ITEM 1. BUSINESS.
Corporate History
Global Investor Services, Inc. (hereinafter referred to as the “Company”, and “GISV”) was incorporated in the state of Nevada on August 1, 2005. Effective September 18, 2006, the Company changed its name to TheRetirementSolution.com, Inc., and on October 1, 2008 the Company changed its name to Global Investor Services, Inc. The Company was initially formed to market portfolios of stocks via subscription. In 2007, a new chief executive officer was installed and a strategy was developed to create and market a diverse portfolio of products and services for the financial education and financial information industry. This strategy included strategic acquisitions, such as the acquisitions of Razor Data, LLC and Investment Tools and Training, LLC, which have provided the Company with an integrated platform in which it can market and deliver investor education products and investor services. The stock symbol is GISV.
Industry Overview
In recent years, many investors have taken greater personal control of their investment activities, bypassing traditional brokers to trade with online brokerage firms and performing their own financial and investment research, often using the Internet. The Internet provides retail investors with easy access to information that once was readily available only to investment professionals, such as timely market news, intraday and historical quotes, charts, company filings with the Securities and Exchange Commission, equity research and analysts’ earnings estimates. However, while vast quantities of investment information are now available, insight and expertise to make sense of it remains essential and not readily available to small retail investors.
Additionally, during these past years the business environment for financial services and financial education has been in a phase of growth and expansion. Significantly, according to a Securities and Exchange Commission Special Study: On-Line Brokerage: Keeping Apace of Cyberspace (http://www.sec.gov/news/studies/cyberspace.htm ) “Recent advances in information technology - particularly the Internet - are revolutionizing commerce. The securities industry, most significantly on-line brokerage, is at the forefront of this revolution. We believe on-line brokerage has significantly changed the dynamics of the marketplace, causing one of the biggest shifts in individual investors' relationships with their brokers since the invention of the telephone. For the first time ever, investors can - from the comfort of their own homes - access a wealth of financial information on the same terms as market professionals, including breaking news developments and market data. In addition, on-line brokerage provides investors with tools to analyze this information, such as research reports, calculators, and portfolio analyzers. Finally, on-line brokerage enables investors to act quickly on this information.”
Supporting this growing demand is efficient access to financial information and tools driven by advancements in information technology and lower costs of acquiring the necessary tools. In our opinion, this sector contains three main categories: financial information, financial education and data.
We believe that the number of U.S. households that own stocks, either directly or through a mutual fund or retirement plan, has increased proportionally since 1983. Financial information is readily accessed from sources such as cable TV channels and online news providers, while financial education can be accessed from the likes of online brokers. While it is difficult to quantify the size of the addressable market for financial education and financial information, we believe it is likely to keep growing into the future as more and more investors elect to make their own financial decisions.
Business Overview
The Company’s business structure is to generate revenue from several distinct and related sources; marketing and sales of investor education products under the InvestView brand; financial information delivery services through its Razor Data subscription based business and tutorial, mentoring and advisory services that enable customers to apply the information they obtain in the Company’s courses in the real world. The Company believes that by offering financial information and financial education in one integrated operating platform is a viable business strategy.
The Company’s products align a complete range of educational tools, research, analysis, financial news and financial information so that customers can more effectively control their personal finances and develop trading strategies for investing in the stock market. The Company believes that its integrated business model broadens client reach, increases customer retention and creates recurring revenue from our customer base.
The Company’s unique offerings include:
· A comprehensive program of successively complex financial educational courses that are sold to customers on a subscription basis and are delivered on line through the Company’s website;
· In-house developed trading tools with actionable trading indicators;
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Blogs, newsletters and other reference materials that describe investment strategies; and
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Mentoring, coaching and advisory services that are available on a subscription basis.
Acquisitions
Investment Tools & Training, LLC
On January 15th, 2008 the Company acquired Investment Tools & Training, LLC, which brings a highly experienced management team into the Company and an on-line investor education and distribution system as well as traditional distribution through partners. The Company benefits by having acquired experienced management immediately, which assures a deep bench of talent with a successful multi-year track record in this industry.
Razor Data,Corp
The Company, on January 15th 2008, also acquired Razor Data, which brings a robust technology platform into the Company where virtually no capital needs to be invested in the execution of the Company’s business strategy. Razor Data brings experienced technology and operations management and a highly capable development team. Since it began operations five years ago, Razor Data has realized dramatic growth in its subscriber base as a low cost provider, and has achieved profitability in each year of its operations. In addition to its active user base, it has a marketing database of 90,000 potential product customers.
Competition
The company faces competition for subscribers from all forms of financial news and information sources, including print publications, television and radio, and other internet information services providers. The financial services sector is diverse, growing and characterized by rapid change where there are no dominant players. Competitors in this sector have unique attributes and a dominant player has yet to emerge. Despite rapid expansion, the broad sector penetration is still relatively in the early stages, competitors offer different products and services and success is characterized by speed to market and uniqueness of its offering. There are a multitude of providers for online financial information, each using their own analysis methods and research tools. Our competitors include Edgar Online, BankRate.com, TheStreet.com and Morningstar, Swim group, optionsXpress and others. Competition may result in price reductions, decreased gross margins and loss of market share. Certain of our competitors have greater financial and other resources than we have.
Intellectual Property
Our success depends in part on our proprietary technology and know-how and to a great degree on our ability to broadly market our products to our potential customers and gain their acceptance of those products. The Company owns, through its acquisitions of Investment Tools & Training and Razor Data (1) all the financial education products and education and teaching modules in both on-line and physical forms which it markets, sells and delivers through its businesses, (2) all technical tools, presentations, charts, analyses, strategies, customer teaching and support methodologies, subscription services delivery content and systems, and (3) all marketing know-how, product names and brands, logos, names descriptors, url’s and private labeling capability.
Government Regulation
We do not provide securities brokerage or investment advisory services and do not require any representative distributing the services of StockDiagnostics.com to conduct itself as an investment advisor or broker. We in fact encourage all representatives and users of our information services to seek unrelated investment professionals for securities related activities. Because we have positioned the Company as a knowledge provider and educator which seeks to augment a user’s informed decision-making process rather than act as a conductor of investment decisions or a representative of investment services, our activities do not fall within the scope of securities industry regulation.
We are subject to government regulation in connection with securities laws and regulations applicable to all publicly owned companies, as well as laws and regulations applicable to businesses generally. We are also increasingly subject to government regulation and legislation specifically targeting Internet companies, such as privacy regulations adopted at the local, state, national and international levels and taxes levied at the state level. Due to the increasing popularity and use of the Internet, enforcement of existing laws, such as consumer protection regulations, in connection with Web-based activities has become more aggressive, and it is expected that new laws and regulations will continue to be enacted at the local, state, national and international levels. Such new legislation, alone or combined with increasingly aggressive enforcement of existing laws, could inhibit the growth in use of the Internet and decrease the acceptance of the Internet as a communications and commercial medium, which could in turn decrease the demand for our services or otherwise have a material adverse effect on our future operating performance and business.
Employees
GISV has 24 employees. The Company has not experienced any work stoppages and considers relations with its employees to be good.
ITEM 1A.
ITEM 1A. RISK FACTORS
You should carefully consider the following material risk factors as well as all other information set forth or referred to in this report before purchasing shares of our common stock. Investing in our common stock involves a high degree of risk. The Company believes all material risk factors have been presented below. If any of the following events or outcomes actually occurs, our business operating results and financial condition would likely suffer. As a result, the trading price of our common stock could decline, and you may lose all or part of the money you paid to purchase our common stock.
Risks Related to our Business
We have a limited operating history, and therefore there is a high risk of potential business failure unless we can overcome the various obstacles inherent to an early stage business.
We have only limited prior business operations. Because of our limited operating history, you may not have adequate information on which you can base an evaluation of our business and prospects. Investors should be aware of the difficulties, delays and expenses normally encountered by an enterprise in its early stage, many of which are beyond our control, including unanticipated research and development expenses, employment costs, and administrative expenses. We cannot assure our investors that our proposed business plans as described herein will materialize or prove successful, or that we will be able to finalize development of our products or operate profitably.
We have incurred substantial operating losses since inception (August 1, 2005) and we may never achieve profitability.
From our inception on August 1, 2005 through March 31, 2010, we have incurred cumulative losses of $29,550,899 plus an additional loss of $27,233,173 resulting from the full impairment of the Goodwill being carried from our acquisitions. As a result of the start-up nature of our business, we expect to continue to incur substantial expenses. There can be no assurance that we will achieve profitability in the immediate future or at any time. We do not expect to be profitable in 2010, during which we will engage primarily in marketing our products. Our cash balance on March 31, 2010 was $48,828 and our average cash burn for the year ended March 31, 2010 was approximately $96,497 per month. As of the date of this filing, we have minimal operating capital to continue our business and marketing initiatives for the next twelve months. As a result, the Company is actively seeking to secure additional working capital through the sale of its securities.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
In their audit opinion issued in connection with our consolidated balance sheets as of March 31, 2010 and our related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended March 31, 2010, our auditors have expressed substantial doubt about our ability to continue as a going concern given our recurring net losses, negative cash flows from operations and the limited amount of funds on our balance sheet. We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue in existence.
Given our historical financial losses and current financial condition we will need additional financing to execute our business plan for the fiscal year ending March 31, 2011. Our inability to obtain sufficient additional capital could reduce the value the market currently places on our common stock.
We have no current commitment for such future funding and there can be no assurance that additional capital will be available on terms acceptable to us, or at all. Selling additional stock would dilute the equity interests of our stockholders. Further, if we sell stock at a price lower than the conversion price of the Notes held by the selling stockholders, the number of shares of our common stock issuable upon conversion of those Notes will automatically increase; thereby further diluting the equity interests of our stockholders. If we are unable to secure additional capital, we will be forced to reduce our investment in development and commercialization efforts, which will impair our ability to execute our plans. We used cash of $1,157,964 in operating activities for the fiscal year ended March 31, 2010 and, expect to generate positive cash from operations in the fiscal year ending March 31, 2011.
The Company is currently in default under a portion its convertible promissory notes and the investors have the right to commence an action to collect the amounts due.
In connection with a private placement the Company completed on May 8, 2007, the Company issued convertible promissory notes to the investors which matured on August 31, 2007. The Company has failed to make payment of the amounts outstanding for the principal and has been paying the interest in stock. The investors therefore have the right to bring an action to collect the outstanding amounts under such convertible promissory notes. As of the date of this filing, seven of the ten investors have extended these notes until May 11, 2011 for an aggregate of $650,000 leaving $200,000 in default.
As of March 31, 2010, the Company was in default on certain notes and convertible debentures totaling approximately $421,000. The investors have not declared a default by the Company, although there can be no assurance that they will not declare a default in the future.
We may not be able to manage our growth effectively, which could slow or prevent our ability to achieve profitability.
The ability to manage and operate our business as we execute our development and growth strategy will require effective planning. Significant rapid growth could strain our internal resources and delay or prevent our efforts to achieve profitability. We expect that our efforts to grow will place a significant strain on our personnel, management systems, infrastructure and other resources. Our ability to manage future growth effectively will also require us to successfully attract, train, motivate, retain and manage new employees and continue to update and improve our operational, financial and management controls and procedures. If we do not manage our growth effectively slower growth is likely to occur and thereby slowing or negating our ability to achieve and sustain profitability.
We may not be able to fully protect our proprietary rights and we may infringe the proprietary rights of others which could result in costly litigation.
Our future success depends on our ability to protect and preserve the proprietary rights related to our products. We cannot assure you that we will be able to prevent third parties from using our intellectual property rights and technology without our authorization. The Company intends to pursue aggressively all efforts to obtain patent protection for our technology. The Company also relies on trade secrets, common law trademark rights and trademark registrations, as well as confidentiality and work for hire, development, assignment and license agreements with employees, consultants, third party developers, licensees and customers. Our protective measures for these intangible assets afford only limited protection and may be flawed or inadequate.
Policing unauthorized use of our technology is difficult and some foreign laws do not provide the same level of protection as U.S. laws. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or patents that we may obtain, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and have a material adverse effect on our future operating results.
In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. In particular, there has been an increase in the filing of suits alleging infringement of intellectual property rights, which pressure defendants into entering settlement arrangements quickly to dispose of such suits, regardless of their merits. Other companies or individuals may allege that we infringe on their intellectual property rights. Litigation, particularly in the area of intellectual property rights, is costly and the outcome is inherently uncertain. In the event of an adverse result, we could be liable for substantial damages and we may be forced to discontinue our use of the subject matter in question or obtain a license to use those rights or develop non-infringing alternatives.
The industry in which the Company operates is highly competitive and has low barriers to entry. Increased competition would make profitability even more difficult to achieve.
The Company competes with many providers of business and financial information including INVESTools, optionsXpress, Bloomberg, S&P’s Capital IQ, Dun & Bradstreet, Reuters, Standard & Poor’s, Thompson Financial, 10-K Wizard, MSN, Yahoo!, TheStreet.com among others. Its industry is characterized by low barriers to entry, rapidly changing technology, evolving industry standards, frequent new product and service introductions and changing customer demands. Many of its existing competitors have longer operating histories, name recognition, larger customer bases and significantly greater financial, technical and marketing resources than the Company does. Current competitors or new market entrants could introduce products with features that may render the Company’s products and services obsolete or uncompetitive. To be competitive and to serve its customers effectively, the Company must respond on a timely and cost-efficient basis to changes in technology, industry standards and customer preferences. The cost to modify its products, services or infrastructure in order to adapt to these changes could be substantial and the Company cannot be sure that it will have the financial resources to fund these expenses. Increased competition could result in reduced operating margins, as well as a loss of market share and brand recognition. If these events occur, they could have a material adverse effect on the Company’s revenues.
Our business could be negatively affected by any adverse economic developments in the securities markets and/or the economy in general.
We depend on the interest of individuals in obtaining financial information and securities trading strategies to assist them in making their own investment decisions. Significant downturns in the securities markets or in general economic conditions may cause individuals to be reluctant to make their own investment decisions and thus decrease the demand for our products.
The Company may encounter risks relating to security or other system disruptions and failures that could reduce the attractiveness of its sites and that could harm its business.
