10-K 1 iaglobal_10-k.htm FORM 10-K FOR 03-31-2010

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________


FORM 10-K


(Mark One)

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended March 31, 2010


or


[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Commission File Number: 1-15863


IA Global, Inc.

(Exact name of Registrant as specified in its charter)

___________________________


DELAWARE

13-4037641

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)


101 CALIFORNIA STREET, SUITE 2450, SAN FRANCISCO, CA 94111

(Address of principal executive offices)  (zip code)


Registrant's telephone number, including area code:  (415) 946-8828


Securities registered pursuant to Section 12(b) of the Act:


Common Stock, $.01 Par Value

[Over-the-Counter Bulletin Board]

(Title of class)

(Name of Each Exchange on which registered)


Securities registered pursuant to Section 12(g) of the Act:  None

___________________________


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]


Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [  ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]


Indicate by check mark whether the registrant is large accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer [  ]

Accelerated filer  [  ]

Non-accelerated filer  [  ]

Smaller reporting company  [X]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]


The aggregate market value of the common equity held by non-affiliates of the registrant as of March 31, 2010 was approximately $2,283,756. The number of shares of the registrant’s common stock outstanding as of July 14, 2010 was 351,666,245 shares.


Documents Incorporated By Reference

[None.]

 

 



TABLE OF CONTENTS


 

 

PAGE

 

 

 

PART I

 

 

 

 

 

Item 1.

Business

1

 

 

 

Item 1A.

Risk Factors

4

 

 

 

Item 1B.

Unresolved Staff Comments

10

 

 

 

Item 2.

Properties

10

 

 

 

Item 3.

Legal Proceedings

10

 

 

 

Item 4.

(Removed and Reserved).

11

 

 

 

PART II

 

 

 

 

 

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

11

 

 

 

Item 6.

Selected Financial Data

19

 

 

 

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

27

 

 

 

Item 8.

Financial Statements and Supplementary Data

28

 

 

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

28

 

 

 

Item 9A.

Controls and Procedures

28

 

 

 

Item 9B.

Other Information

28

 

 

 

PART III

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

29

 

 

 

Item 11.

Executive Compensation

32

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

43

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

44

 

 

 

Item 14.

Principal Accounting Fees and Services

45

 

 

 

PART IV

 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

46

 

 

 

SIGNATURES

 

 


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PART I


CHANGE IN YEAR-END


On July 25, 2007, the Board of Directors resolved that the fiscal year of that the Company began on January 1, 2007 would end on December 31, 2007, and from that date forward, the fiscal year of the Company will be the period beginning on April 1 of each year and ending on March 31 of the following year. The Company filed a Form 10-K for the calendar year ending December 31, 2007 and filed a Transition Report on Form 10-K to reflect the three month transition period of January 1, 2008 through March 31, 2008.


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS


The following discussion, in addition to the other information contained in this report, should be considered carefully in evaluating us and our prospects. This report (including without limitation the following factors that may affect operating results) contains forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act") regarding us and our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. Additionally, statements concerning future matters such as revenue projections, projected profitability, growth strategies, development of new products, enhancements or technologies, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements.


Forward-looking statements in this report reflect the good faith judgment of our management and the statements are based on facts and factors as we currently know them. Forward-looking statements are subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, but are not limited to, those discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this report. Readers are urged not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report.


EXCHANGE RATES


Certain information in this Annual Report on Form 10-K is expressed in Japanese Yen and the Philippine Peso. At March 31, 2010, the exchange rate for the Japanese Yen was US $1= Yen [93.3364] and the Philippine Peso was US $1= [45.3054]. In this Form 10-K, at "current exchange rates" is defined as the exchange rates as of the date of the transaction.


ITEM 1.  BUSINESS


GENERAL DEVELOPMENT OF BUSINESS


THE COMPANY AND OUR BUSINESS


We are a global services and outsourcing company focused on growing existing businesses and expansion through global mergers and acquisitions.  We are utilizing our current partnerships to acquire growth businesses in target sectors and markets at discounted prices.  We are actively engaging in discussions with businesses that would benefit from our business acumen and marketing expertise, knowledge of Asian Markets, and technology infrastructure. Unless the context otherwise requires, the term “Company,” “we,” “us,” or “our” refers to IA Global, Inc. and all of its legal subsidiaries.


ACQUISITION OF CAR PLANNER CO LTD


On May 20, 2010, we announced the closing of the 100% acquisition of JSK Fund Co Ltd., which owns 100% of Car Planner Co Ltd (“Car Planner”), both of which are Japanese companies, from JSK Fund, Inc. Group, a party affiliated with an existing shareholder, RXR Cross Border Investment Un.


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Car Planner receives service and commission revenue by selling automotive parts over the internet to approximately 728 car dealers, gas stations, and car maintenance shops in Japan. Car Planner is expected to expand their Business to Business (B to B) model to include Business to Consumer (B to C) transactions during fiscal year 2011. Their website is www.carplanner.jp.


Car Planner was established in 2006. During the year ending March 31, 2010, Car Planner recorded sales of $1.5 million and net income of $120,000. Car Planner was acquired for 30,000,000 JPY or approximately $325,000 at current exchange rate. The acquisition was financed through the issuance of 25,000,000 shares of our common stock valued at $.013 per share.


ACQUISITION OF JOHNNY CO LTD.


On June 4, 2010, we announced the closing of the 60% acquisition of Johnny Co Ltd. (“Johnny”) from Hynox Corporation, both of which are Japanese companies.


Johnny engages in the distribution and sales of new video gaming hardware such as the Sony PlayStation 3, PSP, Nintendo DS, Wii and XBox 360 along with associated gaming software. Johnny is also engaged in buying used hardware and software and selling refurbished hardware and secondhand software.


Johnny operates7 direct management stores and 3 franchise stores in the Iwate, Akita and Aomori prefectures in Northern Japan. Mr. Jun Sugiura, founder and CEO, will retain 40% ownership of the Johnny Co Ltd. Their website is http:// www.fc-johnny.jp and the mobile website is http://www.fc-johnny.jp/mobile.


During the fiscal year ended August 31, 2009, Johnny reported revenues of approximately $6.2 million and net income of approximately $100,000. During the fiscal year ended August 31, 2010, Johnny expects to report revenues of approximately $9.6 million and net income of approximately $250,000 in accordance with JGAAP. The 60% share of Johnny was acquired for 14,000,000 shares of our common stock valued at $.013 or approximately $178,000.


BUSINESS PROCESS OUTSOURCING (“BPO”)

 

In the Philippines, we acquired 100% of Shift Resources Inc. (“Shift”) on April 10, 2008 and Asia Premier Executive Suites, Inc. (“Asia Premier”) on May 27, 2008, multi-service call center operations that have now been merged into a single Company operating as Global Hotline Philippines. Global Hotline Philippines provides inbound and outbound telemarketing services, and collocation facilities to a variety of industries on a world-wide basis. In addition, it signed a long term Business Processing and Marketing Services Agreement with HTMT Global Solutions Limited ("HTMT") on January 9, 2009. Global Hotline Philippines may also extensively use HTMT's world class infrastructure, certifications, and extensive call center facilities to deliver services to Global Hotline Philippines' growing client base. Under a revenue sharing and collocation basis Global Hotline Philippines can now undertake outsourcing projects without the need to infuse new capital to build out additional call center facilities.  On June 14, 2010, we outsourced our call center operations and recorded an intangible asset impairment of $793,000 as of March 31, 2010.


DECONSOLIDATION OF GLOBAL HOTLINE, INC. 


Until recently, we also operated in Japan through our wholly-owned subsidiary, Global Hotline, Inc. (“GHI” or “Global Hotline”). In May 2009, a dispute arose between GHI and one of its lenders, H Capital, Inc (“H Capital”). The dispute resulted in H Capital claiming ownership of IA Global’s shares in GHI, which had been pledged as collateral for certain loans borrowed by the subsidiary. Although we continue to sue H Capital for damages, on December 8, 2009, we reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, we accounted for Global Hotline as a discontinued operation. Our reported net loss improved by $10.1 million for the year ended March 31, 2010 and our stockholders’ deficit as of March 31, 2010 decreased by $10.1 million as a result of recording a gain from the forfeiture of Global Hotline represented by the excess of Global Hotline’s liabilities over its assets on the deconsolidation date. These events and their impact on our financial statements are discussed in more detail in other portions of this report, including Note 3 of the Financial Statements.


CORPORATE INFORMATION

 

We were incorporated in Delaware on November 12, 1998. The Company’s executive offices are located at 101 California Street, Suite 2450, San Francisco, CA 94111, with its operating units being located primarily in the Pacific Rim region. The Company’s telephone number is (415) 946-8828 and its principal website address is located at www.iaglobalinc.com. The information on our website is not incorporated as a part of this Form 10-K.


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THE COMPANY'S COMMON STOCK


Our common stock currently trades on the OTCBB Exchange ("OTCBB") under the symbol "IAGI."


INDUSTRY OVERVIEW


The Asian markets have been growing at a swift pace in recent years and this growth is expected to continue into the foreseeable future. The growth is based on a shift in economic activity from Europe and North America to the Asian markets and a growth in intra-Asian economic activity. The growth of a generally affluent middle class within most Asian countries is driving demand for an increasing spread of goods and services, particularly in the 20 -35 year old age demographic. Although much attention has been given to China and India, Japan continues to be the second largest economy in the world. These and other factors are contributing to the growth of our existing investments and present us with an increasing number of quality investment opportunities in Asia and beyond.


Over the past several years there has been a tremendous change in sentiment toward outsourcing, with the strategy that used to be thought of as a "good idea that should be discussed" is today one of critical and urgent importance for most large organizations. As a result, outsourcing growth is continuing to expand across a wide range of industries and functions, and seems unstoppable given the current economic climate.


KEY MARKET OPPORTUNITIES


Currently, our key market priorities are, among other things, to:

 

 

Provide an opportunity for U.S. investors to acquire an interest in BtoB, BtoC and infrastructure companies in Asia, particularly in Japan, Philippines and China.

 

 

 

 

Capitalize on our funding from RXR Cross Border Investment Un, World Investment Un and Ascendiant.

 

 

 

 

Capitalize on our acquisitions of Car Planner and Johnny.

 

 

 

 

Acquire international growth businesses at discounted prices in our target sectors and markets in conjunction with business partners. We expect to focus on growth opportunities with businesses that require improvements in management, financial processes and liquidity to be successful.

 

 

 

 

Leverage our presence in Asia with U.S.-based companies seeking to expand their Asian businesses.

 

 

 

 

Enhance our investor relations.


PRIMARY RISKS AND UNCERTAINTIES


We are exposed to various risks related to legal claims, our need for additional financing, our level of indebtedness, declining economic conditions, our controlling shareholder groups, the sale of significant numbers of our shares and a volatile market price for our common stock. These risks and uncertainties are discussed in further detail in Item 1A, "Factors That May Effect Future Results."


DISTRIBUTION METHODS


In the Philippines, we acquired 100% of Shift on April 10, 2008 and Asia Premier on May 27, 2008, multi-service call center operations that have now been merged into a single company operating as Global Hotline Philippines. On June 14, 2010, we outsourced our call center operations and recorded an intangible asset impairment of $793,000 as of March 31, 2010.


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COMPETITION


Global Hotline Philippines operates in a competitive market segment. Our competitive advantages have been our lower cost infrastructure, our customer acquisition competencies, our superior client service culture, and our focus on this niche. Secondly, the Philippines has risen to become the world's second largest location for BPO operations, fulfilling a market need that is expected to expand over the next several years. Global Hotline Philippines faces competition from organizations such as Convergys Corp, PeopleSupport Corp, and Accenture Corp among others. Global Hotline Philippines differentiates itself by deploying a mix model of standard BPO services with secured margin co-location services.


GEOGRAPHICAL MARKETS


Global Hotline Philippines operates in the Philippines, but services customers world-wide.


INTELLECTUAL PROPERTY


We regard our trade secrets, domain name rights and intellectual property as significant to our growth and success. We rely upon a combination of copyright and trademark laws, trade secret protection, domain name registration agreements, confidentiality and non-disclosure agreements and contractual provisions with our employees and with third parties to establish and protect our proprietary rights.


LICENSES


We have no licenses as of March 31, 2010.


EMPLOYEES


As of March 31, 2010, we had 12 full-time and 2 part-time employees. Most employees were based in the Philippines. The Chief Executive Officer and Chief Financial Officer are based out of the offices in the United States.


WEBSITE ACCESS TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION REPORTS


We file annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). You may read and copy any document we file at the SEC's Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information concerning filers. We also maintain a web site at http://www.iaglobalinc.com that provides additional information about our Company and links to documents we file with the SEC. The Company's charters for the Audit Committee, the Compensation Committee, and the Nominating Committee; and the Code of Conduct & Ethics are also available on our website. The information on our website is not part of this Form 10-K.


ITEM 1A. RISK FACTORS


FACTORS THAT MAY AFFECT FUTURE RESULTS


The following factors, in addition to the other information contained in this report, should be considered carefully in evaluating us and our prospects. This report (including without limitation the following factors that may affect operating results) contains forward-looking statements (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) regarding us and our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. Additionally, statements concerning future matters such as the development of new products, enhancements or technologies, projections of revenues and profitability, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements.


Forward-looking statements in this report reflect the good faith judgment of our management and the statements are based on facts and factors as we currently know them. Forward-looking statements are subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Factors that could cause or


4



contribute to such differences in results and outcomes include, but are not limited to, those discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this report. Readers are urged not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of the report.


THE COMPANY COULD BE EXPOSED TO LEGAL CLAIMS, AND THE OUTCOME OF ANY DISPUTES RESULTING FROM SUCH CLAIMS COULD ADVERSELY AFFECT THE COMPANY’S FINANCIAL CONDITION OR RESULTS OF OPERATIONS


There are no pending legal proceedings against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations. We continue to work with various vendors and former employees on past due liabilities.

 

POTENTIAL LEGAL PROCEEDING – GLOBAL HOTLINE


As has been previously disclosed, we pledged our shares of our Global Hotline Japanese subsidiary as collateral for certain loans borrowed from H Capital, an unlicensed Japanese lender, for such subsidiary. On May 26, 2009, Global Hotline and IA Global received notices from H Capital demanding repayment of the loans. On May 27, 2009, Global Hotline and SG Telecom did not repay the loans as requested by H Capital. On June 2, 2009, H Capital submitted documents claiming ownership of our 600 shares of Global Hotline. Global Hotline’s management previously provided our stock certificates to H Capital in March 2009.

 

Although we engaged Japanese corporate counsel to sue H Capital for damages, the aforementioned events have resulted in IA Global losing control over the day-to-day management and operations of Global Hotline. In addition, we did not have access to the financial records of Global Hotline that are necessary to periodically report our financial position and results of operations as a consolidated subsidiary of IA Global.

 

On December 8, 2009, we reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, we accounted for Global Hotline as a discontinued operation. Our reported net loss improved by $10.1 million for the year ended March 31, 2010 and our stockholders’ deficit as of March 31, 2010 decreased by $10.1 million as a result of recording a gain from the forfeiture of Global Hotline represented by the excess of Global Hotline’s liabilities over its assets on the deconsolidation date. These events and their impact on our financial statements are discussed in more detail in other portions of this report, including Note 3 of the Financial Statements.


Concurrent with our deconsolidation of Global Hotline, management has determined, in conjunction with legal counsel, that any obligations that may arise from Global Hotline, that existed prior or subsequent to our decision to deconsolidate are not our obligations.

 

Prior to December 8, 2009 Global Hotline had significant liabilities to Japanese banks in excess of approximately $12,000,000. These loans were unsecured and personally guaranteed by either the CEO or CFO of Global Hotline. In addition to theses bank loans, Global Hotline had payroll, social insurance and other tax liabilities of approximately 800,000,000 Yen, or approximately $9.0 million at current exchange rates, as of September 30, 2009.  Portions of the payroll, social insurance and other tax liabilities were repaid from cash flow from accounts receivable.

 

The status of Global Hotlines bank loans and tax liabilities is unknown subsequent to December 8, 2009. In addition, the status of other trade debt, or any debt or obligation of Global Hotline is unknown subsequent to December 8, 2009. In addition to debt, Global Hotline has obligation under various operating leases, the status of which is unknown subsequent to December 8, 2009.

 

Global Hotline has revenue contracts requiring performance for their various vendors. The status of performance, or any liability for non-performance, is unknown subsequent to December 8, 2009.

 

With regards to the above referenced liabilities, or potential liabilities of Global Hotline, our management along with our Japanese legal counsel, has determined that we have no legal obligation for these liabilities or potential liabilities. Assertions against us for Global Hotline liabilities, or potential liabilities, might be sustained. The Company intends to defend themselves against any assertions related to liabilities or potential liabilities resulting from Global Hotline prior to or subsequent to December 8, 2009. The Company has not accrued for any liabilities related to Global Hotline as of March 31, 2010.  Global Hotline filed for bankruptcy on February 12, 2010 in accordance with Japanese bankruptcy laws.


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On October 7, 2009, we filed a civil claim against H Capital in Tokyo, Japan District Court related to the ownership of Global Hotline. On May 5, 2010, we dropped the original civil claim and filed a new civil claim for damages of $1,000,000 against H Capital and other affiliated parties. The claim has not been reviewed by the Tokyo, Japan District Court. Management, based on their consultation with Japanese legal counsel, is unable to determine the outcome of this dispute with H Capital.

 

POTENTIAL LEGAL PROCEEDING – ARQUEMAX VENTURES LLC (“AMV”)

 

On April 1, 2009, we agreed to issue preferred stock (“IAO Preferred Stock”), at $1,000 per share, to AMV for $317,000 in the Amendment to Share Exchange Agreement. On January 11, 2010, AMV requested that the $317,000 of IAO Preferred Stock be converted into 12,800,000 shares of our common stock. We declined to convert this IAO Preferred Stock.

 

At AMV’s sole discretion, AMV had the option to (1) convert some or all of its IAO Preferred Stock into 12,800,000 shares of our common stock pro rata at $0.025 per share; or (2) exchange IAO Preferred Stock for 971,458 Taicom Securities Co Ltd (“Taicom”) Stock owned by us on a pro rata basis. The conversion of IAO Preferred Stock intoTaicom Stock was to be automatically triggered in the case of certain events, including delisting from NYSE AMEX Equities Exchange, bankruptcy or insolvency.


On July 17, 2009 and September 28, 2009, AMV notified us that we were in default under clause 3.1 (vi) of the Agreement and as a result did not fund the $60,000 due June 30, 2009, July 15, 2009 and July 31, 2009. However, AMV was late in funding as required by the Agreement.

 

On November 16, 2009, but effective August 4, 2009, AMV claimed ownership of our shares in Taicom. This resulted in a loss on investment of approximately $2,820,000.


Taicom declared bankruptcy on December 25, 2009 in accordance with Japanese bankruptcy laws.


WE WILL NEED ADDITIONAL FINANCING TO SUPPORT OUR BUSINESS STRATEGY (WHICH INCLUDES ACQUIRING OR INVESTING IN NEW BUSINESSES) AND ONGOING OPERATIONS

 

We will need to obtain additional financing in order to continue our current operations, service our debt repayments and acquire businesses. There can be no assurance that we will be able to secure funding, or that if such funding is available, the terms or conditions would be acceptable to us. If the Company is unable to obtain additional financing, we may need to restructure our operations, divest all or a portion of our business or file for bankruptcy.

