NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Nature of Business
Forex International Trading Corp. (the “Company”) was incorporated on July 22, 2009 under the laws of the State of Nevada and is headquartered in Kensington, Maryland. On September 9, 2009 the Company filed Form S-1 Registration Statement to provide for the registration of securities under the Securities Act of 1933. The Company’s principal business activities have been to engage in foreign currency market trading for non-US resident professionals and retail clients over its web-based trading systems. In addition, the Company is analyzing investments in joint ventures and is selectively pursuing acquisitions.
2. Summary of Significant Accounting Policies
Presentation and Basis of Financial Statements
The accompanying unaudited condensed consolidated financial statements include the accounts of Forex International Trading Corp. and its consolidated subsidiaries (“Forex” or the Company”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and reports and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X for scaled disclosures for smaller reporting companies. Accordingly, they do not include all, or include a condensed version of, the information and footnotes required by U.S. GAAP for complete financial statements. The Company believes, however, that the disclosures are adequate to make the information presented not misleading. The Company’s condensed consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations of the Company for the periods shown. Results shown for the interim periods are no necessarily indicative of the results to be obtained for a full fiscal year or for any future period. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the condensed financial statements. Actual results might differ from management’s estimates.
The consolidated balance sheet information as of December 31, 2011 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with Securities and Exchange Commission (“SEC”) for the fiscal year ended December 31, 2011, These interim condensed consolidated financial statements should be read in conjunction with the Company’s most recently audited financial statements and the notes thereto in such above referenced Annual Report on Form 10-K.
All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the useful lives of tangible and intangible assets, depreciation and amortization, allowances for doubtful accounts and loan losses, valuation of common and preferred stock issuances, and the valuation allowance on deferred tax assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.
Notes and Short-Term Receivable
The note and short-term receivable are carried at cost, which approximates fair value. The Company measures the impairment of loans based on its historical loan collection experience and existing economic conditions. Impairment is recognized when management believes it is probable that payments will not be received on some portion of the loan, which is determined on an individual loan basis. The Company evaluates loans for impairment on an annual basis or when there are indications that the loan may not be collected. When management determines that a loan is impaired it is placed on non-accrual status, and an allowance for loan losses is established to recognize the estimated amount of impairment. Payments received on non-accrual loans are generally applied to the outstanding principal balance. Loans are removed from non-accrual status when management believes that the borrower will resume making the payments required by the loan agreement.
Property and Equipment
Property and equipment are stated at cost and the related depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Expenditures for repairs and maintenance are charged to operations as incurred. Renewals and betterments are capitalized. Upon the sale or retirement of an asset, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is recognized in the results of operations.
Leasehold improvements are amortized over the lesser of the estimated life of the asset or the lease term.
As required by U.S. GAAP for long-lived assets, the Company evaluates the fair value of its property and equipment on an annual basis or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Any impairment of value is recognized when the carrying amount of the asset exceeds its fair value. There were no impairment losses for three months ended March 31, 2012 and 2011.
Treasury Stock
Treasury stock is recorded at cost. The re-issuance of treasury shares is accounted for on a first in, first-out basis and any difference between the cost of treasury shares and the re-issuance proceeds are charged to additional paid-in capital.
Income Taxes
The Company accounts for income taxes using the liability method, which provides for an asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for future tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities, and measured using the current tax rates and laws that are expected to be in effect when the underlying assets or liabilities are anticipated to be recovered or settled. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount of tax benefits expected to be realized.
U.S. GAAP requires that, in applying the liability method, the financial statement effects of an uncertain tax position be recognized based on the outcome that is more likely than not to occur. Under this criterion the most likely resolution of an uncertain tax position should be analyzed based on technical merits and on the outcome that would likely be sustained under examination. The Company had no uncertain tax positions in 2012 or 2011.
Revenue Recognition
Income from foreign currency operations is earned by referring potential customers to foreign exchange trading companies. The Company’s websites identify potential customers with a short-term foreign exchange trading need. Foreign exchange trading companies remit a percentage of their revenues to the Company in exchange for customer leads, which the Company recognizes when the exchange trading occurs.
The Company recognizes consulting fees when services have been rendered.
Share-Based Compensation
The Company calculates stock-based compensation expense including compensation expense for all share-based payment awards made to employees and directors including employee stock options, stock appreciation rights and restricted stock awards based on their estimated grant date fair values. The value of the portion of the award that is ultimately expected to vest is recognized as an expense on a straight-line basis over any required service period. No such expenses were recognized for the three months ended March 31, 2012 and 2011.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share considers the potential dilution that could occur if securities or other contracts to issue common stock were exercised or could otherwise cause the issuance of common stock, such as options, convertible notes and convertible preferred stock, were exercised or converted into common stock or could otherwise cause the issuance of common stock that then shared in earnings (loss). Such potential additional common shares are included in the computation of diluted earnings per share. Diluted loss per share is not computed because any potential additional common shares would reduce the reported loss per share and therefore have an antidilutive effect.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The future of the Company is dependent upon its ability to raise funds, generate revenues and upon future profitable operations from the development of new business opportunities. The financial statements do not include any adjustments relating to the recoverability of the Company’s assets or the payment of its liabilities in the event the Company cannot continue in existence.
Reclassifications
Certain reclassifications have been made to the prior years’ consolidated condensed financial statements to conform to the current year’s presentation.