Although the Company has implemented various security mechanisms, its business is vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data. For instance, because a portion of its revenue is based on individuals using credit cards to purchase subscriptions over the Internet and a portion from advertisers who seek to encourage people to use the Internet to purchase goods or services, the Company’s business could be adversely affected by these break-ins or disruptions. Additionally, its operations depend on its ability to protect systems against damage from fire, earthquakes, power loss, telecommunications failure, and other events beyond the Company’s control. Moreover, the Company’s website may experience slower response times or other problems for a variety of reasons, including hardware and communication line capacity restraints, software failures or during significant increases in traffic when there have been important business or financial news stories and during the seasonal periods of peak SEC filing activity. These strains on its systems could cause customer dissatisfaction and could discourage visitors from becoming paying subscribers. The Company’s websites could experience disruptions or interruptions in service due to the failure or delay in the transmission or receipt of information from Stockdiagnostics.com. These types of occurrences could cause users to perceive its website and technology solutions as not functioning properly and cause them to use other methods or services of its competitors. Any disruption resulting from these actions may harm the Company’s business and may be very expensive to remedy, may not be fully covered by our insurance and could damage its reputation and discourage new and existing users from using its products and services. Any disruptions could increase costs and make profitability even more difficult to achieve.
The Company could face liability and other costs relating to storage and use of personal information about its users.
Users provide the Company with personal information, including credit card information, which it does not share without the user’s consent. Despite this policy of obtaining consent, however, if third persons were able to penetrate the Company’s network security or otherwise misappropriate its users’ personal or credit card information, it could be subject to liability, including claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims, and misuses of personal information, such as for unauthorized marketing purposes. New privacy legislation may further increase this type of liability. Furthermore, the Company could incur additional expenses if additional regulations regarding the use of personal information were introduced or if federal or state agencies were to investigate our privacy practices.
Legal uncertainties and government regulation of the Internet could adversely affect the Company’s business.
Many legal questions relating to the Internet remain unclear and these areas of uncertainty may be resolved in ways that damage the Company’s business. It may take years to determine whether and how existing laws governing matters such as intellectual property, privacy, libel and taxation apply to the Internet. In addition, new laws and regulations that apply directly to Internet communications, commerce and advertising are becoming more prevalent. As the use of the Internet grows, there may be calls for further regulation, such as more stringent consumer protection laws.
These possibilities could affect the Company’s business adversely in a number of ways. New regulations could make the Internet less attractive to users, resulting in slower growth in its use and acceptance than is expected. The Company may be affected indirectly by legislation that fundamentally alters the practicality or cost-effectiveness of utilizing the Internet, including the cost of transmitting over various forms of network architecture, such as telephone networks or cable systems, or the imposition of various forms of taxation on Internet-related activities. Complying with new regulations could result in additional cost to the Company, which could reduce its profit margins or leave it at risk of potentially costly legal action.
Our future success depends on retaining our existing key employees and hiring and assimilating new key employees. The loss of key employees or the inability to attract new key employees could limit our ability to execute our growth strategy, resulting in lost sales and a slower rate of growth.
Our success depends in part on our ability to retain key employees including our executive officers. Although we have certain employment agreements in effect with our executives, each executive can terminate his or her agreement generally with 90 days notice. It would be difficult for us to replace any one of these individuals. In addition, as we grow we will need to hire additional key personnel. We may not be able to identify and attract high quality employees or successfully assimilate new employees into our existing management structure.
Risks Related to Our Common Stock
We have a history of operating losses and expect to report future losses that may cause our stock price to decline.
For the operating period since inception (August 1, 2005) through March 31, 2010, we have incurred a net cumulative loss of $56,784,072 of which $27,233,173 was from a onetime impairment of 100% of the goodwill associated with the recent acquisitions. The Net Operating Loss for the year ending March 31, 2010 was $7,099,072. We expect to continue to incur losses as we spend additional capital to market our products and establish our infrastructure and organization to support anticipated operations. We cannot be certain whether we will ever be profitable, or if we do, that we will be able to continue to be profitable. Also, any economic weakness or global recession may limit our ability to market our products. Any of these factors could cause our stock price to decline and result in you losing a portion or all of your investment.
We will need to raise additional capital. If we are unable to raise additional capital, our business may fail.
Because our revenues are not yet sufficient to cover expenses or fund our growth, we need to secure on-going funding. If we are unable to obtain adequate additional financing, we may not be able to successfully market and sell our products, our business operations will most likely be discontinued and we will cease to be going concern. To secure additional financing, we may need to borrow money or sell more securities. Under these circumstances, we may be unable to secure additional financing on favorable terms or at all. Selling additional stock, either privately or publicly, would dilute the equity interests of our stockholders. If we borrow money, we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility. If we are unable to obtain adequate financing, we may have to curtail business operations which would have a material negative effect on operating results and most likely result in a lower stock price.
Our common stock has experienced in the past, and is expected to experience in the future, significant price and volume volatility, which substantially increases the risk that you may not be able to sell your shares at or above the price that you pay for the shares.
Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to, the following:
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variations in our quarterly operating results;
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our ability to complete the research and development of our technologies;
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the development of a future market for our products;
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changes in market valuations of similar companies;
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additions or departures of key personnel; and
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fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the Over-the-Counter Bulletin Board and technology stocks in particular, have experienced extreme price and volume fluctuations. In some cases these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price regardless of our operating performance. The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this prospectus is not necessarily an indicator of what the trading price of our common stock might be in the future. In the past, class action litigation has often been brought against companies following periods of volatility in the market price of those companies’ common stock. If we become involved in this type of litigation in the future it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.
Shares of our common stock may be subject to price illiquidity and volatility because our shares may continue to be thinly traded and may never become eligible for trading on Nasdaq or a national securities exchange.
Although a trading market for our common stock exists, the trading volume has not been significant and an active trading market for our common stock may never develop. There currently is no analyst coverage of our business. During the period from March 31, 2009 through March 31, 2010 the average daily trading volume of our common stock was approximately 260,000 shares (or approximately 1% of the shares currently available in the market as of March 31, 2010). The trading volume of our shares will continue to be limited due to resale restrictions under applicable securities laws and the fact that approximately 58% of our outstanding shares are held by officers, directors and stockholders holding greater than a 5% interest in the Company. As a result of the limited trading market for our common stock and the lack of analyst coverage, the market price for our shares may continue to fluctuate significantly and will likely be more volatile than the stock market as a whole. There may be a limited demand for shares of our common stock due to the reluctance or inability of certain investors to buy stocks quoted for trading on the OTC Bulletin Board, lack of analyst coverage of our common stock and limited trading market for our common stock. As a result, even if prices appear favorable, there may not be sufficient demand to complete a stockholder’s sell order. Without an active public trading market or broader public ownership, shares of our common stock are likely to be less liquid than the stock of public companies with broad public ownership and an active trading market, and any of our stockholders who attempt to sell their shares in any significant volumes may not be able to do so at all, or without depressing the publicly quoted bid prices for our shares.
While we may, at some point, be able to meet the requirements necessary for our common stock to be listed on the Nasdaq stock market or on another national securities exchange, we cannot assure you that we will ever achieve such a listing. Listing on one of the Nasdaq markets or one of the national securities exchanges is subject to a variety of requirements, including minimum trading price and minimum public “float” requirements. There are also continuing eligibility requirements for companies listed on national securities exchanges. If we are unable to satisfy the initial or continuing eligibility requirements of any such market, then our stock may not be listed or could be delisted. This could result in a lower trading price for our common stock and may limit your ability to sell your shares, which could result in you losing some or all of your investments.
There Is No Assurance Of An Established Public Trading Market, Which Would Adversely Affect The Ability Of Investors In Our Company To Sell Their Securities In The Public Markets.
Although our common stock trades on the OTCBB, a regular trading market for our common stock may not be sustained in the future. The National Association of Securities Dealers (the “NASD”) limits quotation on the OTCBB to securities of issuers that are current in their reports filed with the SEC. If we fail to be current in the filing of our reports with the SEC, our common stock will not be able to be traded on the OTCBB. The OTCBB is an inter-dealer market that provides significantly less liquidity than a national securities exchange or automated quotation system. Quotes for stocks included on the OTCBB are not listed in the financial sections of newspapers as are those for stocks listed on national securities exchanges or automated quotation systems. Therefore, prices for securities traded solely on the OTCBB may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price. Market prices for our common stock may be influenced by a number of factors, including:
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the issuance of new equity securities;
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changes in interest rates;
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competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
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variations in quarterly operating results;
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change in financial estimates by securities analysts;
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the depth and liquidity of the market for our common stock;
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investor perceptions of our company and the technologies industries generally; and
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general economic and other national conditions.
Our Common Stock will be subject to the “Penny Stock” rules promulgated by the Securities and Exchange Commission.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person's account for transactions in penny stocks; and
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the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
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sets forth the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Failure To Achieve And Maintain Internal Controls In Accordance With Sections 302 And 404(A) Of The Sarbanes-Oxley Act Of 2002 Could Have A Material Adverse Effect On Our Business And Stock Price.
If we fail to maintain adequate internal controls or fail to implement required new or improved controls, as such control standards are modified, supplemented or amended from time to time; we may not be able to assert that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud. If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price. We have examined and evaluated our internal control procedures, including controls over financial reporting to satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act, as required for our Annual Report on Form 10-K for the year ended March 31, 2010, and noted weaknesses that need to be addresses during the current reporting period in order for our internal controls to be effective. Failure to implement and maintain internal controls in accordance with sections 302 and 404(a) of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.
Because We Have No Plans To Pay Dividends On Our Common Stock, Stockholders Must Look Solely To Appreciation Of Our Common Stock To Realize A Gain On Their Investments.
We do not anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements and investment opportunities. In addition, our senior credit facility limits the payment of dividends without the prior written consent of the lenders. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.
Certain provisions of Nevada law and of our corporate charter may inhibit a potential acquisition of our Company, and this could depress our stock price.
Nevada corporate law includes provisions that could delay, defer or prevent a change in control of our company or our management. These provisions could discourage information contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. For example:
(i)
without prior stockholder approval, the Board of Directors has the authority to issue one or more classes of preferred stock with rights senior to those of common stock and to determine the rights, privileges and inference of that preferred stock;
(ii)
there is no cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; and
(iii)
stockholders cannot call a special meeting of stockholders.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
The Company leases its principal executive offices, which are located at 708 3rd Avenue, 6th Floor, New York, New York. The lease is on a month to month basis and is in a shared executive office facility at a cost of approximately $2000 per month.
The Operations of the Company, including marketing, sales, customer service, accounting, technical support, education delivery, product and software development are located in the Salt Lake City Utah area in two separate facilities of approximately 2000 square feet each. Since the company scaled back its operations and headcount in the past year during the business conversion process to online operations, the company has been operating out of shared facilities in Utah through affiliates of the Company, rent free, up to March 31, 2010. As of April 1, 2010 the Company will pay approximately $3,000 per month for both facilities on a month to month basis until such time that a larger single facility is needed.
The Company believes that its current properties are adequate for its current and immediately foreseeable operating needs. The Company does not have any policies regarding investments in real estate, securities or other forms of property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of March 31, 2010 the Company was engaged in one legal matter: On July 16, 2009, a petition for judgment was filed with the Civil Court of the City of New York naming the Company as a defendant relating to property leased by the Company from the defendant for recovery of past due rent payments, interest and legal costs. As of December 31, 2009, the Company has accrued their obligation under the lease. On March 30, 2010, the Company settled for $156,720. In additional the Company may be obligated to additional monies due on the primary lease of $67,600. As of March 31, 2010, the Company has accrued their obligations under the lease.
ITEM 4.
ITEM 4. (Removed and Reserved)
Not Applicable
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
The Company’s common stock is traded on the OTC Bulletin Board, referred to herein as the OTCBB, under the symbol “GISV.OB.” The following table sets forth the high and low bid prices of its Common Stock, as reported by the OTCBB for the last two fiscal years and subsequent quarterly periods. The quotations set forth below reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.
As of June 25th, 2010, there were approximately 425 holders of record of the Company’s common stock, and 388,544,055 shares issued and outstanding.
Dividends
The Company has never declared or paid any cash or stock dividends on its common stock. The Company currently intends to retain future earnings, if any, to finance the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan Information
The following table summarizes the equity compensation plans under which our securities may be issued as of March 31, 2010.
RECENT SALES OF UNREGISTERED SECURITIES
On July 31, 2009, the Company entered into a securities purchase agreement (the “July 2009 Agreement”) with accredited investors (the “July 2009 Investors”) pursuant to which the July 2009 Investors purchased an aggregate principal amount of $850,000 of 8% Convertible Promissory Notes for an aggregate purchase price of $850,000 (the “July 2009 Notes”). In addition, for every $1.00 in July 2009 Notes purchased, the July 2009 Investors received a common stock purchase warrant to acquire approximately sixteen and two thirds (16 2/3) shares of common stock (the “July 2009 Warrants”) resulting in the issuance of July 2009 Warrant to purchase an aggregate of 14,166,677 shares of common stock of the Company.
The July 2009 Notes are convertible at the option of the holder at any time into shares of common stock at a conversion price equal to $0.03 per share. The conversion price of the July 2009 Notes is subject to weighted average anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like. The full principal amount of the July 2009 Notes is due upon a default under the terms of the July 2009 Notes. The July 2009 Notes is secured by all of the assets of the Company, including, but not limited to, the list of the Company’s subscribers, contracts with the subscribers and all intellectual property and source codes. The July 2009 Notes bear interest at 8% and mature three years from the date of issuance. The Company may pay interest in cash or shares of common stock of the Company, at the option of the holder. If the Company pays interest in shares of common stock, then the amount of shares to be delivered shall be equal to the dollar amount of the interest owed divided by the average closing price for the Company’s common stock during the 30 calendar days immediately prior to the interest due date of the July 2009 Notes.
The July 2009 Warrants are exercisable for a period of five years from the date of issuance at a price of $0.05 per share. In the event that the Company’s volume weighted average price is greater than $0.25 for a period of 30 consecutive days, then the Company, within 30 days of such event occurring, may send notice to the July 2009 Investors advising that the warrants must be exercised within 30 days of such notice. The July 2009 Warrants are subject to weighted average anti-dilution adjustment for subsequent issuances by the Company at a price less than the conversion price of the July 2009 Notes, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.
The securities were offered and sold to the July 2009 Investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated under Regulation D thereunder. The July 2009 Investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933.
On December 17, 2009, the Company issued $30,000 in Convertible Promissory Notes ( the “December 2009 Notes”) that matures December 17, 2012. The December 2009 Notes bear interest at a rate of 8% and will be convertible into 34,300,000 shares of the Company’s common stock, at a conversion rate of $.03 per share and are subject to certain dilutive issuance provisions. Interest will also be converted into common stock at the conversion rate of $.003 per share. In connection with the issuance of the December 2009 Notes, the Company issued 500,000 warrants to purchase the Company’s common stock at $0.050 per share over five years and is subject to certain dilutive issuance provisions.