 

Our recent efforts to generate additional liquidity, including through sales of our common stock, are described in more detail in the financial statement notes set forth in this report.

 

If we raise additional capital through borrowing or other debt financing, we will incur substantial interest expense. Sales of additional equity securities will dilute on a pro rata basis the percentage ownership of all holders of common stock. When we raise more equity capital in the future, it will result in substantial dilution to our current stockholders.

 

DECLINING GENERAL ECONOMIC, BUSINESS, OR INDUSTRY CONDITIONS MAY CAUSE REDUCED REVENUES AND PROFITABILITY

 

Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining real estate market in the U.S. have contributed to increased volatility and diminished expectations for the global economy and expectations of slower global economic growth going forward. These factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, precipitated a recession. If the economic climate in the U.S. or abroad does not improve from its current condition or continues to deteriorate, our customers or potential customers could reduce or delay their purchases of our products, which would adversely impact our revenues and our ability to manage inventory levels, collect customer receivables and ultimately our profitability.

 

Volatility and disruption of financial markets could affect our access to credit. The current difficult economic market environment has caused contraction in the availability of credit in the marketplace. This could potentially reduce or eliminate sources of liquidity for the Company.

 


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OUR CONTROLLING SHAREHOLDER GROUP HAS SUBSTANTIAL INFLUENCE OVER OUR COMPANY

 

As of March  31, 2010, IAJ LBO Fund, PBAA Fund Limited, Terra Firma, Inter Asset Japan Co Ltd (“IAJ”), IA Turkey and Hiroki Isobe, (collectively, the “Controlling Shareholders”) collectively held approximately 43.2% of our common stock. These Controlling Shareholders have stated in a Schedule 13D that they may be deemed to constitute a “group” for the purposes of Rule 13d-3 under the Exchange Act. Hiroki Isobe controls each of our Controlling Shareholders. As of July 14, 2010, the Controlling Shareholders hold 8.0% of our common stock.

 

IAJ and other large shareholders could cause a change of control of our board of directors if in combination with another large shareholder elects candidates of their choice to the board at a shareholder meeting, and approve or disapprove any matter requiring stockholder approval, regardless of how our other shareholders may vote. Further, under Delaware law, IAJ and other large shareholders could have a significant influence over our affairs, if in combination with another large shareholder, including the power to cause, delay or prevent a change in control or sale of the Company, which in turn could adversely affect the market price of our common stock.


THE SALE OF A SIGNIFICANT NUMBER OF OUR SHARES OF COMMON STOCK COULD DEPRESS THE PRICE OF OUR COMMON STOCK

 

Sales or issuances of a large number of shares of common stock (including pursuant to the equity line of credit transaction that we recently entered into with Ascendiant Capital Group, LLC, which is described in more detail elsewhere in this prospectus) in the public market or the perception that sales may occur could cause the market price of our common stock to decline. As of July 14, 2010, there were 351.7 million shares of common stock issued and outstanding. Significant shares of common stock are held by our principal shareholders, other Company insiders and other large shareholders. As “affiliates” (as defined under Rule 144 of the Securities Act (“Rule 144”)) of the Company, our principal shareholders, other Company insiders and other large shareholders may only sell their shares of common stock in the public market pursuant to an effective registration statement or in compliance with Rule 144.


THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE

 

The market price of our common stock has been and is likely in the future to be volatile. Our common stock price may fluctuate in response to factors such as:

 

 

A bankruptcy filing by the Company,

 

 

 

 

Announcements by us regarding liquidity, significant acquisitions, equity investments and divestitures, strategic relationships, addition or loss of significant customers and contracts, capital expenditure commitments, loan, note payable and agreement defaults, loss of our subsidiaries and impairment of assets and our OTCBB Exchange listing,

 

 

 

 

Issuance of convertible or equity securities for general or merger and acquisition purposes,

 

 

 

 

Issuance or repayment of debt, accounts payable or convertible debt for general or merger and acquisition purposes,

 

 

 

 

Alleged manipulation of our stock price,

 

 

 

 

Sale of a significant number of our common stock by shareholders,

 

 

 

 

General market and economic conditions,

 

 

 

 

Quarterly variations in our operating results,

 

 

 

 

Defending significant litigation,

 

 

 

 

Investor relation activities,

 

 

 

 

Announcements of technological innovations,

 

 

 


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New product introductions by us or our competitors,

 

 

 

 

Competitive activities,

 

 

 

 

Additions or departures of key personnel,

 

 

 

 

Issuance of loans to customers or related or affiliated parties, and

 

 

 

 

Foreign exchange gains and losses.


These broad market and industry factors may have a material adverse effect on the market price of our common stock, regardless of our actual operating performance. These factors could have a material adverse effect on our business, financial condition and results of operations.


RISKS ASSOCIATED WITH EQUITY LINE OF CREDIT WITH ASCENDIANT CAPITAL GROUP, LLC


The Securities Purchase Agreement with Ascendiant Capital Group, LLC (“Ascendiant”) will terminate if our common stock is not listed on one of several specified trading markets (which include the NYSE AMEX, OTCBB Exchange and Pink Sheets, among others), if we file protection from its creditors or if a Registration Statement on Form S-1 or S-3 is not effective.


If the price or the trading volume of our common stock does not reach certain levels, we will be unable to draw down all or substantially all of our $5,000,000 equity line of credit.

 

The maximum draw down amount every 11 trading days under our equity line of credit facility is the lesser of $250,000 or 15% of the total trading volume of our common stock for the 10-trading-day period prior to the draw down multiplied by the volume-weighted average price of our common stock for such period. If our stock price and trading volume remain at current levels, we will not be able to draw down all $5,000,000 available under the equity line of credit.


If we not able to draw down all $5,000,000 available under the equity line of credit or if the Securities Purchase Agreement is terminated, we may be forced to curtail the scope of our operations or alter our business plan if other financing is not available to us.


WE MAY INCUR LOSSES IN THE FUTURE


We have experienced net losses since inception. There can be no assurance that we will achieve or maintain profitability.


WE MAY ENGAGE IN ACQUISITIONS, MERGERS, STRATEGIC ALLIANCES, JOINT VENTURES AND DIVESTITURES THAT COULD RESULT IN FINANCIAL RESULTS THAT ARE DIFFERENT THAN EXPECTED


In the normal course of business, we engage in discussions relating to possible acquisitions, equity investments, mergers, strategic alliances, joint ventures and divestitures. Such transactions are accompanied by a number of risks, including:


- Use of significant amounts of cash,


- Potentially dilutive issuances of equity securities on potentially unfavorable terms,


- Incurrence of debt on potentially unfavorable terms as well as impairment expenses related to goodwill and amortization expenses related to other intangible assets, and


- The possibility that we may pay too much cash or issue too many of our shares as the purchase price for an acquisition relative to the economic benefits that we ultimately derive from such acquisition.


- The process of integrating any acquisition may create unforeseen operating difficulties and expenditures. The areas where we may face difficulties include:


- Diversion of management time, during the period of negotiation through closing and after closing, from its focus on operating the businesses to issues of integration,


8



- Decline in employee morale and retention issues resulting from changes in compensation, reporting relationships, future prospects or the direction of the business,


- The need to integrate each Company's accounting, management information, human resource and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented,


- The need to implement controls, procedures and policies appropriate for a public Company that may not have been in place in private companies, prior to acquisition,


- The need to incorporate acquired technology, content or rights into our products and any expenses related to such integration, and


- The need to successfully develop any acquired in-process technology to realize any value capitalized as intangible assets.


From time to time, we have also engaged in discussions with candidates regarding the potential acquisitions of our product lines, technologies and businesses. If a divestiture such as this does occur, we cannot be certain that our business, operating results and financial condition will not be materially and adversely affected. A successful divestiture depends on various factors, including our ability to:


- Effectively transfer liabilities, contracts, facilities and employees to any purchaser,


- Identify and separate the intellectual property to be divested from the intellectual property that we wish to retain,


- Reduce fixed costs previously associated with the divested assets or business, and


- Collect the proceeds from any divestitures.


In addition, if customers of the divested business do not receive the same level of service from the new owners, this may adversely affect our other businesses to the extent that these customers also purchase other products offered by us. All of these efforts require varying levels of management resources, which may divert our attention from other business operations.


If we do not realize the expected benefits or synergies of any divestiture transaction, our consolidated financial position, results of operations, cash flows and stock price could be negatively impacted.


WE ARE DEPENDENT ON KEY PERSONNEL


Our success depends to a significant degree upon the continued contributions of key management and other personnel, some of whom could be difficult to replace. We do not maintain key man life insurance covering certain of our officers. Our success will depend on the performance of our officers, our ability to retain and motivate our officers, our ability to integrate new officers into our operations and the ability of all personnel to work together effectively as a team. Our employment agreements with our Chief Executive Officer and Chief Financial Officer expire September 4, 2010 and August 24, 2010, respectively. Our failure to retain and recruit officers and other key personnel could have a material adverse effect on our business, financial condition and results of operations.


WE HAVE LIMITED INSURANCE


We have limited director and officer insurance and commercial insurance policies. Any significant insurance claims would have a material adverse effect on our business, financial condition and results of operations.


WE ARE EXPOSED TO FOREIGN CURRENCY GAINS AND LOSSES


The majority of our operations are located in Japan and the Philippines. We do not trade in hedging instruments or "other than trading" instruments and a significant change in the foreign currency exchange rate between the Japanese Yen, Philippine Peso and US Dollar would have a material adverse or positive effect on our business, financial condition and results of operations.


9



WE ARE SUBJECT TO COMPETITIVE PRESSURES


We face competition from entities that provide competing call center operations, including entities that resell telephone and broadband lines and insurance products in the Philippines. Certain of our competitors may be able to devote greater resources to marketing, adopt more aggressive pricing policies and devote substantially more resources to developing their services and products. We may be unable to compete successfully against current and future competitors, and competitive pressures may have a material adverse effect on our business. Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing decisions or acquisitions that could have a material adverse or positive effect on our business, prospects, financial condition and results of operations.


ITEM 1B. UNRESOLVED STAFF COMMENTS


Not applicable.


ITEM 2.  PROPERTIES


Our executive offices are currently located at 101 California Street, Suite 2450, San Francisco, CA 94111. The office is leased, and the lease is renewable on a month to month basis for $300 per month.


Global Hotlines Philippines vacated its offices on April 5, 2010.


ITEM 3.  LEGAL PROCEEDINGS


There are no pending legal proceedings against us that are expected to have a material adverse effect on our cash flows, financial condition or results of operations. We continue to work with various vendors and former employees on past due liabilities.


POTENTIAL LEGAL PROCEEDING – GLOBAL HOTLINE


As has been previously disclosed, we pledged our shares of our Global Hotline Japanese subsidiary as collateral for certain loans borrowed from H Capital, an unlicensed Japanese lender, for such subsidiary. On May 26, 2009, Global Hotline and IA Global received notices from H Capital demanding repayment of the loans. On May 27, 2009, Global Hotline and SG Telecom did not repay the loans as requested by H Capital. On June 2, 2009, H Capital submitted documents claiming ownership of our 600 shares of Global Hotline. Global Hotline’s management previously provided our stock certificates to H Capital in March 2009.

 

Although we engaged Japanese corporate counsel to sue H Capital for damages, the aforementioned events have resulted in IA Global losing control over the day-to-day management and operations of Global Hotline. In addition, we did not have access to the financial records of Global Hotline that are necessary to periodically report our financial position and results of operations as a consolidated subsidiary of IA Global.

 

On December 8, 2009, we reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, we accounted for Global Hotline as a discontinued operation. Our reported net loss improved by $10.1 million for the year ended March 31, 2010 and our stockholders’ deficit as of March 31, 2010 decreased by $10.1 million as a result of recording a gain from the forfeiture of Global Hotline represented by the excess of Global Hotline’s liabilities over its assets on the deconsolidation date. These events and their impact on our financial statements are discussed in more detail in other portions of this report, including Note 3 of the Financial Statements.

 

Concurrent with our deconsolidation of Global Hotline, management has determined, in conjunction with legal counsel, that any obligations that may arise from Global Hotline, that existed prior or subsequent to our decision to deconsolidate are not our obligations.

 

Prior to December 8, 2009 Global Hotline had significant liabilities to Japanese banks in excess of approximately $12,000,000. These loans were unsecured and personally guaranteed by either the CEO or CFO of Global Hotline. In addition to theses bank loans, Global Hotline had payroll, social insurance and other tax liabilities of approximately 800,000,000 Yen, or approximately $9.0 million at current exchange rates, as of September 30, 2009.  Portions of the payroll, social insurance and other tax liabilities were repaid from cash flow from accounts receivable.

 

10



The status of Global Hotlines bank loans and tax liabilities is unknown subsequent to December 8, 2009. In addition, the status of other trade debt, or any debt or obligation of Global Hotline is unknown subsequent to December 8, 2009. In addition to debt, Global Hotline has obligation under various operating leases, the status of which is unknown subsequent to December 8, 2009.

 

Global Hotline has revenue contracts requiring performance for their various vendors. The status of performance, or any liability for non-performance, is unknown subsequent to December 8, 2009.

 

With regards to the above referenced liabilities, or potential liabilities of Global Hotline, our management along with our Japanese legal counsel, has determined that we have no legal obligation for these liabilities or potential liabilities. Assertions against us for Global Hotline liabilities, or potential liabilities, might be sustained. The Company intends to defend themselves against any assertions related to liabilities or potential liabilities resulting from Global Hotline prior to or subsequent to December 8, 2009. The Company has not accrued for any liabilities related to Global Hotline as of March 31, 2010.  Global Hotline filed for bankruptcy on February 12, 2010 in accordance with Japanese bankruptcy laws.


On October 7, 2009, we filed a civil claim against H Capital in Tokyo, Japan District Court related to the ownership of Global Hotline. On May 5, 2010, we dropped the original civil claim and filed a new civil claim for damages of $1,000,000 against H Capital and other affiliated parties. The claim has not been reviewed by the Tokyo, Japan District Court. Management, based on their consultation with Japanese legal counsel, is unable to determine the outcome of this dispute with H Capital.

 

POTENTIAL LEGAL PROCEEDING – ARQUEMAX VENTURES LLC (“AMV”)

 

On April 1, 2009, we agreed to issue IAO Preferred Stock, at $1,000 per share, to AMV for $317,000 in the Amendment to Share Exchange Agreement. On January 11, 2010, AMV requested that the $317,000 of IAO Preferred Stock be converted into 12,800,000 shares of our common stock. We declined to convert this IAO Preferred Stock.

 

At AMV’s sole discretion, AMV had the option to (1) convert some or all of its IAO Preferred Stock into 12,800,000 shares of our common stock pro rata at $0.025 per share; or (2) exchange IAO Preferred Stock for 971,458 Taicom Stock owned by us on a pro rata basis. The conversion of IAO Preferred Stock into Taicom Stock was to be automatically triggered in the case of certain events, including delisting from NYSE AMEX, bankruptcy or insolvency.


On July 17, 2009 and September 28, 2009, AMV notified us that we were in default under clause 3.1 (vi) of the Agreement and as a result did not fund the $60,000 due June 30, 2009, July 15, 2009 and July 31, 2009. However, AMV was late in funding as required by the Agreement.

 

On November 16, 2009, but effective August 4, 2009, AMV claimed ownership of our shares in Taicom. This resulted in a loss on investment of approximately $2,861,000.


Taicom declared bankruptcy on December 25, 2009 in accordance with Japanese bankruptcy laws.


ITEM 4.  (REMOVED AND RESERVED)


PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES


Our common stock trades on OTCBB Exchange under the symbol "IAGI". The following table sets forth the range of the high and low sale prices of the common stock for the periods indicated:


11



QUARTER ENDED

HIGH

LOW

 

 

 

June 30, 2009

$0.110

$0.030

September 30, 2009

$0.070

$0.030

December 31, 2009

$0.060

$0.030

March 31, 2010

$0.040

$0.010

 

 

 

June 30, 2008

$0.330

$0.200

September 30, 2008

$0.230

$0.070

December 31, 2008

$0.080

$0.030

March 31, 2009

$0.090

$0.030


As of March 31, 2010, the closing price of the Company's common stock was $.01 per share. As of July 14, 2010, there were 351,666,245 shares of common stock outstanding held by approximately 190 stockholders of record. The number of stockholders, including the beneficial owners' shares through nominee names is approximately 1,300.


DIVIDEND POLICY


We have never paid any cash dividends and intend, for the foreseeable future, to retain any future earnings for the development of our business. Our future dividend policy will be determined by the board of directors on the basis of various factors, including our results of operations, financial condition, capital requirements and investment opportunities.


RECENT SALES OF UNREGISTERED SECURITIES


During the three months ended March 31, 2010, the following unregistered sales of equity securities occurred:


PRIVATE PLACEMENTS WITH INTER ASSET JAPAN LBO NO. 1 FUND

 

On August 2, 2009, the Company entered into a Stock Purchase Agreement (“Agreement 1”) with Inter Asset Japan LBO No 1 Fund, an existing shareholder of the Company (the “Shareholder”). Under the terms of the Agreement 1, the Company agreed to issue and sell to the Shareholder 1,500,000 shares (the “Shares”) of the Company’s common stock, par value $0.01 per share, for an aggregate purchase price of $60,000, or $0.04 per share (the “Purchase Price”). The Company issued and sold the Shares to the Shareholder in reliance on the exemption from the registration requirements set forth in the Securities Act provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC under the Securities Act.


Agreement 1 contains certain representations and warranties of the Shareholder and the Company, including customary investment-related representations provided by the Shareholder, as well as acknowledgements by the Shareholder that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the Shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, capital structure, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations.

 

Agreement 1 also grants the Shareholder registration rights that it may exercise at its option and provides the Shareholder with a right of first offer if the Company proposes to issue securities in the future (subject to certain customary exceptions). Finally, the Shareholder has the right to demand that the Company redeem all or any portion of the Shares at any time on or after October 31, 2009, for a redemption price equal to the greater of the Purchase Price or the listed market price for the Company’s common stock as of the redemption date.

 

On August 17, 2009, the Company entered into a Stock Purchase Agreement (“Agreement 2”) with the Shareholder. Under the terms of Agreement 2, the Company agreed to issue and sell to the Shareholder 5,000,000 shares of our common stock for an aggregate purchase price of $200,000, or $0.04 per share.


12



Also under the terms of the Agreement, the Shareholder has committed to purchase, and the Company agreed to issue and sell to the Shareholder, additional shares of the Company’s common stock in accordance with the following schedule:


 

2,500,000 shares at a purchase price of US$.04 per share, or an aggregate price of US$100,000 on or before September 4, 2009.

 

 

 

 

1,250,000 shares at a purchase price of US$.04 per share, or an aggregate price of US$50,000 on or before September 18, 2009.

 

 

 

 

50,000,000 shares at a purchase price of US$.04 per share, or an aggregate price of US$2,000,000 on or before November 10, 2009.

 

The Shareholder’s obligation to purchase the foregoing shares by the date specified is conditioned upon the representations and warranties of the Company contained in Agreement 2 being accurate as of the date of such closing.

