ITEM 1. BUSINESS.
Corporate History
Global Investor Services, Inc. (hereinafter referred to as the “Company”, or “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.
Recent Developments
On June 24, 2011, Dr. Joseph J. Louro was engaged by Global Investor Services, Inc. (the "Company") to serve as the Chief Executive Officer and Chairman of the Company. Dr. Louro will replace Nicholas S. Maturo who resigned as the Chief Executive Officer. Mr. Maturo will continue to serve as a director of the Company and will continue in a position with the Company to be determined. Dr. Louro entered into an employment agreement as described herein. On June 29, 2011, Jeffrey Freedman resigned as director of the Company and, on May 17, 2011, Todd C. Jorn resigned as director of the Company.
To obtain funding to for working capital, the Company entered into a Subscription Agreement with several accredited investors on July 7, 2011 for the sale of (i) $1,200,000 in 8% secured convertible promissory notes and (ii) common stock purchase warrants to purchase 30,000,000 shares of our common stock. The closing occurred on July 7, 2011 but was deemed to be effective as of June 30, 2011
In July 2011, the Company entered into an Agreement with Wealth Engineering LLC, Wealth Engineering and Development Incorporated, Annette Raynor and Mario Romano (collectively, the “Wealth Parties”) pursuant to which the Company, among other matters, agreed to issue the Wealth Parties 17,500,000 shares of common stock, make a payment of $150,000 to the Wealth Parties by July 22, 2011, pay the Wealth Parties 20% of monthly net revenue generated pursuant to the agreement with Questrade, Inc. and provide the Wealth Parties a bonus to be determined if Wealth introduces the Company to financing or white label software contacts. The Wealth Parties released the Company from all claims and agreed to standard non-solicit and non-compete clauses.
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 28 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, 2011, we have incurred cumulative losses of $66,758,348.. 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. Our cash balance on March 31, 2011 was $124,031 and our average cash burn for the year ended March 31, 2011 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 continues to actively secure additional financing for 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, 2011 and our related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended March 31, 2011, 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, 2012. 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 $1,573,960 in operating activities for the fiscal year ended March 31, 2011 and, expect to generate positive cash from operations in the fiscal year ending March 31, 2012.
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, four of the five investors have extended these notes until May 11, 2011 for an aggregate of $650,000 leaving $200,000 in default.
As of March 31, 2011, the Company was in default on certain notes and convertible debentures totaling approximately $500,000. 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.
As of June 2010 the Company cleared the defaulted notes and accrued interest held by the five investors through conversion to common stock for a total of $650,000 in principal and $62,485 in interest for a total of 28,499,400 shares.
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.
If we are required for any reason to repay our outstanding 8% Secured Convertibel Promissory Notes issued in July 2011 we would be required to deplete our working capital, if available, or raise additional funds. Our failure to repay the July 2011, if required, could result in legal action against us, which could require the sale of substantial, if not all, of our assets.
To obtain funding to for working capital, the Company entered into a Subscription Agreement (the "July 2011 Agreement") with several accredited investors (collectively, the "July 2011 Investors") on July 7, 2011 for the sale of (i) $1,200,000 in 8% secured convertible promissory notes (the "July 2011 Notes") and (ii) common stock purchase warrants (the "July 2011 Warrants") to purchase 30,000,000 shares of our common stock. The closing occurred on July 7, 2011 but was deemed to be effective as of June 30, 2011. The July 2011 Notes bear interest at 8%, mature two years from the date of issuance, and are convertible into our common stock, at the July 2011 Investors' option, at a conversion price of $0.02 per share. Based on this conversion price, the July 2011 Notes in the amount of $1,200,000 excluding interest, were convertible into 60,000,000 shares of the Company’s common stock.. If we are required to repay the July 2011 Notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the July 2011 Notes when required, the July 2011 Notes could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.