On March 31, 2010, the Company issued $754,473 in Convertible Promissory Notes that mature March 31, 2013 in exchange for accrued and unpaid salaries. These notes bear interest at a rate of 8% and will be convertible into 25,149,100 shares of the Company’s common stock, at a conversion rate of $.03 per share. Interest will also be converted into common stock at the conversion rate of $.003 per share. In connection with the issuance of these notes, the Company issued 12,574,551 warrants to purchase the Company’s common stock at $0.050 per share over five years.
On March 31, 2010, the Company issued $175,000 in Convertible Promissory Notes that mature March 31, 2013. These notes bear interest at a rate of 8% and will be convertible into 5,833,334 shares of the Company’s common stock, at a conversion rate of $.03 per share. Interest will also be converted into common stock at the conversion rate of $.003 per share. In connection with the issuance of these notes, the Company issued 2,916,668 warrants to purchase the Company’s common stock at $0.050 per share over five years.
In March 31, 2010, the Company issued a $182,085 Convertible Note that matures in May 2013 in exchange for a convertible note previously matured. This note bears interest at a rate of 8% and will be convertible into 3,641,700 shares of the Company’s common stock, at a conversion rate of $.05 per share. Interest will also be converted into common stock at the conversion rate of $.05 per share. In connection with the issuance of this note, the Company will issue 500,000 shares of its common stock.
Common Stock
In April 2009, the Company issued an aggregate of 400,000 shares of its common stock for services rendered.
In April 2009, the Company issued an aggregate of 1,600,000 shares of its common stock in exchange for outstanding accounts payable.
In May 2009, the Company issued an aggregate of 1,100,000 shares of its common stock for services rendered.
In July 2009, the Company issued an aggregate of 825,000 shares of its common stock in settlement of $49,500 in accrued interest.
In July 2009, the Company issued an aggregate of 400,000 shares of its common stock for services rendered.
In July 2009, the Company issued an aggregate of 3,600,000 shares of its common stock in connection with convertible debt.
In August 2009, the Company issued an aggregate of 400,000 shares of its common stock for services rendered.
In September 2009, the Company issued an aggregate of 10,765,000 shares of its common stock for services rendered.
In September 2009, the Company issued an aggregate of 4,000,000 shares in connection with the acquisition of ITT LLC and Razor Data Corp.
In September 2009, the Company issued an aggregate of 3,707,770 shares of its common stock in settlement of $370,776 in convertible notes and related interest.
In October 2009, the Company issued an aggregate of 200,000 shares of its common stock for services rendered.
In November 2009, the Company issued an aggregate of 1,500,000 shares of its common stock for outstanding accounts payable.
In January 2010, the Company issued an aggregate of 464,000 shares of its common stock for services rendered.
In February 2010, the Company issued an aggregate of 2,290,000 shares of its common stock in settlement of $114,500 in accrued interest.
In March 2010, the Company issued an aggregate of 3,350,000 shares of its common stock for services rendered.
In March 2010, the Company issued 650,740 shares of its common stock in settlement of $32,537 in accrued interest.
In March 2010, the Company issued 500,000 shares of its common stock in connection with the issuance of a convertible promissory note.
Stock Options and Warrants
For the year ended March 31, 2010, the Company granted 8,500,000 options to purchase to Company’s commons stock at $0.05 to $0.06 per share over ten years. 2,500,000 options vested immediately with the reminder vesting over the next three years. The fair value of the vested options granted during the years ended March 31, 2010 of $770,759 was recorded as a current period charge to earnings.
On July 31, 2009, warrants totaling 17,150,006 were issued in connection with issuance of convertible promissory notes. These warrants are exercisable for three years from the date of issuance at an exercise price of $0.05 per share.
On December 17, 2009, warrants totaling 500,000 were issued in connection with issuance of a convertible promissory note. These warrants are exercisable for five years from the date of issuance at an exercise price of $0.05 per share.
On March 31, 2010, warrants totally 12,491,219 were issued in connection with the issuance of convertible promissory notes. These warrants are exercisable for five years from the date of issuance at an exercise price of $0.05 per share.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As the Company is a Smaller Reporting Company (as defined by Rule 229.10(f)(1)), the Company is not required to provide the information under this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
CERTAIN STATEMENTS IN THIS ANNUAL REPORT MAY CONSTITUTE “FORWARDLOOKING STATEMENTS”. WHEN THE WORDS “BELIEVES,” “EXPECTS,” “PLANS,” “PROJECTS,” “ESTIMATES” AND SIMILAR EXPRESSIONS ARE USED, THEY IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKINGSTATEMENTS ARE BASED ON MANAGEMENT’S CURRENT BELIEFS AND ASSUMPTIONS AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. INFORMATION CONCERNING FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS CAN BE FOUND IN OUR PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR CIRCUMSTANCES OR REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
Background
The Company was incorporated in the state of Nevada on August 1, 2005. Effective September 18, 2006, the Company changed its name to TheRetirementSolution.com, Inc., and on October 1 2008 changed its name to Global Investor Services, Inc.
Plan of Operations
The Company is executing its marketing strategy through direct-to-market campaigns with its marketing partners and through the internet where it delivers investor products and services. The Company’s target market is comprised of a large base of entry level investors, active investors in the on-line brokerage sector and higher-end users of financial information, services and financial news.
The Company’s marketing strategy is designed to grow the business and to deliver high customer value in education and investor services at the lowest possible cost. These goals will be achieved through on-line customer acquisition, product sales and customer service, and on-line education and services delivery.
Customer acquisition is realized via the company’s marketing partners and through on-line marketing. Our partners have the marketing and operations capability to attract customers by way of low cost introductory courses and products which then allows for upsell opportunities to a complete on-line education curriculum and expanded investor services. Customer service is supported by a comprehensive client management system that tracks the customer throughout the purchase, education and added services cycle which also includes live data feeds, news and investment letters.
On-line education delivery is completed starting with early stage courses through a complete curriculum of learning modules, podcasts, webinars and webisodes. In addition, our customer management system follows every student at this level in the form of surveys, competency assessments, learning assignments, hotline, coaching and mentoring.
The Company has a number of different delivery formats that is focused on a structured investing methodology that focuses on searching for an investment, industry group analysis, fundamental analysis, technical analysis, and portfolio management. The objective is to provide a complete investor education experience for both beginning and experienced investors and to help investors better understand the investment decision process.
The company’s longer term goals include the expansion to other markets beyond the United States. The comprehensive investor education curriculum and related investor services will be marketed and delivered on-line in target markets principally via joint venture arrangements in other countries.
Investor Information Services
The Company provides a complete turnkey solution to its clients in the financial community by providing a broad array of information services that include stock market information and tools, comprehensive database creation and management, distributed web hosting and network environments, and complete e-content creation, management and delivery. Razor Data provides technology and data solutions for the Company which allows ITT, the investor education arm of the company, and the GISV portfolios to stay focused on their core competencies to expand product offerings and acquire new customers.
Stock Market Data
Razor Data aggregates and distributes data from over 18 different data providers into a “one stop shop” for client users to get their stock market tools and data. In any given month Razor Data provides data to thousands of users through web and desktop clients. The expansive tools and data include: searches, company valuations, technical analysis, fundamental analysis, analyst recommendations, real-time streaming news, real-time streaming quotes, over 20 years of historical data, insider activity, industries and sectors, exclusive newsletters, proprietary streaming data replay, and institutional ownership. All of the data is delivered to the user through powerful yet intuitively easy to use software tools and websites.
No major disposition or purchase of equipment is expected during the next twelve months except for some office furniture and rental of a modest office space.
The table below outlines revenues and significant operating expenses for comparable periods:
Revenues:
Cost of Revenue:
The Variance in Revenue from the year ending March 31, 2010 and the prior year ending March 31 2009 was due to the restructuring of the Company’s business operations from a seminar and physical classroom based business model that was marketed through, primarily traditional print media to an On Line based business model that provides subscription based services and training through live and recorded webinars and is marketed through a number of On Line media channels. This restructuring to online operations required most of the year to complete and in the process the seminar and classroom presentation of training and enlistment of new subscribers was suspended by management until the On Line model was ready to launch. During this restructuring period the primary revenue was derived from legacy subscribers who continued to utilize training received under the seminar model by retaining their subscriptions to the Company’s Internet based stock analysis tools such as Marketpoint, Star Trader, etc. Normal, expected attrition of subscribers to the stock analysis tools accounts for the majority of the reduced subscription revenue of 35% from $1,543,903 in 2009 to $1,006,984 for the year ending March 31, 2010.; whereas, the suspension of training during this transition to online accounts for the reduction of Training revenue of 87% from $1,031,903 in 2009 to $134,703 for the year ending March 31, 2010.
During the year ended March 31, 2010, our cost of revenue was $918,159 or 80% of revenue as compared to $2,431,115 or 94% of revenue. The improvement in margin rate is a result of our transition from the higher cost physical seminar and classroom business model to the company’s On Line based business model..
Operating costs
Our selling, general and administrative expenses decreased from $6,057,215 to $4,733,989 or $1323,226 (22%). The decrease is a result of reductions in overhead and operating costs as compared to prior year, due to the change to the On Line business model which reduced personnel, marketing, travel, and facilities costs
During the year ended March 31, 2009 the Company management performed an evaluation of its goodwill for purposes of determining the implied fair value of the assets at March 31, 2009. The test indicated that the recorded remaining book value of its goodwill exceeded its fair value for the year ended March 31, 2009. As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $27,233,173, net of tax, or $0.11 per share during the year ended March 31, 2009 to reduce the carrying value of the goodwill to $-0-. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Depreciation decreased from $938,139 to $937,781 or $358.
Other income and expenses:
Interest expense decreased from $1,947,635 to $999,001, a $948,634 or 49% decrease. The decrease is primarily due to a lower amortization of the recorded beneficial conversion feature from $1,206,895 to $409,114.
During the year ended March 31, 2010, we issued promissory notes and related warrants that contain certain reset provisions. As such, we are required to record these reset provisions as a liability and mark to market each reporting period. For the year ended March 31, 2010, we recorded a loss of $686,613 in change in the fair value of these reset provisions.
Liquidity and Capital Resources
As of March 31, 2010, the Company had a working capital deficit of $2,280,381. The Company generated a deficit in cash flow from operating activities of $1,157,964 for the year ended March 31, 2010. This deficit is primarily attributable to the Company's net loss from operations of $7,078,045 and is partially offset by following:
·
Loss due to change in fair value of warrant and reset derivatives of $686,613;
·
a charge for the value of options issued for services of $785,420;
·
a charge for re-pricing of employee options of $9,381;
·
recognition of an imbedded beneficial conversion of convertible debentures of $409,114;
·
stock issued for services of $1,574,759, (including amortization of deferred compensation costs of $862,789);
·
amortization and depreciation expense of $1,005,743; and
·
changes in the balances of current assets and liabilities.
Deferred costs, employee advances and other assets decreased by $67,169. Accounts payable and accrued liabilities increased by $1,431,324 and deferred revenue decreased by $28,415.
The Company met its cash requirements during the year ended March 31, 2010 through net proceeds from convertible debt of $1,230,970, net with payments to related parties of $99,437.
Additional financing is required in order to meet our current and projected cash flow deficits from operations and development. We estimate that during the next twelve months we will need approximately $2,000,000 in additional capital to fully implement our business plan. Our business plan encompasses investing behind our business development strategy, our marketing campaigns and in building our business operations. As of the date of this filing, we have minimal operating capital to continue our business and marketing initiatives for the next twelve months. If we are not successful in generating sufficient cash flow from operations or in raising sufficient capital resources to finance our growth, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition, and we will have to adjust our planned operations and development on a more limited scale.
We presently do not have any available credit, bank financing or other external sources of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.
We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
Auditor’s Opinion Expresses Doubt About the Company’s Ability to Continue as a “Going Concern”
The independent auditors report on our March 31, 2010 financial statements states that the Company's historical losses and accumulated deficiency raise substantial doubts about the Company's ability to continue as a going concern, due to the losses incurred and deficiency. If we are unable to develop our business, we will have to reduce, discontinue operations or cease to exist, which would be detrimental to the value of the Company's common stock. We can make no assurances that our business operations will develop and provide us with significant cash to continue operations.
Addressing the Going Concern Issues
In order to improve the Company's liquidity, the Company's management is actively pursuing additional financing through discussions with investment bankers, financial institutions and private investors. There can be no assurance the Company will be successful in its effort to secure additional financing.
We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to develop profitable operations. We are devoting substantially all of our efforts to developing our business and raising capital. Our net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.
The primary issues management will focus on in the immediate future to address this matter include:
·
seeking institutional investors for debt or equity investments in our company;
·
implementing the new sales and marketing strategy of direct on-line based recruitment of subscribers to thereby increase revenues and the resultant increased cash flow; and
·
initiating negotiations to secure short term financing through promissory notes or other debt instruments on an as needed basis.
We will need to raise additional capital through a private placement of our securities. We are planning to raise up to $2,000,000 during the next twelve months. This should allow ample cash resources in order to maintain operations for at least 12 months, provided we can reach our objectives in growing our customer base and operating revenue. If we can achieve our revenue objective, management believes we would be able to break even during the next 12 months.
Inflation
The impact of inflation on the costs of the Company, and the ability to pass on cost increases to its customers over time is dependent upon market conditions. The Company is not aware of any inflationary pressures that have had any significant impact on the Company's operations over the past quarter, and the Company does not anticipate that inflationary factors will have a significant impact on future operations.
Critical Accounting Policies
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policy involves the most complex, difficult and subjective estimates and judgments.
Revenue Recognition
For revenue from product sales and services, the Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arraignments (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing 605-25 on the Company's financial position and results of operations was not significant.
Revenue arises from subscriptions to the websites/software, workshops, online workshops and training and coaching/counseling services where the payments are received before the service has been rendered. Beginning January 1, 2009, the company changed its marketing strategy such that the company no longer collects revenues in advance of rendering services. Instead, for all new customers, a monthly subscription fee is received for access to the online training and courses and website/data during a given month. As all the products and services are delivered during the month, the revenues are recognized in the month it is delivered. All revenues collected in prior periods from the legacy marketing strategy are deferred and recognized as per the existing revenue recognition policy. Additionally, any revenues from services such as coaching/counseling that are sold in advance of delivery will be deferred using the existing revenue recognition policy. Thus we have two distinct revenue models that were used during FY 2009 and revenue under either model will be recognized under its appropriate model. The company reserves the option to operate under either model as the business environment dictates.