 

Finally, the Shareholder had the option, but did not purchase on or before December 31, 2009, an additional 50,000,000 shares of Common Stock at a purchase price of US$.04 per share, or an aggregate price of $2,000,000.

 

On November 4, 2009, the Company entered into an Amendment (“Amendment 1”) to Agreement 2 with the Shareholder. Under the terms of Amendment 1, the Shareholder agreed to not acquire in excess of 19.9% of the Company’s outstanding stock prior to the Annual Stockholder Meeting held on December 18, 2009.

 

On January 26, 2010, the Company received a $250,000 funding commitment under an Amendment to Agreement 2 (“Amendment 2”) with the Shareholder. Under the terms of the Amendment 2, the Company agreed to issue and sell to the Investor 6,250,000 shares of the Company’s common stock for an aggregate purchase price of $250,000, or $0.04 per share.

 

The Shareholder had the option, but not purchase, on or before March 31, 2010, an additional 50,000,000 shares of common stock at a purchase price of US$.04 per share, or an aggregate price of US$2,000,000.

 

Finally, the Shareholder had the option, but did not purchase, on or before April 30, 2010, an additional 50,000,000 shares of common stock at a purchase price of US$.04 per share, or an aggregate price of US$2,000,000, as long as $500,000 has been funded by February 28, 2010.


On April 16, 2010, the Company signed an Amendment to the Stock Purchase Agreement (“Amendment 3”) with the Shareholder. Under the terms of the Amended Agreement, the Company sold to the Shareholder in total 18,383,750 shares of Common Stock for $735,350. In addition, the parties agreed to terminate the Stock Purchase Agreement dated August 17, 2009 and the Amendment to the Stock Purchase Agreement dated January 26, 2010.

 

The Shareholder had the option, but did not purchase, on or before March 31, 2010, an additional 50,000,000 shares of common stock at a purchase price of US$.04 per share, or an aggregate price of US$2,000,000.

 

The Shareholder had the option, but did not purchase, on or before April 30, 2010, an additional 50,000,000 shares of common stock at a purchase price of US$.04 per share, or an aggregate price of US$2,000,000.


On April 16, 2010, the Company signed an Amendment to Escrow Agreement (“Escrow Agreement”) with Inter Asset Japan LBO No.1 Fund, Beseto Partners Incorporation Committee and M&A Japan Inc. The parties agreed to terminate the Escrow Agreement dated December 18, 2009. The Company agreed to return 200 million Yen or approximately $2.2 million in exchange for not issuing 55,969,633 shares of IAGI common stock. The Korean Venture Capital Fund was not successfully formed.

 

The Company issued and sold the shares of common stock to the Shareholder in Agreement 2 in reliance on the exemption from the registration requirements set forth in the Securities Act provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC under the Securities Act.

 

13



Agreement 2 contains certain representations and warranties of the Shareholder and the Company, including customary investment-related representations provided by the Shareholder, as well as acknowledgements by the Shareholder that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, capital structure, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations.

 

Agreement 2 also grants the Shareholder registration rights that it may exercise at its option and provides the Shareholder with a right of first offer if the Company proposes to issue securities in the future (subject to certain customary exceptions).

 

Under the terms of its August 2, 2009 and the August 17, 2009 Stock Purchase Agreements and related Amendments with the Shareholder, as of March 31, 2010, the Company sold to the Shareholder, 75,453,383 shares at a purchase price of $.04 per share, or an aggregate price of $3,018,135.  As of July 14, 2010 and after the termination of the Escrow Agreement, the Company sold to the Shareholder 19,883,750 shares at a purchase price of $.04 per share, or an aggregate price of $795,350.


On March 5, 2010, the Company issued 2,250,000 performance warrants to acquire shares of common stock to the Sterling Group, Inc. in connection with the sale of the Company’s common stock. The warrants are exercisable at $.015 per share and expire on March 14, 2013. If registered, the warrants may be called by the Company if the share price closes above $.10 for five days.    


During the three months ended March 31, 2010, the Company sold to the Shareholder 3,733,750 shares at a purchase price of $.04 per share, or an aggregate price of $149,350.

 

EQUITY LINE OF CREDIT TRANSACTION WITH ASCENDIANT CAPITAL GROUP, LLC

 

On September 29, 2009, the Company entered into a Securities Purchase Agreement with Ascendiant, pursuant to which Ascendiant agreed to purchase up to $5,000,000 worth of shares of the Company’s common stock from time to time over a 24-month period, provided that certain conditions are met. The financing arrangement entered into by the Company and Ascendiant is commonly referred to as an “equity line of credit” or an “equity drawdown facility.”

 

Under the terms of the Securities Purchase Agreement, Ascendiant will not be obligated to purchase shares of IA Global’s common stock unless and until certain conditions are met, including but not limited to the SEC declaring effective a Registration Statement (the “Registration Statement”) on Form S-1 and the Company maintaining an Effective Registration Statement which registers Ascendiant’s resale of any shares purchased by it under the equity drawdown facility. The customary terms and conditions associated with Ascendiant’s registration rights are set forth in a Registration Rights Agreement that was also entered into by the parties on September 29, 2009.

 

The Registration was declared effective on March 9, 2010, IA Global has the right to sell and issue to Ascendiant, and Ascendiant will be obligated to purchase from IA Global, up to $5,000,000 worth of shares of the Company’s common stock over a 24-month period beginning on such date (the “Commitment Period”). IA Global will be entitled to sell such shares from time to time during the Commitment Period by delivering a draw down notice to Ascendiant. In such draw down notices, IA Global will be required to specify the dollar amount of shares that it intends to sell to Ascendiant, which will be spread over a nine-trading-day pricing period. For each draw, IA Global will be required to deliver the shares sold to Ascendiant in three installments (following the third, sixth and ninth trading days in the pricing period, respectively). Ascendiant is entitled to liquidated damages in connection with certain delays in the delivery of its shares.

 

The Securities Purchase Agreement also provides for the following terms and conditions:

 

 

Purchase Price - 90% of the Company’s volume-weighted average price (“VWAP”).

 

 

 

  

Threshold Price - IA Global may specify a price below which it will not sell shares during the applicable nine-trading-day pricing period. If the purchase price falls below the threshold price on any day(s) during the pricing period, such day(s) will be removed from the pricing period (and Ascendiant’s investment amount will be reduced by 1/9 for each such day).

 

 

 


14



 

Maximum Draw - 15% of IA Global’s total trading volume for the 10-trading-day period immediately preceding the applicable draw down, times the average VWAP during such period (but in no event more than $250,000).

 

 

 

 

Minimum Draw - None.

 

 

 

  

Minimum Time Between Draw Down Pricing Periods - Two trading days.

 

 

 

  

Minimum Use of Facility - IA Global is obligated to sell at least $1,000,000 worth of shares of its common stock to Ascendiant during the Commitment Period.

 

 

 

 

Commitment Fees - IA Global issued 8,333,333 shares of its common stock to Ascendiant ($125,000 worth of shares based on the Company’s closing bid price on the trading day immediately prior to the SEC declaring the Registration Statement effective, IA Global issued another 7,058,581 or $75,000 worth of shares of its common stock in three installments over a period of 90 days following the effectiveness date.

 

 

 

 

Other Fees and Expenses – On October 21, 2009, the Company issued 400,000 shares of common stock valued at $10,000 under the 2007 Stock Incentive Plan as compensation to Ascendiant’s legal counsel for the legal fees and expenses it incurred in connection with negotiating and documenting the equity line of credit. Pursuant to separate agreements, IA Global has also agreed to pay an aggregate of 3.0% in fees (to be paid in connection with each draw down).

 

 

 

 

Indemnification - Ascendiant is entitled to customary indemnification from IA Global for any losses or liabilities it suffers as a result of any breach by IA Global of any provisions of the Securities Purchase Agreement, or as a result of any lawsuit brought by any stockholder of IA Global (except stockholders who are officers, directors or principal stockholders of IA Global).

 

 

 

 

Conditions to Ascendiant’s Obligation to Purchase Shares - Trading in IA Global’s common stock must not be suspended by the SEC or other applicable trading market; IA Global must not have experienced a material adverse effect; all liquidated damages and other amounts owing to Ascendiant must be paid in full; the Registration Statement must be effective with respect to Ascendiant’s resale of all shares purchased under the equity drawdown facility; there must be a sufficient number of authorized but unissued shares of IA Global common stock; and the issuance must not cause Ascendiant to own more than 9.99% of the then outstanding shares of IA Global common stock, or more than 19.9% of the number of shares of common stock outstanding on September 29, 2009 to have been issued under the equity drawdown facility (without shareholder approval).

 

 

 

 

Termination - The Securities Purchase Agreement will terminate if IA Global’s common stock is not listed on one of several specified trading markets (which include the NYSE AMEX, OTC Bulletin Board and Pink Sheets, among others); if IA Global files for protection from its creditors; or if the Registration Statement was not declared effective by the SEC by June 29, 2010. IA Global may terminate the Securities Purchase Agreement if Ascendiant fails to fund a draw down within 10 trading days after the end of the applicable settlement period, or if the SEC provides comments on the Registration Statement requiring certain changes in the transaction structure and/or documents.

 

The Securities Purchase Agreement also contains certain representations and warranties of IA Global and Ascendiant, including customary investment-related representations provided by Ascendiant, as well as acknowledgements by Ascendiant that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws. IA Global provided customary representations regarding, among other things, its organization, capital structure, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations. IA Global’s representations and warranties are qualified in their entirety (to the extent applicable) by the Company’s disclosures in the reports it files with the SEC. IA Global also delivered confidential disclosure schedules qualifying certain of its representations and warranties in connection with executing and delivering the Securities Purchase Agreement.

 

15



The shares to be issued by IA Global to Ascendiant under the Securities Purchase Agreement will be issued in private placements in reliance upon the exemption from the registration requirements set forth in the Securities Act provided for in Section 4(2) of the Securities Act, and the rules promulgated by the SEC thereunder.


Under the terms of its September 29, 2009 Securities Purchase Agreement with Ascendiant, as of March 31, 2010, the Company sold to Ascendiant 1,739,048  shares at a purchase price of $.013 per share, or an aggregate price of $21,884.  As of July 14, 2010, the Company sold to the Shareholder 8,015,507 shares at a purchase price of $.011 per share, or an aggregate price of $89,730.


STOCK PURCHASE AGREEMENT WITH MGVJ CO LTD

 

On January 26, 2010, the Company received a $480,000 funding commitment under a Stock Purchase Agreement (“Stock Purchase”) with MGVJ Co. Ltd. (“MGVJ”), a new shareholder of the Company. Under the terms of the Stock Purchase, the Company agreed to issue and sell to MGVJ 9,600,000 shares of the Company’s common stock for an aggregate purchase price of $480,000, or $0.05 per share, with payments as follows:

 

(i)        2,400,000 shares at a purchase price of US$.05 per share, or an aggregate price of US$120,000, on or before March 31, 2010.

 

(ii)       2,400,000 shares at a purchase price of US$.05 per share, or an aggregate price of US$120,000, on or before April 30, 2010.

(iii)      2,400,000 shares at a purchase price of US$.05 per share, or an aggregate price of US$120,000, on or before May 31, 2010.

 

(iv)      2,400,000 shares at a purchase price of US$.05 per share, or an aggregate price of US$120,000, on or before June 30, 2010.

 

MGVJ’s obligation to purchase the foregoing shares by the dates specified was conditioned upon the representations and warranties of the Company contained in the Agreement being accurate as of such dates.

 

The Company issued and sold the shares of common stock to MGVJ in reliance on the exemption provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC thereunder.

 

The Stock Purchase contains certain representations and warranties of MGVJ and the Company, including customary investment-related representations provided by MGVJ, as well as acknowledgements by MGVJ that it has reviewed certain disclosures of the Company (including the periodic reports that the Company has filed with the SEC) and that the Company’s issuance of the shares has not been registered with the SEC or qualified under any state securities laws. The Company provided customary representations regarding, among other things, its organization, capital structure, subsidiaries, disclosure reports, absence of certain legal or governmental proceedings, financial statements, tax matters, insurance matters, real property and other assets, and compliance with applicable laws and regulations.


The Company issued and sold the shares of common stock to the Investor in reliance on the exemption from the registration requirements set forth in the Securities Act of 1933 (the “Securities Act”) provided under Section 4(2) of the Securities Act and Regulation D promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act.


On April 16, 2010, the Company signed an Amendment to the MGVJ Stock Purchase Agreement (“MGVJ Amended Agreement”) with MGVJ. Under the terms of the Amended Agreement and during the three months ended March 31, 2010, the Company sold to MGVJ 1,300,000 shares of Common Stock at a purchase price of $.05 per share, or an aggregate price of $65,000. In addition, the parties agreed to terminate the Stock Purchase Agreement dated January 26, 2010.


OTHER EQUITY ISSUANCES


On March 19, 2010, the compensation committee awarded Mr. Scott, its Chief Financial Officer, 400,000 shares of restricted stock under the 2007 Stock Incentive Plan. The award was granted at the fair market price of $0.014 per share based on the adjusted closing price on March 18, 2010, the last trading day before the compensation committee approved the award. In accordance with the 2007 Stock Incentive Plan, the award vested on March 19, 2010.


16



Share Repurchase Program


The following information summarizes the purchases through March 31, 2010 related to our share repurchase plan:


 

 

Total

 

 

 

 

Total No. of

 

Maximum No. of

 

 

No. of

 

Ave. Price

 

Share Purchased

 

Shares that can be

 

 

Shares

 

 Paid Per

 

as part of Publicly

 

Purchased Under

Period (1)

 

Purchases

 

Share

 

Announced Plan

 

the Plan

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2007

 

 

 

 

 

 

 

 

 

April 2, 2007- April 30, 2007

 

1,866,355

 

$

0.251

 

1,866,355

 

July 1, 2007-July 31, 2007

 

30,000

 

 

0.398

 

30,000

 

August 1, 2007- August 31, 2007

 

135,000

 

 

0.437

 

135,000

 

September 1, 2007- September 30, 2007

 

60,000

 

 

0.481

 

60,000

 

October 1, 2007- October 31, 2007

 

15,000

 

 

0.478

 

15,000

 

November 1, 2007- November 30, 2007

 

31,500

 

 

0.427

 

31,500

 

December 1, 2007- December 31, 2007

 

516,400

 

 

0.347

 

516,400

 

 

 

2,654,255

 

 

0.281

 

2,654,255

 

4,000,000

 

 

 

 

 

 

 

 

 

 

Total Purchased Treasury shares Year ended December 31, 2007

 

2,654,255

 

 

 

2,654,255

 

4,000,000

Transfer to Slate Consulting Co Ltd (2)

 

(2,026,355

)

 

(0.267

)

 

 

 

Net effective total year ended December 31, 2007

 

627,900

 

 

0.323

 

2,654,255

 

4,000,000

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2007

 

627,900

 

 

 

2,654,255

 

4,000,000

Activity Trans. Period - 3 mo. Ended March 31, 2008

 

 

 

 

 

Activity Trans. Period - Year Ended March 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Activity - Year Ended March 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of Slate back to CEO of Slate for return of IA shares

(1,000,000 @ $0.03)

 

1,000,000

 

 

0.030

 

 

 

 

 

 

 

 

 

 

 

 

Total as of March 31, 2010

 

1,627,900

 

$

0.174

 

2,654,255

 

4,000,000


(1)   On March 22, 2007, IA Global's Board of Directors authorized and announced a stock repurchase program for up to four million shares, starting on April 2, 2007.


(2)   Shares transferred to Slate Consulting Co Ltd as of December 31, 2007 related to the equity investment that closed August 24, 2007.


17



[iaglobaltemplatefor2010fo002.gif]


The above assumes that $100 was invested in the common stock and each index on March 31, 2005. Although the Company has not declared a dividend on its common stock, the total return for each index assumes the reinvestment of dividends. Stockholder returns over the periods presented should not be considered indicative of future returns. The foregoing table shall not be deemed incorporated by reference by any general statement incorporating by reference the Form 10-K into any filing under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the acts.


18



EQUITY COMPENSATION PLAN INFORMATION


The following table provides information as of March 31, 2010 related to the equity compensation plans in effect at that time.


 

 

(a)

 

(b)

 

(c)

 

 

 

 

 

 

Number of securities

 

 

 

 

 

 

remaining available

 

 

Number of securities

 

Weighted-average

 

for future issuance

 

 

to be issued upon

 

exercise price of

 

under equity compensation

 

 

exercise of outstanding

 

outstanding options,

 

plan (excluding securities

Plan Category

 

options, warrants and rights

 

warrants and rights

 

reflected in column (a))

Equity compensation plan

 

 

 

 

 

 

approved by shareholders (1)

 

9,103,929

 

0.063

 

5,327,221

Equity compensation plans

 

 

 

 

 

 

not approved by shareholders

 

 

 

Total

 

9,103,929

 

0.063

 

5,327,221


(1)   Awards granted under the 2007 Plan and the 1999 and 2000 Stock Incentive Plans (the "Plans"). No further awards may be granted under the Plans.


ITEM 6.  SELECTED FINANCIAL DATA


In the following tables, we provide you with our selected consolidated historical financial and other data. We have prepared the consolidated selected financial information using our consolidated financial statements for the years ended March 31, 2010 and 2009, the three months ended March 31, 2008 and the year ended December 31, 2007. When you read this selected consolidated historical financial and other data, it is important that you read along with it the historical financial statements and related notes in our consolidated financial statements included in this report, as well as Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.


 

 

 

 

 

 

 

 

Three Months

 

 

 

 

 

Years Ended March 31,

 

Ended

 

Years Ended December 31,

 

 

 

2010

 

2009

 

March 31, 2008

 

2007

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STATEMENT OF OPERATIONS DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

 

$

 

$

 

$

 

$

 

$

 

Net loss from continuing operations

 

 

(7,456

)

 

(13,013

)

 

(803

)

 

(2,987

)

 

(2,544

)

 

(2,074

)

Net (loss) profit

 

 

(574

)

 

(20,242

)

 

360

 

 

(8,259

)

 

(3,770

)

 

(2,071

)

Net (loss) profit applicable to common shareholders

 

 

(574

)

 

(20,242

)

 

360

 

 

(8,259

)

 

(3,770

)

 

(2,071

)

Net loss per share from continuing operations

 

 

(0.03

)

 

(0.07

)

 

 

 

(0.02

)

 

(0.02

)

 

(0.02

)

Net loss per share

 

 

 

 

(0.11

)

 

 

 

(0.05

)

 

(0.03

)

 

(0.02

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

2,548

 

 

25,190

 

 

34,940

 

 

29,922

 

 

21,640

 

 

28,134

 

Stockholder's (deficit) equity

 

 

(534

)

 

(6,285

)

 

5,130

 

 

4,884

 

 

9,259

 

 

6,016

 


19



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


INTRODUCTION


During the year ended March 31, 2010 and 2009, we had no revenues from continuing operations. During the year ended March 31, 2010 and 2009, we had approximately $.6 million and $20.2 million, respectively.

 

Certain recent developments relating to our recent efforts to generate additional liquidity, including through sales of our common stock, are described in more detail in the notes to the financial statements included in this report.


DECONSOLIDATION OF GLOBAL HOTLINE, INC.

