10-Q 1 iaglobal_10q-123110.htm iaglobal_10q-123110.htm
 


_______________________________________________________________________________
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2010
 
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
___________________________
 
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 o
 
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 (ss. 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 o    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an 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. (Check one):
 
       
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
(Do not check if a smaller reporting company)
 
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x
 
As of March 21, 2011 there were issued and outstanding 11,825,694 shares of the registrants common stock.






 
1

 




IA GLOBAL, INC.
FORM 10-Q
TABLE OF CONTENTS
 
     
   
Page
     
PART I – FINANCIAL INFORMATION
     
Item 1.
Financial Statements
  3
     
 
Consolidated Balance Sheets
  3
     
 
Consolidated Statements of Operations
  4
     
 
Consolidated Statement of Cash Flows
  5
     
 
Notes to Consolidated Financial Statements
  6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  26
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  37
     
Item 4.
Controls and Procedures
  37
     
PART II – OTHER INFORMATION
     
Item 1.
Legal Proceedings
37
     
Item 1A.
Risk Factors
  38
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  38
     
Item 6.
Exhibits
  39
     
Signatures
  39
   


 
2

 


PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements

 
IA GLOBAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
     December 31,      March 31,  
   
2010
   
2010
 
ASSETS
 
(unaudited)
   
(audited)
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 2,522,394     $ 2,228,808  
Accounts receivable, net of allowance for doubtful accounts of $0 and $0, respectively
    656,229       -  
Consumption tax receivable
    813,707       -  
Inventories
    4,243,096       -  
Prepaid expenses
    393,785       170,852  
Other current assets
    635,128       29,936  
Advances to affiliated parties
    1,534,076       -  
Net assets- discontinued operations
    -       118,582  
Total current assets
    10,798,415       2,548,178  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    5,683,134       226  
                 
OTHER ASSETS:
               
Advances to affiliated parties
    1,466,050       -  
Intangible assets, net
    2,325,701       -  
Other assets
    1,244,092       -  
                 
Total assets
  $ 21,517,393     $ 2,548,404  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable - trade
  $ 2,814,974     $ 848,426  
Accrued liabilities
    4,653,612       911,630  
Income taxes payable- foreign
    1,421,505       -  
Note payable and current portion of long term debt
    3,312,938       6,000  
Deferred revenue
    319,118       -  
Net liabilities- discontinued operations
    238,874       1,116,602  
Total current liabilities
    12,761,021       2,882,658  
                 
LONG TERM  LIABILITIES:
               
Long term debt
    6,379,465       199,500  
                 
STOCKHOLDERS' EQUITY:
               
Preferred stock, $.01 par value, 5,000 authorized, none outstanding
    -       -  
ArqueMax Ventures, LLC Series Preferred stock, $.01 par value, 317 shares authorized
               
and 317 and 0, issued and outstanding, respectively (liquidation value $317,000)
    317,000       317,000  
Common stock, $.01 par value, 100,000,000 shares authorized,
               
11,327,028 and 6,313,540 issued, and 11,294,470
               
and 6,280,982 outstanding, respectively
    113,270       63,135  
Additional paid in capital
    60,635,003       59,560,575  
Accumulated deficit
    (58,507,055 )     (60,146,365 )
Accumulated other comprehensive loss
    (74,699 )     (45,192 )
      2,483,519       (250,847 )
Noncontrolling interest
    176,295       -  
Less common stock in treasury, at cost
    (282,907 )     (282,907 )
Total stockholders' equity
    2,376,907       (533,754 )
                 
Total liabilities and stockholders' equity
  $ 21,517,393     $ 2,548,404  
                 




See notes to consolidated financial statements.

 
3

 

 
IA GLOBAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                           
                           
     
Three Months Ended December 31,
   
Nine Months Ended December 31,
 
     
2010
   
2009
   
2010
   
2009
 
     
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
                           
REVENUE
  $ 3,782,279     $ -     $ 6,582,893     $ -  
COST OF SALES
    2,198,144       -       3,917,309       -  
GROSS PROFIT
    1,584,135       -       2,665,584       -  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    1,594,996       432,391       3,288,375       2,094,209  
OPERATING LOSS
    (10,861 )     (432,391 )     (622,791 )     (2,094,209 )
                                   
OTHER INCOME (EXPENSE):
                               
 
Interest expense and amortization of finance costs
    (83,897 )     (140,675 )     (183,496 )     (182,875 )
 
Other income
    11,335       (51,054 )     (3,125 )     28,803  
 
Income related to excess of fair value of assets acquired over the cost of acquisition of Zest Co Ltd.
    1,956,640       -       1,956,640       -  
 
Loss on equity investment in Slate Consulting Co Ltd
    -       -       -       (16,298 )
 
Loss on forfeiture of Taicom Securities Co Ltd
    -       -       -       (2,861,365 )
 
Loss on sale of Slate Consulting Co Ltd
    -       -       -       (1,284,756 )
 
Total other income (expense)
    1,884,078       (191,729 )     1,770,019       (4,316,491 )
                                   
NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    1,873,216       (624,120 )     1,147,228       (6,410,700 )
                                   
Income taxes - current provision
    161,474       -       157,193       -  
                                   
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
    1,711,742       (624,120 )     990,035       (6,410,700 )
                                   
 
Income from discontinued operations
    239,235       9,915,045       736,570       7,353,966  
                                   
NET INCOME
    1,950,977       9,290,925       1,726,605       943,266  
                                   
 
Deemed preferred stock dividend
    -       (125,000 )     -       (317,000 )
 
Noncontrolling interest
    (30,777 )     -       (87,295 )     -  
                                   
NET INCOME ATTRIBUTABLE TO IA GLOBAL, INC. COMMON SHAREHOLDERS
  $ 1,920,200     $ 9,165,925     $ 1,639,310     $ 626,266  
                                   
Basic and diluted income (loss) per share of common-
                               
 
Basic income (loss) per share from continuing operations
    0.21       (0.13 )     0.14       (1.40 )
 
Basic income per share from discontinued operations
    0.03       2.03       0.10       1.61  
 
Total basic net income per share
    0.23       1.90       0.24       0.21  
                                   
 
Diluted loss per share from continuing operations
    *       (0.13 )     *       (1.40 )
 
Diluted income per share from discontinued operations
    *       2.03       *       1.61  
 
Total diluted income per share
    *       1.90       *       0.21  
                                   
 
Weighted average shares of common stock outstanding- basic
    8,331,543       4,880,397       7,214,403       4,573,343  
 
Weighted average shares of common stock outstanding- diluted
    8,379,074       4,880,397       7,295,496       4,580,810  
                                   
 *
Diluted calculation is not presented as it is anti-dilutive.
                               


See notes to consolidated financial statements.