We sell our products separately and in various bundles that contain multiple deliverables that include website/data subscriptions, educational workshops, online workshops and training, one-on-one coaching and counseling sessions, along with other products and services. In accordance with 605-25, sales arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: (i) the product has value to the customer on a standalone basis; (ii) there is objective and reliable evidence of the fair value of undelivered items; and (iii) delivery or performances of any undelivered item is probable and substantially in our control. The fair value of each separate element is generally determined by prices charged when sold separately. In certain arrangements, we offer these products bundled together. If there is any discount from the combined fair value of the individual elements, the discount is allocated to the portion of the revenues that is attributed to the online courses and training. As per 605-25, if fair value of all undelivered elements in an arrangement exists, but fair value does not exist for a delivered element, then revenue is recognized using the residual method. Under the residual method, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee (after allocation of 100 percent of any discount to the delivered item) is recognized as revenue. The deferral policy for each of the different types of revenues is summarized as follows:
Product
Recognition Policy
Live Workshops and Workshop Certificates
Deferred and recognized as the workshop is provided or certificate expires
Online training and courses
Deferred and recognized a.) as the services are delivered, or b.) when usage thresholds are met, or c.) on a straight-line basis over the initial product period
Coaching/Counseling services
Deferred and recognized as services are delivered, or on a straight-line basis over the life of the customer’s contract
Website/data fees (monthly)
Not Deferred, recognized in the month delivered
Website/data fees (pre-paid subscriptions)
Deferred and recognized on a straight-line basis over the subscription period
As of March 31, 2010 and 2009, the Company’s deferred revenue was $79,633 and $108,048, respectively
Intangible Assets and Goodwill
The Company accounts for acquisitions in accordance with the provisions of ASC 805-10. The Company assigns to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of acquisition. The Company records the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed, if any, as goodwill.
As a result of the acquisitions of ITT and Razor on January 15, 2008, the Company acquired intangible assets in the aggregate amount of $30,652,920.
The Company allocated $2,920,000 and $499,747 to identifiable intangible assets including a developed software and customer lists, respectively. The remaining $27,233,173 was allocated to goodwill.
The Company amortized its identifiable intangible assets using the straight-line method over their estimated period of benefit. The estimated useful lives of the developed software and the customer lists are three and six years. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.
The Company accounts for and reports acquired goodwill and other intangible assets under Accounting Standards Codification subtopic 350-10, Intangibles, Goodwill and Other (“ASC 350-10”). In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis and when there is reason to suspect that their values have been diminished or impaired. Any write-downs will be included in results from operations.
During the year ended March 31, 2009 the Company management performed an evaluation of its goodwill for purposes of determining the implied fair value of the assets at March 31, 2009. The test indicated that the recorded remaining book value of its goodwill exceeded its fair value for the year ended March 31, 2009. As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $27,233,173, net of tax, or $0.11 per share during the year ended March 31, 2009 to reduce the carrying value of the goodwill to $0. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Website Development Costs
The Company recognizes website development costs in accordance with Accounting Standards Codification subtopic 350-50, Website Development Costs ("ASC 350-50”). As such, the Company expenses all costs incurred that relate to the planning and post implementation phases of development of its website. Direct costs incurred in the development phase are capitalized and recognized over the estimated useful life. Costs associated with repair or maintenance for the website is included in cost of net revenues in the current period expenses. During the years ended March 31, 2010 and 2009, the Company did not capitalize any costs associated with the website development.
Software Development Costs
The Company accounts for software development costs intended for sale in accordance with Accounting Standards Codification subtopic 985-20, Cost of Software to be Sold, Leased or Marketed (“ASC 985-20”). ASC 985-20 requires product development costs to be charged to expense as incurred until technological feasibility is attained and all other research and development activities for the hardware components of the product have been completed. Technological feasibility is attained when the planning, design and testing phase related to the development of the Company’s software has been completed and the software has been determined viable for its intended use, which typically occurs when beta testing commences.
Stock-Based Compensation
The Company has adopted Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
The company adopted ASC 718-10 using the modified prospective transition method, which required the application of the accounting standard as of January 1, 2006. In accordance with the modified prospective transition method, the company's Financial Statements for the prior periods have not been restated to reflect, and do not include the impact of ASC 718-10. Stock based compensation expense recognized under ASC 718-10 for the year ended March 31, 2007 was $1,440,776.
For the years ended March 31, 2010 and 2009, the Company granted an aggregate of 8,500,000 and -0- stock options to employees, respectively. The fair value of options granted in previous years vesting during the years ended March 31, 2010 and 2009 of $794,801 and $785,425 respectively was recorded as a current period charge to earnings.
Segment Information
Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
Recent Accounting Pronouncements
In June 2009, the FASB issued new accounting guidance under ASC Topic 810 on Consolidation to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual periods thereafter. Earlier adoption is prohibited. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2010 the FASB issued Update No. 2010-06 “Fair Value Measurements and Disclosures-Improving Disclosures about Fair Value Measurements” (“2010-06”). 2010-06 requires new disclosures regarding significant transfers between Level 1 and Level 2 fair value measurements, and disclosures regarding purchases, sales, issuances and settlements, on a gross basis, for Level 3 fair value measurements. 2010-06 also calls for further disaggregation of all assets and liabilities based on line items shown in the statement of financial position. This amendment is effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years. The Company is currently evaluating whether adoption of this standard will have a material impact on its financial position, results of operations or cash flows.
In January 2010 the FASB issued Update No. 2010-05 “Compensation-Stock Compensation-Escrowed Share Arrangements and Presumption of Compensation” (“2010-05”). 2010-05 re-asserts that the Staff of the Securities Exchange Commission (the “SEC Staff”) has stated the presumption that for certain shareholders escrowed share represent a compensatory arrangement. 2010-05 further clarifies the criteria required to be met to establish a position different from the SEC Staff’s position. The Company does not believe this pronouncement will have any material impact on its financial position, results of operations or cash flows.
In January 2010 the FASB issued Update No. 2010-04 “Accounting for Various Topics-Technical Corrections to SEC Paragraphs” (“2010-04”). 2010-04 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.
In January 2010 the FASB issued Update No. 2010-02 “Accounting and Reporting for Decreases in Ownership of a Subsidiary-a Scope Clarification” (“2010-02”) an update of ASC 810 “Consolidation.” 2010-02 clarifies the scope of ASC 810 with respect to decreases in ownership in a subsidiary to those of a subsidiary or group of assets that are a business or nonprofit, a subsidiary that is transferred to an equity method investee or joint venture, and an exchange of a group of assets that constitutes a business or nonprofit activity to a non-controlling interest including an equity method investee or a joint venture. Management, does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows. Management does not intend to decrease its ownership in any of its wholly-owned subsidiaries.
In January 2010 the FASB issued Update No. 2010-01 “Accounting for Distributions to Shareholders with Components of Stock and Cash-a consensus of the FASB Emerging Issues Task Force” (“2010-03”) an update of ASC 505 “Equity.” 2010-03 clarifies the treatment of stock distributions as dividends to shareholders and their affect on the computation of earnings per shares. Management does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows.
In January 2010, the FASB issued new accounting guidance, under ASC Topic 820 on Fair Value Measurements and Disclosures. The guidance requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The guidance requires a reporting entity to use judgment in determining the appropriate classes of assets and liabilities and to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009. As this standard relates to disclosures, the adoption did not have a material impact on the Company’s condensed consolidated financial statements.
In February 2010 the FASB issued Update No. 2010-09 “Subsequent Events (Topic 855)” (“2010-09”). 2010-09 clarifies the interaction of Accounting Standards Codification 855 “Subsequent Events” (“Topic 855”) with guidance issued by the Securities and Exchange Commission (the “SEC”) as well as the intended breadth of the reissuance disclosure provision related to subsequent events found in paragraph 855-10-50-4 in Topic 855. This update is effective for annual or interim periods ending after June 15, 2010. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.
In February 2010 the FASB issued Update No. 2010-08 “Technical Corrections to Various Topics” (“2010-08”). 2010-08 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.
In March 2010, the FASB issued new accounting guidance, under ASC Topic 605 on Revenue Recognition. This standard provides that the milestone method is a valid application of the proportional performance model for revenue recognition if the milestones are substantive and there is substantive uncertainty about whether the milestones will be achieved. Determining whether a milestone is substantive requires judgment that should be made at the inception of the arrangement. To meet the definition of a substantive milestone, the consideration earned by achieving the milestone (1) would have to be commensurate with either the level of effort required to achieve the milestone or the enhancement in the value of the item delivered, (2) would have to relate solely to past performance, and (3) should be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. The standard is effective for interim and annual periods beginning on or after June 15, 2010. The Company is currently evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
Trends, Risks and Uncertainties
We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock.
Cautionary Factors That May Affect Future Results
We have sought to identify what we believe are significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise.
Potential Fluctuations in Annual Operating Results
Our annual operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside our control, including: the demand for our products and services; seasonal trends in purchasing, the amount and timing of capital expenditures and other costs relating to the commercial and consumer financing; price competition or pricing changes in the market; technical difficulties or system downtime; general economic conditions and economic conditions specific to the consumer financing sector.
Our annual results may also be significantly impacted by the impact of the accounting treatment of acquisitions, financing transactions or other matters. Particularly at our early stage of development, such accounting treatment can have a material impact on the results for any quarter. Due to the foregoing factors, among others, it is likely that our operating results may fall below our expectations or those of investors in some future quarter.
Dependence Upon Management
Our future performance and success is dependent upon the efforts and abilities of our Management. To a very significant degree, we are dependent upon the continued services of Nicholas S. Maturo, our Chief Executive Officer and member of our Board of Directors, and William Kosoff, our President and Chief Financial Officer and member of our Board of Directors. If we lost the services of Mr. Maturo, Mr. Kosoff, or other key employees before we could get qualified replacements, the loss could materially adversely affect our business.
Our officers and directors are required to exercise good faith and high integrity in our Management affairs. Our bylaws provide, however, that our directors shall have no liability to us or to our shareholders for monetary damages for breach of fiduciary duty as a director except with respect to (1) a breach of the director's duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability which may be specifically defined by law or (4) a transaction from which the director derived an improper personal benefit.
Management of Growth
We may experience growth, which will place a strain on our managerial, operational and financial systems resources. To accommodate our current size and manage growth if it occurs, we must devote management attention and resources to improve our financial strength and our operational systems. Further, we will need to expand, train and manage our sales and distribution base. There is no guarantee that we will be able to effectively manage our existing operations or the growth of our operations, or that our facilities, systems, procedures or controls will be adequate to support any future growth. Our ability to manage our operations and any future growth will have a material effect on our stockholders.
If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
ITEM 7A.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
The financial statements begin on Page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9(A). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended March 31, 2010 we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of March 31, 2010.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the financial statements of the Company in accordance with U.S. generally accepted accounting principles, or GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
With the participation of our Chief Executive Officer and Chief Financial Officer (principal financial officer), our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2010 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our evaluation and the material weaknesses described below, management concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2010 based on the COSO framework criteria. Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.
To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis. Accordingly, we have determined that these control deficiencies as described above together constitute a material weakness.
In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the year ended March 31, 2010 included in this Annual Report on Form 10-K were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the year ended March 31, 2010 are fairly stated, in all material respects, in accordance with US GAAP.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer (principal financial officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Controls
During the fiscal quarter ended March 31, 2010, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth certain information with respect to our directors and executive officers.
Name
Age
Position
Nicholas S. Maturo
Chief Executive Officer, President and Chairman of the Board
William Kosoff
Chief Financial Officer and Director
Louis Sagar
Director
Directors are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their successors are elected. Officers are elected annually and serve at the discretion of the Board of Directors.
Background of Executive Officers and Directors
Nicholas Maturo - Chief Executive Officer and Chairman. From September 2005 until December 2006 Mr. Maturo was the Chief Executive Officer of EduTrades, Inc., a company that provides educational and training courses for students interested in learning about investing in the stock market and in other financial instruments. From September 2002 until December 2006 Mr. Maturo worked for Whitney Information Network, Inc., the parent of EduTrades, Inc. as its Chief Operating Officer and in 2004 also became its President. From 1981 to 2000, Mr. Maturo was employed at Philip Morris Cos. where he held a number of executive positions in finance, operations and strategy both at home and abroad. When he left Philip Morris, he was Chief Information Officer of Kraft International. Mr. Maturo earned a Bachelor of Commerce degree in finance and economics from McGill University and also completed the Executive General Management Program at McGill University.
William C. Kosoff - President, Chief Financial Officer and Director. During the past five years Mr. Kosoff served as Vice President of Worldwide Sales and a Director for a public company, Telenetics Corp. under the new Sarbanes-Oxley regimen. From December of 2005 to September 2006, Mr. Kosoff was licensed and active in residential Real Estate in California. In addition, Mr. Kosoff has served as a Director of GISV and Interim President and CEO of GISV while providing consulting services to the Company. Mr. Kosoff received his BA in Physics from California State University in 1978. He was in the high technology industry for 45 years serving in Engineering, Marketing, Sales, and Senior Management positions with Rockwell International from 1960 to 1984. In 1984 he co-founded Telenetics Corp as President and CEO. In 1987 Telenetics became public on NASDAQ and was acquired in 2006 by a private firm. During his tenure with Telenetics he also served as CFO from 1988 to 1991. Mr. Kosoff earned a Professional Certificate in Accounting from New York University in 2010.
Louis Sagar - Director. During the past five years Mr. Sagar has been and remains the principal in Old School Ventures, LLC, his own marketing consulting firm based in New York City. Previously, Mr. Sagar founded ZONA, a specialty home retailer, Mr. Sagar built a lifestyle merchandising brand with nine retail locations and wholesale operations distributing private label home accessories and lifestyle products throughout the United States, Europe, and Japan. In 1998 Mr. Sagar sold ZONA to a private investment group. Mr. Sagar has been a director of Newsgrade Corporation, the former parent of TRES and a significant shareholder of Voxpath, since April 1998 and a director of TRES since September 2005. In June 2007 Mr. Sagar became the Chairman and Chief Executive Officer of Auction Floor, Inc., a provider of web based technology to the auction industry.
Our directors are elected for a term of one year and until their successors are elected and qualified.
Role of the Board
It is the paramount duty of the Board to oversee the Company’s Chief Executive Officer (the “CEO”) and other senior management in the competent and ethical operation of the Company on a day-to-day basis and to assure that the long-term interests of the shareholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their position, and set standards to ensure that the Company is committed to business success through maintenance of high standards of responsibility and ethics.
The Board met formerly a total of three times during fiscal 2010.
Committees
Our business, property and affairs are managed by or under the direction of the board of directors. Members of the board are kept informed of our business through discussion with the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees.
Audit Committee
The Company currently does not have a designated Audit Committee, and accordingly, the Company's Board of Directors' policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Company's Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.