 

As has been previously disclosed, we pledged its shares of Global Hotline as collateral for certain loans borrowed from H Capital, an unlicensed Japanese lender, by such subsidiary. On May 26, 2009, Global Hotline and IA Global received notices from H Capital demanding repayment of the loans. On May 27, 2009, Global Hotline and SG Telecom did not repay the loans as requested by H Capital. On June 9, 2009, H Capital submitted documents claiming ownership of the Company’s 600 shares of Global Hotline. Global Hotline’s management previously provided the Company’s stock certificates to H Capital in March 2009.

 

Although we have engaged Japanese corporate counsel to sue H Capital for damages, these events have resulted in IA Global losing control over the day-to-day management and operations of Global Hotline. In addition, we did not have access to the financial records of Global Hotline that are necessary to periodically report our financial position and results of operations as a consolidated subsidiary of IA Global.

 

On December 8, 2009, we reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, we accounted for Global Hotline as a discontinued operation. Our reported net loss improved by $10.1 million for the year ended March 31, 2010 and our stockholders’ deficit as of March 31, 2010 decreased by $10.1 million as a result of recording a gain from the forfeiture of Global Hotline represented by the excess of Global Hotline’s liabilities over its assets on the deconsolidation date. These events and their impact on our financial statements are discussed in more detail in other portions of this report, including Note 3 of the Financial Statements.


BUSINESS PROCESS OUTSOURCING

 

In the Philippines, we acquired 100% of Shift on April 10, 2008 and Asia Premier on May 27, 2008, multi-service call center operations that have now been merged into a single company operating as Global Hotline Philippines. On June 14, 2010, we outsourced our call center operations and recorded an intangible asset impairment of $793,000 as of March 31, 2010. As a result, we accounted for Global Hotline Philippines as a discontinued operation.

 

CHANGE IN FISCAL YEAR


On July 25, 2007, the Board of Directors resolved that the fiscal year of the Company that began on January 1, 2007 would end on December 31, 2007, and from that date forward, the fiscal year of the Company will be the period beginning on April 1 of each year and ending on March 31 of the following year. The Company filed a Form 10-K for the calendar year ending December 31, 2007 and filed a Transition Report on Form 10-K to reflect the three month transition period of January 1, 2008 through March 31, 2008.


20



RESULTS OF OPERATIONS


The following table presents certain consolidated statement of operations information and presentation of that data as a percentage of change from year-to-year.


(dollars in thousands)

 

 

Year Ended March 31,

 

 

 

2010

 

2009

 

$ Variance

 

% Variance

 

 

 

(audited)

 

(audited)

 

 

 

 

 

Revenue

 

$

 

$

 

$

 

0.0

%

Cost of sales

 

 

 

 

 

 

 

0.0

%

Gross profit

 

 

 

 

 

 

 

0.0

%

Selling, general and administrative expenses

 

 

2,479

 

 

2,465

 

 

14

 

0.6

%

Operating loss

 

 

(2,479

)

 

(2,465

)

 

(14

)

0.6

%

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

14

 

 

(14

)

-100.0

%

Interest expense and amortization of beneficial conversion feature

 

 

(168

)

 

(332

)

 

164

 

49.4

%

Other income

 

 

20

 

 

269

 

 

(249

)

-92.6

%

Gain on equity investment in Australia Secured Financial Limited

 

 

 

 

265

 

 

(265

)

-100.0

%

Gain on equity investment in GPlus Media Co Ltd

 

 

 

 

13

 

 

(13

)

-100.0

%

Loss on equity investment in Slate Consulting Co Ltd

 

 

(16

)

 

(10

)

 

(6

)

-60.0

%

Loss on investment in Taicom Securities Co Ltd

 

 

 

 

(422

)

 

422

 

100.0

%

Loss on forfeiture of Taicom Securities Co Ltd

 

 

(2,820

)

 

 

 

(2,820

)

-100.0

%

Retirement of debt

 

 

 

 

(60

)

 

60

 

100.0

%

Loss on sale of Slate Consulting Co Ltd

 

 

(1,285

)

 

 

 

(1,285

)

-100.0

%

Loss on sale of Taicom Securities Co Ltd

 

 

 

 

(1,737

)

 

1,737

 

100.0

%

Loss on sale of GPlus Media Co Ltd

 

 

 

 

(1,287

)

 

1,287

 

100.0

%

Impairment of equity investment in Australian Secured Financial Limited

 

 

 

 

(7,195

)

 

7,195

 

100.0

%

Impairment of Global Hotlines Philippines investment

 

 

(793

)

 

 

 

(793

)

-100.0

%

Gain on sale of IA Global Co Ltd

 

 

91

 

 

 

 

91

 

100.0

%

Loss on foreign currency transaction adjustment

 

 

(6

)

 

(66

)

 

60

 

90.9

%

Total other expense

 

 

(4,977

)

 

(10,548

)

 

5,571

 

52.8

%

(Loss) from continuing operations

 

 

(7,456

)

 

(13,013

)

 

5,557

 

42.7

%

Gain (loss) from discontinued operations

 

 

7,199

 

 

(7,229

)

 

14,428

 

199.6

%

Net loss

 

 

(257

)

 

(20,242

)

 

19,985

 

98.7

%

Deemed Preferred Stock Dividend

 

 

(317

)

 

 

 

(317

)

-100.0

%

Net loss attributable to common shareholders

 

$

 (574

)

$

 (20,242

)

$

19,668

 

97.2

%


YEAR ENDED MARCH 31, 2010 COMPARED TO THE YEAR ENDED MARCH 31, 2009


EXPENSES


Selling, general and administrative expenses for the year ended March 31, 2010 increased $14,000 to $2,479,000 as compared to $2,465,000for the year ended March 31, 2009. The expenses for the year ended March 31, 2010 included $200,000 in severance and forensic audit expenses of $414,000 incurred during the review of Global Hotline.

 

The selling, general and administrative expenses consisted primarily of employee and independent contractor expenses, severance, rent, forensic audit, overhead, equipment and depreciation, professional and consulting fees, sales and marketing costs, investor relations, legal, stock option and other general and administrative costs.


21



OTHER INCOME/EXPENSE


Other expense for the year ended March 31, 2010 was $4,977,000 as compared to $10,548,000 for the year ended March 31, 2009. The other expense increase was primarily related to the loss on forfeiture of Taicom Securities Co Ltd of $2,820,000, the loss on sale of Slate Consulting Co Ltd of $1,285,000 and the impairment of the Global Hotlines Philippines investment of $793,000.

 

On December 8, 2009, we reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, we accounted for Global Hotline as a discontinued operation. Our reported net loss improved by $10.1 million for the year ended March 31, 2010 and our stockholders’ deficit as of March 31, 2010 decreased by $10.1 million as a result of recording a gain from the forfeiture of Global Hotline represented by the excess of Global Hotline’s liabilities over its assets on the deconsolidation date. These events and their impact on our financial statements are discussed in more detail in other portions of this report, including Note 3 of the Financial Statements.

 

On November 16, 2009, but effective August 4, 2009, AMV claimed ownership of our shares in Taicom. This resulted in a loss on investment of approximately $2,820,000. 

 

On December 16, 2009, the Company sold its 20.25% interest in Slate to Ray Pedersen, Chief Executive Officer of Slate. We reported an impairment loss of approximately $1,285,000 as a result of the sale during the year ended March 31, 2010.


Other expense for the year ended March 31, 2009 was $10,548,000. The other expense increase was primarily related to a net loss on equity investments of $154,000, a loss on sale of securities to Taicom of $1,737,000 and GPlus Media of $1,287,000, an impairment write-down on our ASFL equity investment of $7,195,000 and interest expense of $327,000, offset by other income of $269,000.


NET LOSS


Net loss for the year ended March 31, 2010 was $574,000 as compared to a net loss of $20,242,000 for the year ended March 31, 2009.


During the year ended March 31, 2010 and 2009, respectively, we recorded net loss on discontinued operations of $2.9 million and $7.2 million at Global Hotline and Global Hotline Philippines. Also, on December 8, 2009, we reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, we accounted for Global Hotline as a discontinued operation. Our reported net loss improved by $10.1 million for the year ended March 31, 2010 and our stockholders’ deficit as of March 31, 2010 decreased by $10.1 million as a result of recording a gain from the forfeiture of Global Hotline represented by the excess of Global Hotline’s liabilities over its assets on the deconsolidation date. These events and their impact on our financial statements are discussed in more detail in other portions of this report, including Note 3 of the Financial Statements.


On June 14, 2010, we outsourced our call center operations and recorded an asset impairment of $793,000 as of March 31, 2010. As a result, we accounted for Global Hotline Philippines as a discontinued operation for periods ending after March 31, 2010.

 

On April 1, 2009, the Company agreed to issue preferred stock to AMV for $317,000 in the Amendment to Share Exchange Agreement. The Company valued the conversion feature of such Preferred Stock to be $317,000 and recorded a deemed dividend during the year ended March 31, 2010.


22



(dollars in thousands)

 

 

Year Ended March 31,

 

 

 

2009

 

2008

 

$ Variance

 

% Variance

 

 

 

(audited)

 

(unaudited)

 

 

 

 

 

Revenue

 

$

 

$

 

$

 

 

0.0

%

Cost of sales

 

 

 

 

 

 

 

 

0.0

%

Gross profit

 

 

 

 

 

 

 

 

0.0

%

Selling, general and administrative expenses

 

 

2,465

 

 

2,070

 

 

395

 

 

19.1

%

Operating loss

 

 

(2,465

)

 

(2,070

)

 

(395

)

 

19.1

%

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

14

 

 

14

 

 

 

 

0.0

%

Interest expense and amortization of beneficial conversion feature

 

 

(332

)

 

(767

)

 

435

 

 

56.7

%

Other income

 

 

269

 

 

28

 

 

241

 

 

860.7

%

Gain (loss) on equity investment in Australia Secured Financial Limited

 

 

265

 

 

(227

)

 

492

 

 

216.7

%

Gain on equity investment in GPlus Media Co Ltd

 

 

13

 

 

20

 

 

(7

)

 

-35.0

%

Loss on equity investment in Slate Consulting Co Ltd

 

 

(10

)

 

(44

)

 

34

 

 

-77.3

%

Loss on investment in Taicom Securities Co Ltd

 

 

(422

)

 

 

 

(422

)

 

-100.0

%

Retirement of debt

 

 

(60

)

 

 

 

(60

)

 

-100.0

%

Conversion of debenture expense

 

 

 

 

(120

)

 

120

 

 

100.0

%

Loss on sale of Taicom Securities Co Ltd

 

 

(1,737

)

 

 

 

(1,737

)

 

-100.0

%

Loss on sale of GPlus Media Co Ltd

 

 

(1,287

)

 

 

 

(1,287

)

 

-100.0

%

Impairment of equity investment in Australian Secured Financial Limited

 

 

(7,195

)

 

 

 

(7,195

)

 

-100.0

%

(Loss) gain on foreign currency transaction adjustment

 

 

(66

)

 

9

 

 

(75

)

 

-833.3

%

Total other expense

 

 

(10,548

)

 

(1,087

)

 

(9,461

)

 

-870.4

%

Loss from continuing operations

 

 

(13,013

)

 

(3,157

)

 

(9,856

)

 

-312.2

%

(Loss) from discontinued operations

 

 

(7,229

)

 

(3,897

)

 

(3,332

)

 

-85.5

%

Net loss

 

$

 (20,242

)

$

 (7,054

)

$

 (13,188

)

 

-187.0

%


YEAR ENDED MARCH 31, 2009 COMPARED TO THE YEAR ENDED MARCH 31, 2008 (UNAUDITED)


EXPENSES


Selling, general and administrative expenses for the year ended March 31, 2009 increased $395,000 to $2,465,000 as compared to $2,070,000for the year ended March 31, 2009.

 

The selling, general and administrative expenses consisted primarily of employee and independent contractor expenses, rent, overhead, equipment and depreciation, professional and consulting fees, sales and marketing costs, investor relations, legal, stock option and other general and administrative costs.


OTHER INCOME/EXPENSE


Other expense for the year ended March 31, 2009 was $10,548,000 as compared to $1,087,000 for the year ended March 31, 2008. The other expense increase was primarily related to a net loss on equity investments of $154,000, a loss on sale of securities to Taicom of $1,737,000 and GPlus Media of $1,287,000, an impairment write-down on our ASFL equity investment of $7,195,000 and interest expense of $327,000, offset by other income of $269,000.


Other expense for the year ended March 31, 2008 was primarily related to interest expense and amortization of beneficial conversion feature of $767,000 and a net loss on equity investments of $251,000. 


NET LOSS


Net loss for the year ended March 31, 2009 was $20,242,000 as compared to a net loss of $7,054,000 for the year ended March 31, 2008.


23



During the year ended March 31, 2009 and 2008, respectively, we recorded net loss on discontinued operations of $7.2 million and $3.9 million at Global Hotline and Global Hotline Philippines.


(dollars in thousands)

 

 

3 Months Ended March 31,

 

 

 

2008

 

2007

 

$ Variance

 

% Variance

 

 

 

(audited)

 

(unaudited)

 

 

 

 

 

Revenue

 

$

 

$

 

$

 

0.0

%

Cost of sales

 

 

 

 

 

 

 

0.0

%

Gross profit

 

 

 

 

 

 

 

0.0

%

Selling, general and administrative expenses

 

 

501

 

 

471

 

 

30

 

6.4

%

Operating loss

 

 

(501

)

 

(471

)

 

(30

)

6.4

%

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

19

 

 

(19

)

-100.0

%

Interest expense and amortization of beneficial conversion feature

 

 

(210

)

 

(196

)

 

(14

)

-7.1

%

Other income

 

 

14

 

 

 

 

14

 

100.0

%

(Loss) gain on equity investment in Australia Secured Financial Limited

 

 

(94

)

 

15

 

 

(109

)

-726.7

%

Gain on equity investment in GPlus Media Co Ltd

 

 

7

 

 

 

 

7

 

100.0

%

Loss on equity investment in Slate Consulting Co Ltd

 

 

(17

)

 

 

 

(17

)

-100.0

%

Loss on foreign currency transaction adjustment

 

 

(2

)

 

 

 

(2

)

-100.0

%

Total other expense

 

 

(302

)

 

(162

)

 

(140

)

86.4

%

Loss from continuing operations

 

 

(803

)

 

(633

)

 

(170

)

-26.9

%

Gain (loss) from discontinued operations

 

 

1,163

 

 

(211

)

 

1,374

 

651.2

%

Net profit (loss)

 

360

 

$

 (844

)

$

1,204

 

142.7

%


THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2007


EXPENSES


Selling, general and administrative expenses for the three months ended March 31, 2008 increased $30,000 to $501,000 as compared to $471,000for the three months ended March 31, 2007.

 

The selling, general and administrative expenses consisted primarily of employee and independent contractor expenses, rent, overhead, equipment and depreciation, professional and consulting fees, sales and marketing costs, investor relations, legal, stock option and other general and administrative costs.


OTHER INCOME/EXPENSE


Other expense for the three months ended March 31, 2008 was $302,000 as compared to $162,000 for the three months ended March 31, 2007. The other expense increase was primarily related to interest expense and amortization of beneficial conversion feature of $210,000 and a net loss on equity investments of $104,000. 


Other expense for the three months ended March 31, 2007 was primarily related to interest expense and amortization of beneficial conversion feature of $196,000.


NET PROFIT (LOSS)


Net profit for the three months ended March 31, 2008 was $360,000 as compared to a net loss of $844,000 for the three months ended March 31, 2007.


24



During the three months ended March 31, 2008, we recorded a net profit on discontinued operations of $1.2 million at Global Hotline and Global Hotline Philippines. During the three months ended March 31, 2007, we recorded a net loss on discontinued operations of $.2 million at Global Hotline and Global Hotline Philippines. 


(dollars in thousands)

 

 

Year Ended December 31,

 

 

 

2007

 

2006

 

$ Variance

 

% Variance

 

 

 

(audited)

 

(audited)

 

 

 

 

 

Revenue

 

$

 

$

 

$

 

0.0

%

Cost of sales

 

 

 

 

 

 

 

0.0

%

Gross profit

 

 

 

 

 

 

 

0.0

%

Selling, general and administrative expenses

 

 

2,040

 

 

1,779

 

 

261

 

14.7

%

Operating loss

 

 

(2,040

)

 

(1,779

)

 

(261

)

14.7

%

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

33

 

 

91

 

 

(58

)

-63.7

%

Interest expense and amortization of beneficial conversion feature

 

 

(753

)

 

(797

)

 

44

 

-5.5

%

Other income

 

 

14

 

 

 

 

14

 

100.0

%

Gain on equity investment in Australia Secured Financial Limited

 

 

(120

)

 

70

 

 

(190

)

-271.4

%

Gain on equity investment in GPlus Media Co Ltd

 

 

13

 

 

 

 

13

 

100.0

%

Loss on equity investment in Slate Consulting Co Ltd

 

 

(26

)

 

 

 

(26

)

-100.0

%

Conversion of debenture expense

 

 

(120

)

 

 

 

(120

)

-100.0

%

Loss on foreign currency transaction adjustment

 

 

12

 

 

(129

)

 

141

 

109.3

%

Total other expense

 

 

(947

)

 

(765

)

 

(182

)

-23.8

%

Loss from continuing operations before income taxes

 

 

(2,987

)

 

(2,544

)

 

(443

)

-17.4

%

(Loss) from discontinued operations

 

 

(5,272

)

 

(1,226

)

 

(4,046

)

-330.0

%

Net loss

 

$

 (8,259

)

$

 (3,770

)

$

 (4,489

)

-119.1

%


YEAR ENDED DECEMBER 31, 2007 VS. YEAR ENDED DECEMBER 31, 2006


EXPENSES


Selling, general and administrative expenses for the year ended December 31, 2007 increased $261,000 to $2,040,000 as compared to $1,779,000for the year ended December 31, 2006.

 

The selling, general and administrative expenses consisted primarily of employee and independent contractor expenses, rent, overhead, equipment and depreciation, professional and consulting fees, sales and marketing costs, investor relations, legal, stock option and other general and administrative costs.


OTHER INCOME/EXPENSE


Other expense for the year ended December 31, 2007 was $947,000 as compared to $765,000 for the year ended December 31, 2006. The other expense increase was primarily related to interest expense and amortization of beneficial conversion feature of $753,000 and a net loss on equity investments of $133,000. 


Other expense for the year ended December 31, 2006 was primarily related to interest expense and amortization of beneficial conversion feature of $797,000.


NET LOSS


Net loss for the year ended December 31, 2007 was $8,259,000 as compared to a net loss of $3,770,000 for the year ended December 31, 2006.


During the year ended March 31, 2009 and 2008, respectively, we recorded net loss on discontinued operations of $5.3 million and $1.2 million at Global Hotline and Global Hotline Philippines.


25



LIQUIDITY AND CAPITAL RESOURCES


We had cash of approximately $2.2 million, a net working capital deficit of approximately $.3 million and total indebtedness of $.2 million as of March 31, 2010. This reflects the $2.2 million escrow deposit that was returned April 16, 2010.

 

We will need to obtain additional financing to implement the business plan, service our debt repayments and acquire new businesses. There can be no assurance that we will be able to secure funding, or that if such funding is available, whether the terms or conditions would be acceptable to us.