 
4

 


IA GLOBAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
   
Nine Months Ended December 31,
 
   
2010
   
2009
 
   
(unaudited)
   
(unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 1,726,605     $ 943,266  
Income from discontinued operations
    (736,570 )     -  
Depreciation and amortization
    193,480       118,492  
Income related to excess of fair value of assets acquired over the cost of acquisition of Zest Co Ltd
    (1,956,640 )     -  
Amortization of beneficial conversion feature
    -       120,000  
Amortization of prepaid financing
    87,370       6,159  
Stock based compensation
    80,000       368,590  
Stock issued for services
    83,744       89,987  
Stock issued for financing services
    -       10,000  
Loss on equity investments
    -       16,298  
Loss on sale of equity investment
    -       1,284,756  
Loss on forfeiture of investment
    -       2,861,365  
Changes in operating assets and liabilities:
               
Accounts receivable
    (161,512 )     27,613  
Consumption tax receivable
    264,992       -  
Inventories
    (512,992 )     -  
Prepaid expenses
    (235,327 )     (772 )
Notes receivable
    -       8,084  
Other current assets
    (84,724 )     (10,598 )
Other assets
    294,294       (199 )
Accounts payable - trade
    119,270       434,668  
Accrued liabilities and payroll taxes
    (124,073 )     286,573  
Income taxes payable- foreign
    157,252       -  
Net cash (used in) provided by operating activities - continuing operations
    (962,084 )     6,564,282  
Net cash provided by (used in) operating activities - discontinued operations
    243,350       (7,692,097 )
NET CASH (USED IN)  OPERATING ACTIVITIES
    (718,734 )     (1,127,815 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
    (4,852 )     (6,036 )
Net cash from acquisitions
    1,958,016       -  
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
    1,953,164       (6,036 )
                 
CASH FROM FINANCING ACTIVITIES:
               
Proceeds from debt
    387,310       120,000  
Repayments of debt
    -       (18,000 )
Proceeds from sale of common stock
    930,138       2,932,835  
Proceeds from sale of preferred shares
    -       317,000  
Return of stock subscription
    (2,222,785 )     -  
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    (905,337 )     3,351,835  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    329,093       2,217,984  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    (29,507 )     (46,524 )
                 
CASH AND CASH EQUIVALENTS, beginning of period
    2,222,808       19,174  
                 
CASH AND CASH EQUIVALENTS, end of period
  $ 2,522,394     $ 2,190,634  
                 
Supplemental disclosures of cash flow information:
               
Interest paid
  $ 82,174     $ 3,491  
Taxes paid
  $ 1,297     $ -  
                 
Non-cash investing and financing activities:
               
Common stock issued for the acquisition of Car Planner Co Ltd
  $ 325,000     $ -  
Common stock issued for the acquisition of Johnny Co Ltd
  $ 178,000     $ -  
Common stock issued for the acquisition of Zest Co Ltd
  $ 650,667     $ -  
Common stock issued for the acquisition of PowerDial Systems Ltd
  $ 1,024,800     $ -  
Shares issued for finance fee
  $ 75,000     $ -  
Deemed dividend on issuance of ArqueMax Ventures, LLC Series Preferred Stock
  $ -     $ 192,000  
Conversion of debentures into Common Stock
  $ -     $ 120,000  
Conversion of accrued liabilities into Common Stock
  $ -     $ 54,807  
Common stock returned to treasury on sale of equity investment - Slate Consulting Co., Ltd.
  $ -     $ 30,000  
Note receivable on sale of equity investment - Slate Consulting Co., Ltd.
  $ -     $ 55,000  
 
See notes to consolidated financial statements.

 
 
5

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
NOTE 1. BUSINESS
 
THE COMPANY AND OUR BUSINESS
 
                IA Global, Inc. (“IA Global” or the “Company”) is a global services and technology company focused on organic growth and expansion through global mergers and acquisitions. The Company is currently utilizing its current business partnerships to acquire growth businesses in its target sectors and markets at a discount. The Company is also actively engaging businesses that would benefit from its business expertise, knowledge of global markets, and technology infrastructure.
 
Reverse Stock Split

On September 8, 2010, a 1-for-50 share consolidation, or reverse stock split was effective with the opening of trading. The primary objective in effecting a reverse stock split was to enable the Company to provide sufficient equity to continue its aggressive acquisition and roll up strategy. At the Company’s annual general meeting of shareholders held on December 18, 2009, shareholders approved a proposal authorizing the Board of Directors of the Company to effect a reverse split of the Company's common shares at a ratio within a range of 1-for-25 and 1-for-50, as determined by the Board of Directors in its sole discretion. The Board of Directors approved the reverse split at a ratio of 1-for-50.

Unless otherwise indicated, the shares quantities in this Form 10-Q have been adjusted to reflect the 1-for-50 reverse stock split.

Financial Results

During the fiscal year ended March 31, 2010, the Company had no revenues from continuing operations.  During the nine months ended December 31, 2010, the Company reported revenues of $6.6 million.

Certain recent developments relating to the Company’s efforts to generate additional liquidity, including through sales of its common stock, are described in more detail in the notes to the financial statements included in this Form 10-Q.

Acquisitions

              During the nine months ended December 31, 2010, the Company closed the acquisition of the following companies:

Car Planner Co Ltd (“Car Planner”) on May 20, 2010.
Johnny Co Ltd (“Johnny”) on June 4, 2010.
Zest Corporation Co Ltd and Zest Home Co Ltd (“Zest”) on November 22, 2010.
PowerDial Systems, Ltd and PowerDial Services, Ltd (“PowerDial”) on December 17, 2010.

The acquisitions are described in more detail in the notes to the financial statements included in this Form 10-Q.

CORPORATE INFORMATION
 
The Company was incorporated in Delaware on November 12, 1998. The Company’s executive offices are located at 101 California Street, Suite 2450, San Francisco, CA 94111 and the Company’s operating units are located in Japan and the United Kingdom. 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-Q.
 
THE COMPANY’S COMMON STOCK
 
The Company’s common stock currently trades on the OTCBB Exchange ("OTCBB") under the symbol "IAGIE." After the filing of this Form 10-Q, the Company expects to trade under the symbol “IAGI.”

UNAUDITED FINANCIAL STATEMENTS
 
The accompanying unaudited consolidated financial statements of IA Global and our subsidiaries have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The financial statements for the periods ended December 31, 2010 and 2009 are unaudited and include all adjustments necessary to a fair statement of the results of operations for the periods then ended. All such adjustments are of a normal, recurring nature. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for a full fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010 as filed with the Securities and Exchange Commission (the “SEC”) on July 14, 2010.
 
In this Form 10-Q, the phrase “at current exchange rates” refers to the exchange rate in effect as of the date of the applicable event or transaction.

 
6

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GOING CONCERN
 
These consolidated financial statements have been prepared by management in accordance with GAAP on a “going concern” basis, which presumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
 
The Company has incurred operating losses 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, as well having an accumulated deficit of approximately $58.3 million and a working capital deficit of approximately $1.8 million as of December 31, 2010.
 
The Company’s ability to continue as a going concern is dependent upon the continued development of our business and investments, obtaining additional financing to develop such business, and the success of the Company’s business plan. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue its business.

RECLASSIFICATIONS
 
Certain reclassifications have been made to the Company’s financial statements for prior periods to conform to the current presentation. These reclassifications had no effect on previously reported results of operations or accumulated deficit.
 
Included in such reclassification is the presentation of Global Hotline as a discontinued operation for the nine months ended July 1, 2009 and for all subsequent periods.
 
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. Inter-Company items and transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS - The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Cash is retained at the subsidiary level for business operations. Balances at US banks are insured by the Federal Deposit Insurance Corporation up to US$250,000. Balances in Japanese banks are generally insured by the Deposit Insurance Corporation of Japan up to 10,000,000 Yen per depositor per bank or approximately US$120,000 as of December 31, 2010. Balances in United Kingdom banks are not insured. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS - Accounts receivable consists primarily of amounts due to the Company from normal business activities. The Company maintains an allowance for doubtful accounts to reflect the expected non-collection of accounts receivable based on past collection history and specific risks identified within the portfolio. If the financial condition of the customers were to deteriorate resulting in an impairment of their ability to make payments, or if payments from customers are significantly delayed, additional allowances might be required.
 
INVENTORIES – Inventory consists of gaming hardware and software and trading cards at Johnny, land and buildings at Zest and equipment at PowerDial and is stated at the lower of cost or market on the first-in, first-out method.  Inventories are considered available for resale when drop shipped and invoiced directly to a customer from a vendor, or when physically received at a warehouse location.  The company records a provision for excess and obsolete inventory whenever an impairment has been identified or products has been discarded. There is no provision for impaired inventory as of December 31, 2010.

PROPERTY, PLANT AND EQUIPMENT - Equipment consists of vehicles, machinery, equipment and software, which are stated at cost less accumulated depreciation and amortization. Depreciation of machinery and equipment is computed by the accelerated or straight-line methods over the estimated useful lives of the relevant asset, generally 2-15 years. Buildings and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation of buildings and leasehold improvements is computed by the accelerated or straight-line methods over the estimated useful lives of the relevant asset, generally 10-24 years. Land is stated at cost and is not depreciated.