3. Acquisition and Divestiture/Restatements
Investment in Private Company—Triple 8
On November 17, 2010, the Company entered into a Share Exchange Agreement, which closed on December 30, 2010, to acquire 17,924 common shares, representing 44.9% of the issued and outstanding shares of Triple 8 Limited (“Triple 8”) from A.P. Holdings Limited (“APH”) (the “APH Agreement”). In consideration for its purchase the Company issued 25,000,000 shares of common stock and a Note Payable (the “APH Note”) in the principal amount of $1,200,000, bearing interest at an annual rate of 6% and convertible into 6 million shares of common stock. The APH Note was originally due on February 15, 2011. Concurrently, certain shareholders agreed to surrender 70,000,000 shares of the Company’s common stock for cancellation to avoid diluting the ownership of the other existing shareholders. Following the purchase of Triple 8 shares from APH, the Company entered into another Share Exchange Agreement to acquire 1,996 common shares, or 5% of the issued and outstanding common shares of Triple 8, from the H.A.M. Group Limited (“HAM”). As a result, the Company’s ownership of Triple 8 increased to 49.9% of the issued and outstanding common shares. As consideration for its purchase, the Company issued HAM 12,000 shares of Series A Preferred Stock and a 6% Convertible Debenture for $600,000, due June 30, 2011 (the “HAM Note”). The Series A Preferred Stock has a stated value of $100 per share and is convertible into common stock at a conversion price of $0.30 per share, thus representing 4,000,000 shares of common stock of the Company.
The Company defaulted on its note payable to APH and on its obligation under the HAM Note. In order to avoid costly litigation and the potential detrimental impact of a judgment against the Company, as a result of two defaults, the Company entered into an agreement to annul its purchases of its ownership interest in Triple 8. As a part of the Annulment:
|
·
|
Triple 8 has agreed to pay the Company $2,001,000 (the “Triple Payments”) over time through November 2012. If Triple 8 fails to make any of the payments for a period of 60 days, it must transfer the original number of its common shares (17,924) purchased back to the Company. In addition, Triple 8 is not entitled to have any previous payments returned.
|
|
·
|
The Company issued a new $1,000,000 promissory note (the "CDOO Note") to an assignee of HAM and APH as consideration for the termination of the APH Note and the HAM Note, which were both in default. The assignee has the ability to foreclose on all shares of Triple 8 held by the Company. The CDOO note bears interest at an annual rate of ten percent (10%) and is due and payable in full on November 30, 2012. In the event that Triple 8 fails to make the Triple Payments, then the amount payable under the CDOO Note is to be reduced by half of the amount of any missed payment.
|
|
·
|
APH and HAM have agreed to return all of their stock holdings to the Company for cancellation.
|
The Annulment closed on December 7, 2011, and the Company received its initial Triple Payment of $732,000 in cash at that time. Subsequently, the Company received Triple Payments in the aggregate amount of $214,642 for the months of January, February and March 2012 per the terms of the agreement.
The Company initially accounted for its acquisition of Triple 8 using the acquisition method as prescribed by U.S. GAAP. Under the acquisition method, the acquirer must recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their acquisition date fair values. Although the Company acquired less than 50% of the ownership of Triple 8, the use of the acquisition method and the accounting treatment of Triple 8 were considered appropriate because the Company believed that it had acquired control of Triple 8. The basis behind the determination that the Company acquired control of Triple 8 even though it owned a minority stake, was that an employee of the Company became the sole member of the Board of Triple 8’s operating subsidiary and continued to be in that role until June 2011. In addition, the Company believed that Triple 8 was subject to consolidation under U.S. GAAP as a Variable Interest Entity.
However, in June 2011, Triple 8’s operating subsidiary’s management unilaterally removed the Company’s employee from its Board and asserted its control over business operations. Since then, the Company has reevaluated its determinations that it had acquired control of Triple 8 and that Triple 8 was subject to consolidation as a Variable Interest Entity. As a result, management has concluded that it never really had control and that the use of the acquisition method of accounting was not appropriate. Upon reconsideration, management also has concluded that Triple 8 was not subject to consolidation as a Variable Interest Entity essentially because the Company had no equity investment at risk. In coming to these conclusions, the Company considered the following:
|
1.
|
The fair value of the consideration paid in both of the Share Exchange Agreements is questionable. The original consideration included the Company’s stock and notes payable. Given that the fair value of the Company’s stock and the fair value of Triple 8 was difficult to determine and that the Company never made any cash payments for its obligations under the notes payable, there is a legitimate argument that no consideration was paid for the Triple 8 stock received under the Share Exchange Agreements.
|
|
a.
|
With respect to exchange value of the company’s stock, management takes into account that at the time of the Share Exchange Agreements the Company’s stock was not trading. [Since then, the Company’s stock has been a thinly traded penny stock that has had a high level of price volatility with respect to what stock has been traded and has not been rated by any analysts.]
|
|
b.
|
With respect to value in use of the would-be acquiree, management takes into account that at the time of the Share Exchange Agreements Triple 8 was a newly formed entity in business for only 2 years. Under the circumstances, any valuation of Triple 8 would be highly subjective. A market or cost approach to valuing Triple 8 was not feasible and an income approach requires highly subjective estimates about future operations, profits, and cash flows.
|
|
c.
|
The Company’s failure to make debt payments and the continuing revisions indicate that the Company’s Notes Payable were of little value to Triple 8’s sellers.
|
|
2.
|
The unilateral removal of the Company’s employee from the Triple 8 Board and Triple 8’s operating subsidiary management assertion of its control over business operations indicates the Company’s inability to control Triple 8.
|
These considerations have led the Company to conclude that the purchase of Triple 8 involved no consideration. Furthermore, the Share Exchange Agreement transactions do not meet the conditions necessary to qualify as a business combination achieved without the transfer of consideration under U.S. GAAP.