 

Volatility and disruption of financial markets could affect our access to credit. The current difficult economic market environment is causing contraction in the availability of credit in the marketplace. This could potentially reduce or eliminate the sources of liquidity for the Company.

 

If the Company is unable to obtain additional financing, we may need to restructure our operations, divest all or a portion of our business or file for bankruptcy.

 

Since our inception, we have financed our operations primarily through sales of our equity securities in our initial public offering and from several subsequent private placements, loans and capital contributions, primarily from related parties. Net cash proceeds from these items have totaled approximately $24.1 million as of March  31, 2010, with approximately $8.8 million raised in the initial public offering, $11.8 million raised in private placements and $4.0 million raised in the conversion of debt, offset by $0.8 million used for the share repurchase program. In addition, we have issued equity for non-cash items totaling $32.4 million, including $7.0 million from the ASFL equity investment, $4.1 million from the Taicom equity investment, $1.4 million each from the GPlus and Slate equity investments, $.3 and $.2 million related to the Asia Premier and Shift acquisition, respectively, $7.3 million issued for services, $3.6 million related to a beneficial conversion feature, $4.0 million from debenture conversions, and $3.1 million related to the GHI acquisition. Additional funding was obtained from notes payable and long term debt of approximately $.2 million. 


OPERATING ACTIVITIES


Net cash used in operating activities for the year ended March 31, 2010 was $1.4 million. This amount was primarily related to depreciation and amortization and other non-cash expenses of $ 4.8 million, an increase in accounts payable of $.4 million and an increase in accrued liabilities and payroll taxes of $.3 million, offset by a net loss of $.3 million and net cash used for discontinued operations $6.6 million.

 

On December 8, 2009, we reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, we accounted for Global Hotline as a discontinued operation. Our reported net loss improved by $10.1 million for the year ended March 31, 2010 and our stockholders’ deficit as of March 31, 2010 decreased by $10.1 million as a result of recording a gain from the forfeiture of Global Hotline represented by the excess of Global Hotline’s liabilities over its assets on the deconsolidation date. These events and their impact on our financial statements are discussed in more detail in other portions of this report, including Note 3 of the Financial Statements.


In the Philippines, we acquired 100% of Shift on April 10, 2008 and Asia Premier on May 27, 2008, multi-service call center operations that have now been merged into a single company operating as Global Hotline Philippines. On June 14, 2010, we outsourced our call center operations and recorded an intangible asset impairment of $793,000 as of March 31, 2010. As a result, we accounted for Global Hotline Philippines as a discontinued operation for periods ending after March 31, 2010.


FINANCING ACTIVITIES


Net cash provided by financing activities for the year ended March 31, 2010 was $3.6 million. This amount was primarily related to the sale of common stock of $3.2 million, proceeds from debt of $.1 million and $.3 million from the sale of preferred stock. We returned the $2.2 million escrow deposit on April 16, 2010.

 

26



The Company’s contractual cash obligations as of March 31, 2010 are summarized in the table below (1):


Contractual

 

 

 

Less Than

 

 

 

 

 

Greater Than

Cash Obligations

 

Total

 

1 Year

 

1-3 Years

 

3-5 Years

 

5 Years

Operating leases

 

$

2,253

 

$

2,253

 

$

0

 

$

0

 

$

0

Note payable

 

 

205,500

 

 

6,000

 

 

199,500

 

 

0

 

 

0

Capital expenditures

 

 

0

 

 

0

 

 

0

 

 

0

 

 

0

Acquisitions

 

 

0

 

 

0

 

 

0

 

 

0

 

 

0

 

 

$

207,753

 

$

8,253

 

$

199,500

 

$

0

 

$

0


(1)  Based on the end of period exchange rate.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The application of GAAP involves the exercise of varying degrees of judgment. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies (see summary of significant accounting policies more fully described in Note 2 to the financial statements set forth in this report), the following policies involve a higher degree of judgment and/or complexity:


INCOME TAXES

 

We are subject to income taxes in both the U.S. and foreign (Japan and Philippines) jurisdictions. Significant judgment is required in determining the provision for income taxes. We recorded a valuation for the deferred tax assets from our net operating losses carried forward in the US due to IA Global, Inc. not demonstrating any consistent profitable operations. In the event that the actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust the recorded valuation.


STOCK-BASED COMPENSATION

 

Effective January 1, 2006, we began recording compensation expense associated with stock-based awards and other forms of equity compensation in accordance with the accounting guidance as interpreted by SEC Staff Accounting Bulletin No. 107. We adopted the modified prospective transition method provided for under the accounting guidance and consequently has not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock-based awards recognized in 2006 includes 1) quarterly amortization related to the remaining unvested portion of stock-based awards granted prior to December 15, 2005, based on the grant date fair value estimated in accordance with the accounting guidance; and 2) quarterly amortization related to stock-based awards granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of the accounting guidance. In addition, we record expense over the vesting period in connection with stock options granted. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the expected term of the award on a straight line basis.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


FOREIGN CURRENCY RISK

 

We were exposed to foreign currency risks due to our operations in Japan and the Philippines. We do not trade in hedging instruments or “other than trading” instruments and we are exposed to foreign currency exchange risks.

 

INTEREST RATE RISK

 

We are not exposed to interest rate risks. The Company does not trade in hedging instruments or “other than trading” instruments and is exposed to interest rate risks. We believe that the impact of a 10% increase or decline in interest rates would not be material to our financial condition and results of operations.


27



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Reference is made to our consolidated financial statements beginning on page F-1 of this report.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None.


ITEM 9A. CONTROLS AND PROCEDURES


CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES


Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2010. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2010, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.


MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING


Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control--Integrated Framework, our management concluded that our internal control over financial reporting was effective as of March 31, 2010.


The effectiveness of our internal control over financial reporting as of March 31, 2010 has not been audited by Sherb & Co., LLP, an independent registered public accounting firm, as stated in their report which is included herein.


CHANGES IN INTERNAL CONTROL


There has been no change in our internal control over financial reporting during the quarter ended March 31, 2010 that has materially effected or is likely to materially affect our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION


There were no disclosures of any information required to be filed on Form 8-K during the three months ended March 31, 2010 that were not filed.


28



PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE


The names and ages of IA Global's executive officers, as of July 14, 2010, as well as certain biographical information, is set forth below.


Name

 

Age

 

Positions and Offices Held

 

Since

Brian Hoekstra

 

50

 

Director

 

August 2, 2009

 

 

 

 

Chief Executive Officer

 

September 4, 2009

 

 

 

 

 

 

 

Mark Scott

 

57

 

Chief Financial Officer

 

October 2, 2003

 

 

 

 

President

 

August, 2005 - February 2007

 

 

 

 

Chief Operating Officer

 

February 2007 - August 24, 2009

 

 

 

 

Secretary

 

January, 2004

 

 

 

 

Director

 

January, 2004 - December 2008

 

 

 

 

 

 

 

Ryuhei Senda

 

50

 

Management Director

 

August 2, 2009

 

 

 

 

 

 

 

Michael Garnreiter

 

58

 

Independent Director

 

September 4, 2009

 

 

 

 

 

 

 

Jack Henry

 

66

 

Independent Director

 

September 4, 2009

 

 

 

 

 

 

 

Greg LeClaire

 

41

 

Independent Director

 

September 4, 2009


Business Experience Descriptions


Brian Hoekstra


Mr. Hoekstra has more than 25 years of professional experience including corporate management, strategic planning, intellectual property, and business development, as well as extensive technical expertise in lasers, optics, solar, LCD, semiconductor, and materials processing. From September 1999 until September 2009, he was Founder, President & CEO of Applied Photonics, Inc., a leading laser solutions provider for the flat panel display industry with an installation base located primarily in Asia.


From February 1998 until September 1999, Mr. Hoekstra was Vice President, Technology at Accudyne Corporation, a semiconductor capital equipment manufacturer.  From 1992 until 1998, he held various corporate and contractor positions specializing in licensing, marketing, technology transfer, and commercialization.  Clients included the State of Florida, Disney, and NASA. From 1986 until 1992, he was Deputy Director of a NASA Commercial Center specializing in space-based crystal growth and a co-investigator on several space shuttle experiments. From 1984 until 1986, he was a leading researcher at the Air Force Materials Laboratory at Wright Patterson AFB, Ohio and was the DoD technical representative for the International Space Station Microgravity Science Advisory Board.


Mr. Hoekstra graduated from Illinois Institute of Technology with a bachelor's degree in physics in 1981, attended the U.S. Air Force Academy from 1977 until 1979, and has completed numerous professional military and continuing education courses. He was an independent director of Amtech Systems, Inc. (NASDAQ: ASYS) from February 19, 2007 until December 21, 2009.


Ryuhei Senda


Mr. Senda has more than 25 years of professional experience including project and corporate management, strategic planning and business development, as well as management of investment funds. Mr. Senda was Director of Business Development of Applied Photonics, Inc., a leading laser solutions provider for the flat panel display industry from April 2004 to February 2009.


Mr. Senda was the project manager of Mitsubishi Corporation in Japan from April 1992 to March 2004 and played key roles introducing and spreading 2D bar code in Japanese and U.S. markets. At the same time, he managed the investment fund for the next generation technologies funded by Mitsubishi Corporation and certain other major Japanese companies.


29



Mr. Senda graduated from Hitotsubashi University in Tokyo, Japan with a bachelor’s degree of business in 1981.


Michael Garnreiter


Mr. Garnreiter is currently a consultant to Fenix Financial Forensics, a Scottsdale Arizona based consulting firm, providing expert testimony and litigation support to the legal and corporate legal communities. From August 2006 through December 2009, Mr. Garnreiter was Managing Member of Rising Sun Restaurant Group, L.L.C., a private restaurant operating company. From April 2002 through June 2006, Mr. Garnreiter was Executive Vice President, Treasurer, and Chief Financial Officer of the Main Street Restaurant Group, a $225 million public restaurant operating company.


Mr. Garnreiter is also a director of TASER International, Inc. (NASDAQ: TASR), Knight Transportation Inc. (NYSE: KNX) and Amtech Systems, Inc. (NASDAQ: ASYS). Mr. Garnreiter previously served as a general partner of the international accounting firm of Arthur Andersen from 1974 through his retirement in March 2002. Mr. Garnreiter holds a B.S. degree in accounting from California State University at Long Beach and is a Certified Public Accountant.


Mr. Garnreiter is the chairman of our Audit Committee and a member of our Nominations and Governance and Compensation Committees.


Jack Henry


Mr. Henry has served on the board of directors of Grand Canyon Education, Inc. (NASDAQ: LOPE) since November 2008 and currently serves as the chairman of its audit committee. He also currently serves on the boards of directors of several private companies and previously served on the boards of directors of five other public-reporting companies. Mr. Henry co-founded and is currently the President of the Arizona Chapter of the National Association of Corporate Directors (NACD).


Mr. Henry began his career in 1966 with Arthur Andersen. He became a Partner in 1976 and was Managing Partner of the Phoenix office from 1982 to 2000. In 2000, Jack retired from Arthur Andersen and formed Sierra Blanca Ventures LLC, a private consulting and investment firm. He has served in a variety of community positions including chairman of the Arizona Chamber of Commerce and Greater Phoenix Leadership, Greater Phoenix Economic Council, Arizona Business Hall of Fame, Phoenix Convention & Visitors Bureau, Junior Achievement, Violence Prevention Initiative, Arizona Economic Forum and the Super Bowl ‘96 Executive Committee.


Mr. Henry is a frequent speaker and consultant on audit committee and corporate governance matters. Mr. Henry holds both a bachelor’s degree and an MBA from the University of Michigan.


Greg LeClaire


Mr. LeClaire has served as a director of our Company since September 2009.  He currently serves as Chief Financial Officer of ePercipio LLC, an online training company.  He is also a member of the board of directors and chairman of the audit committee of LiveDeal, Inc. (NASDAQ: LIVE). 


From June 2009 to January 2010, he served as a financial, operational and strategic development consultant in the technology sector.  He was Chief Financial Officer and Corporate Secretary of ClearOne Communications, Inc. (NASDAQ: CLRO), a manufacturer and marketer of audio conferencing and related products, from September 2006 until May 2009.  


From April 2006 until August 2006, Mr. LeClaire served as Vice President – Finance and Administration for LiveDeal, Inc., an Internet classifieds company that was acquired by a publicly-traded company.  Prior to that, Mr. LeClaire was Vice President and Chief Financial Officer of Utah Medical Products, Inc. (NASDAQ: UTMD), a multi-national medical device corporation, from January 2001 until April 2006.  


Mr. LeClaire has significant experience in the areas of finance and accounting, SEC reporting, Sarbanes-Oxley compliance, budgeting and financial management.  He holds a Master of Science degree in management from Stanford University’s Graduate School of Business and a Bachelor of Science degree in accounting from the University of Utah.


30



Audit Committee


The Audit Committee has three members and met five times during the year ended March 31, 2010. The Audit Committee is comprised solely of non-employee Directors, The Board has determined that all the members of the Audit Committee are financially literate. The Board also has determined that Mr. Michael Garnreiter, Chairman of the Audit Committee, is an Audit Committee Financial Expert under SEC regulations adopted under the Sarbanes-Oxley Act of 2002. The Board has adopted a charter for the Audit Committee, a copy of which is available on the Company's website at www.iaglobalinc.com.


The Audit Committee's responsibilities, discussed in detail in the charter include, among other duties, the responsibility to:


- appoint the independent registered accounting firm;


- review the arrangements for and scope of the audit by independent registered accounting firm;


- review the independence of the independent registered accounting firm;


- consider the adequacy and effectiveness of the system of internal accounting and financial controls and review any proposed corrective actions;


- review and monitor our policies regarding business ethics and conflicts of interest;


- discuss with management and the independent auditors our draft quarterly interim and annual financial statements and key accounting and reporting matters; and


- review the activities and recommendations of our accounting department.


CODE OF CONDUCT AND ETHICS


The Company has adopted conduct and ethics standards titled the Code of Conduct and Ethics (the "Code of Conduct"), which are available at www.iaglobalinc.com. These standards were adopted by the Board to promote transparency and integrity of the Company. The standards apply to the Board, executives and employees. Waivers of the requirements of the Code of Conduct or associated polices with respect to members of the Board or executive officers are subject to approval of the full Board.


The Company's Code of Conduct includes the following:


- promotes honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;


- promotes the full, fair, accurate, timely and understandable disclosure of the Company's financial results in accordance with applicable disclosure standards, including, where appropriate, standards of materiality;


- promotes compliance with applicable SEC and governmental laws, rules and regulations;


- deters wrongdoing; and


- requires prompt internal reporting of breaches of, and accountability for adherence to, the Code of Conduct.


On an annual basis, each director and executive officer is obligated to complete a Director and Officer Questionnaire which requires disclosure of any transactions with the Company in which the director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest. Pursuant to the Code of Conduct, the Audit Committee and the Board are charged with resolving any conflict of interest involving management, the Board and employees on an ongoing basis.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE


The Company's executive officers, directors and 10% stockholders are required under the Exchange Act to file reports of ownership and changes in ownership with the SEC. Copies of these reports must also be furnished to the Company.


31



Based solely on a review of copies of reports furnished to the Company, or written representations that no reports were required, the Company believes that during 2010 its executive officers, directors and 10% holders complied with all filing requirements.


ITEM 11. EXECUTIVE COMPENSATION


COMPENSATION DISCUSSION AND ANALYSIS


OVERVIEW OF COMPENSATION PROGRAM


This Compensation Discussion and Analysis describes the material elements of compensation awarded to, earned by or paid to each of our named executive officers who served during the year ended March 31, 2010. This compensation discussion primarily focuses on the information contained in the following tables and related footnotes and narrative for the last completed fiscal year, but we also describe compensation actions taken after the last completed fiscal year to the extent that it enhances the understanding of our executive compensation disclosure.


The compensation committee (for purposes of this analysis, the "committee") of the Board has responsibility for overseeing, reviewing and approving executive compensation and benefit programs in accordance with the committee’s charter.  The members of the committee are Greg LeClaire (Chairman), Michael Garnreiter and Jack Henry.


During 2010, the Company changed its board of directors during August and September 2009 and its chief executive officer, Mr. Derek Schneideman resigned August 2, 2009. Mr. Brian Hoekstra was appointed chief executive officer on September 4, 2009.


On December 8, 2009, the Company deconsolidated the operations of Global Hotline, effective as of July 1, 2009. As a result, Mr. Anan and Nagae are no longer named executive officers.


Throughout this proxy statement, the individuals who served as the Company's chief executive officer and chief financial officer during the year ended March 31, 2010, are referred to as the "named executive officers".


COMPENSATION PHILOSOPHY AND OBJECTIVES


The major compensation objectives for named executive officers are as follows:


 

·

to attract and retain highly qualified individuals capable of making significant contributions to the long-term success of the Company;

 

 

 

 

·

to motivate and reward named executive officers whose knowledge, skills, and performance are critical to the Company’s success;

 

 

 

 

·

to closely align the interests of the Company’s named executive officers and other key employees with those of its shareholders; and

 

 

 

 

·

to utilize incentive based compensation to reinforce performance objectives and reward superior performance; and


ROLE OF CHIEF EXECUTIVE OFFICER IN COMPENSATION DECISIONS


The Board approves all compensation for the chief executive officer. The committee makes recommendations on the compensation for the chief executive officer and approves all compensation decisions, including equity awards, for the named executive officers of the Company. The Company's chief executive officer makes recommendations regarding the base salary and non-equity compensation of other named executive officers that are approved by the committee in its discretion.


SETTING EXECUTIVE COMPENSATION


The committee believes that compensation for named executive officers must be managed to what the Company can afford and in a way that allows for the Company to meet its goals for overall performance. During 2010, the committee reduced the base salary paid to the named executive officers during 2010 based on the financial condition of the Company. The committee does not use a peer group of publicly-traded and privately-held companies in structuring the compensation packages.


32



EXECUTIVE COMPENSATION COMPONENTS FOR THE YEAR ENDED MARCH 31, 2009


The committee did not use a formula for allocating compensation among the elements of total compensation during the year ended March 31, 2010. The committee believes that in order to attract and retain highly effective people it must maintain a flexible compensation structure. For the year ended March 31, 2010, the principal components of compensation for named executive officers were base salary, performance-based incentive compensation, stock awards and stock option grants.


Base Salary


Base salary is intended to ensure that the Company's employees are fairly and equitably compensated. Base salary is used to appropriately recognize and reward the experience and skills that employees bring to the Company and provides motivation for career development and enhancement. During their tenure, base salary ensures that all employees continue to receive a basic level of compensation that reflects any acquired skills which are competently demonstrated and are consistently used at work.


Base salaries for the Company's named executive officers are initially established based on their prior experience, the scope of their responsibilities and the applicable competitive market compensation paid by other companies for similar positions. During 2010, the committee reduced the base salary paid to the named executive officers based on the financial condition of the Company. Based upon review of its compensation criteria, the committee had established base salaries for its chief executive officer and chief financial officer of $250,000 and $200,000, respectively. However, based on the financial condition of the Company, the committee set the base salary at $98,000 for the chief executive officer on September 4, 2009 and $96,000 for the chief financial officer on August 24, 2009.