 
7

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


INTANGIBLE ASSETS / INTELLECTUAL PROPERTY - The Company is amortizing the intellectual property and other intangible assets acquired in connection with its acquisition of Car Planner, Johnny and PowerDial over 36 months on a straight-line basis, which corresponds with the period of time for which management was able to project future revenues, either under the parties’ agreement or through ongoing business activities following the closing of the transaction.

LONG-LIVED ASSETS - The Company reviews its long-lived assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company has adopted FASB Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements” (“Topic 820”), for assets and liabilities measured at fair value on a recurring basis. Topic 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, Topic 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

     
 
Level 1:
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
     
 
Level 2:
Observable market-based inputs or unobservable inputs that are corroborated by market data
     
 
Level 3:
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
 
All cash and cash equivalents include money market securities and commercial paper that are considered to be highly liquid and easily tradable as of December 31, 2010. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, accounts payable, taxes payable, accrued expenses and other current liabilities, approximate their fair values because of the short maturity of these instruments. The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at December 31, 2010 and 2009.

In addition, Topic 820 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its qualifying financial instruments.

REVENUE RECOGNITION – Our revenue is derived from other products and services. Revenue is considered realized when the services have been provided to the customer, the work has been accepted by the customer and collectability is reasonably assured. Furthermore, if an actual measurement of revenue cannot be determined, we defer all revenue recognition until such time that an actual measurement can be determined. If during the course of a contract management determines that losses are expected to be incurred, such costs are charged to operations in the period such losses are determined. Revenues are deferred when cash has been received from the customer but the revenue has not been earned. We recorded deferred revenue of $319,118 and $0 as of December 31, 2010 and March 31, 2010, respectively.

ADVERTISING COSTS - Advertising costs are expensed as incurred. There were $37,862 of advertising costs incurred for the nine months ended December 31, 2010 and 2009. The advertising costs were primarily incurred by Zest, which was acquired on November 22, 2010.
 
FOREIGN CURRENCY TRANSLATION - Foreign entities whose functional currency is the local currency translate net assets at the end of period rates and income and expense accounts at average exchange rates for the periods ended. Adjustments resulting from these translations are reflected in the consolidated balance sheet under other comprehensive income and the statement of operations under other income (expense).

 
8

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


STOCK BASED COMPENSATION - The Company accounts for the grant of stock options and restricted stock awards in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC 718”).   ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation. In addition, the Company records 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.

When stock options are granted, the fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model and the weighted assumptions noted in the following table:

             
   
For the Nine Months Ended
December 31,
 
   
2010
   
2009
 
Risk-free interest rate
    3.61 %     3.61 %
Expected life
 
9.36 years
   
9.36 years
 
Dividend rate
    0.00 %     0.00 %
Expected volatility
    174 %     174 %

The Company recorded $80,000 and $368,590 of compensation expense, net of related tax effects, relative to stock options for the nine months ended December, 2010 and 2009  in accordance with ASC 718. Net loss per share (basic and diluted) associated with this expense was approximately ($0.01) and ($.08) respectively.

As of December 31, 2010, there is approximately $61,946 of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately three years. 

The Board of Directors awarded directors and executives options to purchase 88,000 shares of the Company’s common stock. The awards were granted at the fair market price of $0.61 per share based on the adjusted closing price on December 17, 2010, the date the Board approved the option grants. In accordance with the 2007 Stock Incentive Plan, the stock option vests quarterly over three years and expire on December 16, 2020.

The Board of Directors awarded Mr. Scott an option to purchase 20,000 shares of the Company’s common stock. The awards were granted at the fair market price of $0.857 per share based on the adjusted closing price on August 16, 2010, the date the Compensation Committee approved the option. In accordance with the 2007 Stock Incentive Plan, the stock option vests quarterly over three years and expires on August 15, 2020.

In addition to options granted to employees, the Company grants options to non-employees for services. On May 14, 2010, the Company issued an option to purchase 40,000 shares of the Company's common stock to Derek Schneideman, our former Chief Executive Officer, at the fair market price of $0.50 per share based on the adjusted closing price of the Company's common stock on May 14, 2010, the day the Board of Directors approved the grant. In accordance with the 2007 Stock Incentive Plan, the stock option vested immediately.

In addition to options granted to employees, the Company grants options to non-employees for services. On December 17, 2010, the Company issued options to purchase 6,000 shares of the Company's common stock to two consultants. The awards were granted at the fair market price of $0.61 per share based on the adjusted closing price on December 17, 2010, the date the Board approved the option grants. In accordance with the 2007 Stock Incentive Plan, the stock option vests quarterly over one years and expire on December 16, 2020.

The Company did not issue any shares of common stock to non-employees during the nine months ended December 31, 2009. There are 49,979 stock options outstanding that are held by non-employees as of December 31, 2010, which carry an average exercise price of $1.844 per share.

On June 17, 2009, certain key executives, employees, and directors of the Company voluntarily cancelled stock option grants to purchase an aggregate of 108,792 shares of common stock. The grants were previously issued on various dates and prices above $6.50 per share.
 
On June 17, 2009, the Company awarded stock option grants totaling 108,792 shares to certain key executives, employees, and directors. The grants were priced at $6.50 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 are vested immediately and expire on June 16, 2019. The stock options were granted to provide a proper incentive for employees, officers and directors. The Company expensed $345,846 during the nine months ended December 31, 2009 related to this transaction.

 
9

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
COMPREHENSIVE INCOME - The Company has adopted ASC 220, “Comprehensive Income.” This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net loss to common shareholders and foreign currency transaction adjustments and is presented in the Consolidated Statements of Operations and Stockholders’ Equity.

INCOME TAXES - Income tax provision (benefit) is based on reported income (loss) before income taxes. Deferred income taxes reflect the effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws in the countries and locations where the Company (or its applicable subsidiary) operates. The Company recognizes refundable and deferred assets to the extent that management has determined their realization.

NET INCOME PER SHARE – Under the provisions of ASC 260, “Earnings Per Share,” basic income per common share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. As of December 31, 2010, there were options outstanding for the purchase of 280,479 common shares, warrants for the purchase of 409,641 common shares and 71,091 shares of common stock issued as collateral for loans, which could potentially dilute future earnings per share. As of December 31, 2009, there were options outstanding for the purchase of 209,840 common shares, warrants for 229,641 common shares and 71,091 shares of common stock issued as collateral for loans, which could potentially dilute future earnings per share.

DIVIDEND POLICY - The Company has never paid any cash dividends and intends, 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.

USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

                Recent accounting pronouncements applicable to the Company are summarized below. 
 
                 In April 2010,  the FASB issued  Accounting  Standard  Update  ("ASU")  2010-13, Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based  Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier application is permitted.  The Company does not expect the provisions of ASU 2010-13 to have a material effect on the financial  position,  results of operations  or cash flows of the  Company. In March 2010, the FASB issued ASU No.2010-11, which is included in the Certification under ASC 815. This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements.  Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption.  This guidance became effective for the Company's interim and annual reporting periods beginning January 1, 2010. The adoption of this guidance did not have a material impact on the Company's financial statements.

                A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements. 

 
10

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SUMMARY OF ACQUISITIONS AND DISCONTINUED OPERATIONS

A summary of acquisitions and discontinued operations for the nine months ended December 31, 2010 and 2009 is as follows:

Acquisition of Car Planner
 
On May 20, 2010, the Company closed the 100% acquisition of JSK Fund Co. Ltd., which owns 100% of 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.

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, primarily through Orix Co Ltd. Car Planner is expected to expand its Business-to-Business model to include Business-to-Consumer transactions during fiscal year 2011. Car Planner’s website is www.carplanner.jp.