Code of Ethics
The Company has a code of ethics that applies to all of the Company’s employees, including its principal executive officer, principal financial officer and principal accounting officer, and the Board. A copy of this code is available in the Employee Handbook.. The Company intends to disclose any changes in or waivers from its code of ethics by posting such information on its website or by filing a Form 8-K.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934, requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities. During the year ended March 31, 2009, our officers, directors and 10% stockholders did not make any filings pursuant to Section 16(a).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Directors’ Compensation
Compensation for outside Directors has been set at $25,000 annually plus re-imbursement of reasonable and ordinary expenses. L. Sagar was awarded 500,000 options at $0.06 per share of which 250,000 vested in January 2007 and 250,000 in January 2008.
Executive Officers’ Compensation
The following table sets forth information concerning the annual and long-term compensation earned by or paid to our Chief Executive Officer and to other persons who served as executive officers as at and/or during the fiscal year ended March 31, 2009 who earned compensation exceeding $100,000 during fiscal year 2010 (the “named executive officers”), for services as executive officers for the last three fiscal years.
Summary Compensation Table
(1) $159,678 of Calendar Year (CY) 2009 compensation was deferred during the 2010 fiscal year and was accrued as of 12-31-2009 and then converted to a convertible promissory note convertible at the same terms as the Private Placement investment conducted throughout CY 2009 (converts at $0.03 per share with 50% 5 year warrants at $0.05 per share).
(2) $89,295 of Calendar Year (CY) 2009 compensation was deferred during the 2010 fiscal year and was accrued as of 12-31-2009 and then converted to a convertible promissory note convertible at the same terms as the Private Placement investment conducted throughout CY 2009 (converts at $0.03 per share with 50% 5 year warrants at $0.05 per share).
Outstanding Equity Awards at Fiscal Year-End Table.
Employment Agreements
On January 23, 2007 the Company entered into a three year employment contract with Nicholas Maturo as CEO (the “Maturo Agreement”). In addition, the Company elected him to the Board of Directors and appointed him Chairman of the Board. The Maturo Agreement provides a first year annual salary of $225,000 with annual increases and certain performance-based bonuses. In addition, the Maturo Agreement awards stock options of 6,000,000 shares with 1,500,000 vesting upon signing and the balance vesting over the life of the contract.
On June 30, 2008, the Company entered into an Amended and Restated Employment Agreement with Nicholas S. Maturo (the “Amended Maturo Agreement”), the Company’s Chairman of the Board and Chief Executive Officer of Company since January 23, 2007.
The Amended Maturo Agreement extends the term of Mr. Maturo’s employment for five (5) years, as may be extended or earlier terminated pursuant to the terms and conditions of the Amended Maturo Agreement and provides for automatic renewals for successive three (3) year periods unless, prior to the 90th calendar day preceding the expiration of the then existing term, either the Company or Mr. Maturo provide written notice to the other that it elects not to renew the term
Based on performance criteria to be agreed upon between the Board of Directors and Mr. Maturo at the beginning of each operating year and for the duration of the term, Mr. Maturo’s salary will be increased to $300,000, effective January 23, 2008, $400,000, effective January 23, 2009 and $500,000, effective January 23, 2010 for the duration of the term, subject to any additional increases on the recommendations of the Compensation Committee of the Board of Directors or the Board of Directors, as applicable.
On February 1, 2009 the Board of Directors and Mr. Maturo agreed to freeze his compensation at $225,000 per year (the “Salary”) until the Company can generate revenues to attain positive cash flow on an ongoing basis and it is deemed feasible to increase the base salary upwards. The additional salaries contained in the Amended Maturo Agreement over and above the $225,000 annual rate are not being accrued.
Additionally, Mr. Maturo receives the following equity compensation from Company (collectively, the “Equity Compensation”) upon execution of the Amended Maturo Agreement:
(a)
an option to purchase 6,000,000 shares of common stock of the Company, with options to purchase 3,000,000 fully vested shares, options to purchase 1,500,000 shares vesting on January 23, 2009 and the remaining options to purchase 1,500,000 shares vesting on January 23, 2010, with a exercise price of $0.06 per share and a cashless exercise feature;
(b)
5,000,000 shares of restricted common stock of the Company granted and fully-vested as of the date of the Amended Maturo Agreement, with the Company paying all associated tax obligations on behalf of the Employee;
(c)
In addition to Salary and Equity Compensation, Mr. Maturo will be entitled to receive an annual cash bonus equal to at least 50% and up to 100% of the Salary, subject to the recommendations of the Compensation Committee of the Board of Directors or the Board of Directors, as applicable, based upon performance criteria to be agreed upon between the Compensation Committee of the Board of Directors or the Board of Directors, as applicable, and Mr. Maturo at the beginning of each operating year of the Company during the term; and
(d)
Mr. Maturo also shall be entitled to receive incentive bonuses upon the closing of strategic acquisitions, joint ventures or other strategic transactions and/or relationships which are intended to accrue a significant benefit to the Company, by the Company, as recommended by the Compensation Committee of the Board of Directors or the Board of Directors, as applicable, to be agreed upon between the Compensation Committee of the Board of Directors or the Board of Directors, as applicable, and Mr. Maturo during the Term.
On February 6, 2007 the Company entered into a 2 year employment contract with William Kosoff as President and CFO (the “Kosoff Agreement”). Mr. Kosoff remains a Director of the Company and also serves as Treasurer and Secretary of the Corporation. The Kosoff Agreement provides a first year annual salary of $150,000 with annual increases and performance based bonuses. In addition, the Kosoff Agreement awards stock options of 1,500,000 shares with 500,000 vesting upon signing and the balance vesting over the life of the contract. The Kosoff Agreement automatically renewed for a successive 2 year term as of February 6th 2009.
On January 15, 2008 the company entered into employment agreements with key management (“Key Managers”) of the acquired entities of Razor Data, LLC and Investment tools and Training, LLC (ITT) (the “Key Management Agreements”). Each Key Management Agreements provides a base salary to Key Managers of $150,000 plus annual bonuses to be determined by the CEO and the Board of Directors. The Key Management Agreements last for a term of three years and contain severance pay provisions allowing for the remaining annual salary amountof up to three years if terminated by the company without cause, or by one of the Key Managers if for “Good Reason, or six (6) months salary, whichever is greater.” The Key Management Agreements contain Non-Compete covenants as well as provide for ownership of “Inventions” pertaining to the business of the Company.
The key personnel and their respective positions are listed below:
Rhett Andersen, Vice President of Development, Razor Data
Ryan Smith, Vice President of ITT,
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides information as to shares of common stock beneficially owned as of March 31, 2009 by:
·
each director;
·
each officer named in the summary compensation table;
·
each person owning of record or known by us, based on information provided to us by the persons named below, to own beneficially at least 5% of our common stock; and
·
all directors and executive officers as a group.
(1)
Except as otherwise indicated, the address of each beneficial owner is c/o Global Investor Services, Inc., 708 3rd Avenue, 6th floor, New York, New York, 10017.
(2)
Applicable percentage ownership is based on 347,967,310 shares of common stock outstanding as of March 31, 2010, together with securities exercisable or convertible into shares of common stock within 60 days of March 31, 2009 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 31, 2009 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
No Director, executive officer, affiliate or any owner of record or beneficial owner of more than 5% of any class of voting securities of the Company is a party adverse to the Company or has a material interest adverse to the Company.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None to Report
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees billed to us by our auditors, RBSMLLP, during the fiscal years ended March 31, 2010 and 2009 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services by our auditor that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and tax planning, and (iv) all other fees for services rendered.
AUDIT FEES. Consists of fees billed for professional services rendered for the audit of The Retirement Solution, Inc.'s consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by RBSM LLP in connection with statutory and regulatory filings or engagements. In addition the Audit fees include the audit fees associated with the audit of Razor Data ($ 92,108) and ITT ($ 28,125) in support of the January 15, 2008 acquisitions of those entities.
AUDIT-RELATED FEES. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Global Investor Services, Inc.'s consolidated financial statements and are not reported under "Audit Fees." There were no Audit-Related services provided in fiscal 2009.
TAX FEES. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. There were no tax services provided in fiscal 2009.
ALL OTHER FEES. Consists of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal 2009.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS
The Company currently does not have a designated Audit Committee, and accordingly, the Company's Board of Directors' policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Company's Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.
ITEM 15.
ITEM 15. EXHIBITS
Number
Description
3.1
Registrant’s Articles of Incorporation (incorporated by reference to Exhibit 3 to the Company’s 10SB12G filed on August 12, 1999).
3.2
Certificate of Amendment to Registrant’s Articles of Incorporation (incorporated by reference to Exhibit 3 to the Company’s 10SB12G filed on August 12, 1999).
3.4
Registrant’s By-Laws (incorporated by reference to Exhibit 3 to the Company’s 10SB12G filed on August 12, 1999).
3.5
Amendment to Articles of Incorporation or by-laws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on February 15, 2007)
10.1
Entry into a Material Definitive Agreement (incorporated by reference to Exhibit 10.1to the Company’s Form 8-K filed on February 12, 2007)
10.2
Stock Purchase Agreement by and among Voxpath Holdings, Inc., and The Retirement Solution, Inc., Audited Financial Statements of Registrant as of March 31, 2006 and for the period from August 10, 2005 (date of inception) through March 31, 2006, and Unaudited financial statements for the three months period ended June 30, 2006 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 2, 2006).
10.3
Membership Interest Purchase Agreement by and among TheRetirementSolution.com, Inc., Investment Tools and Training, LLC, Boya Systems, LLC, Kays Creek Capital Management, LLC and LUCASA, LLC, dated as of January 15, 2008, incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 16, 2008.
10.4
Asset Purchase Agreement by and among TheRetirementSolution.com, Inc., RazorData Corp., Razor Data, LLC, Boya Systems, LLC and Rabble, LLC, dated as of January 15, 2008, incorporated by reference to Exhibit 10.2 to Form 8-K filed on January 16, 2008.
10.5
Form of Convertible Promissory Notes issued January 15, 2008, incorporated by reference to Exhibit 10.3 to Form 8-K filed on January 16, 2008.
10.6
Registration Rights Agreement by and among TheRetirementSolution.com, Inc., Romel Enterprises, Inc., Tyvan Enterprises, Inc., Badaco, Inc., LUCASA, LLC and Kays Creek Capital Management, LLC, dated as of January 15, 2008, incorporated by reference to Exhibit 10.4 to Form 8-K filed on January 16, 2008.
10.7
Lock Up Agreement by and among TheRetirementSolution.com, Inc., Romel Enterprises, Inc., Tyvan Enterprises, Inc., Badaco, Inc., LUCASA, LLC, Kays Creek Capital Management, LLC and John E. Robinson, dated as of January 15, 2008, incorporated by reference to Exhibit 10.5 to Form 8-K filed on January 16, 2008.
10.8
Registration Rights Agreement by and among TheRetirementSolution.com, Inc., Romel Enterprises, Inc., Tyvan Enterprises, Inc. and Badaco, Inc., dated as of January 15, 2008, incorporated by reference to Exhibit 10.6 to Form 8-K filed on January 16, 2008.
10.9
Lock Up Agreement by and among TheRetirementSolution.com, Inc., Romel Enterprises, Inc., Tyvan Enterprises, Inc., Badaco, Inc. and Clayton Ross, dated as of January 15, 2008, incorporated by reference to Exhibit 10.7 to Form 8-K filed on January 16, 2008.
10.10
Amended and Restated Employment Agreement, dated June 30, 2008, incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 8, 2008.
10.11
Marketing Agreement, dated July 2, 2008 with Allied Global Ventures, incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 14,
10.12
Amendment to Allied Global Ventures Convertible Note for $ 1Million dated March 31, 2009 with a conversion stop at , 9.9% of issued and outstanding dated June 28th, 2010 , incoroporated by reference to the 10K filed for the fiscal year ending March 31, 2010.
31.1
Certification of Principal Executive Officer pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer pursuant to 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ Nicholas S. Maturo
Chief Executive Officer and Chairman of the Board
June 29, 2010
Nicholas S. Maturo
(Principal Executive Officer)
/s/ William Kosoff
Chief Financial Officer and Director
June 29, 2010
William Kosoff
(Principal Financial Officer)
/s/ Louis Sagar
Director
June 29, 2010
Louis Sagar
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors,
Global Investor Services, Inc.
(Formerly TheRetirementSolution.com, Inc.)
New York, New York
We have audited the accompanying consolidated balance sheets of Global Investor Services, Inc. and subsidiaries (formerly TheRetirementSolution.com, Inc., the “Company”) as of March 31, 2010 and 2009 and the related consolidated statements of operations, (deficiency in) stockholders’ equity, and cash flows for each of the two years in the period ended March 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2010 and 2009, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in the Note 2, the Company has suffered recurring losses from operations and has a net accumulated deficiency as of March 31, 2010, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 2. The accompanying statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/RBSM LLP
New York, New York
June 28, 2010
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2010 AND 2009
The accompanying notes are an integral part of these consolidated financial statements
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED MARCH 31, 2010 AND 2009
The accompanying notes are an integral part of these consolidated financial statements
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
CONSOLIDATED STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED MARCH 31, 2010
The accompanying notes are an integral part of these consolidated financial statements
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
CONSOLIDATED STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED MARCH 31, 2010
The accompanying notes are an integral part of these consolidated financial statements
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMEENTSOLUTION.COM, INC.)
CONSOLIDATED STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED MARCH 31, 2010
The accompanying notes are an integral part of these consolidated financial statements
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31, 2010 AND 2009
The accompanying notes are an integral part of these consolidated financial statements
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows:
Business and basis of Presentation
Global Investor Services, Inc. (the "Company") was incorporated on August 10, 2005 under the laws of the State of Nevada. On September 16, 2006, the Company changed its name to TheRetirementSolution.Com, Inc. and on October 1, 2008 to Global Investor Services, Inc. The Company currently markets directly and through its marketing partners as well as online, certain investor products and services which provide financial and educational information to its prospective customers and to its subscribers. During the year ended March 31, 2008, the Company transitioned from a development stage enterprise to an operating company. While the Company has generated revenues from its sale of products, the Company has incurred expenses, and sustained losses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise. As of March 31, 2010, the Company has accumulated losses of $56,784,072.
On August 30, 2006, the Company entered into a Share Purchase Agreement (“Agreement”) with Voxpath Holdings, Inc. (“Voxpath”). Prior to the merger, Voxpath was an inactive corporation with no significant assets or liabilities. As a result of the Agreement, there was a change in control of the public entity. In accordance with SFAS No. 141, Voxpath was the acquiring entity. While the transaction is accounted for using the purchase method of accounting, in substance the Agreement is a recapitalization of Voxpath’s capital structure. For accounting purposes, the Company accounted for the transaction as a reverse acquisition and Voxpath is the surviving entity. The value of the net assets acquired was $0. The Company did not recognize goodwill or any intangible assets in connection with the transaction. Effective with the Agreement, all previously outstanding shares of common stock were exchanged for an aggregate of 99,999,998 shares of the Company’s common stock. The value of the stock issued was the historical cost of the Company’s net tangible assets, which did not differ materially from their fair value. The total consideration paid was $86,135.
