFORMATION

On April 22, 2019, the Company acquired a 51% equity interest in PRAMA for $2,137,143, consisting of $1,400,000 in cash and the issuance of 2,632,653 shares of common stock valued at $737,143. The equity interest was acquired from the stockholders of PRAMA. PRAMA is engaged in the business of owning and promoting businesses for operating and managing hotels and food and beverage services in India and nearby markets located in the Indian subcontinent. As previously disclosed, the Company borrowed $300,000 from ARNA Global LLC, an entity owned and controlled by Mr. Sharma, its President and CEO, to partially fund the acquisition of PRAMA. The completion of the acquisition should have been reported on a Current Report on Form 8-K, under Item 2.01 (Completion of Acquisition or Disposition of Assets).

The audit of PRAMA is not complete and the Company did not file the financial statements of PRAMA within 75 days from its acquisition, or pro forma financial information showing the effects of the acquisition, as required under rule 8-04 and 8-05 of Regulation S-X, respectively. However, the Company will file such financial statements on a Form 8-K Amendment, as soon as the audit and associated review is completed.

ITEM 6. EXHIBITS

The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q.

INDEX OF EXHIBITS

SIGNATURES

Pursuant to the requirements 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. 

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