Car Planner was acquired for 30,000,000 JPY or approximately $325,000 at the current exchange rate. The acquisition was financed through the issuance of 500,000 shares of our common stock valued at $0.65 per share.

The cost to acquire these assets has been preliminarily allocated to the assets acquired according to estimated fair values and is subject to adjustment when additional information concerning asset valuations is finalized, but no later than May 20, 2011. The preliminary allocation is as follows:

       
Purchase price-
     
Common stock
  $ 325,000  
Cash
    (235,617 )
Accounts receivable, net
    (43,435 )
Fixed assets
    (26,773 )
Other assets
    (121,594 )
Accounts payable - trade
    32,322  
Accrued liabilities
    37,161  
Notes payable
    454,436  
         
Total purchase price
  $ 421,500  
         
Portion allocated to identifiable intangible assets
  $ 421,500  

The results of operations of Car Planner were included in the Consolidated Statements of Operations for the period May 21, 2010 to December 31, 2010.

Acquisition of Johnny

On June 4, 2010, the Company closed the 60% acquisition of 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, Playstation Portable, 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 operates seven direct management stores and three franchise stores in the Iwate, Akita and Aomori prefectures in Northern Japan. Mr. Jun Sugiura, founder and Chief Executive Officer, will retain 40% ownership of the company. Johnny’s website is http:// www.fc-johnny.jp and the mobile website is http://www.fc-johnny.jp/mobile.

The 60% share of Johnny was acquired for 280,000 shares of our common stock valued at $0.636, or approximately $178,000.

The cost to acquire these assets has been preliminarily allocated to the assets acquired according to estimated fair values and is subject to adjustment when additional information concerning asset valuations is finalized, but no later than June 4, 2011. The preliminary allocation is as follows:
 

       
Purchase price-
     
Common stock
  $ 178,000  
Noncontrolling interest
    89,000  
Accounts receivable, net
    (51,677 )
Inventories
    (1,700,291 )
Equipment, net
    (79,338 )
Other assets
    (566,183 )
Accounts payable - trade
    213,994  
Accrued liabilities
    285,222  
Notes payable
    2,558,401  
Other liabilities
    3,975  
         
Total purchase price
  $ 931,103  
         
Portion allocated to identifiable intangible assets
  $ 931,103  
 
 
11

IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The results of operations of Johnny were included in the Consolidated Statements of Operations for the period June 5, 2010 to December 31, 2010.

Acquisition of Zest

               On November 22, 2010, the Company acquired 100% of Zest from Kansai Trust Co Ltd, a Japanese corporation and Yutaka Kanatani, a Japanese citizen.

                Zest is engaged in the custom home design and construction business for middle-class families looking for high quality at reasonable prices.  Zest operates out of three locations in Central Japan (Himeji, Tatsuno, and Kakogawa) under an exclusive license from Universal Home Co. Ltd. In addition, Zest buys and sells land.

                Established in 1997, Zest was acquired for $650,667. The Company issued 666,667 shares valued at $.616, the closing price on November 22, 2010 less a 30% discount for the illiquid nature of the Company stock. In addition, the Company issued 400,000 shares in a Subscription Agreement to an investor valued at $.60 per share or $240,000.  The Company agreed to register the shares within ninety days following the closing of the transaction and make reasonable efforts to cause the registration statement to become effective within sixty (60) days of the initial filing.

The cost to acquire these assets has been preliminarily allocated to the assets acquired according to estimated fair values and is subject to adjustment when additional information concerning asset valuations is finalized, but no later than November 21, 2012. The acquisition cost of Zest was $650,667. The Company received assets valued at $2,607,307. The excess of assets received over the cost paid of $1,956,640 was credited to net income in accordance with ASC 805. 

Purchase price-
     
 Common stock
  $ 650,667  
Cash
    1,724,196  
 Accounts receivable
    201,518  
Inventories
    1,358,466  
Equipment, net
    5,487,478  
Other current assets
    1,559,056  
Consumption and deferred tax receivable
    1,078,699  
Other assets
    1,036,436  
Advances to affiliates
    3,000,127  
Accounts payable
    (1,325,826 )
Other current liabilities
    (3,231,132 )
Income taxes payable- foreign
    (1,121,414 )
Notes payable
    (6,086,767 )
         
         
Total purchase price
  $ 1,956,640  
         
 Portion allocated to other income
  $ 1,956,640  

The results of operations of Zest were included in the Consolidated Statements of Operations for the period November 22, 2010 to December 31, 2010.

 
12

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisition of PowerDial

On December 17, 2010, the Company acquired 100% of PowerDial from Innovative Software Direct Plc, a U.K. company listed on the U.K. PLUS Market.

UK–based PowerDial is an IT company providing VOIP and asset and annuity solutions covering all aspects of convergence, including voice, data, wireless and cable.  They provide physical networks, onsite IT equipment, and applications that control the performance and integrity of networks and the data on those networks. PowerDial was acquired for $1,453,020 and was financed through the issuance of 2,400,000 shares of common stock valued at $.427 per share, the closing price on December 17, 2010 less a 30% discount for the illiquid nature of the Company stock,  and the assumption of $428,220 in debt. The common stock does not have registration rights. The common stock shall be restricted in accordance with the applicable resale regulations of the Securities and Exchange Commission and are subject to a lock-up agreement for six months.

If PowerDial increases EBIDTA by $250,000 for a total greater than $1.9 million of EBIDTA, the Company is obligated to issue an additional 500,000 shares of common stock. At the Company’s discretion, the aforementioned EBIDTA condition may be replaced by other criteria, including but not limited to additional acquisitions that Acquirer deems favorable. In any event, the common stock shall not be registered and shall not have registration rights associated with them.   The common stock shall be restricted in accordance with the applicable resale regulations of the Securities and Exchange Commission. If the Seller has been able to meet the stated earnings requirements listed above, these additional restricted common stock will be issued by March 31, 2012.
 
With the assistance of certain affiliates of PowerDial and their investor network, the Company has agreed to issue in a private placement up to $2 million of additional common stock after the closing of the transaction. These shares will be issued with attendant registration rights for a PIPE transaction.  The post merger board of the acquirer will address the pricing and the terms of sale of the additional shares and approval of the acquisitions below.  The funds received by Company in the foregoing financing will be used to acquire VOIP, IT, or telecom acquisitions subject to board of director approval. 

On December 6, 2010, Brian Hoekstra, our Chief Executive Officer, loaned $50,000 to PowerDial as security for the bank loan. The loan is expected to be repaid, but is secured by 133,333 shares of the Company’s common stock
 
The cost to acquire these assets has been preliminarily allocated to the assets acquired according to estimated fair values and is subject to adjustment when additional information concerning asset valuations is finalized, but no later than December 19, 2012. The preliminary allocation is as follows:
                  
 
Purchase price-
     
 Common stock
  $ 1,453,020  
Cash
    (62,184 )
Accounts receivable, net
    198,087  
Inventory
    663,265  
Other assets
    19,470  
Accounts payable - trade
    (275,136 )
Accrued liabilities
    (276,593 )
Income taxes payable- foreign
    (142,839 )
Deferred revenue
    (319,118 )
Other liabilities
    (6,164 )
Total purchase price
  $ 1,251,808  
         
 Portion allocated to identifiable intangible assets
  $ 1,251,808  
 
The results of operations of PowerDial were included in the Consolidated Statements of Operations for the period December 17, 2010 to December 31, 2010.

Deconsolidation of Business Process Outsourcing  
 
In the Philippines, the Company acquired 100% of each of Shift on April 10, 2008 and Asia Premier on May 27, 2008.  Shift and Asia Premier were multi-service call center operations which were merged into a single company operating as Global Hotline Philippines. On June 14, 2010, the Company recorded an intangible asset impairment of $793,000 as of March 31, 2010. On September 30, 2010, the Company reached the decision to deconsolidate the operations of Global Hotline Philippines. The Company’s reported net loss improved by $497,000 for the nine months ended December 31, 2010 and its stockholders’ deficiency as of December 31, 2010 decreased by $497,000 as a result of recording a gain from the deconsolidation of Global Hotline Philippines represented by the excess of Global Hotline Philippines liabilities over its assets on the deconsolidation date.