Performance-Based Incentive Compensation


The committee believes incentive compensation reinforces performance objectives, rewards superior performance and is consistent with the creation of stockholder value. All of the Company's named executive officers are eligible to receive performance-based incentive compensation. The committee reduced the cash component of performance-based incentive compensation paid to the named executive officers during 2010 based on the financial condition of the Company.


Mr. Schneideman resigned August 2, 2010 and did not receive incentive compensation during the year ended March 31, 2010.


Mr. Hoekstra's incentive compensation during the year ended March 31, 2010 included the following:


The committee awarded Mr. Hoekstra 800,000 shares of restricted stock at the fair market price of $0.04 per share based on the adjusted closing price of the Company’s common stock on November 4, 2009, the last trading day before the committee meeting. In accordance with the Company’s 2007 Stock Incentive Plan, the restricted stock award vests in quarterly installments over three years beginning on September 4, 2009.


Mr. Scott's incentive compensation during the year ended March 31, 2010 included the following:


On August 24, 2009, the board of directors awarded Mr. Scott 200,000 shares of restricted stock at the fair market price of $0.05 per share based on the adjusted closing price on August 20, 2009, the last trading day before the board of directors approved the grant. In accordance with the 2007 Stock Incentive Plan, the restrictions on the restricted stock lapsed on November 23, 2009.


On March 19, 2010, the committee awarded Mr. Scott 400,000 shares of stock at the fair market price of $0.014 per share based on the adjusted closing price on March 18, 2010, the last trading day before the committee approved the grant. In accordance with the 2007 Stock Incentive Plan, the grant vested on March 19, 2010.


On March 19, 2010, the committee authorized a $10,000 discretionary bonus to be paid to Mr. Scott on or before April 14, 2010.


OWNERSHIP GUIDELINES


The committee does not require our named executive officers to hold any minimum number of our shares. However, to directly align the interests of executive officers with the interests of the stockholders, the committee encourages each named executive officer to maintain an ownership interest in the Company.


33



STOCK OPTION PROGRAM


Stock options are an integral part of our executive compensation program. They are intended to encourage ownership and retention of the Company's common stock by named executive officers and employees, as well as non-employee members of the board. Through stock options, the objective of aligning employees' long-term interest with those of stockholders may be met by providing employees with the opportunity to build a meaningful stake in the Company.


The Stock Option Program assists the Company by:


- enhancing the link between the creation of stockholder value and long-term executive incentive compensation;


- providing an opportunity for increased equity ownership by executives; and


- maintaining competitive levels of total compensation.


Stock option award levels are determined based on market data, vary among participants based their positions within the Company and are granted by and at the discretion of the committee. Newly hired executive officers or promoted executive officers are generally awarded stock options, at the discretion of the committee, at the next regularly scheduled committee meeting on or following their hire or promotion date. In addition, such executives are eligible to receive additional stock option on a discretionary basis after performance criteria are achieved.


Options are awarded at the closing price of the Company's common stock on the date of the grant or last trading day prior to the date of the grant. The committee's policy is not to grant options with an exercise price that is less than the closing price of the Company's common stock on the grant date.


On June 17, 2009, certain key executives, employees, and directors of the Company voluntarily cancelled stock option grants to purchase an aggregate of 5,439,583 shares of common stock. The grants were previously issued on various dates and prices above $.13 per share.


On June 17, 2009, the Company awarded stock option grants totaling 5,439,583 shares to certain key executives, employees, and directors. The grants were priced at $.05 per share, the closing price of the Company’s common stock on June 16, 2009, the date before the scheduled compensation committee meeting at which such grants were approved. In accordance with the 2007 Stock Incentive Plan, the grants immediately vested and expire on June 16, 2019.


Generally, the majority of the options granted by the committee vest quarterly over three years of the ten-year option term. Vesting and exercise rights cease upon termination of employment and/or service, except in the case of death (subject to a one year limitation), disability or retirement. Stock options vest immediately upon termination of employment without cause or an involuntary termination following a change of control. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.


Mr. Schneideman, the Company’s former Chief Executive Officer, received the following stock option grants during the year ended March 31, 2010:


On June 17, 2009, Mr. Schneideman voluntarily cancelled stock option grants to purchase an aggregate of 2,000,000 shares of common stock. The grants were previously issued on various dates and prices above $.13 per share. On June 17, 2009, the Company awarded stock option grants totaling 2,000,000 shares to Mr. Schneideman. The grants were priced at $.05 per share, the closing price of the Company’s common stock on June 16, 2009, the date before the scheduled compensation committee meeting at which such grants were approved. In accordance with the 2007 Stock Incentive Plan, the grants immediately vested and expire on June 16, 2019. The stock options were granted as an incentive to Mr. Schneideman.


Mr. Hoekstra, the Company’s Chief Executive Officer received the following stock option grants during the year ended March 31, 2010:


34



On September 4, 2009, the Company awarded to Mr. Hoekstra an option to purchase 400,000 shares of the Company’s common stock. The awards were granted at the fair market price of $0.04 per share based on the adjusted closing price of the Company’s common stock on the date of the award. In accordance with the 2007 Stock Incentive Plan, the stock options vest quarterly over three years and expire on September 3, 2019. This grant was issued in conjunction with Mr. Hoekstra’s appointment to the board of directors.


On November 5, 2009, the compensation committee awarded Mr. Hoekstra an option to purchase 1,200,000 shares of the Company’s common stock. The award was granted at the fair market price of $0.04 per share based on the adjusted closing price of the Company’s common stock on November 4, 2009, the last trading day before the compensation committee approved the award. The stock option vests quarterly over three years beginning on September 4, 2009 and expires on September 3, 2019. The grant was made in conjunction with his appointment as the Company’s Chief Executive Officer. The grant was based on market compensation paid by other companies for similar positions.


Mr. Scott, the Company’s Chief Financial Officer, received the following stock option grants during the year ended March 31, 2010:


On June 17, 2009, Mr. Scott voluntarily cancelled stock option grants to purchase an aggregate of 2,000,000 shares of common stock. The grants were previously issued on various dates and prices above $.13 per share. On June 17, 2009, the Company awarded stock option grants totaling 2,000,000 shares to Mr. Scott. The grants were priced at $.05 per share, the closing price of the Company’s common stock on June 16, 2009, the date before the scheduled compensation committee meeting at which such grants were approved. In accordance with the 2007 Stock Incentive Plan, the grants immediately vested and expire on June 16, 2019. The stock options were granted as an incentive to Mr. Scott.


On August 24, 2009, the Company awarded Mr. Scott an option to purchase 300,000 shares of the Company’s common stock. The award was granted at the fair market price of $0.05 per share based on the adjusted closing price of the Company’s common stock on August 20, 2009, the last trading day before the board of directors approved the grant. In accordance with the 2007 Stock Incentive Plan, the stock option vests quarterly over three years and expires on August 23, 2019.The grant was made as an incentive based component of Mr. Scott’s compensation and based on market compensation paid by other companies for similar positions.


RETIREMENT AND OTHER BENEFITS


The Company has no other retirement, savings, long-term stock award or other type of plans for the named executive officers.


PERQUISITES AND OTHER PERSONAL BENEFITS


During the year ended March 31, 2010, the Company provided the named executive officers with perquisites and other personal benefits that the Company and the committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. The committee expects to review the levels of perquisites and other personal benefits provided to named executive officers. In addition, the Company paid $13,183 for a Tokyo apartment for the former Chief Executive Officer. During a portion of fiscal year 2010, since he spent a considerable amount of time working in Japan at the Company's operations, the Company paid for a Tokyo apartment.


Currently, the Company has Employment Agreements with Brian Hoekstra, the Company's Chief Executive Officer and Mark Scott, the Chief Financial Officer, see page 39 for a description of these agreements. These Employment Agreements contain potential payments upon termination, see page 41 for further discussion of these payments.


TAX AND ACCOUNTING IMPLICATIONS


Deductibility of Executive Compensation


Subject to certain exceptions, Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") generally denies a deduction to any publicly held corporation for compensation paid to its chief executive officer and its three other highest paid executive officers (other than the principal financial officer) to the extent that any such individual's compensation exceeds $1 million. "Performance-based compensation" (as defined for purposes of Section 162(m)) is not taken into account for purposes of calculating


35



the $1 million compensation limit, provided certain disclosure, shareholder approval and other requirements are met. We periodically review the potential consequences of Section 162(m) and may structure the performance-based portion of our executive compensation to comply with certain exceptions to Section 162(m). However, we may authorize compensation payments that do not comply with the exceptions to Section 162(m) when we believe that such payments are appropriate and in the best interests of the stockholders, after taking into consideration changing business conditions or the officer's performance.


Section 409A is a relatively recent provision of the Code. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A of the Code, and such benefits do not comply with Section 409A of the Code, the executive would be subject to adverse tax treatment, including accelerated income recognition (in the first year that benefits are no longer subject to a substantial risk of forfeiture) and an additional income tax of 20% of the amount so recognized.


Accounting for Stock-Based Compensation


Beginning on January 1, 2006, the Company began accounting for stock-based payments including its Stock Option Program in accordance with the requirements of ASC 718, “Compensation-Stock Compensation.”


COMPENSATION COMMITTEE REPORT


The Compensation Committee, composed entirely of independent directors in accordance with the applicable laws and regulations, sets and administers policies that govern the Company's executive compensation programs, and incentive and stock programs. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.


THE COMPENSATION COMMITTEE


Greg LeClaire, Chairman

Michael Garnreiter

Jack Henry


REMUNERATION OF EXECUTIVE OFFICERS


The following table provides information concerning remuneration of the chief executive officer, the chief financial officer during the fiscal years ended March 31, 2010, 2009 and 2008.


 

 

 

 

 

 

 

 

 

 

 

Non-Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive

 

 

 

 

 

 

 

 

 

 

 

Stock

 

Option

 

Plan

 

All Other

 

 

Name and

 

Year

 

Salary

 

Bonus

 

Awards

 

Awards

 

Compensation

 

Compensation

 

Total

Principal Position

 

Ending

 

($) (5)

 

($) (5)

 

($) (4)

 

($) (2)

 

($) (1)

 

($) (3)

 

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derek Schneideman

 

3/31/2010

 

$

312,551

 

$

 

$

 

$

100,000

 

$

 

$

17,470

 

$

430,021

Chief Executive Officer

 

3/31/2009

 

$

250,000

 

$

 

$

48,723

 

$

169,000

 

$

 

$

15,704

 

$

483,427

 

 

3/31/2008

 

$

250,000

 

$

 

$

 

$

417,000

 

$

30,000

 

$

 

$

697,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brian Hoekstra

 

3/31/2010

 

$

56,078

 

$

 

$

32,000

 

$

48,000

 

$

 

$

 

$

136,078

Chief Executive Officer

 

3/31/2009

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

3/31/2008

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Scott

 

3/31/2010

 

$

154,439

 

$

10,000

 

$

15,600

 

$

115,000

 

$

 

$

 

$

295,039

Chief Financial Officer

 

3/31/2009

 

$

200,000

 

$

 

$

43,441

 

$

97,000

 

$

 

$

 

$

340,441

 

 

3/31/2008

 

$

200,000

 

$

 

$

 

$

314,250

 

$

24,000

 

$

 

$

538,250


36



SUMMARY COMPENSATION TABLE


(1) The March 31, 2008 amounts reflect bonuses earned and paid for the year ended March 31, 2008 for Mr. Schneideman and Mr. Scott.


(2) These amounts reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended March 31, 2010, 2009 and 2008, in accordance with FASB ASC Topic 718 of awards pursuant to the 2007 Stock Incentive Plan. Assumptions used in the calculation of this amount are included in footnotes to the Company's audited financial statements for the fiscal years ended March 31, 2010, 2009 and 2008.


(3) The year ended March 31, 2010 amount reflects $13,183 for Tokyo apartment and $4,287 for consulting for Mr. Schneideman. The year ended March 31, 2019 amount reflects $15,704 for a Tokyo apartment for Mr. Schneideman.


(4) The amount for 2010 for Mr. Hoekstra includes $32,000 for the issuance of 800,000 shares of common stock related to his appointment as Chief Executive Officer. The amount for 2010 for Mr. Scott includes $10,000 and $5,600 for the issuance of 200,000 and 400,000 shares, respectively, of common stock for discretionary bonuses. The amounts for 2009 for Mr. Schneideman include a $38,106 increase in his base salary with the issuance of 131,400 shares common stock and a bonus of $10,617 with the issuance of 151,670 shares common stock for achieving profitability targets of $730,844 for the quarter ended June 30, 2009. The amounts for 2009 for Mr. Scott include a $35,478 increase in his base salary with the issuance of 131,400 shares of common stock and a bonus of $10,617 with the issuance of 151,670 shares common stock for achieving profitability targets of $730,844 for the quarter ended June 30, 2009.


(5) The year ended March 31, 2010 amounts reflects (i) $100,000 paid and $110,417 accrued, but not paid to Mr. Schneideman as severance under his Agreement and Full Release of Claims, which was effective as of August 2, 2009. On June 8, 2010, Mr. Schneideman converted $50,000 into 5,000,000 shares of common stock at $.01 per share; (ii) $20,147 paid and $35,661 accrued, but not paid to Mr. Hoekstra. On May 21, 2010, Mr. Hoekstra converted $15, 244 into 1,385,818 shares of common stock at $.011 per share; and (iii) $142,439 paid and $12,000 accrued, but not paid to Mr. Scott.


GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR ENDED MARCH 31, 2010


Name

 

Grant

Date

 

Estimated Future Payouts Under

Non-Equity Incentive Plan

Awards

 

Estimated Future Payouts Under

Equity Incentive Plan

Awards

 

All Other

Stock

Awards;

Number of

Shares of

Stock

or Units

(#)  (2)

 

All Other

Option

Awards;

Number of

Securities

Underlying

Options

(#) (1)

 

Exercise

or Base

Price of

Option

Awards

($/Sh)

 

Grant

Date

Fair

Value of

Stock

and

Option

Awards

Threshold

($)

 

Target

($)

 

Maximum

($)

Threshold

(#)

 

Target

(#)

 

Maximum

(#)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derek Schneideman

 

6/17/2009

 

$         —

 

$    —

 

$         —

 

 

 

 

 

2,000,000

 

$  0.050

 

$100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brian Hoekstra

 

11/5/2009

 

$         —

 

$    —

 

$         —

 

 

 

 

800,000

 

1,200,000

 

$  0.040

 

$ 80,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Scott

 

6/17/2009

 

$         —

 

$    —

 

$         —

 

 

 

 

 

2,000,000

 

$  0.050

 

$100,000

 

 

8/24/2009

 

$         —

 

$    —

 

$         —

 

 

 

 

200,000

 

300,000

 

$  0.050

 

$ 25,000

 

 

3/19/2010

 

$         —

 

$    —

 

$         —

 

 

 

 

400,000

 

 

$  0.014

 

$   5,600


(1)  The amount shown in this column reflects the number of options granted pursuant to the 2007 Stock Incentive Plan and vest either immediately or quarterly over three years.


(2)  The amount for 2010 for Mr. Hoekstra includes $32,000 for the issuance of 800,000 shares of common stock related to his appointment as Chief Executive Officer. The amount for 2010 for Mr. Scott includes $10,000 and $5,600 for the issuance of 200,000 and 400,000 shares, respectively, of common stock for discretionary bonuses.


37



OUTSTANDING EQUITY AWARDS AT FISCAL YEAR ENDED MARCH 31, 2010


 

 

 

Option Awards

 

Stock Awards

Name

 

 

Number of

Securities

Underlying

Unexercised

Options

Exercisable

(#)

 

Equity Incentive

Plan Awards:

Number of

Securities

Underlying

Unexercised

Options

Unexerciseable

(#)

 

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

 

Option

Exercise

Price

($)

 

Option

Expiration

Date

 

Number of

Shares or Units

of Stock

That Have Not

Vested

(#)

 

Market Value

of Shares or

Units of

Stock That

Have Not Vested

($)

 

Equity Incentive

Plan Awards:

Number of

Unearned Shares,

Units or Other

Rights That

Have Not

Vested

(#)

 

Equity Incentive

Plan Awards:

Market or

Payout Value of

Unearned Shares,

Units, or Other

Rights That HaveNot Vested

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derek Schneideman

(2)

 

100,000

 

 

 

$   0.14

 

2/12/2017

 

 

$        —

 

 

$                —

 

(2)

 

200,000

 

 

 

$   0.12

 

7/28/2018

 

 

$        —

 

 

$                —

 

(3)

 

2,000,000

 

 

 

$   0.05

 

6/16/2019

 

 

$        —

 

 

$                —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brian Hoekstra

(1)

 

57,143

 

342,857

 

 

$   0.04

 

9/3/2019

 

 

$        —

 

 

$                —

 

(1)

 

1,107,692

 

92,308

 

 

$   0.04

 

11/4/2019

 

 

$        —

 

 

$                —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Scott

(2)

 

175,000

 

 

 

$   0.15

 

2/22/2017

 

 

$        —

 

 

$                —

 

(2)

 

200,000

 

 

 

$   0.12

 

7/28/2018

 

 

$        —

 

 

$                —

 

(2)

 

250,000

 

 

 

$   0.06

 

1/29/2019

 

 

$        —

 

 

$                —

 

(3)

 

2,000,000

 

 

 

$   0.05

 

6/16/2019

 

 

$        —

 

 

$                —

 

(1)

 

50,000

 

250,000

 

 

$   0.05

 

8/23/2019

 

 

$        —

 

 

$                —


(1)  All options vest quarterly over a three year term. Such option awards have a ten year life.


(2)  On June 17, 2009, the Change of Control Provision 8.2 (d) was triggered under the Schneideman and Scott Agreements (as defined below) because during any period of twenty-four consecutive months, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. All stock options were vested as of June 17, 2009.


(3)  On June 17, 2009, Mr. Schneideman and Mr. Scott voluntarily cancelled stock option grants to purchase an aggregate of 2,000,000 shares of common stock. The grants were previously issued on various dates and prices above $.13 per share.  On June 17, 2009, the Company awarded stock option grants totaling 2,000,000 shares each  to Mr. Schneideman and Mr. Scott.


OPTION EXERCISES AND STOCK VESTED


 

 

Option Awards (1)

 

Stock Awards (2)

 

 

Number of Shares

 

Value Realized

 

Number of Shares

 

Value Realized

Name

 

Acquired on Exercise

 

on Exercise

 

Acquired on Vesting

 

on Vesting

 

 

(#)

 

($)

 

(#)

 

($)

Derek Schneideman

 

 

$

 

 

$

Brian Hoekstra

 

 

$

 

800,000

 

$

32,000

Mark Scott

 

 

$

 

600,000

 

$

15,600


(1) The Company’s named executive officers did not exercise any stock options during the year ended March 31, 2010, 2009 and 2008.


(2) The amount for 2010 for Mr. Hoekstra includes $32,000 for the issuance of 800,000 shares of common stock related to his appointment as Chief Executive Officer. The amount for 2010 for Mr. Scott includes $10,000 and $5,600 for the issuance of 200,000 and 400,000 shares, respectively, of common stock for discretionary bonuses.


38



PENSION BENEFITS


The Company does not provide any pension benefits.


NONQUALIFIED DEFERRED COMPENSATION


The Company's does not have a nonqualified deferral program.