The Company has also considered the use of the equity method and the cost method of accounting in connection with the Share Exchange Agreement transactions for the purchase of Triple 8. Generally, U.S. GAAP requires that investments in common stock or in entities over which the investor can exercise significant influence, but not control, be accounted for using the equity method. Otherwise, an investment should be accounted for at cost. In addition, the Company believes that its investment in Triple 8 should be accounted for at cost because it did not have significant influence over the period from the closing of the APH Agreement through to date of the annulment agreement. While the Company did not have significant influence over Triple 8 during that period, the counterparties to the annulment agreement acknowledged the Company’s investment by entering into the annulment agreement. Therefore, these financial statements have been restated to present the investment in Triple 8 on a cost basis, with cost being determined by the market value of the Company’s stock paid and the stated value of the note payable issued under the APH Agreement.
Presented below are restatements of the statement of operations, and statement of cash flows for the three months ended March 31, 2011 to reflect the deconsolidation of Triple 8 and also a restatement for shares issued for services of $210,000 that had been previously been capitalized,.
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Net Change
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue :
|
|
|
|
|
|
|
|
|
|
|
Income from foreign currency operations
|
|
$
|
3,178,233
|
|
|
$
|
(3,177,617
|
)
|
|
$
|
616
|
|
|
Consulting and services
|
|
|
14,232
|
|
|
|
(14,232
|
)
|
|
|
-
|
|
|
Total revenue
|
|
|
3,192,465
|
|
|
|
(3,191,849
|
)
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
601,832
|
|
|
|
(601,832
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,616,906
|
|
|
|
(2,148,802
|
)
|
|
|
468,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(26,273
|
)
|
|
|
(441,215
|
)
|
|
|
(467,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
238,960
|
|
|
|
(238,960
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income
|
|
|
(139,404
|
)
|
|
|
129,060
|
|
|
|
(10,344
|
)
|
|
Total other income (expense)
|
|
|
(139,404
|
)
|
|
|
129,060
|
|
|
|
(10,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(404,637
|
)
|
|
|
(73,196
|
)
|
|
|
(477,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(23,126
|
)
|
|
|
23,126
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(427,763
|
)
|
|
$
|
(50,070
|
)
|
|
$
|
(477,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
63,826,663
|
|
|
|
782,829
|
|
|
|
64,609,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Net Change
|
|
|
As Restated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(427,763
|
)
|
|
$
|
(50,070
|
)
|
|
$
|
(477,833
|
)
|
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
154,891
|
|
|
|
(154,193
|
)
|
|
|
698
|
|
|
Minority interest in subsidiary
|
|
|
238,960
|
|
|
|
(238,960
|
)
|
|
|
-
|
|
|
Common shares issued to consultants for services
|
|
|
212,000
|
|
|
|
-
|
|
|
|
212,000
|
|
|
Foreign currency adjustment
|
|
|
(71,876
|
)
|
|
|
71,876
|
|
|
|
-
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and prepaid expenses
|
|
|
(491,420
|
)
|
|
|
491,420
|
|
|
|
-
|
|
|
Accrued interest on notes receivable
|
|
|
-
|
|
|
|
(21,403
|
)
|
|
|
(21,403
|
)
|
|
Accounts payable and accrued expenses
|
|
|
1,094,145
|
|
|
|
(1,160,110
|
)
|
|
|
(65,965
|
)
|
|
Accrued interest on note payable
|
|
|
31,750
|
|
|
|
-
|
|
|
|
31,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
740,686
|
|
|
|
(1,061,439
|
)
|
|
|
(320,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of a short-term receivable
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
(150,000
|
)
|
|
Purchase of fixed assets
|
|
|
(1,404,628
|
)
|
|
|
1,404,628
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,404,628
|
)
|
|
|
1,254,628
|
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in private placement
|
|
|
28,345
|
|
|
|
-
|
|
|
|
28,345
|
|
|
Issuance of shares to reduce a note payable
|
|
|
71,736
|
|
|
|
(71,736
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
100,081
|
|
|
|
(71,736
|
)
|
|
|
28,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(563,862
|
)
|
|
|
121,454
|
|
|
|
(442,408
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
3,078,339
|
|
|
|
(2,618,190
|
)
|
|
|
460,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,514,478
|
|
|
$
|
(2,496,737
|
)
|
|
$
|
17,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest on notes payable
|
|
$
|
31,750
|
|
|
$
|
(31,750
|
)
|
|
$
|
-
|
|
|
Accrued interest on notes receivable
|
|
$
|
12,000
|
|
|
$
|
(12,000
|
)
|
|
$
|
-
|
|
|
Restricted common shares issued to ATL for certain draws
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on a note to pay certain expenses
|
|
$
|
71,736
|
|
|
$
|
-
|
|
|
$
|
71,736
|
|
|
Issuance of shares for services
|
|
$
|
212,000
|
|
|
$
|
(212,000
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Notes and Short-term Receivables
At March 31, 2012 and December 31, 2011, notes and short-term receivables, including accrued interest, consist of:
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Note receivable for annulment of Triple 8 investment
|
|
$
|
1,054,358
|
|
|
$
|
1,269,000
|
|
|
|
a.
|
|
|
Commercial note receivable, net of allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of $100,000
|
|
|
50,900
|
|
|
|
50,900
|
|
|
|
b.
|
|
|
Note receivable - Apel Design
|
|
|
15,222
|
|
|
|
-
|
|
|
|
c.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes and short-term receivables
|
|
$
|
1,120,480
|
|
|
$
|
1,319,900
|
|
|
|
|
|
|
a.