During the year ended March 31, 2008, the Company acquired Investment Tools and Training, LLC (“ITT), a Utah limited liability company founded on November 9, 2006 and Razor Data, LLC (“Razor”); a Utah Limited Liability Company formed July 23, 2002.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Voxpath Holdings, Inc., ITT and Razor. All significant inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
For revenue from product sales and services, the Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arraignments (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing 605-25 on the Company's financial position and results of operations was not significant.
Revenue arises from subscriptions to the websites/software, workshops, online workshops and training and coaching/counseling services where the payments are received before the service has been rendered. Beginning January 1, 2009, the company changed its marketing strategy such that the company no longer collects revenues in advance of rendering services. Instead, for all new customers, a monthly subscription fee is received for access to the online training and courses and website/data during a given month. As all the products and services are delivered during the month, the revenues are recognized in the month it is delivered. All revenues collected in prior periods from the legacy marketing strategy are deferred and recognized as per the existing revenue recognition policy. Additionally, any revenues from services such as coaching/counseling that are sold in advance of delivery will be deferred using the existing revenue recognition policy. Thus we have two distinct revenue models that were used during FY 2009 and revenue under either model will be recognized under its appropriate model. The company reserves the option to operate under either model as the business environment dictates.
We sell our products separately and in various bundles that contain multiple deliverables that include website/data subscriptions, educational workshops, online workshops and training, one-on-one coaching and counseling sessions, along with other products and services. In accordance with ASC 605-25, sales arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: (i) the product has value to the customer on a standalone basis; (ii) there is objective and reliable evidence of the fair value of undelivered items; and (iii) delivery or performances of any undelivered item is probable and substantially in our control. The fair value of each separate element is generally determined by prices charged when sold separately. In certain arrangements, we offer these products bundled together. If there is any discount from the combined fair value of the individual elements, the discount is allocated to the portion of the revenues that is attributed to the online courses and training. As per ASC 605-25, if fair value of all undelivered elements in an arrangement exists, but fair value does not exist for a delivered element, then revenue is recognized using the residual method. Under the residual method, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee (after allocation of 100 percent of any discount to the delivered item) is recognized as revenue. The deferral policy for each of the different types of revenues is summarized as follows:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Product
Recognition Policy
Live Workshops and Workshop Certificates
Deferred and recognized as the workshop is provided or certificate expires
Online training and courses
Deferred and recognized a.) as the services are delivered, or b.) when usage thresholds are met, or c.) on a straight-line basis over the initial product period
Coaching/Counseling services
Deferred and recognized as services are delivered, or on a straight-line basis over the life of the customer’s contract
Website/data fees (monthly)
Not Deferred, recognized in the month delivered
Website/data fees (pre-paid subscriptions)
Deferred and recognized on a straight-line basis over the subscription period
As of March 31, 2010 and 2009, the Company’s deferred revenue was $79,633 and $108,048, respectively
Property and Equipment
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight line method over their estimated useful lives as follows:
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was $126,670 and $5,035 for the years ended March 31, 2010 and 2009, respectively.
Research and Development
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. For the years ended March 31, 2010 and 2009, the Company’s expenditures on research and product development were immaterial.
Reclassification
Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible Assets and Goodwill
The Company accounts for acquisitions in accordance with the provisions of ASC 805-10. The Company assigns to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of acquisition. The Company records the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed, if any, as goodwill.
As a result of the acquisitions of ITT and Razor on January 15, 2008, the Company acquired intangible assets in the aggregate amount of $30,652,920.
The Company allocated $2,920,000 and $499,747 to identifiable intangible assets including a developed software and customer lists, respectively. The remaining $27,233,173 was allocated to goodwill.
The Company amortized its identifiable intangible assets using the straight-line method over their estimated period of benefit. The estimated useful lives of the developed software and the customer lists are three and six years. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.
The Company accounts for and reports acquired goodwill and other intangible assets under Accounting Standards Codification subtopic 350-10, Intangibles, Goodwill and Other (“ASC 350-10”). In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis and when there is reason to suspect that their values have been diminished or impaired. Any write-downs will be included in results from operations.
Total identifiable intangible assets acquired in the acquisition of ITT and Razor and their carrying values at March 31, 2010 are:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Total amortization expense charged to operations for each of the years ended March 31, 2010 and 2009 was $932,583. Estimated amortization expense is as follows:
The Company does not amortize goodwill. The Company recorded goodwill in the amount of $27,233,173 as a result of the acquisition of Razor Data & IT during the year ended March 31, 2008.
During the year ended March 31, 2009 the Company management performed an evaluation of its goodwill for purposes of determining the implied fair value of the assets at March 31, 2009. The test indicated that the recorded remaining book value of its goodwill exceeded its fair value for the year ended March 31, 2009. As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $27,233,173, net of tax, or $0.11 per share during the year ended March 31, 2009 to reduce the carrying value of the goodwill to $0. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Impairment of long lived assets
The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of is reported at the lower of the carrying amount or the fair value less costs to sell.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2010 and 2009. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of Credit Risk
Financial instruments and related items which potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. There were no trade receivables as of March 31, 2010 and 2009.
Website Development Costs
The Company recognizes website development costs in accordance with Accounting Standards Codification subtopic 350-50, Website Development Costs ("ASC 350-50”). As such, the Company expenses all costs incurred that relate to the planning and post implementation phases of development of its website. Direct costs incurred in the development phase are capitalized and recognized over the estimated useful life. Costs associated with repair or maintenance for the website are included in cost of net revenues in the current period expenses. During the years ended March 31, 2010 and 2009, the Company did not capitalize any costs associated with the website development.
Software Development Costs
The Company accounts for software development costs intended for sale in accordance with Accounting Standards Codification subtopic 985-20, Cost of Software to be Sold, Leased or Marketed (“ASC 985-20”). ASC 985-20 requires product development costs to be charged to expense as incurred until technological feasibility is attained and all other research and development activities for the hardware components of the product have been completed. Technological feasibility is attained when the planning, design and testing phase related to the development of the Company’s software has been completed and the software has been determined viable for its intended use, which typically occurs when beta testing commences.
Stock-Based Compensation
The Company has adopted Accounting Standards Codification subtopic 718-10, Compensation-Stock Compensation (“ASC 718-10”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to an Employee Stock Purchase Plan based on the estimated fair values.
The company adopted ASC 718-10 using the modified prospective transition method, which required the application of the accounting standard as of January 1, 2006. In accordance with the modified prospective transition method, the company's Financial Statements for the prior periods have not been restated to reflect, and do not include the impact of ASC 718-10. Stock based compensation expense recognized under ASC 718-10 for the year ended March 31, 2007 was $1,440,776.
For the years ended March 31, 2010 and 2009, the Company granted an aggregate of 8,500,000 and -0- stock options to employees, respectively. The fair value of options granted in previous years vesting during the years ended March 31, 2010 and 2009 of $794,801 and $785,425 respectively was recorded as a current period charge to earnings.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment Information
Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash equivalents.
Comprehensive Income (Loss)
The Company adopted Accounting Standards Codification subtopic 220-10, Comprehensive Income (“ASC 220-10”). ASC 220-10 establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. ASC 220-10 requires other comprehensive income (loss) to include foreign currency translation adjustments and unrealized gains and losses on available for sale securities.
Income Taxes
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant. The adoption of ASC 740-10 did not have a material impact on the Company’s consolidated results of operations or financial condition.
Net Loss per Share
The Company has adopted Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic loss per share has been calculated based upon the weighted average number of common shares outstanding. Convertible debt, stock options and warrants have been excluded as common stock equivalents in the diluted loss per share because there effect is anti-dilutive on the computation.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reliance on Key Personnel and Consultants
The Company has only 24 full-time employees and no part-time employees. Additionally, there are approximately 6 consultants performing various specialized services. The Company is heavily dependent on the continued active participation of these current executive officers, employees and key consultants. The loss of any of the senior management or key consultants could significantly and negatively impact the business until adequate replacements can be identified and put in place.
Recent accounting pronouncements
In June 2009, the FASB issued new accounting guidance under ASC Topic 810 on Consolidation to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual periods thereafter. Earlier adoption is prohibited. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2010 the FASB issued Update No. 2010-06 “Fair Value Measurements and Disclosures-Improving Disclosures about Fair Value Measurements” (“2010-06”). 2010-06 requires new disclosures regarding significant transfers between Level 1 and Level 2 fair value measurements, and disclosures regarding purchases, sales, issuances and settlements, on a gross basis, for Level 3 fair value measurements. 2010-06 also calls for further disaggregation of all assets and liabilities based on line items shown in the statement of financial position. This amendment is effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years. The Company is currently evaluating whether adoption of this standard will have a material impact on its financial position, results of operations or cash flows.
In January 2010 the FASB issued Update No. 2010-05 “Compensation-Stock Compensation-Escrowed Share Arrangements and Presumption of Compensation” (“2010-05”). 2010-05 re-asserts that the Staff of the Securities Exchange Commission (the “SEC Staff”) has stated the presumption that for certain shareholders escrowed share represent a compensatory arrangement. 2010-05 further clarifies the criteria required to be met to establish a position different from the SEC Staff’s position. The Company does not believe this pronouncement will have any material impact on its financial position, results of operations or cash flows.
In January 2010 the FASB issued Update No. 2010-04 “Accounting for Various Topics-Technical Corrections to SEC Paragraphs” (“2010-04”). 2010-04 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.
In January 2010 the FASB issued Update No. 2010-02 “Accounting and Reporting for Decreases in Ownership of a Subsidiary-a Scope Clarification” (“2010-02”) an update of ASC 810 “Consolidation.” 2010-02 clarifies the scope of ASC 810 with respect to decreases in ownership in a subsidiary to those of a subsidiary or group of assets that are a business or nonprofit, a subsidiary that is transferred to an equity method investee or joint venture, and an exchange of a group of assets that constitutes a business or nonprofit activity to a non-controlling interest including an equity method investee or a joint venture. Management, does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows. Management does not intend to decrease its ownership in any of its wholly-owned subsidiaries.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements (continued)
In January 2010 the FASB issued Update No. 2010-01 “Accounting for Distributions to Shareholders with Components of Stock and Cash-a consensus of the FASB Emerging Issues Task Force” (“2010-03”) an update of ASC 505 “Equity.” 2010-03 clarifies the treatment of stock distributions as dividends to shareholders and their affect on the computation of earnings per shares. Management does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows.
In January 2010, the FASB issued new accounting guidance, under ASC Topic 820 on Fair Value Measurements and Disclosures. The guidance requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The guidance requires a reporting entity to use judgment in determining the appropriate classes of assets and liabilities and to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009. As this standard relates to disclosures, the adoption did not have a material impact on the Company’s condensed consolidated financial statements.
In February 2010 the FASB issued Update No. 2010-09 “Subsequent Events (Topic 855)” (“2010-09”). 2010-09 clarifies the interaction of Accounting Standards Codification 855 “Subsequent Events” (“Topic 855”) with guidance issued by the Securities and Exchange Commission (the “SEC”) as well as the intended breadth of the reissuance disclosure provision related to subsequent events found in paragraph 855-10-50-4 in Topic 855. This update is effective for annual or interim periods ending after June 15, 2010. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.
In February 2010 the FASB issued Update No. 2010-08 “Technical Corrections to Various Topics” (“2010-08”). 2010-08 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.
In March 2010, the FASB issued new accounting guidance, under ASC Topic 605 on Revenue Recognition. This standard provides that the milestone method is a valid application of the proportional performance model for revenue recognition if the milestones are substantive and there is substantive uncertainty about whether the milestones will be achieved. Determining whether a milestone is substantive requires judgment that should be made at the inception of the arrangement. To meet the definition of a substantive milestone, the consideration earned by achieving the milestone (1) would have to be commensurate with either the level of effort required to achieve the milestone or the enhancement in the value of the item delivered, (2) would have to relate solely to past performance, and (3) should be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. The standard is effective for interim and annual periods beginning on or after June 15, 2010. The Company is currently evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements.
2. GOING CONCERN MATTERS
The Company’s consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant losses which have resulted in an accumulated deficit of $56,784,072 at March 31, 2010 which raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
2. GOING CONCERN MATTERS (continued)
Continuation as a going concern is dependent upon obtaining additional capital and upon the Company’s attaining profitable operations. The Company will require a substantial amount of additional funds to complete the development of its products, to build a sales and marketing organization, and to fund additional losses which the Company expects to incur over the next few years. The management of the Company intends to seek additional funding through a Private Placement Offering which will be utilized to fund product development and continue operations. The Company recognizes that, if it is unable to raise additional capital, it may find it necessary to substantially reduce or cease operations.
3. PROPERTY AND EQUIPMENT
The Company’s property and equipment at March 31, 2010 and 2009 consist of the following:
Depreciation expense charged to operations amounted to $771,200 and $771,556 for the years ended March 31, 2010 and 2009, respectively.
4. CUSTOMERS LIST
The Company’s customers list at March 31, 2010 and 2009 consist of the following:
The Company recorded amortization expense for each of the years ended March 31, 2010 and 2009 of $166,582.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following at March 31, 2010 and 2009:
6. ADVANCES
The Company received advances of $239,562 on July 7, 2008, $310,000 on September 4, 2008 and $450,000 on November 3, 2008 to finance future marketing activities. The advances are payable at 120% from each marketing event of the Company with the proceeds or if proceeds are insufficient, from other marketing events or revenues of the Company each at six months from the date of the advance. In the event the Company does not pay off the advances by January 9, 2009 and February 4, 2009; the remaining balance is converted to a six month, interest free secured convertible notes. The notes are convertible into the Company’s common stock at $0.10 per share and are secured by 12,000,000 shares of the Company’s common stock.
The financing costs of $199,912 are amortized ratably over a six month term. During the year ended March 31, 2010, the Company had charged to current period operations $5,910 as amortization of financing costs
On March 31, 2009, the Company issued a convertible note of $1,000,000 as payment of the above advances. The convertible note is due on July 31, 2011 with interest at 20% per annum, due at maturity. The note is convertible at $0.08, unsecured. (See note 8 below).