EMPLOYMENT AGREEMENTS


During 2010, the Company changed its board of directors during August and September 2009 and its Chief Executive Officer, Mr. Derek Schneideman resigned August 2, 2009. Mr. Brian Hoekstra was appointed Chief Executive Officer on September 4, 2009.


Brian Hoekstra’s Employment Agreement


On November 5, 2009, the Company entered into an Employment Agreement with Brian Hoekstra, the Company’s Chief Executive Officer, which is effective as of September 4, 2009.

 

The Employment Agreement provides for a one-year term and is renewable on a mutually agreeable basis. The Company agreed to pay Mr. Hoekstra an annual base salary of $98,000, and provide for participation in the Company’s benefit programs available to other senior executives (including group insurance arrangements). Mr. Hoekstra is also eligible for discretionary performance bonuses based upon performance criteria to be determined by the Company’s Compensation Committee. If Mr. Hoekstra’s employment is terminated without Cause (as defined in the Employment Agreement), Mr. Hoekstra will be entitled to a payment equal to three months base salary paid at the Company’s discretion in a lump sum or over the subsequent year.

 

The Compensation Committee also awarded Mr. Hoekstra 800,000 shares of restricted stock and an option to purchase 1,200,000 shares of the Company’s common stock. The awards were granted at the fair market price of $0.04 per share based on the adjusted closing price of the Company’s common stock on November 4, 2009, the last trading day before the Compensation Committee granted such awards. In accordance with the Company’s 2007 Stock Incentive Plan, the restricted stock and the stock option vest in quarterly installments over three years beginning on September 4, 2009. The stock options expire on September 3, 2019.


Derek Schneideman's Employment Agreement


On August 2, 2009, Derek Schneideman resigned as the Company’s Chief Executive Officer and as a member of the Board, effective immediately upon the Company’s filing of its Annual Report on Form 10-K for the fiscal year ended March 31, 2009, which occurred on September 3, 2009. Mr. Schneideman did not resign from the Board due to any disagreement with the Company relating to the Company’s operations, policies or practices.

 

In connection with Mr. Schneideman’s resignation, he and the Company entered into a Separation Agreement and Full Release of Claims (the “Separation Agreement”), which was effective as of August 2, 2009. Pursuant to the Separation Agreement, the Company made or agreed to make the following severance payments to Mr. Schneideman:

 

 

·

$100,000 was paid upon the Company’s filing of its 2009 Form 10-K on September 3, 2009.

 

 

 

  

·

$100,000 was payable as of November 3, 2009.  On June 8, 2010, the Company agreed to issue 5,000,000 shares of common stock to Derek Schneideman, for $50,000, or $.01 per share, the date agreement was signed. The shares do not have registration rights. $50,000 remains payable as of March 31, 2010, provided that (i) the Company’s filings with the SEC are not determined to contain materially inaccurate information, material representations or material omissions, (ii) evidence of fraud or illegal acts on the part of Mr. Schneideman is not discovered, and (iii) Mr. Schneideman has not made any misrepresentations in connection with its purchase of the Shares, as described above.

 

Mr. Schneideman did not exercise his limited right to revoke the Separation Agreement and was paid $42,409 and is owed $10,417 as of March 31, 2010 for accrued but unpaid salary, benefits and business expense reimbursements as of the date of the Separation Agreement.

 

39



The Separation Agreement provides that Mr. Schneideman will continue to provide services to the Company as a consultant for a period of 12 months following the effective date of his resignation as Chief Executive Officer. In exchange for such services, the Company agreed to pay Mr. Schneideman $2,000 per month. The Company is entitled to terminate the consulting relationship upon 30 days advance notice and payment of the consulting fee to which Mr. Schneideman would be entitled in the 30 days following such notice. The Company has paid $4,287 and owes $10,475 in consulting fees as of March 31, 2010.

 

In consideration of and for the severance payments and consulting arrangement described above, Mr. Schneideman provided a broad release in favor of the Company with respect to any and all rights, claims, demands, causes of actions and liabilities of any nature relating to his employment with the Company, the termination of such employment, and/or his entry into the Separation Agreement.

 

Finally, the Separation Agreement also contains customary provisions with respect to confidentiality, non-disclosure, non-solicitation, non-disparagement and Mr. Schneideman’s return of any property of the Company in his possession.


Mark Scott's Employment Agreement


On August 24, 2009, the Company entered into a new Employment Agreement with Mark Scott, which replaced his Employment Agreement dated September 5, 2007.

 

Mark Scott’s Employment Agreement (“Scott Agreement”) had a one-year term beginning on August 24, 2009, and is renewable on a mutually agreeable basis. The Company agreed to pay Mr. Scott an annual base salary of $96,000, and provide for participation in the Company’s benefit programs available to other senior executives (including group insurance arrangements). Also under the Scott Agreement, Mr. Scott is eligible for discretionary performance bonuses based upon performance criteria to be determined by the Company’s Compensation Committee based on criteria under development. If Mr. Scott’s employment is terminated without Cause (as defined in the Scott Agreement), Mr. Scott will be entitled to a payment equal to one year’s annual base salary paid at the Company’s discretion in a lump sum or over the next year.

 

On August 24, 2009, the board of directors awarded Mr. Scott 200,000 shares of restricted stock and an option to purchase 300,000 shares of the Company’s common stock. The awards were granted at the fair market price of $0.05 per share based on the adjusted closing price on August 20, 2009, the last trading day before the board of directors approved the grant. These options vest quarterly over three years from the date of the grant. In accordance with the 2007 Stock Incentive Plan, the restrictions on the restricted stock lapsed on November 23, 2009 and the stock options expire on August 23, 2019.


On May 17, 2010, the Company entered into an Amendment to Employment Agreement (“Amended Scott Agreement”) with Mark Scott, our Chief Financial Officer.


The Amended Scott Agreement allows Mr. Scott to serve as a consultant for unrelated businesses so long as such activities do not interfere with the performance of Executive’s duties under his Employment Agreement dated August 24, 2009.

 

Definitions Used in Employment Agreements


For purposes of the Employment Agreements described above, the following definitions apply:


1.   "Termination without Cause" means the Company involuntarily terminates the executive's at any time and for any reason, or no reason whatsoever, upon written notice to the executive.


2.   "Cause": means:


 

(i)

Executive’s willful and continued refusal to substantially perform his duties hereunder;

 

 

 

 

(ii)

Executive’s conviction of a felony, or his guilty plea to or entry of a nolo contendere plea to a felony charge; or

 

 

 

 

(iii)

Executive’s breach of any material term of this Agreement or the Company’s written policies and procedures, as in effect from time to time.


40



POTENTIAL PAYMENTS UPON TERMINATION


The Company's Employment Agreements with the Named Executive Officers have provisions providing for severance payments as discussed below.


Brian Hoekstra


The following table shows the potential payments upon termination for Brian Hoekstra, the Company's Chief Executive Officer:


Executive

Payments Upon

Separation

 

For Cause

Termination

on 3/31/10

 

Early

or Normal

Retirement

on 3/31/10

 

Not For Good

Cause

Termination

on 3/31/10

 

Disability

or Death

on 3/31/10

Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

Base salary (1)

 

$

 

$

 

$

24,500

 

$

Performance-based incentive compensation

 

$

 

$

 

$

 

$

Stock options

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits and Perquisites:

 

 

 

 

 

 

 

 

 

 

 

 

Health and welfare benefits

 

$

 

$

 

$

 

$

Accrued vacation pay (2)

 

$

2,827

 

$

29,780

 

$

29,780

 

$

29,780

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,827

 

$

29,780

 

$

54,280

 

$

29,780


(1) Reflects three month’s severance to be paid upon termination without cause.


(2) Reflects the value of vacation pay accrued as of March 31, 2010.


Mark Scott


The following table shows the potential payments upon termination for Mark Scott, the Company's Chief Financial Officer:


Executive

Payments Upon

Separation

 

For Cause

Termination

on 3/31/10

 

Early

or Normal

Retirement

on 3/31/10

 

Not For Good

Cause

Termination

on 3/31/10

 

Disability

or Death

on 3/31/10

Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

Base salary (1)

 

$

 

$

 

$

96,000

 

$

Performance-based incentive compensation

 

$

 

$

 

$

 

$

Stock options

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits and Perquisites:

 

 

 

 

 

 

 

 

 

 

 

 

Health and welfare benefits

 

$

 

$

 

$

 

$

Accrued vacation pay (2)

 

$

20,169

 

$

20,169

 

$

20,169

 

$

20,169

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

20,169

 

$

20,169

 

$

116,169

 

$

20,169


(1) Reflects twelve months severance to be paid upon termination without cause.


(2) Reflects the value of vacation pay accrued as of March 31, 2010.


41



DIRECTOR COMPENSATION


The Company uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Company considers the significant amount of time that Directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of the Board. During a portion of the year ended March 31, 2010, Derek Schneideman, the Company's former Chief Executive Officer served on the Board, but did not receive any compensation for his service as a director, The compensation disclosed in the Summary Compensation Table on page 37 represents their total compensation.


DIRECTOR SUMMARY COMPENSATION TABLE


The table below summarizes the compensation paid by the Company to non-employee directors during the year ended March 31, 2010.


Name

 

Fees Earned

Or Paid In

Cash ($)

 

Option

Awards ($) (1)

 

Total ($)

 

 

 

 

 

 

 

 

 

 

Masazumi Ishii (2)

 

$

9,900

 

$

22,500

 

$

32,400

Eric La Cara (3)

 

$

12,150

 

$

27,529

 

$

39,679

Michael Garnreiter (4)

 

$

18,900

 

$

16,000

 

$

34,900

Jack Henry (4)

 

$

15,400

 

$

16,000

 

$

31,400

Greg LeClaire (4)

 

$

18,900

 

$

16,000

 

$

34,900

Brian Hoekstra (5)

 

$

1,700

 

$

16,000

 

$

17,700

Ryuhei Senda (5)

 

$

11,900

 

$

16,000

 

$

27,900


(1) Reflects the dollar amount recognized for financial statement reporting purposes for the year ended March 31, 2010 in accordance with FASB ASC Topic 718. The assumptions used in the valuation of options is included in the Footnotes of the Form 10-K as filed with the SEC on July 14, 2010. As of March 31, 2010, Mr. Garnreiter, Mr. Henry, Mr. LeClaire, Mr. Hoekstra and Mr. Senda each had 400,000 shares options outstanding to purchase the indicated number of shares of the Company's common stock.


(2) On August 2, 2010, Mr. Ishii resigned from the Board. On December 3, 2009, Mr. Ishii forfeited stock options totaling 650,000 shares.


(3) On November 11, 2009, Mr. La Cara resigned from the Board. On February 10, 2010, Mr. la Cara forfeited stock options totaling 750,583 shares.


(4) On September 4, 2009, Mr. Garnreiter, Mr. Henry, Mr. LeClaire were appointed to the board of directors.


(5) On August 2, 2009, Mr. Hoekstra and Mr. Senda were appointed to the board of directors.


COMPENSATION PAID TO BOARD MEMBERS


Our independent non-employee directors are compensated at a base rate of $1,700 per month. In addition, for serving as committee chairman they are paid $500 per month for the Nominations and Governance Committee and $1,000 per month for the Audit and Compensation Committees. All independent non-employee directors' fees are paid in cash or in Company stock.


STOCK OPTION PROGRAM


Each non-employee Director receives stock option grants having a calculated Black-Scholes value that approximates the value of their annual cash and committee chairman compensation. Each non-employee Director received a grant of 400,000 options at $.04 per share on September 4, 2009. Options received by non-employee Directors are granted at the fair market price of the Company's Common Stock on the date of the grant and vest quarterly over three years.

 

42



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


RELATED PARTY TRANSACTIONS WITH INTER ASSET JAPAN AND ITS AFFILIATES, AND OUR CONTROLLING SHAREHOLDER GROUP


The following table sets forth certain information regarding the ownership of our common stock as of September 1, 2009 by:


- each director and nominee for director;


- each person known by us to own beneficially 5% or more of our common stock;


- each officer named in the summary compensation table elsewhere in this report; and


- all directors and executive officers as a group.


The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a "beneficial owner" of a security if that person has or shares voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.


Unless otherwise indicated below, each beneficial owner named in the table has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Unless otherwise indicated, the address of each beneficial owner of more than 5% of common stock is IA Global. Inc., 101 California Street, Suite 2450, San Francisco, California 94111.


 

 

Number

 

Percentage

 

Greater Than 5% Ownership

 

 

 

 

 

 

 

 

 

 

 

Inter Asset Japan Co., Ltd-

 

 

 

 

 

 

 

 

 

 

 

Inter Asset Japan LBO No. 1 Fund ("IAJ LBO")-

 

88,606,529

 

28.2%

(1)

35F Atago Green Hills Mori Tower

 

 

 

 

 

2-5-1 Atago, Minato-Ku

 

 

 

 

 

Tokyo, 105-6235 Japan

 

 

 

 

 

 

 

 

 

 

 

PBAA Fund, Ltd ("PBAA")

 

24,104,152

 

7.7%

(1)

Woodbourne Hall

 

 

 

 

 

PO Box 3162

 

 

 

 

 

Road Town, Tortola

 

 

 

 

 

British Virgin Islands

 

 

 

 

 

 

 

 

 

 

 

Terra Firma Fund , Ltd. ("Terra Firma")-

 

13,100,000

 

4.2%

(1)

Woodbourne Hall

 

 

 

 

 

PO Box 3162

 

 

 

 

 

Road Town, Tortola

 

 

 

 

 

British Virgin Islands

 

 

 

 

 

 

 

 

 

 

 

Inter Asset Japan Co. Ltd. ("IAJ")-

 

2,200,000

 

0.7%

(1)

35F Atago Green Hills Mori Tower

 

 

 

 

 

2-5-1 Atago, Minato-Ku

 

 

 

 

 

Tokyo, 105-6235 Japan

 

 

 

 

 

 

 

 

 

 

 


43



IA Turkey Equity Portfolio Ltd. ("IA Turkey")

 

2,500,000

 

0.8%

(1)

Mill Mall, Suite 6 Wickhams Cay

 

 

 

 

 

PO Box 3085

 

 

 

 

 

Road Town, Tortola

 

 

 

 

 

British Virgin Islands

 

 

 

 

 

 

 

 

 

 

 

Hiroki Isobe

 

5,194,147

 

1.6%

(1)

Inter Asset Japan Co. Ltd.

 

 

 

 

 

35F Atago Green Hills Mori Tower

 

 

 

 

 

2-5-1 Atago, Minato-Ku

 

 

 

 

 

Tokyo, 105-6235 Japan

 

 

 

 

 

 

 

 

 

 

 

 

 

135,704,828

 

43.2%

 

 

 

 

 

 

 

Michael Ning and Affiliates-

 

 

 

 

 

Taicom Securities Co Ltd and Affiliates

 

25,802,400

 

8.2%

(2)

1-5-5 Nishi Shinsaibashi

 

 

 

 

 

Urban Building Shinsaibashi 10th Floor

 

 

 

 

 

Chuo-ku, Osaka 542-0086 Japan

 

 

 

 

 

 

 

 

 

 

 

Michael Ning

 

6,594,794

 

2.1%

(2)

c/o ArqueMax Ventures, LLC

 

 

 

 

 

27520 Hawthorne Blvd., Suite 290

 

 

 

 

 

Rolling Hills Estates, CA 90274  USA

 

 

 

 

 

 

 

32,397,194

 

10.3%

 


The symbol - means less than 1%.


(1) Reflects the shares beneficially owned by IAJ, IAJ LBO No. 1, PBAA, Terra Firma, IA Turkey and Hiroki Isobe. These entities stated in a Schedule 13D filed with the SEC on February 24, 2009 and have subsequently confirmed orally, that they may be deemed to constitute a "group" for the purposes of Rule13d-3 under the Securities Exchange Act of 1934 ("Exchange Act"). Mr. Hiroki Isobe controls each of IAJ, IAJ LBO Fund, PBAA, Terra Firma and IA Turkey.


(2) Reflects the shares beneficially owned by Taicom and Michael Ning. These entities stated in a Schedule 13D filed with the SEC on July 18, 2008 that they may be deemed to constitute a "group" for the purposes of Rule 13d-3 under the Exchange Act. Mr. Michael Ning controlled Taicom, which filed for bankruptcy on December 25, 2009. Mr. Ning has not updated his holdings.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


RELATED PARTY TRANSACTIONS WITH INTER ASSET JAPAN AND ITS AFFILIATES, AND OUR CONTROLLING SHAREHOLDER GROUP


During the year ended March 31, 2010 the Company did not have any related party transactions with Inter Asset Japan Co Ltd ("IAJ") and affiliates, and IAJ LBO Fund, PBAA Fund Limited, Terra Firma, IAJ, IA Turkey and Hiroki Isobe (collectively, the "Controlling Shareholder Group") except for funding as described previously.


REVIEW AND APPROVAL OF RELATED PERSON TRANSACTIONS.


The Company has operated under a Code of Conduct for many years. The Company's Code of Conduct requires all employees, officers and directors, without exception, to avoid the engagement in activities or relationships that conflict, or would be perceived to conflict, with the Company's interests or adversely affect its reputation. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate upon full disclosure of the transaction, following review and approval to ensure there is a legitimate business reason for the transaction and that the terms of the transaction are no less favorable to the Company than could be obtained from an unrelated person.


44



The Audit Committee is responsible for reviewing and approving, as appropriate, all transactions with related persons. The Company has not adopted a written policy for reviewing related person transactions. The Company reviews all relationships and transactions in which the Company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. As required under SEC rules, transactions, if any, that are determined to be directly or indirectly material to the Company or a related person are disclosed.


Director Independence


The Board affirmatively determines the independence of each director and nominee for election as a director in accordance with independence standards.


Based on these standards, at its meeting held on June 14, 2010, the Board determined that each of the following non-employee Directors are independent and has no relationship with the Company, except as a Director and stockholder of the Company:


- Michael Garnreiter

- Jack Henry

- Greg LeClaire


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES


AUDIT COMMITTEE PRE-APPROVAL POLICY


The Audit Committee has established a pre-approval policy and procedures for audit, audit-related and tax services that can be performed by the independent auditors without specific authorization from the Audit Committee subject to certain restrictions. The policy sets out the specific services pre-approved by the Audit Committee and the applicable limitations, while ensuring the independence of the independent auditors to audit the Company's financial statements is not impaired. The pre-approval policy does not include a delegation to management of the Audit Committee responsibilities under the Exchange Act. During fiscal year ended March 31, 2010, the Audit Committee pre-approved all audit and permissible non-audit services provided by our independent auditors.


SERVICE FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Audit Committee engaged Sherb and Co LLP to perform an annual audit of the Company's financial statements for the fiscal year ended March 31, 2010 and 2009, the transition period for the three months ended March 31, 2008, and for the year ended December 31, 2007. The following is the breakdown of aggregate fees paid to the auditors for the Company for the last three fiscal years:


 

Year Ended

 

 Year Ended  

 

 Year Ended  

 

March 31, 2010

 

March 31, 2009

 

December 31, 2008

Audit fees

$

139,500

 

$

120,000

 

$

125,000

Audit related fees

 

48,685

 

 

48,138

 

 

33,100

Tax fees

 

10,125

 

 

6,000

 

 

9,300

All other fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

198,310

 

$

174,138

 

$

167,400


- "Audit fees" are fees paid for professional services for the audit of our financial statements.