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, 2011, we have incurred a net cumulative loss of $66,758,348 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 ended March 31, 2011 was $9,974,276. 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, 2011 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, 2011). The trading volume of our shares will continue to be limited due to resale restrictions under applicable securities laws and the fact that approximately 40 % 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. FINRA 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, 2011, 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.
We have not made the required payments in connection with our marketing program and, as a result, the Investors may exercise their option to acquire shares of common stock which will dilute all existing shareholders.
The Company entered into Investment Agreements (the “Agreements”) with several accredited investors (the “Investors”) whereby the Investors provided the Company with an aggregate of $615,000 from February 2011 through May 2011 (the “Funding”) to be used for marketing purposes. Under the Agreements, the Company is required to make payments to the Investors equal to a percentage of net revenue that varies between 20% to 50% of the Company’s net revenue generated from its marketing program commencing on the 61st day following closing continuing every 30 days through the 26th month following the closing.
In the event that the Company has not made payments equal to 50% of the Funding as of the 91st day after the Closing (the “Shortfall”) and each subsequent closing, then the Investor, at its sole option, may convert the Shortfall into shares of common stock of the Company by dividing the Shortfall by the Conversion Price (the “Conversion Option”). The Conversion Price shall be determined by multiplying .50 by the closing bid price as reported by a reliable reporting service on the 91st day following the Closing and each subsequent closing but may not be less than $0.02 per share. The Conversion Option shall expire upon the earlier of the Company paying the Shortfall in full or the 301st day following the Closing and each subsequent closing. In the event that the Company has not made payments equal to 100% of the Funding as of the 181st day after the Closing (the “Second Shortfall”) and each subsequent closing, then the Investor, at its sole option, may convert the Second Shortfall into shares of common stock of the Company by dividing the Second Shortfall by the Conversion Price (the “Second Conversion Option”). The Conversion Price shall be determined by multiplying .50 by the closing bid price as reported by a reliable reporting service on the 181st day following the Closing and each subsequent closing but may not be less than $0.02 per share. The Second Conversion Option shall expire upon the earlier of the Company paying the Second Shortfall in full or the 301st day following the Closing and each subsequent closing. The Company has made the initial payment but has since been unable to make any additional payment. As a result, the Investors will have the opportunity to convert in accordance with the Conversion Option.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
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. The Company pays a total of approximately $4750 per month for both facilities on a month to month basis until such time that a larger single facility is deemed appropriate.
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. In December 2010, the Company settled for $134,849 requiring monthly payments of $5,000 until paid. As of March 31, 2011, the outstanding unpaid balance was $109,849. The Company has accrued their obligations under the lease.
None of our directors, officers, or affiliates are involved in a proceeding adverse to our business or have a material interest adverse to our business.
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 July 14th , 2011, there were approximately 453 holders of record of the Company’s common stock, and 602,183,569 shares issued and outstanding (excluding 120,000,000 shares issued and held in Escrow per The Cougar Group, Asian Sales Agency Agreement).
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, 2011.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended March 31, 2011, the Company issued a convertible promissory note for $550,000 in exchange for the outstanding preferred stock subscription.
Common Stock
In April 2010, the Company issued 1,000,000 shares of its common stock in settlement of $30,000 in convertible notes.
In June 2010, the Company issued an aggregate of 27,526,745 shares of its common stock in settlement of $881,052 in convertible notes and accrued interest.
In June 2010, the Company issued an aggregate of 4,050,000 shares of its common stock for services rendered.
In June 2010, the Company issued an aggregate of 8,000,000 shares in connection with the acquisition of ITT LLC and Razor Data Corp.
In July 2010, the Company issued 3,846,154 shares of its common stock in settlement of a $250,000 convertible note.
In August 2010, the Company issued an aggregate of 5,000,000 shares of its common stock for services at $258,000.
In September 2010, the Company issued an aggregate of 3,133,334 shares of common stock and accounted for 3,400,000 shares of common stock to be issued in exchange for an aggregate of $279,600 of services rendered.