|
In connection with the Triple 8 annulment agreement, the Company has a short term receivable of $1,269,000 which requires monthly payments of $68,914 in January 2012, $73,214 per month from February 2012 through October 2012, and a final payment of $541,860 in November 2012. This receivable bears no interest and is the remaining portion, after the initial payment of $732,000, of the total $2,001,000 that Triple 8 agreed to pay the Company under the annulment of the share purchase agreements. For the three months ended March 31, 2012 the Company has received payments amounting to $214,642.
|
|
b.
|
Note receivable from Fortune Market Media Inc. (“FTMK”), original principal of $150,000, interest at a 12% annual rate, maturing on February 13, 2012. FTMK has defaulted on the loan and the Company has established a reserve for loan losses of $100,000. In April and May 2012, the Company collected $10,000 and $12,500 in two separate wires. The Company has evaluated the loan impairment of the FTMK note based on relevant information about the ability of borrower to service its debt such as: current financial information, historical collections experience, credit documentation, public information and current economic trends.
|
|
c.
|
Note receivable from Amit Apel Design, Inc. (“Apel Design”) original principal of $15,000, interest at a 12% annual rate, maturing on August 13, 2012. The note is secured by Apel Design’s inventory.
|
5. Property and Equipment, Net
Property and equipment consisted of the following as of March 31, 2012 and December 31, 2011:
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
|
|
|
Lives
|
|
2012
|
|
|
2011
|
|
|
Computers and equipment
|
3 years
|
|
$
|
12,539
|
|
|
$
|
12,539
|
|
|
Furniture
|
7 years
|
|
|
9,430
|
|
|
|
9,430
|
|
|
|
|
|
|
21,969
|
|
|
|
21,969
|
|
|
Less accumulated depreciation
|
|
|
|
9,407
|
|
|
|
8,025
|
|
|
|
|
|
$
|
12,562
|
|
|
$
|
13,944
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1,382 and $698 for the three months ended March 31, 2012 and 2011, respectively.
6. Other Assets
Other assets consist of the following as of March 31, 2012 and December 31, 2011:
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
White label licenses and websites
|
|
$
|
4,390
|
|
|
$
|
17,560
|
|
|
Investment in joint venture
|
|
|
8,000
|
|
|
|
-
|
|
|
|
|
$
|
12,390
|
|
|
$
|
17,560
|
|
Websites development, net
On April 19, 2010, the Company entered into a Software Licensing Agreement whereby the Company will license proprietary trading software (the “Software”) for the purpose of developing a Forex Trading Platform and introducing prospective clients (“End Users”). In return, the Company received a newly created website, at cost of $105,359. The costs of the website includes the vendor’s normal set-up fee plus payroll costs and consulting fees incurred by the Company relating to the development of internal use software. The total $105,359 cost was capitalized and is being amortized over a 2-year life. Amortization expense amounted to $13,170 and $0 for the three months ended March 31, 2012 and 2011, respectively.
Investment in Joint Venture
On February 13, 2012, Direct JV Investments Inc, a wholly-owned subsidiary of the Company (“Direct JV”), entered into a Joint Venture Agreement with Vulcan Oil & Gas Inc. (“Vulcan”), whereby the Company will from time to time provide financing to certain Vulcan alternative, green and solar energy projects (the “Projects”) with the goal of sharing in any rebates awarded by the government on any of the Projects. For all the Projects in the U.S. residential market, profits and losses of each of the Projects will be allocated at the conclusion of each fiscal year at a ratio of 60% to Vulcan and 40% to the Company. For all other projects, the profit and loss allocation will be determined on a case by case basis. There is no guarantee that the Projects will generate any revenues. As of March 31, 2012 Direct JV advanced Vulcan $8,000 per the agreements on specific projects. The Projects had no income or loss for the three months ended March 31, 2012.
7. Notes Payable
At March 31, 2012 and at December 31, 2011, notes payable and accrued interest consisted of:
|
|
|
2012
|
|
|
2011
|
|
|
Rasel notes payable and accrued interest
|
|
$
|
136,795
|
|
|
$
|
135,548
|
|
|
Cordelia note payable and accrued interest
|
|
|
727,382
|
|
|
|
1,006,944
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes and short-term receivables
|
|
$
|
864,177
|
|
|
$
|
1,142,492
|
|
Rasel LTD - Convertible Notes Payable
On October 6, 2009 the Company signed a note payable for $25,000 to Rasel (an affiliated entity of Moshe Schnapp, a former director and officer of the Company in 2010) due on October 6, 2010 bearing interest at 4% per annum. The proceeds were used to pay for half of existing accounts payable for legal fees incurred at the Company’s inception. On October 20, 2009 the Company signed a note payable for $50,000 payable to Rasel due on October 20, 2010 bearing interest at 4% per annum. These proceeds were used to pay for startup costs, audit fees and future expenses. On January 22, 2010 the Company signed a note payable for $50,000 payable to Rasel due on October 30, 2011 bearing interest at 4% per annum. These proceeds were used for working capital and expenditures. On January 22, 2010 the Company signed an amendment to extend the maturity date of the promissory notes in the amount of $25,000 and $50,000 dated October 6, 2009 and October 20, 2009, respectively, to October 30, 2011. On March 2, 2011 the Company and Rasel agreed to extend the maturity of all notes to December 31, 2012 in consideration of adding a conversion feature to the notes with either a 5% discount to the market price or a fixed price of $0.60. The extension of maturity was effective as of December 30, 2010.
The balance of the notes as of March 31, 2012 and December 31, 2011was $136,795 and $135,548, respectively, which includes accrued interest in the amounts of $11,795 and $10,548 at March 31, 2012 and December 31, 2011, respectively.