 
13

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deconsolidation of Global Hotline, Inc.

Until late 2009, the Company also operated in Japan through our wholly-owned subsidiary, 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 the Company continues to sue H Capital for damages, on December 8, 2009, the Company reached the decision to deconsolidate the operations of Global Hotline, effective as of July 1, 2009. As a result, the Company accounted for Global Hotline as a discontinued operation. The Company’s reported net loss improved by $10.1 million for the year ended March 31, 2010 and its stockholders’ deficiency 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 Note 3 of the Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.

PRO-FORMA FINANCIAL INFORMATION
 
The unaudited pro-forma financial information for the acquisitions for nine months ended December 31, 2010 was as follows:
 
 
   
As Reported Nine Months Ended December 31, 2010
Pre-Acquisition Operations of Car Planner Co Ltd April 1, 2010 - May 20, 2010
Pre-Acquisition Operations of Johnny Co Ltd April 1, 2010 - June 4, 2010
Pre-Acquisition Operations of Zest Co Ltd April 1, 2010 - November 21, 2010
Pre-Acquisition Operations of PowerDial Systems Ltd April 1, 2010 - December 16, 2010
Pro Forma Nine Months Ended December 31, 2010
                         
Revenue
 $
     6,582,893
 $
        104,906
 $
        932,279
 $
     9,513,078
 $
    1,514,078
 $
    18,647,233
Net income
 
     1,726,605
 
            5,480
 
          18,227
 
        2,511,750
 
        137,957
 
     4,400,018
Net income per common share (basic)
 
             0.24
                 
             0.61
 
NOTE 4. ACCOUNTS RECEIVABLE
 
Accounts receivable were $656,229 and $0 as of December 31, 2010 and March 31, 2010, respectively. The Company did not have customers with sales or accounts receivable in excess of 10% as of December 31, 2010.

NOTE 5. INVENTORIES

Inventories were $4,243,096 and $0 as of December 31, 2010 and March 31, 2010, respectively. Inventories consist primarily of cards and gaming hardware being refurbished at Johnny, land and buildings at Zest and equipment at PowerDial and is summarized as follows:

 
    December 31,     March 31,  
    2010     2010  
    (unaudited)     Audited  
 Work in process   $ 1,395,191       -  
 Finished goods     2,847,905       -  
    $ 4,243,096     $ -  
 

There is no provision for impaired inventory as of December 31, 2010 and March 31, 2010.

NOTE 6. PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, net of accumulated depreciation, was $5,683,134 and $226 as of December 31, 2010 and March 31, 2010, respectively. Accumulated depreciation was $2,142,416 and $2,482 as of December 31, 2010 and March 31, 2010, respectively. Total depreciation expense was $85,231 and $1,014 for the nine months ended December 31, 2010 and 2009, respectively. All property, plant and equipment is used for selling, general and administrative purposes and accordingly all depreciation is classified in selling, general and administrative expenses.

 
14

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, plant and equipment is comprised of the following:

                   
   
Estimated
   
December 31,
   
March 31,
 
   
Useful Lives
   
2010
   
2010
 
         
(unaudited)
   
(audited)
 
                   
Land
    N/A     $ 2,894,516     $ -  
Equipment and vehicles
    2-15       1,965,723       2,708  
Building and leasehold improvements
    10-24       2,965,310       -  
              7,825,550       2,708  
Less: accumulated depreciation
            (2,142,416 )     (2,482 )
            $ 5,683,134     $ 226  

NOTE 7. ADVANCES TO AFFILIATED PARTIES

              On August 31, 2010 Zest advanced or loaned $1,871,853 to Kansai Trust Co Ltd and $1,985,985 to Cosmos Trust Co Ltd, parties affiliated with the Chief Executive Officer of Zest. The advances and loans are secured by the shares of Cosmos Trust Co Ltd, Hyas Co Ltd and land held by Kansai Trust Co Ltd. The Company expects all advances and loans to be repaid, but booked the advances and loans at the estimated market value of $3,000,000as of the closing of the Zest acquisition on November 22, 2010.

NOTE 8. INTANGIBLE ASSETS, NET

Intangible assets, net as of December 31, 2010 and March 31, 2010 consisted of the following:

 
               
 
Estimated
 
December 31,
   
March 31,
 
 
Useful Lives
 
2010
   
2010
 
     
(unaudited)
   
(audited)
 
Customer contracts
3 years
  $ 2,604,410     $ -  
Less: accumulated amortization
      (278,709 )     -  
    Intangible assets, net
    $ 2,325,701     $ -  
                   

Total amortization expense was $278,709 and $0 for the nine months ended December 31, 2010 and 2009, respectively.

The fair value of the Car Planner intellectual property acquired was $421,500, estimated by using a discounted cash flow approach based on future economic benefits associated with agreements with its customers, or through expected continued business activities with its customers. In summary, the estimate was based on a projected income approach and related discounted cash flows over three years, with applicable risk factors assigned to assumptions in the forecasted results.

The fair value of the Johnny intellectual property acquired was $931,103, estimated by using a discounted cash flow approach based on future economic benefits associated with agreements its customers, or through expected continued business activities with its customers. In summary, the estimate was based on a projected income approach and related discounted cash flows over three years, with applicable risk factors assigned to assumptions in the forecasted results.

The fair value of the PowerDial intellectual property acquired was $1,452,446, estimated by using a discounted cash flow approach based on future economic benefits associated with agreements its customers, or through expected continued business activities with its customers. In summary, the estimate was based on a projected income approach and related discounted cash flows over three years, with applicable risk factors assigned to assumptions in the forecasted results.

The acquisition cost of Zest was $650,667. The Company received assets valued at $2,571,943. The excess of assets received over the cost paid of $1,956,640 was credited to net income in accordance with ASC 805.

NOTE 9. OTHER ASSETS (LONG TERM)

Other assets were $1,244,092 and $0 as of December 31, 2010 and March 31, 2010, respectively. These assets include rent deposits and merchandise deposits at Johnny and long term prepaid expenses and insurance at Zest.

 
15

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 10. ACCRUED LIABILITIES
 
Accrued liabilities were $4,512,788 and $911,360 as of September 30, 2010 and March 31, 2010, respectively. Such liabilities consisted of the following:

 
   
December 31,
   
March 31,
 
   
2010
   
2010
 
   
(unaudited)
   
(audited)
 
Accrued salaries
  $ 263,665     $ 235,874  
Trade debt not in accounts payable
    3,767,329       192,117  
Accrued interest
    497,605       483,639  
Other accrued expenses
    125,013       -  
    $ 4,653,612     $ 911,630  
 

NOTE 11. NOTES PAYABLE/ LONG-TERM DEBT
 
Notes payable and long term debt were $9,692,403 and $205,500 as of December 31, 2010 and March 31, 2010 consisted of the following:

IA Global, Inc.

On July 14, 2008 and August 11, 2008, the Company entered into three-year loan agreements with Artemis Capital Group LLC, pursuant to which the Company received loans in the principal amount totaling approximately $199,500 at an interest rate of 7.0% per annum. The interest was payable quarterly beginning in October 2008. The Company issued 60,000 shares of common stock as of September 30, 2008 and 11,091 shares of common stock on November 19, 2008, which serves as collateral for the loans. In addition, the Company paid $34,613 in fees, which are being amortized over the life of the loan. At the termination of the loans, the Company may repay the loans, forfeit the shares to the lender or renew the loans on a year by year basis based on mutually agreeable terms. The loan cannot be terminated within the first eighteen months of the loan and after this period, it can be repaid with a 10% penalty. Total interest expense for these loans for the nine months ended December 31, 2010 and 2009 was $8,378.