In September 2010, the Company issued an aggregate of 34,127,927 shares of common stock and accounted for 40,896,141 shares of common stock to be issued in exchange for settlement of $3,091,966 in convertible notes and accrued interest.
In September 2010, the Company issued an aggregate of 4,783,335 shares of common stock and accounted for 6,375,002 shares of common stock to be issued in exchange for exercise of warrants. The Company received proceeds of $41,333 and recorded warrant subscription receivable of $236,458.
In September 2010, the Company deposited 120,000,000 shares of common stock into an escrow account in connection with a Sales Agency Agreement (the “Sales Agreement”) with The Cougar Group. None of the shares have been released from the escrow as of March 31, 2011, therefore the shares were not deemed outstanding and are excluded from the calculation of loss per shares.
In October 2010, the Company issued an aggregate of 427,000 shares of its common stock for future services as prepaid (deferred) compensation at $29,890.
In November 2010, the Company issued 7,800,000 shares of its common stock for services of $429,000.
In December 2010, the Company issued an aggregate of 366,667 shares of its common stock in exchange for exercise of warrants. In December 2010, the Company issued an aggregate of 13,499,360 shares of its common stock for services at $12,500 and $661,250 for future services as prepaid (deferred) compensation.
In December 2010, the Company issued an aggregate of 2,096,680 shares of its common stock in exchange for settlement of $90,000 in convertible notes and accrued interest.
In February 2011, the Company issued an aggregate of 1,100,000 shares of its common stock for services of $41,800.
In March 2011, the Company issued an aggregate of 7,000,000 shares of its common stock for services of $12,000 and $238,000 for future services as prepaid (deferred) compensation.
In March 2011, the Company issued an aggregate of 7,293,978 shares of its common stock in exchange for settlement of $200,000 in convertible notes and accrued interest.
In March 2011, the Company issued 2,500,000 shares of its common stock in connection with the issuance of convertible notes (Note 10).
Stock Options and Warrants
During the year ended March 31, 2010, the Company granted an aggregate of 8,500,000 options to purchase the Company's common stock with exercise prices from $0.05 to $0.06. The Company has not granted employee options during the year ended March 31, 2011.
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 operations during the year ended March 31, 2010.
On March 31, 2010, warrants of 33,141,225 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. Certain of these warrants contain certain reset provisions which require the Company to classify the market value of the warrants outside of equity.
On July 1, 2010, warrants of 13,300,002 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.
During the year ended March 31, 2011, the Company issued an aggregate of 11,325,006 shares of its common stock in exchange for warrants exercised at $0.025 per share. These warrants had original exercise price of $0.05 per share, the Company recorded loss in connection with the induced exercise of warrants in the amount of $283,509. In addition, the Company issued convertible notes in exchange for the cancellation of 16,166,668 warrants exercisable at $0.05 per share.
During the year ended March 31, 2011, officers and employees surrendered an aggregate of 12,053,717 previously issued warrants exercisable at $0.05 per share. In addition, an aggregate of 2,047,500 warrants expired and cancelled.
Secured Note Financing
To obtain funding to for working capital, the Company entered into a Subscription Agreement (the "July 2011 Agreement") with several accredited investors (collectively, the " July 2011 Investors") on July 7, 2011 for the sale of (i) $1,200,000 in 8% secured convertible promissory notes (the " July 2011 Notes") and (ii) common stock purchase warrants (the " July 2011 Warrants") to purchase 30,000,000 shares of our common stock. The closing occurred on July 7, 2011 but was deemed to be effective as of June 30, 2011.
The July 2011 Notes bear interest at 8%, mature two years from the date of issuance, and are convertible into our common stock, at the Investors' option, at a conversion price of $0.02 per share. Based on this conversion price, the July 2011 Notes in the amount of $1,200,000 excluding interest, were convertible into 60,000,000 shares of the Company’s common stock.
The Company may prepay the July 2011 Notes only with the written consent of the holder. The full principal amount of the July 2011 Notes is due upon default under the terms of July 2011 Notes. In addition, we have granted the July 2011 Investors a security interest in substantially all of our assets and intellectual property.