Cordelia (CDOO) Note Payable
The Company entered into a settlement agreement to annul its purchase of Triple 8 stock and issued a new promissory note to CDOO in the principal amount of $1,000,000. The CDOO note bears interest at the rate of ten percent (10%) per annum and is due and payable in full on November 30, 2012. The balance due at March 31, 2012 on the CDOO note is $727,382, which includes accrued interest in the amount of $27,382. The balance due as of December 31, 2011 on the CDOO note was $1,006,944, which included accrued interest in the amount of $6,944.
8. Stockholders’ Equity
Authorized Shares
The Company has 400,000,000 authorized shares of its $0.00001 par value common stock and 20,000,000 shares of its $0.00001 par value Preferred Stock Series A and B as of March 31, 2012 and December 31, 2011.
Common Shares:
Three months ended March 31, 2011:
On January 17, 2011, the Company issued to Core Consulting Group 700,000 restricted shares for serving as the Company’s investor relations firm. The amount charged to consulting fees was $210,000.
On January 27, 2011, the Company issued 324,234 shares to ATL for certain draws on a note to pay expenses in the amount of $71,736. The note payable balance to ATL was reduced by the amount of those expenses. The Company did not deliver the shares to ATL. Based on the Triple 8 settlement agreement, these shares have been surrendered back to the Company.
On March 28, 2011 the Company issued to a consultant 10,000 restricted shares as part of the Company’s consideration under a consulting agreement. The amount charged to consulting fees was $2,000.
There were no stock issuances for the three months ended March 31, 2012.
All the above shares of common stock of the Company were offered and sold by the Company in a securities purchase transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.
Treasury Stock
On April 25, 2011, the Company issued a press release announcing that its Board of Directors approved a share repurchase program. Under the program, the Company is authorized to purchase up to 1,000,000 of its shares of common stock in open market transactions at the discretion of management. All stock repurchases will be subject to the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended and other rules that govern such purchases. As of March 31, 2012 and December 31, 2011, the Company had repurchased 38,000 of its common shares in the open market, which were returned to treasury.
Series B Preferred Shares
On November 1, 2011, the Company and certain creditors entered into a Settlement Agreement (the "Agreement") whereby without admitting any wrongdoing on either part, the parties settled all previous agreements and resolved any existing disputes. Under the terms of the Agreement, the Company agreed to issue the creditors 45,000 shares of Series B Preferred Stock of the Company on a pro-rata basis. Following the issuance and delivery of the shares of Series B Preferred Stock to said creditors, as well as surrendering the undelivered shares, the Agreement resulted in the settlement of all debts, liabilities and obligations between the parties.
The Series B Preferred Stock has a stated value of $100 per share and is convertible into the Company’s common stock at a conversion price of $0.30 per share representing 15,000,000 common shares. Furthermore, the Series B Preferred Stock votes on an as converted basis and carries standard anti-dilution rights.
9. Related Parties
Related parties are natural persons or other entities that have the ability, directly or indirectly, to control another party or exercise significant influence over the party in making financial and operating decisions. Related parties include other parties that are subject to common control or that are subject to common significant influences.
On January 18, 2011, Mrs. Liat Franco was appointed by the Company to serve as the Secretary of the Company. For her services during her term as Secretary, the Company is to issue Ms. Franco 15,000 shares of common stock of the Company, which will have a restrictive legend under the Securities Act of 1933, as amended. In the event Ms. Franco’s employment agreement is extended, then the number of shares of common stock will be determined by dividing $6,000 by the market price on the first trading day of the term. On November 15, 2011, Liat Franco was appointed by the Company to serve as the Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and a director of the Company. The Board of Directors elected to appoint Ms. Franco, who is an attorney licensed in the United States and Israel, as an executive officer and director to handle the Triple 8 settlement agreement. As of March 31, 2012, no Company shares had been delivered.
Effective January 2, 2012, Erik Klinger was appointed by the Company to serve as the Chief Financial Officer, on a part-time basis, and a Director of the Company. A company controlled by Mr. Klinger receives a monthly fee of $3,500 for his services.
As of December 31 2011 the Company owed Ms. Franco $50,000, a company controlled by Mr. Klinger $6,500 and the former CEO $17,409. As of March 31, 2012 Ms. Franco was paid in full, and the Company owed the former CEO $2,409. As of March 31, 2012 and December 31, 2011 the Company had accrued directors’ fees of $15,321, $15,321 and $4,159 to Ms. Franco, Mr. Glass, and Mr. Reich, respectively (recorded in accounts payable and accrued expenses) which will be settled in cash.
10. Contingencies
Legal Proceedings
From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business. There is currently no litigation that management believes will have a material impact on the financial position of the Company.
On or about June 13, 2011 the Company initiated a complaint against an individual and website for defamation, intentional interference with prospective economic advantage, negligent and violations of business and professions codes. The Complaint was filled with the Superior Court of the State of California - County of San Diego. On August 22, 2011, the defendants filed a notice of motion to strike the complaint under the anti-slapp statute. On September 14, 2011, the Company submitted a request for dismissal, without prejudice to the court. On January 20, 2012 the court heard the defendants’ motion (where the Company failed to appear) and the judge ruled in favor of the defendant and awarded attorney fees and court costs in the amount of $21,462, which was recorded and is reflected in accounts payable and accrued expenses. The Company has retained an attorney and has filed a motion to vacate the judgment.
11. Per Share Information
Loss per share
Basic loss per share of common stock is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding. Diluted loss per share of common stock (“Diluted EPS”) is computed by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents and convertible securities then outstanding. At March 31, 2012 and March 31, 2011 (restated), there were 15,217,578 and 8,761,578, respectively, of potentially dilutive common stock equivalents outstanding. The potentially dilutive common stock equivalents at March 31, 2012 arise from the issuance on December 7, 2011 of 45,000 Series B Preferred Shares which are convertible into 15 million shares, and the issuance of the Rasel note which is convertible into 225,913 shares. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net loss per common share.
12. Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date of the accompanying condensed consolidated financial statements became available to be issued.
On April 23, 2012, Robert Morris Price was appointed by the Company to serve as the President, Chief Executive Officer, and Treasurer as well as Chairman of the Company. Liat Franco resigned as an executive officer of the Company, but will continue on as Director of the Board and Secretary of the Company.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the three months ended March 31, 2012. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for our year-ended December 31, 2011 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis 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.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.
This section of the report should be read together with Notes of the Company consolidated financials.
The consolidated statements of operations for the period ended March 30, 2012 and March 31, 2011 are compared (subject to the above description and the restatement of the financials for the period ended March 31, 2011 – as detailed in footnote 3 and in this report) in the sections below:
General Overview
On April 19, 2010, the Company entered into a Software Licensing Agreement with Triple 8 Limited (“Triple 8”), which is a currency trading platform, organized under the laws of Cyprus whereby the Company licensed Triple 8’s proprietary trading software (the “Software”) for the purpose of developing a Forex Trading Platform and introducing prospective clients (“End Users”). Triple 8 created a website for the Company under the domain
www.4xint.com
which is blocked for US and Canadian clients. The Company maintains a corporate website under the domain
www.forex-international-trading.com
.
Triple 8 Investments and Settlement
On November 17, 2010, we entered into a Share Exchange Agreement (the transaction was effectively closed on December 30, 2010) to acquire 17,924 common shares, representing 44.9% of the issued and outstanding shares of Triple 8 Limited (“Triple 8”) from A.P. Holdings Limited (“APH”) (the “APH Agreement”). In consideration for its purchase, Forex issued 25,000,000 shares of common stock and a Note Payable (the “APH Note”) in the principal amount of $1,200,000, bearing interest at an annual rate of 6% and was convertible into 6 million shares of common stock. The APH Note was originally due on February 15, 2011. Concurrently, certain shareholders of Forex agreed to surrender 70,000,000 shares of the Company’s common stock for cancellation to avoid diluting the ownership of other existing shareholders.
Following the purchase of Triple 8 shares from APH, we entered into another Share Exchange Agreement to acquire 1,996 common shares, or 5% of the issued and outstanding common shares of Triple 8, from the H.A.M. Group Limited (“HAM”). As a result, our ownership of Triple 8 increased to 49.9% of the issued and outstanding common shares. As consideration for its purchase, Forex issued HAM 12,000 shares of Series A Preferred Stock and a 6% Convertible Debenture for $600,000, due June 30, 2011 (the “HAM Note”). The Series A Preferred Stock has a stated value of $100 per share and is convertible into our common stock at a conversion price of $0.30 per share, thus representing 4,000,000 shares of common stock of the Company.
The Company defaulted on its note payable to APH and on its obligation under the HAM Note. In order to avoid costly litigation and the potential detrimental impact of a judgment against the Company, as a result of two defaults, entered into an agreement to annul its purchases of its ownership interest in Triple 8. As a part of the Annulment:
|
·
|
Triple 8 has agreed to pay Forex $2,001,000 (the “Triple Payments”) over time through November 2012. If Triple 8 fails to make any of the payments for a period of 60 days, it must transfer the original number of its common shares (17,924) purchased back to the Company. In addition, Triple 8 is not entitled to have any previous payments returned.
|
|
·
|
Forex issued a new $1,000,000 promissory note (the "CDOO Note") to an assignee of HAM and APH as consideration for the termination of the APH Note and the HAM Note, which were both in default. The assignee has the ability to foreclose on all shares of Triple 8 held by the Company. The CDOO note bears interest at an annual rate of ten percent (10%) and is due and payable in full on November 30, 2012. In the event that Triple 8 fails to make the Triple Payments, then the amount payable under the CDOO Note is to be reduced by half of the amount of any missed payment.
|
|
·
|
APH and HAM have agreed to return all of their stock holdings to the Company for cancellation.
|
The Annulment closed on December 7, 2011, and the Company received its initial Triple Payment of $732,000 in cash at that time. Subsequently, the Company received Triple Payments in the aggregate amount of $214,642 for the months of January, February and March 2012 per the terms of the agreement.
Forex initially accounted for its acquisition of Triple 8 using the acquisition method as prescribed by U.S. Under the acquisition method, the acquirer must recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their acquisition date fair values. Although the Company acquired less than 50% of the ownership of Triple 8, the use of the acquisition method and the accounting treatment of Triple 8 were considered appropriate because Forex believed that it had both significant influences over the operations of Triple 8 as well as equity investment risk as the Triple 8’s primary beneficiary. The basis behind the determination that Forex had acquired control of Triple 8 even though it owned a minority stake in Triple 8, was that an employee of the Company became the sole member of the Board of Triple 8’s operating subsidiary and continued to be in that role until late June 2011. In addition, Forex believed that Triple 8 was subject to consolidation under U.S. GAAP as a Variable Interest Entity.