In connection with the acquisition of Asia Premier, the Company entered into a note payable totaling $268,000. As of March 31, 2010, a total of $6,000 remains unpaid from this note payable. The note payable was secured by the assets of Asia Premier and is non-interest bearing.

Car Planner

On January 10, 2010, Car Planner entered into an amended one year interest only loan agreement with Orix Corporation, a Japanese company and a customer of Car Planner. The amended loan has a principal balance of 37,500,000 Yen or approximately $460,793 at current exchange rates as of December 31, 2010 and requires monthly 2.5% interest only payments of 86,833 Yen or approximately $1,067 at current exchange rates. The loan is not guaranteed.

Johnny

Johnny has the following notes payable and long term debt as of December 31, 2010:

   
Balance as of
                     
Lendor
 
December 31, 2010
 
Due Date
 
Monthly Payment
   
Interest Rate
   
Guarantor
 Collateral
Iwate Bank Co Ltd
 
¥68,520,000
 
December 1, 2023
 
¥274,000
      4.625 %  
Chief Executive Officer
 None
Iwate Bank Co Ltd
    74,100,000  
December 1, 2023
    290,000       2.700 %  
Guaranty Society and Chief Executive Officer
 None
Iwate Bank Co Ltd
    18,520,000  
December 1, 2023
    74,000       2.700 %  
Guaranty Society and Chief Executive Officer
 None
Iwate Bank Co Ltd
    34,416,161  
March 1, 2016
    582,491       4.875 %  
Guaranty Society and Chief Executive Officer
 Inventory
Labor insurance loan
    1,394,235  
None
         
None
   
None
 None
Japan Finance Corporation Co Ltd
    10,038,000  
September 1, 2023
    20,000       1.500 %  
Chief Executive Officer
 None
Japan Finance Corporation Co Ltd
    3,660,000  
December 1, 2016
    61,000       3.000 %  
Chief Executive Officer
 None
Japan Finance Corporation Co Ltd
    20,004,000  
May 1, 2024
    0       5.200 %  
Chief Executive Officer
 None
Total Yen
 
¥230,652,396.00
     
¥1,301,491.00
               
      81.38143         81.38143                
Total $
  $ 2,834,214       $ 15,992                
 

 
 
16

IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Zest

Zest has the following notes payable and long term debt as of December 31, 2010:

 
Balance as of
         
Lendor
December 31, 2010
Due Date
Monthly Payment
Interest Rate
Guarantor
Collateral
Himeji Credit Union
¥12,200,000
September 25, 2012
¥600,000
1.600%
Guarantee Association
None
Himeji Credit Union
¥42,400,000
November 29, 2013
¥1,200,000
1.875%
Guarantee Association
None
Himeji Credit Union
¥17,240,000
September 25, 2012
¥840,000
2.125%
Guarantee Association
None
Himeji Credit Union
¥24,500,000
April 20, 2013
¥850,000
2.200%
Guarantee Association
None
Himeji Credit Union
¥14,250,000
August 25, 2015
¥250,000
1.350%
Guarantee Association
None
Himeji Credit Union
¥26,400,000
January 27, 2017
¥360,000
1.300%
Guarantee Association
None
Himeji Credit Union
¥27,500,000
July 25, 2015
¥500,000
2.600%
Unsecured
None
Himeji Credit Union
¥18,000,000
August 31, 2011
¥2,000,000
2.900%
Unsecured
None
Himeji Credit Union
¥18,250,000
July 25, 2015
¥350,000
2.200%
Unsecured
None
Himeji Credit Union
¥20,000,000
September 30, 2011
¥2,000,000
2.900%
Unsecured
None
Japanese Municipal Treasury
¥47,886,000
July 20, 2016
¥714,000
1.250%
None
Property
Japanese Municipal Treasury
¥13,080,000
September 20, 2011
¥1,420,000
2.950%
None
Property
Japanese Municipal Treasury
¥13,590,000
July 20, 2014
¥315,000
2.550%
None
Property
Japanese Municipal Treasury
¥24,160,000
July 20, 2014
¥560,000
1.550%
None
Property
Japanese Municipal Treasury
¥42,440,000
February 20, 2015
¥840,000
2.550%
None
Property
Hyogo Credit Union
¥43,616,000
March 31, 2020
¥388,000
1.300%
Unsecured
Property
Hyogo Credit Union
¥33,000,000
April 20, 2011
¥73,000
2.600%
Unsecured
Property
Hyogo Credit Union
¥32,000,000
June 30, 2011
¥52,000
2.300%
Unsecured
Property
Mitsubishi Tokyo UFJ Bank
¥32,384,000
July 8, 2016
¥476,000
2.340%
Guarantee Association
None
             
Total Yen
¥502,896,000.00
 
¥13,788,000.00
     
 
81.38143
 
81.38143
     
Total $
 $               6,179,493
 
 $        169,424
     
             


All the loans were used for working capital. Future principal repayments for all long term debt as of December 31, 2010 are as follows:

Notes Payable by year-
     
       
Years Ended December 31,
     
2011
  $ 3,312,938  
2012
    1,543,958  
2013
    1,110,252  
2014
    840,534  
2015
    585,645  
       Beyond
    2,299,078  
Total
    9,692,403  
Less current portion of long term debt
    (3,312,938 )
Long term debt
  $ 6,379,465  
         

NOTE 12. RELATED PARTY TRANSACTIONS

Any material related party transactions are reported in applicable sections of this Form 10-Q.

NOTE 13. EQUITY TRANSACTIONS/ TREASURY STOCK
 
During the nine months ended December 31, 2010, the following stockholder equity events occurred:

Private Placements with Inter Asset Japan LBO No. 1 Fund

 
17

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
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 1,119,393 shares of IAGI common stock. The Korean Venture Capital Fund was not successfully formed.

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 Statement was declared effective on March 9, 2010 and 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).
     
 
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 166,667 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 141,172 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 8,000 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).
     

 
18

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
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.

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.

As of December 31, 2010, the Company sold to Ascendiant 351,454 shares at a purchase price of $.552 per share, or an aggregate price of $194,107. As of March 21, 2011, the Company sold to Ascendiant 383,523 shares at a purchase price of $0.547 per share, or an aggregate price of $194,107.

Stock Purchase Agreement with RXR Cross Border Investment Un (“RXR”)

On April 16, 2010, the Company received a $102,915 funding commitment under a Stock Purchase Agreement (“Agreement”) with RXR, a new shareholder of the Company. Under the terms of the Agreement, the Company agreed to issue and sell to RXR 171,525 shares of the Company’s common stock for an aggregate purchase price of $102,915, funded during March 10, 2010 and April 16, 2010. The price per share is $0.60, the average during the periods of the wires.

On or before December 8, 2010, we received a $105,000 funding commitment under a Stock Purchase Agreement (“RXR Purchase”) with RXR. Under the terms of the RXR Purchase, we agreed to issue and sell to RXR, 175,000 shares of our common stock for an aggregate purchase price of $105,000, or $0.60 per share, the price on signing.

RXR’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 RXR in reliance on the exemption provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC thereunder.

The Agreement contains certain representations and warranties of the RXR and the Company, including customary investment-related representations provided by RXR, as well as acknowledgements by RXR 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.

 
19

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


               The Company issued and sold the shares of common stock to RXR 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.

Stock Purchase Agreement with World Investment Un (“World”)

On June 15, 2010, the Company received a $145,000 funding commitment under a Stock Purchase Agreement (“World Agreement”) with World, a new shareholder of the Company. Under the terms of the World Agreement, the Company agreed to issue and sell to World 241,667 shares at a purchase price of US$0.60 per share, the price on signing, or an aggregate price of US$145,000 on or before June 15, 2010.

World’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 World in reliance on the exemption provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC thereunder.
 