7. NOTES PAYABLE
A summary of notes payable at March 31, 2010 and 2009 are as follows:
Convertible Promissory Note
In August 2005, the Company entered into an agreement to borrow $250,000 in exchange for a Convertible Promissory Note (Convertible Note). The Convertible Note included interest at 10% compounded semiannually, due and payable in five equal installments of $50,000 through December 2005. At Noteholder’s option, the Convertible Note could be convertible into 250,000 shares stock of the majority shareholder of the Company (Parent) at the equivalent conversion price of $1.00 per share. In addition to the Convertible Note, the Noteholder was to be issued warrants to purchase 250,000 shares (205,761 shares after pre-merger adjustment) of the Parent’s common stock at an exercise price of $1.25 per share.
Under the terms of the Convertible Note, if the existing president should resign or be dismissed, the monies loaned to the Company, including all accrued interest, would immediately be due and payable. The president resigned on February 19, 2006, thus accelerating the payment of the loan, plus accrued interest.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
7. NOTES PAYABLE (continued)
On April 24, 2006, the Company entered into an agreement with the Noteholder regarding his forbearance of collecting the debt owed to him due to the resignation of its former President. The Company will pay from the proceeds of a Private Placement, 10% of the first $500,000 of funds raised and 20% of the next $500,000 raised, for a total of $150,000. The remaining balance will be due on December 31, 2007, including interest at 10% compounding semi-annually. If the Private Placement raises less than $1,000,000 by October 2006, the Company will pay 10% of all additional capital raised by the Company. If no Private Placement Offering is circulated, the balance will be due immediately. Additionally, as consideration for his forbearance, the Company granted the Noteholder 500,000 shares (411,523 shares after pre-merger adjustment) of the Company’s common stock which was issued to him on April 24, 2006.
On March 31, 2010, the Company amended the outstanding promissory note to extend the due date to March 31, 2012 with a reduction in conversion rate from $0.11 to $0.05 per share or the higher of $0.05 or 67.5 % of the average closing price for the 20 trading days prior to a conversion. As an inducement to extend the promissory note, the Company issued 500,000 of its common stock (see Note 8 below).
Promissory Note Payable
On January 20, 2009, the Company received $200,000 in exchange for a promissory note payable, due July 20, 2009 with interest due monthly at 20% per annum. The note is secured by common stock and is personally guaranteed by certain officers of the Company. The note contains certain first right of payment should the Company be successful in raising $500,000 to $1,500,000 in a Private Placement Offering before any payments can be distributed from the escrow. (Note in default)
In connection with the issuance of the promissory note payable, the Company issued warrants to purchase its common stock at $0.01 per share for five years. The fair value of the warrants of $101,183 is amortized ratably of the term of the promissory note. During the nine month period ended December 31, 2009, the Company had charged to current period operations $62,052 as amortization of financing costs. The fair value of the warrants were determined using the Black Scholes Option Pricing Model based on the following assumptions: Dividend yield: -0-%; Volatility: 138.87%; Risk free rate: 1.48%; Term: 5 years.
At March 31, 2010 and 2009, balances consist of the following:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES
During the year ended March 31, 2010, the Company issued an aggregate of 3,707,770 shares of common stock in exchange for convertible notes totaling $333,333 and accrued interest.
Convertible Note #1
In May 2007, the Company received $50,000 in exchange for a Convertible Note (Note) that matured on August 31, 2007. The Note bears an interest rate of 18% and is convertible into the Company's common stock at the greater of $0.25 per share or 67.5% of the average 10 previous trade days prior to conversion. (Note in default.)
Convertible Note #2
In May 2007, the Company received $50,000 in exchange for a Convertible Note (Note) that matured on August 31, 2007. The Note bears an interest rate of 18% and is convertible into the Company's common stock at the greater of $0.25 per share or 67.5% of the average 10 previous trade days prior to conversion. (Note in default)
Convertible Note #3
In May 2007, the Company received $100,000 in exchange for a Convertible Note (Note) that originally matured on August 31, 2007. The Note bears an interest rate of 18%. The Company reached a settlement to issue common stock by no later than December 8, 2008 at the average price back 90 days. Subsequent to the conversion, the Company agreed to issue additional shares should the average price per share be lower in the subsequent 90 days. (Note in default)
Convertible Note #4
In January 2008, the Company received $50,000 in exchange for a Convertible Note (“Note”) that matures in March 31, 2008. The Note bears interest at a rate of 10% and will be convertible into 333,333 shares of the Company’s common stock, at a conversion rate of $.15 per share. Interest will also be converted into common stock at a conversion rate of $.25 per share.
In accordance with Accounting Standards Codification subtopic 470-20, Debt With Conversions and Other Options (“ASC 470-20”), the Company recognized an imbedded beneficial conversion feature present in Convertible Note #4. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $20,000 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note. The debt discount attributed to the beneficial conversion feature is charged to current period operations as interest expense
In connection with the issuance of the convertible note, the Company issued 100,000 shares of common stock. The common stock was valued at the date of the related convertible note and charged to current period operations as financing costs.
During the year ended March 31, 2009, $25,000 of the Convertible Note was converted to common stock and during the year ended March 31, 2010, the Company paid $3,030 as principal payment leaving a remaining balance of $21,970. (Note in default).
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Note #5
In May 2008, the Company received $50,000 in exchange for a Convertible Note (“Note”) that matures in May 2011. The Note bears interest at a rate of 10% and will be convertible into 333,333 shares of the Company’s common stock, at a conversion rate of $.15 per share. Interest will also be converted into common stock at the conversion rate of $.15 per share.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #5. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $32,333 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
In connection with the issuance of the convertible note, the Company issued 100,000 shares of common stock. The common stock was valued at the date of the related convertible note.
The total debt discount attributed to the beneficial conversion feature of $32,333 is charged operations ratably over the note term as interest expense.
For the year ended March 31, 2010 and 2009, the Company amortized $10,778 and $9,715 to current period operations as interest expense, respectively.
Convertible Notes #6
In May 2008, the Company received $250,000 and the cancellation of an existing convertible note of $100,000 in exchange for a Convertible Notes (“Notes”) that matures in May 2011. The Notes bears interest at a rate of 10% and will be convertible into 2,333,333 shares of the Company’s common stock, at a conversion rate of $.15 per share. Interest will also be converted into common stock at the conversion rate of $.15 per share.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Notes #6. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $108,182 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
In connection with the issuance of the convertible note, the Company issued 700,000 shares of common stock. The common stock was valued at the date of the related convertible note.
The total debt discount attributed to the beneficial conversion feature of $108,182 is charged operations ratably over the note term as interest expense.
For the year ended March 31, 2010 and 2009, the Company amortized $36,061 and $32,504 to current period operations as interest expense, respectively.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Note #7
In March 2009, the Company issued a $125,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 1,250,000 shares of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share. In connection with the issuance of the Convertible Note, the Company will issue 500,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #7. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $27,344 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $27,344 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $13,115 and $36 to current period operations as interest expense, respectively.
Convertible Note #8
In March 2009, the Company issued a $50,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 500,000 shares of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share. In connection with the issuance of the Convertible Note, the Company will issue 200,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #8. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $10,938 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $10,938 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $5,239 and $29 to current period operations as interest expense, respectively.
Convertible Note #9
In March 2009, the Company issued a $150,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 1,500,000 shares of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share. In connection with the issuance of the Convertible Note, the Company will issue 600,000 shares of its common stock.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Note #9 (continued)
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #9. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $32,813 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $32,813 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $15,738 and $43 to current period operations as interest expense, respectively.
Convertible Note #10
In March 2009, the Company issued a $200,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 2,000,000 shares of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share. In connection with the issuance of the Convertible Note, the Company will issue 800,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #10. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $43,750 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $43,750 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $20,983 and $57 to current period operations as interest expense, respectively.
Convertible Note #11
In March 2009, the Company issued a $50,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 500,000 shares of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share. In connection with the issuance of the Convertible Note, the Company will issue 200,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #11. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $10,938 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Note #11 (continued)
The total debt discount attributed to the beneficial conversion feature of $10,938 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $5,246 and $14 to current period operations as interest expense, respectively.
Convertible Note #12
In March 2009, the Company issued a $50,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 500,000 shares of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share. In connection with the issuance of the Convertible Note, the Company will issue 200,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #12. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $10,938 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $10,938 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $5,246 and $14 to current period operations as interest expense, respectively.
Convertible Note #13
In March 2009, the Company issued a $25,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 250,000 shares of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share. In connection with the issuance of the Convertible Note, the Company will issue 100,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #13. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $5,469 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $5,469 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $2,623 and $7 to current period operations as interest expense, respectively.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Note #14
In March 2009, the Company issued a $250,000 Convertible Note that matures in May 2011 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 10% and will be convertible into 3,846,154 shares of the Company’s common stock, at a conversion rate of $.065 per share. Interest will also be converted into common stock at the conversion rate of $.065 per share. In connection with the issuance of the Convertible Note, the Company will issue 1,000,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #14. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $128,606 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $128,606 is charged operations ratably over the note term as interest expense.
For the March 31, 2010 and 2009, the Company amortized $61,281 and $839 to current period operations as interest expense, respectively.
Convertible Note #15
In March 2009, the Company issued a $60,000 Convertible Note that matures in May 2011 in exchange for outstanding accounts payable. The Note bears interest at a rate of 10% and will be convertible into 600,000 of the Company’s common stock, at a conversion rate of $.10 per share. Interest will also be converted into common stock at the conversion rate of $.10 per share.
Convertible Note #16
In March 2009, the Company issued a $1,000,000 Convertible Note that matures in July 2011 in exchange for outstanding advances for marketing (See Note 6 above). The Note bears interest at a rate of 20% and will be convertible into 12,500,000 of the Company’s common stock, at a conversion rate of $.08 per share. Interest will also be converted into common stock at the conversion rate of $.08 per share.
Convertible Promissory Notes (related party)
In conjunction with the acquisitions of ITT and Razor, the Company issued $5,000,000 in convertible promissory notes that matures on April 15, 2009. The Notes bears interest at a rate of 6% and are convertible into 20,000,000 shares of the Company’s common stock, at a conversion rate of $0.25 per share at any time at the holders’ option. The convertible promissory notes are held by current employees of ITT and Razor.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Promissory Notes (related party) (continued)
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in the Convertible Promissory Notes. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $1,250,000 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note. The debt discount attributed to the beneficial conversion feature is amortized ratably to operations as interest expense over the term of the promissory note.
For the year ended March 31, 2009, the Company amortized $1,041,667 to current period operations as interest expense.
During the year ended March 31, 2009, the Company converted $3,333,334 in related party promissory notes and related interest into 14,300,000 shares of common stock. In addition, $333,333 of the outstanding related party notes was forgiven. The remaining balance ($1,333,333) were converted to modified promissory note(s) due May 15, 2011, bearing an interest rate of 8% per annum which are convertible into 13,333,333 shares of the Company’s common stock at a rate of $0.10 per share at anytime at the Holder’s option.
During the year ended March 31, 2010, the Company converted $333,333 of the remaining $1,333,333 related party notes and related interest into 3,707,770 shares of common stock.
Convertible Promissory Notes (#17)
On July 31, 2009, the Company issued $1,029,000 in Convertible Promissory Notes that matures July 31, 2012. The Promissory Notes bear interest at a rate of 8% and will be convertible into 34,300,000 shares of the Company’s common stock, at a conversion rate of $.03 per share and are subject to certain dilutive issuance provisions. Interest will also be converted into common stock at the conversion rate of $.003 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 17,150,006 warrants to purchase the Company’s common stock at $0.050 per share over five years and is subject to certain dilutive issuance provisions.
In accordance with Accounting Standards Codification subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity (“ASC 815-40”), the Company is required to bifurcate the fair value of the reset provision from the host contract and mark to market the reset provision each reporting period. The fair value of the reset provision at the date of issuance, determined using the Black Scholes Option Pricing Method, was charged as an allocated debt discount. The fair value was determined based on the following assumptions:
In connection with the issuance of the Convertible Promissory Notes, the Company issued 17,150,006 warrants with certain reset provisions. In accordance with ASC 815-40, the Company is required to record the fair value of the warrants outside of equity and mark to market each reporting period. The fair value of the warrants at the date of issuance, determined using the Black Scholes Option Pricing Method, was charged as an allocated debt discount. The fair value was determined based on the following assumptions:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Promissory Notes (#17) (continued)
The Company allocated proceeds based on the relative fair values of the reset provisions of the debt and warrants, measured at an aggregate of $1,029,000, to the warrant and debt reset provision liabilities and a discount to Convertible Promissory Notes. Subsequent to the initial issuance date, the Company is required to adjust to fair value the warrant and debt reset provision liabilities as an adjustment to current period operations. (See Notes 9 and 10).
For the year ended March 31, 2010, the Company amortized $229,084 to current period operations as interest expense
Convertible Promissory Notes (#18)
On December 17, 2009, the Company issued a $30,000 Convertible Promissory Note that matures December 17, 2012. The Promissory Notes bear interest at a rate of 8% and will be convertible into 34,300,000 shares of the Company’s common stock, at a conversion rate of $.03 per share and are subject to certain dilutive issuance provisions. Interest will also be converted into common stock at the conversion rate of $.003 per share. In connection with the issuance of the Convertible Promissory Note, the Company issued 500,000 warrants to purchase the Company’s common stock at $0.050 per share over five years and is subject to certain dilutive issuance provisions.
In accordance with Accounting Standards Codification subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity (“ASC 815-40”), the Company is required to bifurcate the fair value of the reset provision from the host contract and mark to market the reset provision each reporting period. The fair value of the reset provision at the date of issuance, determined using the Black Scholes Option Pricing Method, was charged as an allocated debt discount. The fair value was determined based on the following assumptions:
In connection with the issuance of the Convertible Promissory Notes, the Company issued 500,000 warrants with certain reset provisions. In accordance with ASC 815-40, the Company is required to record the fair value of the warrants outside of equity and mark to market each reporting period. The fair value of the warrants at the date of issuance, determined using the Black Scholes Option Pricing Method, was charged as an allocated debt discount. The fair value was determined based on the following assumptions:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Promissory Notes (#18) (continued)
The Company allocated proceeds based on the relative fair values of the reset provisions of the debt and warrants, measured at an aggregate of $30,000, to the warrant and debt reset provision liabilities and a discount to Convertible Promissory Note. Subsequent to the initial issuance date, the Company is required to adjust to fair value the warrant and debt reset provision liabilities as an adjustment to current period operations. (See Notes 9 and 10).
For the year ended March 31, 2010, the Company amortized $2,847 to current period operations as interest expense.