However in June 2011, Triple 8’s operating subsidiary’s management unilaterally removed our Company’s employee from its Board and asserted its control over business operations. Since then, the Company has reevaluated its determinations that it had acquired control of Triple 8 and that Triple 8 was subject to consolidation as Variable Interest Entity. As a result, management has concluded that it never really had control and that the use of the acquisition method of accounting was not appropriate. Upon reconsideration, management also concluded that Triple 8 was not subject to consolidation as a Variable Interest Entity essentially because the Company had no equity investment at risk. In coming to these conclusions, Forex considered the following:
|
|
1. The fair value of the consideration paid in both of the Share Exchange Agreements is questionable. The original consideration included the Company’s stock and notes payable. Given that the fair value of the Company’s stock and the fair value of Triple 8 was difficult to determine and that the Company never made any cash payments for its obligations under the notes payable, there is a legitimate argument that no consideration was paid for the Triple 8 stock received under the Share Exchange Agreements.
|
|
d.
|
With respect to exchange value of the Company’s stock, management takes into account that at the time of the Share Exchange Agreements the Company’s stock was not trading. [Since then, the Company’s stock has been a thinly traded penny stock that has had a high level of price volatility with respect to what stock has been traded and has not been rated by any analysts.]
|
|
e.
|
With respect to value in use of the would-be acquiree, management takes into account that at the time of the Share Exchange Agreements Triple 8 was a newly formed entity in business for only 2 years. Under the circumstances, any valuation of Triple 8 would be highly subjective. A market or cost approach to valuing Triple 8 was not feasible and an income approach requires highly subjective estimates about future operations, profits, and cash flows.
|
|
f.
|
The Company’s failure to make debt payments and the continuing revisions indicate that the Company’s Notes Payable were of little value to Triple 8’s sellers.
|
|
2.
|
The unilateral removal of the Company’s employee from the Triple 8 Board and Triple 8’s operating subsidiary management assertion of its control over business operations indicates the Company’s inability to control Triple 8.
|
These considerations have led the Company to conclude that the purchase of Triple 8 involved no consideration. Furthermore, the Share Exchange Agreement transactions do not meet the conditions necessary to qualify as a business combination achieved without the transfer of consideration under U.S. GAAP.
The Company has also considered the use of the equity method and the cost method of accounting in connection with the Share Exchange Agreement transactions for the purchase of Triple 8. Generally, U.S. GAAP requires that investments in common stock or in entities over which the investor can exercise significant influence, but not control, be accounted for using the equity method. Otherwise, an investment should be accounted for at cost. In addition, the Company believes that its investment in Triple 8 should be accounted for at cost during the period from the closing of the APH Agreement through to the date of the annulment agreement. While the Company did not have significant influence over Triple 8 during that period, the counterparties to the annulment agreement acknowledged the Company’s investment by entering into the annulment agreement. Therefore, these financial statements have been restated to present the investment in Triple 8 on a cost basis, as cost being determined by the market value of the Company’s stock paid and the stated value of the note payable issued under the APH Agreement. The gain on settlement of Triple 8 is accounted for as other income in the 2011 statement of operations.
Three months ended March 31, 2012 and 2011 Results of Operations:
This section of the report should be read together with Notes of the Company’s consolidated financials as well as the disclosures in this filing.
The consolidated statements of operations for the three months ended March 31, 2012 and March 31, 2011 are compared (subject to the above description) in the sections below:
Revenues:
The following table summarizes our revenues for the three months ended March 31, 2012 and March 31, 2011:
|
Three months ended March 31,
|
|
2012
|
|
|
2011
|
|
|
Total revenues
|
|
$
|
7,106
|
|
|
$
|
616
|
|
The Company earned insignificant revenues in both periods.
Operating expenses:
The following table summarizes our operating expenses for the three months ended March 31, 2012 and March 31, 2011:
|
Three months ended March 31,
|
|
2012
|
|
|
2011
|
|
|
Total operating expenses
|
|
$
|
115,407
|
|
|
$
|
468,105
|
|
The Company had significant operating costs (including professional and consulting fees, compensation and travel costs) associated with the Company’s investment in Triple 8 for the three months ended 2011, as compared to the same period in 2012. In addition, the Company recorded lower advertising expense in the first quarter of 2012, and salaries were lower due to the departure of the former CEO.
Net interest income (expense):
The following table summarizes our net interest income for the three months ended March 31, 2012 and March 31, 2011:
|
Three months ended March 31,
|
|
2012
|
|
|
2011
|
|
|
Interest income
|
|
$
|
222
|
|
|
$
|
21,406
|
|
|
Interest expense
|
|
|
(21,684
|
)
|
|
|
(31,750
|
)
|
|
Net interest expense
|
|
$
|
(21,462
|
)
|
|
$
|
(10,344
|
)
|
On November 1, 2011, the Company swapped its existing convertible notes outstanding to Series B Preferred Stock. The Series B Preferred Stock has a stated value of $100 per share and is convertible into our common stock at a conversion price of $0.30 per share representing 15,000,000 shares of common stock. We anticipate that interest expense in fiscal 2012 should be lower as a result of exchanging the convertible debt for Preferred Shares.
In the first three months of 2011, the Company had a note receivable balance of approximately $400,000 and a note payable balance of approximately $500,000, which resulted in the Company having a higher (non-cash) interest income and interest expense, as compared to the first three months of 2012.
Liquidity and Capital Resources
Our cash and cash equivalents were $36,104 and $411,656 for the period ended March 31, 2012 and as of December 31, 2011, a decrease of $375,552. The decrease in our cash and cash equivalents is primarily the result of the decrease in our accounts payable, our accrual expenses, and the restructuring and payoff of our debt and accrued interest, particularly the Cordellia note.
Cash flows used in operating activities for the three months ended March 31, 2012 and 2011 was $(267,194), and $(320,753), respectively. The Company had a larger loss for the three months ended March 31, 2011(which included $212,000 in non-cash expenditures for common shares issued to consultants for services), as compared to March 31, 2012, due to higher expenses related to the Company’s investment in Triple 8.