The July 2011 Warrants are exercisable for a period of five years from the date of issuance at an exercise price of $0.03 per share.
The sale of the July 2011Notes was completed on July 7, 2011 with respect to $1,200,000 of the July 2011 Notes. As of the date hereof, the Company is obligated on $1,200,000 in face amount of July 2011 Notes issued to the July 2011 Investors. The July 2011 Notes are a debt obligation arising other than in the ordinary course of business which constitute a direct financial obligation of the Company.
The July 2011 Notes and July 2011 Warrants were offered and sold to the July 2011 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 thereunder. Each of the July 2011 Investors is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933.
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 to stay focused on its 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 increase in Revenue for the year ended March 31, 2011 from the prior year ended March 31 2010 was due to the increased marketing expenditures during the year which were invested in the restructured Online 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 2009 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 launched in early 2010.
During the year ended March 31, 2011, our cost of revenue was $704,200 or 35% of revenue as compared to $918,159 or 80% of revenue during the year ended March 31, 2010. 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, in which the cost of revenue does not proportionally increase as revenue increases, but remains nearly constant for providing the On Line investor education and stock market analysis tools to an increasing, growing subscriber base.
Operating costs
Our selling, general and administrative expenses increased from $4,733,989 to $5,561,992 or $828,003 (17%). The increase is a result of increased marketing expenses and the addition of personnel during the year, due to the resultant growth in revenues.
Depreciation decreased from $937,781 to $785,362 or a decrease of $152,419 due to the full amortization of certain intangible assets during the fiscal year.
Other income and expenses:
Interest expense increased from $999,001 to $3,443,715, a $2,444,714 or 245% increase. The increase is primarily due to a higher amortization and recorded beneficial conversion features. During the year ended March 31, 2011, we restructured a significant portion of our convertible debt resulting in the accelerated write off of unamortized beneficial conversion features.
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, 2011, we recorded a loss of $462,562 in change in the fair value of these reset provisions as compared to a loss of $686,613 for the same period last year.
During the year ended March 31, 2011, we settled or restructured a significant portion of our outstanding convertible debt obligations and warrants containing reset provisions. As such, we incurred a loss on debt settlement of $1,028,248 during the year ended March 31, 2011.
Liquidity and Capital Resources
As of March 31, 2011, the Company had a working capital deficit of $2,801,224. The Company generated a deficit in cash flow from operating activities of $1,573,960 for the year ended March 31, 2011. This deficit is primarily attributable to the Company's net loss from operations of $9,974,276 and is partially offset by the following:
·
loss due to change in fair value of warrant and reset derivatives of $462,562;
·
a charge for the value of options issued for services of $161,735;
·
recognition of an imbedded beneficial conversion of convertible debentures of $2,963,543;
·
stock issued for services of $1,895,479, (including amortization of deferred compensation costs of $706,079);
·
loss on settlement of debt of $1,189,400;
·
stock issued in settlement of interest of $548,671;
·
amortization and depreciation expense of $785,362; and
·
changes in the balances of current assets and liabilities.
Deferred costs and other assets increased by $34,787. Accounts payable and accrued liabilities increased by $398,395 and deferred revenue increased by $181,627.
The Company met its cash requirements during the year ended March 31, 2011 through net proceeds from convertible debt of $447,500, marketing and other advances of $1,083,455 and proceeds from exercise of warrants of $230,208, net with payments on notes payable of $112,000.
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, 2011 consolidated 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 that 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 2011 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, 2011 and 2010, the Company’s deferred revenue was $261,260 and $79,633, respectively
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, 2011 and 2010, 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 accounts for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to its employees and directors, including employee stock options and restricted stock awards. The Company estimates the fair value of stock options granted using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of time an employee will retain vested stock options before exercising them, the estimated volatility of our common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations.
Stock-based compensation expense in connection with options granted to employees and directors for the years ended March 31, 2011 and 2010 was $161,735 and $794,801, respectively.