Convertible Promissory Notes (#19) (related party)
On March 31, 2010, the Company issued $754,473 in Convertible Promissory Notes that matures March 31, 2013 in exchange for accrued and unpaid salaries. The Promissory Notes bear interest at a rate of 8% and will be convertible into 25,149,100 shares of the Company’s common stock, at a conversion rate of $.03 per share. Interest will also be converted into common stock at the conversion rate of $.003 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 12,574,551 warrants to purchase the Company’s common stock at $0.050 per share over five years.
In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $469,253 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (three years) as interest expense.
In connection with the issuance of the promissory notes, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 12,574,551 shares of the Company’s common stock at $0.05 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $285,220 to additional paid in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2.55%, a dividend yield of 0%, and volatility of 154.48%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense.
The Company recorded the intrinsic value of the embedded beneficial conversion feature ($469,253) and warrants ($285,220) to debt discount, aggregating $754,473, which will be amortized to interest expense over the term of the Notes. Amortization of $688was recorded for year ended March 31, 2010.
Convertible Promissory Notes (#20)
On March 31, 2010, the Company issued $175,000 in Convertible Promissory Notes that matures March 31, 2013. The Promissory Notes bear interest at a rate of 8% and will be convertible into 5,833,334 shares of the Company’s common stock, at a conversion rate of $.03 per share. Interest will also be converted into common stock at the conversion rate of $.003 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 2,916,668 warrants to purchase the Company’s common stock at $0.050 per share over five years.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
Convertible Promissory Notes (#20)
In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $108,843 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (three years) as interest expense.
In connection with the issuance of the promissory notes, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 2,916,668 shares of the Company’s common stock at $0.05 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $66,157 to additional paid in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2.55%, a dividend yield of 0%, and volatility of 154.48%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense.
The Company recorded the intrinsic value of the embedded beneficial conversion feature ($108,843) and warrants ($66,157) to debt discount, aggregating $175,000, which will be amortized to interest expense over the term of the Notes. Amortization of $160 was recorded for year ended March 31, 2010.
Convertible Note #21
In March 31, 2010, the Company issued a $182,085 Convertible Note that matures in May 2013 in exchange for a Convertible Note previously matured. The Note bears interest at a rate of 8% and will be convertible into 3,641,700 shares of the Company’s common stock, at a conversion rate of $.05 per share. Interest will also be converted into common stock at the conversion rate of $.05 per share. In connection with the issuance of the Convertible Note, the Company will issue 500,000 shares of its common stock.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #21. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $18,021 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature of $18,021 is charged operations ratably over the note term as interest expense.
For the March 31, 2010, the Company amortized $25 to current period operations as interest expense.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
8. CONVERTIBLE NOTES (continued)
At March 31, 2010 and 2009, balances consisted of the following:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
9. RESET DERIVATIVE LIABILITY
As described in Note 8 above, the Company issued of Convertible Promissory Notes that contain certain reset provisions. Therefore, in accordance with ASC 815-40, the Company bifurcated the fair value of the reset provision from debt instrument to a liability at the date of issuance. Subsequent to the initial issuance date, the Company is required to adjust to fair value the reset provision as an adjustment to current period operations.
The Company recorded a loss on change in fair value of reset derivative liability of $427,412 for the year ended March 31, 2010.
The fair value of the reset liability at March 31, 20010 was determined using the Black Scholes Option Pricing Model with the following assumptions:
As of the date of the financial statements the reset derivative liability valued at $1,120,476, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets in remote and has classified the obligation as a long term liability.
10. WARRANT LIABILITY
As described in Note 8 above, the Company issued warrants in conjunction with the issuance of Convertible Promissory Notes. These warrants contain certain reset provisions. Therefore, in accordance with ASC 815-40, the Company reclassified the fair value of the warrant from equity to a liability at the date of issuance. Subsequent to the initial issuance date, the Company is required to adjust to fair value the warrant as an adjustment to current period operations.
The Company recorded a loss on change in fair value of warrant liability of $259,201 for the year ended March 31, 2010.
The fair values of the warrants at March 31, 2010 were determined using the Black Scholes Option Pricing Model with the following assumptions:
As of the date of the financial statements the warrant liability valued at $625,137, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets in remote and has classified the obligation as a long term liability.
11. RELATED PARTY TRANSACTIONS
The Company is periodically advanced interest free operating funds from related parties and shareholders. The advances are due on demand. At March 31, 2010 and 2009, due to related party was $31,264 and $130,701, respectively.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
11. RELATED PARTY TRANSACTIONS (continued)
In addition, as described in Note 8 above, the Company issued an aggregate of $5,000,000 in convertible promissory notes in connection with the acquisition of ITT and Razor during the year ended March 31, 2008. As of March 31, 2010, the outstanding balance was $1,000,000. The noteholders are current employees of the Company’s consolidated group.
In addition, as described in Note 8 above, the Company issued an aggregate of $754,473 in convertible promissory notes and 12,574,551 warrants to purchase the Company’s common stock at $0.05 per share (expiring five years from issuance) in exchange for accrued and unpaid salaries. The notes are convertible into the Company’s common stock at $0.03 per share and are due three years from issuance.
The Company is under a contract with a related party corporation whereby the related party provides marketing and promotional activity in exchange for 20% of gross revenue from sales of the related corporation’s products and services. Contained within the contract are a minimum number of subscribers the Company is required to maintain to ensure exclusivity.
12. CAPITAL STOCK
Subscription
During the year ended March 31, 2009, the Company received a preferred stock subscription for 62,500 shares of Series B convertible preferred stock for $500,000, subject to the approval of the shareholders of the Company.
The Company is obligated to issue 6,250,000 shares of its common stock should the Company be unable to issue the preferred stock and therefore the subscription received is considered an equity financing transaction.
Common stock
The Company is authorized to issue 700,000,000 shares of common stock with par value $.001 per share. As of March 31, 2010, the Company had 347,967,310 shares of common stock issued and outstanding.
In April 2009, the Company issued an aggregate of 400,000 shares of its common stock for services rendered.
In April 2009, the Company issued an aggregate of 1,600,000 shares of its common stock in exchange for outstanding accounts payable.
In May 2009, the Company issued an aggregate of 1,100,000 shares of its common stock for services rendered.
In July 2009, the Company issued an aggregate of 825,000 shares of its common stock in settlement of $49,500 in accrued interest.
In July 2009, the Company issued an aggregate of 400,000 shares of its common stock for services rendered.
In July 2009, the Company issued an aggregate of 3,600,000 shares of its common stock in connection with convertible debt.
In August 2009, the Company issued an aggregate of 400,000 shares of its common stock for services rendered.
In September 2009, the Company issued an aggregate of 10,765,000 shares of its common stock for services rendered.
In September 2009, the Company issued an aggregate of 4,000,000 shares in connection with the acquisition of ITT LLC and Razor Data Corp.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
12. CAPITAL STOCK (continued)
In September 2009, the Company issued an aggregate of 3,707,770 shares of its common stock in settlement of $370,776 in convertible notes and related interest.
In October 2009, the Company issued an aggregate of 200,000 shares of its common stock for services rendered.
In November 2009, the Company issued an aggregate of 1,500,000 shares of its common stock for outstanding accounts payable.
In January 2010, the Company issued an aggregate of 464,000 shares of its common stock for services rendered.
In February 2010, the Company issued an aggregate of 2,290,000 shares of its common stock in settlement of $114,500 in accrued interest.
In March 2010, the Company issued an aggregate of 3,350,000 shares of its common stock for services rendered.
In March 2010, the Company issued 650,740 shares of its common stock in settlement of $32,537 in accrued interest.
In March 2010, the Company issued 500,000 shares of its common stock in connection with the issuance of a convertible promissory note.
13. COMMITMENTS AND CONTINGENCIES
Employment and Consulting Agreements
The Company has consulting agreements with outside contractors to provide certain marketing and financial advisory services. The Agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement by written notice.
On February 6, 2007 the Company entered into an employment agreement (the “Agreement”) with William C. Kosoff, the Company’s Chief Financial Officer for two years. The Agreement may be extended or earlier terminated pursuant to the terms and conditions of the Agreement and provides for automatic renewals for successive two (2) year terms unless, prior to 90th calendar day preceding the expiration of the then existing term, either Company of Mr. Kosoff provide written notice to the other that it elects not to renew the term. Subsequently the term was renewed as of November 6, 2008 for two more years commencing February 6, 2009.
On June 30, 2008, the Company entered into an Amended and Restated Employment Agreement (the “Agreement”) with Nicholas S. Maturo, the Company’s Chairman of the Board and Chief Executive Officer of Company since January 23, 2007.
The Agreement extends the term of Mr. Maturo’s employment for five (5) years, as may be extended or earlier terminated pursuant to the terms and conditions of the Agreement and provides for automatic renewals for successive three (3) year periods unless, prior to the 90th calendar day preceding the expiration of the then existing term, either Company or Mr. Maturo provide written notice to the other that it elects not to renew the term.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
13. COMMITMENTS AND CONTINGENCIES (continued)
Litigation
On July 16, 2009, a petition for judgment was filed with the Civil Court of the City of New York naming the Company as a defendant relating to property leased by the Company from the defendant for recovery of past due rent payments, interest and legal costs. As of December 31, 2009, the Company has accrued their obligation under the lease. On March 30, 2010, the Company settled for $156,720. In addition, the Company may be obligated to additional monies due on the primary lease of $67,600. As of March 31, 2010, the Company has accrued their obligations under the lease.
The Company may be subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. The Company had no pending legal proceedings or claims as of December 31, 2009.
14. LOSS PER COMMON SHARE
The following table presents the computation of basic and diluted loss per share for the year ended March 31, 2010 and 2009:
Fully-diluted weighted-average common shares outstanding are not utilized in the calculation of loss per common share as the effect would be anti-dilutive, decreasing the reported loss per common share.
15. INCOME TAXES
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
15. INCOME TAXES (continued)
At March 31, 2010, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $56,000,000, expiring in the year 2029, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Due to possible significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. All or portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.
At March 31, 2010, the significant components of the deferred tax assets (liabilities) are summarized below:
The total provision differs from the amount that would be obtained by applying the federal statutory rate of 35% to income before income taxes, as follows:
16. STOCK OPTIONS AND WARRANTS
Employee Stock Options
The following table summarizes the changes in employee stock options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company under two employee stock option plans. The nonqualified plan adopted in 2007 is for 13,000,000 shares of which 9,500,000 have been granted as of March 31, 2010. The qualified plan adopted in October of 2008 authorizing 25,000,000 shares was approved by a majority of the Shareholders on September 16th 2009. To date 7,000,000 shares have been granted as of March 31, 2010:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
16. STOCK OPTIONS AND WARRANTS (continued)
Employee Stock Options (continued)
Transactions involving stock options issued to employees are summarized as follows:
For the year ended March 31, 2010, the Company granted 8,500,000 options to purchase to Company’s commons stock at $0.05 to $0.06 per share over ten years. 2,500,000 options vested immediately with the reminder vesting over the next three years. The fair value of the vested options granted during the years ended March 31, 2010 and 2009 of $770,759 and $785,425 was recorded as a current period charge to earnings.
During the year ended March 31, 2010, the Company re-priced certain employee options initially with exercise prices from $0.41 to $0.42 to $0.06 per share with other terms remaining the same. The fair value of the fully vested re-priced options of $9,381 was charged to current period operations.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
16. STOCK OPTIONS AND WARRANTS (continued)
Employee Stock Options (continued)
The fair values of the fully vested re-priced employee options were determined using the Black Scholes option pricing model with the following assumptions:
Non-Employee Stock Options
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to consultants and non-employees of the Company at March 31, 2010:
Transactions involving stock options issued to consultants and non-employees are summarized as follows:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
16. STOCK OPTIONS AND WARRANTS (continued)
Non-Employee Stock Options (continued)
During the year ended March 31, 2009, the Company granted 500,000 non-employee stock options with an exercise price of $0.145 in one year and expiring approximately five years from issuance. The fair value of the vested amounts was determined using a Black-Scholes option pricing model based on the following assumptions:
(a) the expected option life is based on contractual expiration dates
The determined fair value of $14,661 was charged to current period operations during the year ended March 31, 2010.
Warrants
The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to shareholders at March 31, 2010:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
16. STOCK OPTIONS AND WARRANTS (continued)
Warrants (continued)
Transactions involving the Company’s warrant issuance are summarized as follows:
Warrants granted during the year ended March 31, 2009 totaling 2,000,000 were issued in connection with promissory note payable. The warrants are exercisable until five years after the date of issuance at a purchase price of $0.01 per share. The fair value of the warrants at the date of issuance was determined using the Black-Scholes Option Pricing Method with the following assumptions: dividend yield: -0-%; volatility: 138.87%, risk free interest rate: 1.48%
On July 31, 2009, warrants totaling 17,150,006 were issued in connection with issuance of Convertible Promissory Notes. The warrants are exercisable for three years from the date of issuance at an exercise price of $0.05 per share. The warrants were valued using the Black Scholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 149.90% and risk free rate from 2.53%. As described in Note 9 above, these warrants contain certain reset provisions which require the Company to classify the market value of the warrants outside of equity.
On December 17, 2009, warrants totaling 500,000 were issued in connection with issuance of a Convertible Promissory Note. The warrants are exercisable for five years from the date of issuance at an exercise price of $0.05 per share. The warrants were valued using the Black Scholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 154.99% and risk free rate from 2.24%. As described in Note 9 above, these warrants contain certain reset provisions which require the Company to classify the market value of the warrants outside of equity.
On March 31, 2010, warrants of 15,491,219 were issued in connection with the issuance of Convertible Promissory Notes. The warrants are exercisable for five years from the date of issuance at an exercise price of $0.05 per share. The warrants were valued using the Black Sholes option pricing method with the following assumptions: dividend yield $-0-, volatility of 154.17% and risk free rate of 2.55.
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
17. FAIR VALUE MEASUREMENT
The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.
The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (Including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the cash, other current assets, warrant liability and reset derivative liability. Convertible notes were determined at a net discount rate of 2% per annum for the terms of the notes:
GLOBAL INVESTOR SERVICES, INC.
(FORMERLY THERETIREMENTSOLUTION.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010 AND 2009
18. FAIR VALUE MEASUREMENT (continued)
At March 31, 2010, the fair values of the convertible notes were determined at a net discount rate of 2% per annum for the terms of the notes.
19. SUBSEQUENT EVENTS
In April of 2010 the Company issued 1,000,000 shares of common stock in settlement of $30,000 of principal of promissory notes.
In June 2010, the Company issued an aggregate of 28,276,745 shares of common stock in settlement of $911,052 of promissory notes and related accrued interest.
In June 2010, the Company issued an aggregate of 8,000,000 shares of common stock due in connection with the acquisition of ITT and Razor.
In June 2010, the Company issued an aggregate of 3,300,000 shares of common stock for services rendered.