The World Agreement contains certain representations and warranties of World and the Company, including customary investment-related representations provided by World, as well as acknowledgements by the World 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 World 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.

Acquisition of Car Planner

On May 20, 2010, we closed the 100% acquisition of JSK Fund Co Ltd., which owns 100% of Car Planner, both of which are Japanese companies, from JSK Fund, Inc. Group, a party affiliated with an existing shareholder, RXR. 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 500,000 shares of our common stock valued at $0.65 per share.

The Share Exchange Agreement requires that the common stock be registered within ninety days of closing.

Acquisition of Johnny

On June 4, 2010, we closed the 60% acquisition of Johnny from Hynox Corporation, both of which are Japanese companies. The 60% share of Johnny was acquired for 280,000 shares of our common stock valued at $0.636, or approximately $178,000.

The Share Exchange Agreement requires that the common stock be registered within ninety days of closing.

Stock Purchase Agreement with MGVJ Co Ltd. (“MGVJ”)

On June 28, 2010 and July 20, 2010, the Company received $60,000 and $150,000 funding commitment under Stock Purchase Agreements (“Stock Purchases”) with MGVJ, respectively. Under the terms of the Stock Purchases, the Company agreed to issue and sell to MGVJ 100,000 and 250,000 shares of the Company’s common stock for an aggregate purchase price of $60,000 and $150,000, or $0.60 per share.

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 Stock Purchases 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.
 

 
20

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Stock Purchases contain 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 provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC under the Securities Act.

Stock Purchase Agreement with Trade Management Co Ltd (“Trade Management”)

On August 23, 2010, September 8, 2010 and September 16, 2010, the Company received $60,000, $55,000 and $80,000, respectively, funding commitments under Stock Purchase Agreements (“Trade Management Agreements”) with Trade Management, a new shareholder of the Company. Under the terms of the Trade Management Agreements, the Company sold to Trade Management 100,000, 91,667 and 133,333 shares, respectively at a purchase price of US$.60 per share.

Trade Management’s obligation to purchase the foregoing shares by the dates specified was conditioned upon the representations and warranties of the Company contained in the Trade Management Agreements being accurate as of such dates.
 
The Trade Management Agreements contains certain representations and warranties of Trade Management and the Company, including customary investment-related representations provided by Trade Management, as well as acknowledgements by Trade Management 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 Trade Management 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.

Stock Purchase Agreement with Kosuki Doi (“Mr. Doi”)

On December 8, 2010, the Company received a $240,000 funding commitment under a Stock Purchase Agreement (“Doi Purchase”) with Mr. Doi. Under the terms of the Doi Purchase, the Company agreed to issue and sell to Mr. Doi, 400,000 shares of our common stock for an aggregate purchase price of $240,000, or $0.60 per share, the price on signing.

Mr. Doi’s obligation to purchase the foregoing shares by the dates specified was conditioned upon the representations and warranties of the Company contained in the Doi Purchase being accurate as of such dates.
 
The Company issued and sold the shares of common stock to Mr. Doi in reliance on the exemption provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC thereunder.

The Doi Purchase contain certain representations and warranties of Mr. Doi and the Company, including customary investment-related representations provided by Mr. Doi, as well as acknowledgements by Mr. Doi 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. We 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 provided under Section 4(2) of the Securities Act and Regulation D promulgated by the SEC under the Securities Act.


 
21

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                
Acquisition of Zest
 
On November 22, 2010, the Company acquired 100% of Zest for $650,667. The Company issued 666,667 shares valued at $.616, the closing price on November 22, 2010 less a 30% discount for the illiquid nature of the Company stock. In addition, the Company issued 400,000 in a Subscription Agreement to an investor valued at $.60 per share or $240,000.  The Company agreed to register the shares within ninety days following the closing of the transaction and make reasonable efforts to cause the registration statement to become effective within sixty (60) days of the initial filing.

Acquisition of PowerDial

                 On December 17, 2010, the Company acquired 100% of PowerDial from Innovative Software Direct Plc, a U.K. company listed on the U.K. PLUS Market.

                  PowerDial was acquired for $1,4531,020 and was financed through the issuance of 2,400,000 shares of common stock valued at $.427 per share, the closing price on December 17, 2010 less a 30% discount for the illiquid nature of the Company stock,  and the assumption of $428,220 in debt. The common stock does not have registration rights. The common stock shall be restricted in accordance with the applicable resale regulations of the Securities and Exchange Commission and are subject to a lock-up agreement for six months.

Other Equity Issuances

On May 21, 2010, the Company issued 27,176 shares of common stock to Brian Hoekstra, its Chief Executive Officer for $15,244, or $.55 per share. The shares do not have registration rights.

On May 25, 2010, the Company issued 90,000 warrants to acquire shares of common stock to National Securities Corporation and two individuals, Steve Freifeld and Vince Calicchia in connection with investment banking services. The warrants are exercisable at $.50 per share and expire on May 24, 2013.

On June 8, 2010, the Company issued 100,000 shares of common stock to Derek Schneideman, its former Chief Executive Officer for $50,000, or $.50 per share. The shares do not have registration rights.

On June 14, 2010, the compensation committee awarded Mr. Senda 10,000 shares of stock at the fair market price of $0.65 per share based on the adjusted closing price on June 14, 2010, the date the committee approved the grant. In accordance with the 2007 Stock Incentive Plan, the grant vested on June 14, 2010.

                On October 25, 2010, the Company issued 20,000 shares of restricted shares of the Company’s common stock to Robert Jones for advisory services. The shares were valued at $.65 per share, the closing price on September 24, 2010, the day prior to the signing of the advisory agreement.

NOTE 14. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Except as disclosed, 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. The Company continues to work with various vendors and former employees on past due liabilities.

POTENTIAL LEGAL PROCEEDING – AMV

On April 1, 2009, the Company 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 and August 17, 2010, AMV requested that the $317,000 of IAO Preferred Stock be converted into 12,800,000 shares of the Company’s common stock. The Company declined to convert this IAO Preferred Stock and their various other demands.

At AMV’s sole discretion, AMV had the option to (1) convert some or all of its IAO Preferred Stock into 256,000  shares of our common stock pro rata at $1.25  per share; or (2) exchange IAO Preferred Stock for 971,458 Taicom Stock owned by the Company 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 the 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.

 
22

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
LEGAL CLAIMS

On August 18, 2010, Fusion Systems, Inc. (“Fusion Systems”) sued the Company in the Superior Court in the County of San Francisco for breach of contract for 13, 681,107 Yen or approximately or approximately $164,000 at current exchange rates, plus interest and legal fees.  The case is scheduled for trial on August 21, 2011.

EMPLOYMENT AGREEMENTS
 
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. On September 4, 2010, December 4, 2010 and March 4, 2011, the Company entered into Employment Agreement Extensions with Brian Hoekstra which extends his Employment Agreement dated September 4, 2009 to June 4, 2011. The Company is currently in technical default of the Hoekstra Employment Agreement related to unpaid payroll and expenses.

The Compensation Committee also awarded Mr. Hoekstra 16,000 shares of restricted stock and an option to purchase 24,000 shares of the Company’s common stock. The awards were granted at the fair market price of $2.00 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.

On December 17, 2010, the board of directors awarded Mr. Hoekstra an option to purchase 8,000 shares of the Company’s common stock. The award was granted at the fair market price of $0.61 per share based on the adjusted closing price on December 17, 2010, the closing price the day the board of directors approved the grant. These options vest quarterly over three years from the date of the grant.

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 4,000 shares of restricted stock and an option to purchase 6,000 shares of the Company’s common stock. The awards were granted at the fair market price of $2.50 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.

 
23

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


On August 24, 2010, the Company entered into a new Employment Agreement with Mark Scott, which replaced his Employment Agreement dated August 24, 2009. 