Cash flows provided by (used in) investing activities for the three months ended March 31, 2012 and 2011 was $191,642 and $(150,000), respectively. During the three months ended March 31, 2012, the Company collected $214,462 from the settlement of the Triple 8 investment and invested $8,000 in a joint venture in the solar industry. The Company issued short-term receivables of $15,000 and $150,000 for the three months ended March 31, 2012 and 2011, respectively.
Cash flows (used in) provided by financing activities for the three months ended March 31, 2012 and 2011 was $(300,000) and $28,345, respectively. During the three months ended March 31, 2012, the Company paid $300,000 to reduce Cordellia note balance. During the first quarter of 2011, the Company received $28,345 in proceeds from the private placement which began in December 2010.
Our future capital requirements and the adequacy of available funds will depend on numerous factors, including the successful commercialization of our products, competing technological and market developments, and the development of strategic alliances for the development and marketing of our products. Our Company intends to obtain additional funds through equity or debt financing, strategic alliances with corporate partners and others, or through other sources. There is no guarantee that these sources will be available at all or available on acceptable terms.
We expect to use the proceeds to fund our short-term capital requirements including paying administrative expenses associated with maintaining our public company’s filings for the next 12 months. In order to implement our business plan and pay various administrative expenses on a minimal basis for 12 months, we expect that we will need approximately $50,000 per month, minimum. We expect to be able to remain in operation for a period of 12 months with cash on hand and/or cash from collecting receivables and/or other debts. We also expect to receive monthly collections from our settlement agreement with Triple 8 to support our operations in 2012. It is likely that the Company will have to raise additional capital in the next 12 months to continue operations. The required funds may not be available on acceptable terms, which would adversely affect the financial performance and continuing operation of the Company.
Until required for operations, Forex's policy will be to invest its cash reserves in bank deposits or deploy its cash in short term loans. Forex expects that its operating results will fluctuate significantly from quarter to quarter in the future and will depend on a number of factors including the state of the worldwide economy and financial markets, which are outside Forex's control.
Debt Financing Arrangements
Rasel, LTD -
On October 6, 2009 the Company signed a Note Payable for $25,000 payable to Rasel due on October 6, 2010 at 4% per annum. The proceeds were used to pay for half of an existing Accounts Payable for legal fees incurred at the Company’s inception. On October 20, 2009 the Company signed a Note Payable for $50,000 payable to Rasel due on October 20, 2010 at 4% per annum. These proceeds were used to pay for startup costs, audit fees and future expenses. On January 22, 2010 the Company signed a Note Payable for $50,000 payable to Rasel due on October 30, 2011 at 4% per annum. These proceeds will be used for working capital and future expenses. On January 22, 2010 the Company signed an amendment to extend the maturity date of the Promissory Notes in the amount of $50,000 and $25,000 dated October 6, 2009 and October 20, 2009, respectively, to October 30, 2011. On March 2, 2011 the Company and Rasel agreed to extend the maturity of all notes to December 31, 2012 in consideration of adding a conversion feature to said note with either a 5% discount to the market price or a fixed price of $0.60. The extension of maturity was agreed to be effective as of December 30, 2010,
The balance of the Rasel notes including interest as of March 31, 2012 is $136,795.
In order to expedite the closing of the Triple 8 Annulment, the Company, A.P. Holdings (“APH") H.A. M. Group Limited (“HAM“) and Cordellia d.o.o., a Croatian company ("CDOO"), third party which is not affiliated with the Company, entered into a Settlement and Foreclosure Agreement (the "Settlement Agreement"), whereby the Company provided CDOO, as the assignee of HAM and APH, with the ability to foreclose on all shares of Triple 8 held by the Company in consideration of the termination of the APH Note and the HAM Note, which were in default, and the issuance of a new promissory note in the name of CDOO in the principal amount of $1,000,000 (the "CDOO Note"). The CDOO note bears interest at the rate of ten percent (10%) per annum and is due and payable in full on November 30, 2012. In the event that Triple 8 fails to make the Triple Payments, then the amount payable under the CDOO Note shall be reduced by half of the amount of the missed payment.
The balance of the CDOO note including interest as of March 31, 2012 is $727,382.
ATL Note:
On July 8, 2010, the Company issued a Convertible Promissory Note to a third party - ATL in aggregate principal amounts of $500,000 (the “Forex Note”). In consideration for the Company issuing the ATL Note, ATL issued the Company a Secured and Collateralized Promissory Note in the principle amount of $400,000 (the “ATL Note”). The Forex Note bears interest at 10%, matures two years from the date of issuance and is convertible into our common stock, at ATL’s option, at a conversion price of $0.20 subject to adjustment. On the 21st trading day following each conversion, the number of shares of common stock issuable to ATL pursuant to the Forex Note shall be adjusted such that the aggregate number of shares of common stock issuable to ATL is equal to the amount converted divided by 75% of the average of the three lowest closing bid prices during the 20 trading days following delivery of the shares of common stock upon the initial conversion. Concurrent with the conversion of the Forex Note, ATL must make a payment to the Company reducing a pro rata amount owed to the Company under the ATL Note.
On November 1, 2011, the Company and the ATL Indebted Parties entered into a Settlement Agreement (the "Agreement") whereby without admitting any wrongdoing on either part, the parties thereby settled all previous agreements and resolved any existing disputes. Under the terms of the Agreement, the Company agreed to issue the Indebted Parties 45,000 shares of Series B Preferred Stock of the Company on a pro-rata basis, and the Undelivered Shares were returned to the treasury of the Company. The Series B Preferred Stock has a stated value of $100 per share and is convertible into our common stock at a conversion price of $0.30 per share representing 15,000,000 common shares. Furthermore, the Series B Preferred Stock votes on an as converted basis and carries standard anti-dilution rights.
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since the Date of Inception.