- "Audit Related fees" are fees billed by Sherb and Co. LLP. to us for services not included in the first two categories, specifically, SAS 100 reviews, SEC filings and consents, and accounting consultations on matters addressed during the audit or interim reviews, and review work related to quarterly filings.


- "Tax fees" are fees primarily for tax compliance in connection with filing US income tax returns.



45



PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES


(a) FINANCIAL STATEMENTS:


Our financial statements, as indicated by the Index to Consolidated Financial Statements set forth below, begin on page F-1 of this Form 10-K, and are hereby incorporated by reference. Financial statement schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


 

Page

 

 

Report of Independent Registered Public Accounting Firm

F-1

 

 

Consolidated Balance Sheets

 

as of March 31, 2010 and 2009

F-2

 

 

Consolidated Statements of Operations

 

for the year ended March 31, 2010 and 2009, the transition period for the three months ended March 31, 2008

 

and for the year ended December 31, 2007

F-3

 

 

Consolidated Statement of Stockholders' Deficiency

 

for the year ended March 31, 2010 and 2009, the transition period for the three months ended March 31, 2008

 

and for the year ended December 31, 2007

F-4

 

 

Consolidated Statement of Cash Flows

 

for the year ended March 31, 2010 and 2009, the transition period for the three months ended March 31, 2008

 

and for the year ended December 31, 2007

F-5

 

 

Notes to Consolidated Financial Statements

F-6 - F-38


(b) EXHIBITS:


EXHIBIT

 

NUMBER

EXHIBIT DESCRIPTION

 

 

3.1

Amended and Restated Certificate of Incorporation of IA Global, Inc. dated July 10, 2007. (2)

 

 

3.2

Amended and Restated Bylaws of IA Global, Inc. dated July 29, 2008. (3)

 

 

3.3

Certificate of Designation of Preferences and Rights of the Registrant's Series A Convertible Preferred Stock. (4)

 

 

3.4

Certificate of Designation of Preferences and Rights of the Registrant's Series B Convertible Preferred Stock. (5)

 

 

3.5

Certificate of Designations, Rights and Preferences of the Series A-1 Preferred Stock of IA Global, Inc. dated October 18, 2006. (6)

 

 

3.6

Certificate Eliminating Reference to a Series B Convertible Preferred Shares of Stock from the Certificate of Incorporation of IA Global, Inc. dated October 18, 2006. (6)

 

 

3.7

Certificate Eliminating Reference to a Series A-1 Convertible Preferred Shares of Stock from the Certificate of Incorporation of IA Global, Inc. dated March 29, 2007. (7)

 

 


46



3.8

Certificate of Designations, Rights and Preferences of the ArqueMax Ventures, LLC Series Preferred Stock of IA Global, Inc. dated April 20, 2009. (10)

 

 

4.1

Specimen of Stock Certificate. (8)

 

 

4.2

IA Global, Inc. 2007 Incentive Plan, as amended. (9) *

 

 

4.3

1999 and 2000 Stock Option Plans. (11)*

 

 

10.1

Amendment to Share Exchange Agreement dated April 1, 2009 by and between IA Global, Inc., Taicom Securities Co Ltd and ArqueMax Ventures, LLC. (12)

 

 

10.2

Form of Performance Warrant dated April 1, 2009 by and between IA Global, Inc. and Michael Ning. (12)

 

 

10.3

Services Agreement dated April 1, 2009 by and between IA Global, Inc. and ArqueMax Ventures , LLC. (12)

 

 

10.4

Extension of Services Agreement dated May 31, 2009 by and between IA Global, Inc. and ArqueMax Ventures , LLC. (13)

 

 

10.5

Services Agreement dated June 8, 2009 by and between IA Global, Inc. and ArqueMax Ventures, LLC. (14)

 

 

10.6

Form of Performance Warrant dated June 2, 2009, but effective June 8, 2009 by and between IA Global, Inc. and ArqueMax Ventures , LLC. (14)

 

 

10.7

Separation Agreement and Full Release of Claims dated August 2, 2009 by and between IA Global, Inc. and DerekSchneideman (15) *

 

 

10.8

Amended and Restated Employment Agreement dated August 24, 2009 by and between IA Global, Inc. and Mark Scott (15) *

 

 

10.9

Employment Agreement dated November 5, 2009 but effective September 4, 2009 by and between IA Global, Inc. and Brian Hoekstra (15) *

 

 

10.10

Stock Purchase Agreement dated August 17, 2009 by and between IA Global, Inc. and Inter Asset Japan LBO No. 1 Fund (16)

 

 

10.11

Securities Purchase Agreement dated September 29, 2009 by and between IA Global, Inc. and Ascendiant Capital Group, LLC (16)  

 

 

10.12

Registration Rights Agreement dated September 29, 2009 by and between IA Global, Inc. and Ascendiant Capital Group, LLC (16)

 

 

10.13

Amendment to Stock Purchase Agreements dated November 4, 2009 by and between IA Global, Inc. and Inter Asset Japan LBO No. 1 Fund (17)

 

 

10.14

Amendment to Share Exchange Agreement dated December 16, 2009 by and between IA Global, Inc. and Slate Consulting Co Ltd (17)

 

 

10.15

Escrow Agreement dated December 18, 2009 amongst IA Global, Inc., Inter Asset Japan LBO No.1 Fund, Besoto Partners Incorporation Committee and M&A Japan, Inc. (translated from Japanese) (17)

 

 

10.16

Stock Purchase Agreement dated January 26, 2010 by and between IA Global, Inc. and MGVJ Co Ltd (1)  

 

 

10.17

Amendment to Stock Purchase Agreements dated January 26, 2010 by and between IA Global, Inc. and Inter Asset Japan LBO No. 1 Fund (1)

 

 


47



14.1

Code of Conduct Ethics dated July 10, 2009. (14)

 

 

21.1

Subsidiaries of the Registrant (1)

 

 

23.1

Consent of Sherb and Co LLP (1)

 

 

31.1

Section 302 Certifications. (1)

 

 

31.2

Section 302 Certifications. (1)

 

 

32.1

Section 902 Certifications. (1)

 

 

32.2

Section 902 Certifications. (1)

 

 

99.1

Audit Committee Charter dated July 10, 2009. (14)

 

 

99.2

Compensation Committee Charter dated July 10, 2009. (14)

 

 

99.3

Nominations and Governance Committee Charter dated July 10, 2009. (14)

 

 

99.4

Merger and Acquisition Committee Charter dated July 10, 2009. (14)

__________________


*   Indicates management contract or compensatory plan.


(1)   Filed herewith.


(2)   Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the period ending June 30, 2007, and filed on August 20, 2007, and incorporated herein by reference.


(3)   Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q/A for the period ending September 30, 2008, and filed on November 20, 2008, and incorporated herein by reference.


(4)   Filed as an exhibit to Registrant's Current Report on Form 8-K, dated November 8, 2001, and incorporated herein by reference.


(5)   Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the period ending March 31, 2006, and filed on May 15, 2006, and incorporated herein by reference.


(6)   Filed as an exhibit to Registrant's Current Report on Form 8-K, dated October 19, 2006 and filed on October 24, 2006, and incorporated herein by reference.


(7)   Filed as an exhibit to Registrant's Current Report on Form 8-K, dated March 29, 2007 and filed on March 30, 2007, and incorporated herein by reference.


(8)   Filed as an exhibit to Registrant's Registration Statement on Form S-1, as amended (File No. 333-71733), and incorporated herein by reference.


(9)   Filed as Exhibit 4.1 to the Company's Form S-8 filed on September 5, 2008, and incorporated herein by reference.


(10)  Filed as an exhibit to Registrant's Current Report on Form 8-K, dated April 20, 2009 and filed on April 20, 2009, and incorporated herein by reference.


(11)  Filed as an exhibit to Registrant's From S-8, dated June 21, 2004, and incorporated herein by reference.


(12)  Filed as an exhibit to Registrant's Current Report on Form 8-K, dated April 1, 2009 and filed on April 6, 2009 and incorporated herein by reference.


48



(13) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated May  31, 2009 and filed on June 4, 2009 and incorporated herein by reference.


(14) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated July 14, 2009 and filed on July 15, 2009 and incorporated herein by reference.


(15)   Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 2009, and filed on January 8, 2010, and incorporated herein by reference.


(16)   Filed as an exhibit to Company’s Registration Statement on Form S-1 (File No. 333-163612), filed on December 9, 2009, and incorporated herein by reference.


(17)   Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for the period ending December 31, 2009, and filed on February 19, 2010, and incorporated herein by reference.


49



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors

IA Global, Inc.


We have audited the accompanying consolidated balance sheets of IA Global, Inc. (the "Company") as of March 31, 2010 and 2009 and the related consolidated statement of operations, stockholders' deficiency and cash flows for the years ended March 31, 2010 and 2009, the transition period for the three months ended March 31, 2008, and for the year ended December 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2010 and 2009 and the results of their operations and their cash flows for the years ended March 31, 2010 and 2009, the transition period for the three months ended March 31, 2008, and for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant operating losses, and has a working capital deficit as of March 31, 2010, as more fully described in Note 1. These issues raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/Sherb & Co., LLP

Certified Public Accountants

New York, New York

July 14, 2010


F-1



IA GLOBAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


 

 

March 31,

 

 

 

2010

 

2009

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,228,808

 

$

 

Prepaid expenses

 

 

170,852

 

 

39,633

 

Other current assets

 

 

29,936

 

 

 

Net assets- discontinued operations

 

 

118,582

 

 

20,901,589

 

Total current assets

 

 

2,548,178

 

 

20,941,222

 

 

 

 

 

 

 

 

 

EQUIPMENT, NET

 

 

226

 

 

1,580

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

Investment in Taicom Securities Co Ltd

 

 

 

 

2,861,365

 

Equity investment in Slate Consulting Co Ltd

 

 

 

 

1,386,054

 

 

 

 

 

 

 

 

 

 

 

$

2,548,404

 

$

25,190,221

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDER’S DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Cash overdraft

 

$

 

$

5,508

 

Accounts payable - trade

 

 

848,426

 

 

461,274

 

Accrued liabilities

 

 

911,630

 

 

669,910

 

Note payable - current portion of long term debt

 

 

6,000

 

 

24,000

 

Net liabilities- discontinued operations

 

 

1,116,602

 

 

30,114,985

 

Total current liabilities

 

 

2,882,658

 

 

31,275,677

 

 

 

 

 

 

 

 

 

LONG TERM  LIABILITIES:

 

 

 

 

 

 

 

Long term debt

 

 

199,500

 

 

199,500

 

 

 

 

 

 

 

 

 

STOCKHOLDER’S DEFICIENCY:

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 5,000 authorized, none outstanding

 

 

 

 

 

LLC Series Preferred stock, $.01 par value, 317 shares authorized

 

 

 

 

 

 

 

and 317 and 0, issued and outstanding, respectively (liquidation value $317,000)

 

317,000

 

 

 

Common stock, $.01 par value, 450,000,000 shares authorized,

 

 

 

 

 

 

 

315,677,003 and 219,113,889 issued, and 314,049,103

 

 

 

 

 

 

 

and 218,485,989 outstanding, respectively

 

 

3,156,771

 

 

2,191,140

 

Additional paid in capital

 

 

56,466,939

 

 

53,056,216

 

Accumulated deficit

 

 

(60,146,365

)

 

(59,572,442

)

Accumulated other comprehensive loss

 

 

(45,192

)

 

(1,706,963

)

 

 

 

(250,847

)

 

(6,032,049

)

Less common stock in treasury, at cost

 

 

(282,907

)

 

(252,907

)

Total stockholder’s deficiency

 

 

(533,754

)

 

(6,284,956

)

 

 

 

 

 

 

 

 

 

 

$

2,548,404

 

$

25,190,221

 


Note: Reflects deconsolidation of Global Hotline, Inc., retroactive to July 1, 2009, as described in Footnote 3.


See notes to consolidated financial statements.


F-2



IA GLOBAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


 

 

 

 

Transition Period

 

 

 

 

 

 

 

The Three

 

Year Ended

 

 

 

Years Ended March 31,

 

Months Ended

 

December 31,

 

 

 

2010

 

2009

 

March 31, 2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

$

 

$

 

$

 

$

 

COST OF SALES

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

 

 

 

 

 

 

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

 

2,479,146

 

 

2,464,701

 

 

501,269

 

 

2,039,529

 

OPERATING LOSS

 

 

(2,479,146

)

 

(2,464,701

)

 

(501,269

)

 

(2,039,529

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

14,060

 

 

82

 

 

33,203

 

Interest expense and amortization of beneficial  conversion feature

 

 

(168,194

)

 

(331,710

)

 

(209,948

)

 

(752,979

)

Other income

 

 

20,918

 

 

269,372

 

 

13,610

 

 

14,233

 

Gain (loss) on equity investment in Australia Secured Financial Limited

 

 

 

 

265,039

 

 

(94,261

)

 

(119,562

)

Gain on equity investment in GPlus Media Co Ltd

 

 

 

 

12,510

 

 

7,582

 

 

12,804

 

Loss on equity investment in Slate Consulting Co Ltd

 

 

(16,298

)

 

(10,427

)

 

(17,178

)

 

(26,341

)

Loss on investment in Taicom Securities Co Ltd

 

 

 

 

(421,702

)

 

 

 

 

Conversion of debenture expense

 

 

 

 

 

 

 

 

(120,046

)

Retirement of debt

 

 

 

 

(60,395

)

 

 

 

 

Loss on forfeiture of Taicom Securities Co Ltd

 

 

(2,820,365

)

 

 

 

 

 

 

Loss on sale of Slate Consulting co Ltd

 

 

(1,284,756

)

 

 

 

 

 

 

Loss on sale of Taicom Securities Co Ltd

 

 

 

 

(1,736,934

)

 

 

 

 

Loss on sale of GPlus Media Co Ltd

 

 

 

 

(1,286,766

)

 

 

 

 

Impairment of equity investment in Australian Secured Financial Limited

 

 

 

 

(7,195,394

)

 

 

 

 

Impairment of Global Hotlines Philippines investment

 

 

(793,000

)

 

 

 

 

 

 

Gain on sale of IA Global Co Ltd

 

 

91,222

 

 

 

 

 

 

 

Loss (gain) on foreign currency transaction adjustment

 

 

(6,214

)

 

(66,290

)

 

(1,861

)

 

11,381

 

Total other expense

 

 

(4,976,687

)

 

(10,548,637

)

 

(301,974

)

 

(947,307

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS FROM CONTINUING OPERATIONS

 

 

(7,455,833

)

 

(13,013,338

)

 

(803,243

)

 

(2,986,836

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain from forfeit of discontinued operations

 

 

10,062,614

 

 

 

 

 

 

 

(Loss) from discontinued operations

 

 

(2,863,704

)

 

(7,228,592

)

 

1,163,608

 

 

(5,272,127

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) PROFIT

 

 

(256,923

)

 

(20,241,930

)

 

360,365

 

 

(8,258,963

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed Preferred Stock Dividend

 

 

(317,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) PROFIT ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$

(573,923

)

$

(20,241,930

)

$

360,365

 

$

(8,258,963

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share of common-

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per share from continuing operations

 

$

(0.03

)

$

(0.07

)

$

 

$

(0.02

)

Basic profit (loss) per share from discontinued operations

 

 

0.03

 

 

(0.04

)

 

 

 

(0.03

)

Total basic loss per share

 

$

(0.00

)

$

(0.11

)

$

 

$

(0.05

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted profit (loss) per share from continuing operations

 

$

*

 

$

*

 

$

 

$

*

 

Diluted profit (loss) per share from discontinued operations

 

 

*

 

 

*

 

 

 

 

*

 

Total diluted profit (loss) per share

 

$

*

 

$

*

 

$

 

$

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding- basic

 

 

247,360,222

 

 

205,833,118

 

 

164,980,626

 

 

151,229,245

 

Weighted average shares of common stock outstanding- diluted

 

 

*

 

 

*

 

 

*

 

 

*

 


* Diluted calculation is not presented as it is anti-dilutive.


Note: Reflects deconsolidation of Global Hotline, Inc., retroactive to July 1, 2009, as described in Footnote 3.


See notes to consolidated financial statements.


F-3



IA GLOBAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY


 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

Total

 

 

 

 

 

 

 

Additional

 

 

 

Comprehensive

 

 

 

Stockholder's

 

 

 

Preferred Stock

 

Common Stock

 

Paid in

Capital

 

Accumulated

 

Income

 

Treasury

 

Deficiency/

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

 

Deficit

 

(Loss)

 

Stock

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2006

 

4,375

 

$

7,000,000

 

$

109,165,157

 

$

1,091,651

 

$

32,835,714

 

$

(31,431,914

)

$

(186,614

)

$

(50,000

)

$

9,258,837

 

Conversion of preferred stock to common stock

 

(4,375

)

 

(7,000,000

)

 

43,750,000

 

 

437,500

 

 

6,562,500

 

 

 

 

 

 

 

 

 

123R compensation expense

 

 

 

 

 

 

 

 

 

174,514

 

 

 

 

 

 

 

 

174,514

 

Exercise of stock options

 

 

 

 

 

434,166

 

 

4,342

 

 

83,575

 

 

 

 

 

 

 

 

87,917

 

Proceeds from sale of common stock

 

 

 

 

 

1,189,703

 

 

11,896

 

 

367,981

 

 

 

 

 

 

 

 

379,877

 

Equity investment in GPLus Media Co Ltd for common stock

 

 

 

 

 

3,885,713

 

 

38,857

 

 

1,321,143

 

 

 

 

 

 

 

 

1,360,000

 

Equity investment in Slate Consulting Co Ltd for common stock

 

 

 

 

 

3,600,000

 

 

36,000

 

 

1,404,000

 

 

 

 

 

 

 

 

1,440,000

 

Conversion of debentures to common stock

 

 

 

 

 

4,885,367

 

 

48,854

 

 

1,485,241

 

 

 

 

 

 

 

 

1,534,095

 

Repurchase of common stock

 

 

 

 

 

(2,026,355

)

 

(20,263

)

 

(521,269

)

 

 

 

 

 

(202,907

)

 

(744,439)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income - foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

(347,542

)

 

 

 

(347,542

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,258,963

)

 

 

 

 

 

(8,258,963

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,606,505

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2007

 

 

 

 

 

164,883,751

 

 

1,648,837

 

 

43,713,399

 

 

(39,690,877

)

 

(534,156)

 

 

(252,907

)

 

4,884,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

123R compensation expense

 

 

 

 

 

 

 

 

 

60,000

 

 

 

 

 

 

 

 

60,000

 

Exercise of stock options

 

 

 

 

 

86,458

 

 

865

 

 

12,635

 

 

 

 

 

 

 

 

13,500

 

Conversion of debentures to common stock

 

 

 

 

 

333,334

 

 

3,333

 

 

96,667

 

 

 

 

 

 

 

 

100,000

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income - foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

(287,708

)

 

 

 

(287,708

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

360,365

 

 

 

 

 

 

360,365

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2008

 

 

 

 

 

 

165,303,543

 

 

1,653,035

 

 

43,882,701

 

 

(39,330,512

)

 

(821,864

)

 

(252,907

)

 

5,130,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

123R compensation expense