Mark Scott’s Employment Agreement (“Scott Agreement 2”) had a one-year term beginning on August 24, 2010, and is automatically renewable unless either party provides ninety days notice prior to the expiration of Scott Agreement 2. The Company agreed to pay Mr. Scott an annual base salary of $125,000, 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 performance bonuses of $10,000 per quarter and additional bonuses in the event the Company reaches certain performance measures and/or milestones established by the Compensation Committee of the Board or the entire Board. 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. The Company is currently in technical default of Scott Agreement 2 related to unpaid payroll and expenses.
 
On August 16, 2010, the board of directors awarded Mr. Scott an option to purchase 20,000 shares of the Company’s common stock. The award was granted at the fair market price of $0.85 per share based on the adjusted closing price on August 16, 2010, the closing price the day the board of directors approved the grant. These options vest quarterly over three years from the date of the grant.

On December 17, 2010, the board of directors awarded Mr. Scott an option to purchase 8,000 shares of the Company’s common stock. The award was granted at the fair market price of $0.61 per share based on the adjusted closing price on December 17, 2010, the closing price the day the board of directors approved the grant. These options vest quarterly over three years from the date of the grant.

LEASES
 
The Company is obligated under various non-cancelable operating leases for their various facilities and certain equipment.
 
The aggregate unaudited future minimum lease payments, to the extent the leases have early cancellation options and excluding escalation charges, are as follows:

Years Ended December 31,
 
2011
 $                          953,211
2012
830,102
2013
830,102
2014
486,597
2015
486,597
Beyond
973,195
Total
 $                    4,559,805

NOTE 15. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

IA Global, Inc. is a global services and outsourcing company focused on growing existing businesses and expansion through global mergers and acquisitions.  It is organized by subsidiary. Each subsidiary reported to the Chief Executive Officer who has been designated as the Chief Operating Decision Maker ("CODM") as defined by ASC Topic 280. The CODM allocates resources to each of the companies using information regarding revenues, operating income (loss) and total assets.

The following subsidiaries are the only reportable segments under the criteria of ASC Topic 280 (i) IA Global, the parent Company, operates as a global services and technology company focused on organic growth and expansion through global mergers and acquisitions; (ii) Car Planner Co Ltd. , which operates exclusively in Japan and receives service and commission revenue by selling automotive parts over the Internet to approximately 728 car dealers, gas stations, and car maintenance shops; (iii) Johnny Co Ltd, which operates in Japan and engages in the distribution and sales of new video gaming hardware and software; (iv) Zest Co Ltd, which operates in Japan and is engaged in the custom home design and construction business for middle class families looking for high quality at reasonable prices; and (v) PowerDial Systems, Ltd, which operates in the United Kingdom and provides VOIP and asset and annuity solutions covering all aspects of convergence, including voice, data, wireless and cable.

 
24

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited table presents revenues, operating income (loss) and total assets by Company for the three and nine months ended December 31, 2010 and 2009:

(dollars in thousands)
         
Car Planner
   
Johnny
           PowerDial    
 
     Discontinued  
Company
 
IA Global, Inc.
   
Co Ltd
   
Co Ltd
   
Zest Co Ltd
   
Systems Ltd
   
Total
   
Operations
   
Total
 
Three Months Ended December 31, 2010-
                                               
Revenue
  $ -     $ 342     $ 2,064     $ 1,286     $ 90     $ 3,782     $ -     $ 3,782  
Operating (loss) income
    (341 )     (1 )     27       314       (10 )     (11 )     -       (11 )
Total assets
    138       845       3,865       14,614       2,055       21,517       -       21,517  
                                                                 
Three Months Ended December 31, 2009-
                                                               
Revenue
  $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
Operating loss
    (432 )     -       -       -       -       (432 )     -       (432 )
Total assets
    2,173       -       -       -       -       2,173       677       2,850  
                                                                 
Nine Months Ended December 31, 2010-
                                                               
Revenue
  $ -     $ 756     $ 4,451     $ 1,286     $ 90     $ 6,583     $ -     $ 6,583  
Operating (loss) income
    (1,049 )     (14 )     136       314       (10 )     (623 )     -       (623 )
Total assets
    138       845       3,865       14,614       2,055       21,517       -       21,517  
                                                                 
Nine Months Ended December 31, 2009-
                                                               
Revenue
  $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
Operating loss
    (2,094 )     -       -       -       -       (2,094 )     -       (2,094 )
Total assets
    2,173       -       -       -       -       2,173       677       2,850  
                                                                 
                   
United
           
Discontinued
                         
Geographic Region
 
U.S.
   
Japan
   
Kingdom
   
Total
   
Operations
   
Total
                 
Three Months Ended December 31, 2010-
                                                               
Revenue
  $ -     $ 3,692     $ 90     $ 3,782     $ -     $ 3,782                  
Operating (loss) income
    (341 )     340       (10 )     (11 )     -       (11 )                
Total assets
    138       19,324       2,055       21,517       -       21,517                  
                                                                 
Three Months Ended December 31, 2009-
                                                               
Revenue
  $ -     $ -     $ -     $ -     $ -     $ -                  
Operating loss
    (432 )     -       -       (432 )     -       (432 )                
Total assets
    2,173       -       -       2,173       677       2,850                  
                                                                 
Nine Months Ended December 31, 2010-
                                                               
Revenue
  $ -     $ 6,493     $ 90     $ 6,583     $ -     $ 6,583                  
Operating (loss) income
    (1,049 )     436       (10 )     (623 )     -       (623 )                
Total assets
    138       19,324       2,055       21,517       -       21,517                  
                                                                 
Nine Months Ended December 31, 2009-
                                                               
Revenue
  $ -     $ -     $ -     $ -     $ -     $ -                  
Operating loss
    (2,094 )     -       -       (2,094 )     -       (2,094 )                
Total assets
    2,173       -       -       2,173       677       2,850                  

The following reconciles operating loss to net loss:

(dollars in thousands)
   
Three Months Ended December 31,
   
Nine Months Ended December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Operating loss
  $ (11 )   $ (432 )   $ (623 )   $ (2,094 )
Other income (expense)
    1,883       (192 )     1,770       (4,317 )
Net income (loss) from continuing operations before income taxes
    1,872       (624 )     1,147       (6,411 )
Income taxes- current provision
    161       -       157       -  
Net income (loss) from continuing operations
    1,711       (624 )     990       (6,411 )
Income from discontinued operations
    240       9,915       736       7,354  
Net income
    1,951       9,291       1,726       943  
Deemed preferred stock dividend
    -       (125 )     -       (317 )
Noncontrolling interest
    (31 )     -       (87 )     -  
Net income attributable to IA Global, Inc.
                               
 common shareholders   $ 1,920      $ 9,166      $ 1,639      $ 626   
 
 
 
 
25

 
IA GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. SUBSEQUENT EVENTS
 
The Company evaluates subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements are issued.

During February and March 2011, the Company entered into Senior Convertible Promissory Notes (“Notes”) with investors. The Company has received has $200,000 thus far out of an authorized $1,500,000.  The Notes are convertible at a 25% discount to the trailing twenty day moving average prior to one year of issuance. The Note provide for interest at 15% per annum. The Company agreed to issue 200,000 shares to the Note Holders as a condition to the funding. At the Company’s option, it may extend the repayment for an additional year by issuing an additional 200,000 shares. The Notes are secured by the assets of the Company.

During February and March 2011, the Company entered into Senior Convertible Promissory Notes (“Notes 2”) with officers and directors of the Company. The Company converted $190,048 of payroll and directors fees.  The Notes 2 are convertible at a 25% discount to the trailing twenty day moving average prior to one year of issuance. The Note 2 provide for interest at 15% per annum. The Company agreed to issue 190,048 shares to the Note 2 Holders as a condition to the funding. At the Company’s option, it may extend the repayment for an additional year by issuing an additional 200,000 shares. The Notes 2 are secured by the assets of the Company, but are subordinate to the Notes discussed above.