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 one principal operating segment.
Recent Accounting Pronouncements
In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805) “Disclosure of supplementary Pro Forma Information for business combinations”, which specify that if a public entity presents comparative financial statements, the entity should disclosure revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year has occurred as of the beginning of the comparable prior annual reporting period. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. These amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company does not expect the adoption of this ASU will have a material impact on the Company’s consolidated financial statements.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
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 Joseph J. Louro, our Chief Executive Officer and Chairman of our Board of Directors, and William Kosoff, our Acting Chief Financial Officer and member of our Board of Directors. If we lost the services of Dr. Louro, 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 acting chief financial officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended March 31, 2011 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, 2011.
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 Acting 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, 2011 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, 2011 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 and reliance on outside consultants for external reporting. 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, 2011 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, 2011 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 Acting 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, 2011, 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
Joseph J. Louro
Chief Executive Officer and Chairman of the Board
William Kosoff
Acting Chief Financial Officer and Director
Nicholas S. Maturo
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
Dr. Joseph J. Louro. Chief Executive Officer and Chairman of the Board. In June of 2011 Dr. Louro joined the Company as Chief Executive Officer and was elected by the Board to serve as Chairman of the Board of Global Investor Services, Inc. on June 22nd, 2011.
Dr. Louro, from 2006 to 2011, served as the CEO and President of LDG-Louro Development Group, a business development company focused on real estate transactions, new construction and downtown development projects as well as foreclosure-bankruptcy turnaround solutions. From 1981 to 2006, Dr. Louro acted as an international speaker for live seminar educational companies. Dr. Louro’s topics for physicians and businessmen included success principles, practice management skills and leadership skills. Dr. Louro also taught staff and employees how to enhance the customers overall experience through first class service. Dr. Louro was licensed by the State of New Jersey in 1981 by the Board of Medical Examiners to practice as a chiropractor and, has since demonstrated the ability to run multiple offices with an integrated staff of chiropractic, medical and osteopathic physicians while also teaching and consulting.
Nicholas Maturo - Director. From February 2007 to June 2011 Mr. Maturo served as the Chief Executive Officer, President and Chairman of the Board of Global Investor Services, Inc. In June of 2011 Mr. Maturo stepped down from those positions and remains a Director and employee of the Company. From September 2005 to 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 - Chief Financial Officer and Director. From September 2006 to February 2007 Mr. Kosoff has been a Director of in various positions with Global Investor Services from Chief Executive Officer, President During the past five years Mr. Kosoff served President Chief Executive Officer 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.
On June 29th 2011 Mr. Freedman resigned from the Board citing insufficient time to devote to his position as a Director due to increased demands of a new position of employment.
Our directors are elected for a term of one year and/or until their successors qualified, nominated, and elected.
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 2011.
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, 2011, our officers, directors and 10% stockholders made the required 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. As of September 23 2010 the Board suspended cash compensation for outside Directors; however, re-imbursement of reasonable and ordinary expenses will continue to be paid.
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, 2011or who earned compensation exceeding $100,000 during fiscal year 2011 (the “named executive officers”), for services as executive officers for the last three fiscal years.
Summary Compensation Table
(1)
Cash compensation was suspended from April 1, 2010 and resumed at a reduced level beginning in June of 2010. A total of $59,500 was paid through March 31, 2010. Deferred Salary was forgiven and not accrued.
(2)
Cash compensation was suspended from April 1, 2010 and resumed at a reduced level beginning in June of 2010. A total of $50,750 was paid through March 31, 2010. Deferred Salary was forgiven and not accrued.
Outstanding Equity Awards at Fiscal Year-End Table.
Employment Agreements
On June 22, 2011, Dr. Louro executed an employment agreement with the Company, which was received by the Company on June 24, 2011, pursuant to which he was appointed as the Chief Executive Officer and Chairman of the Company in consideration of an annual salary of $300,000. If certain performance metrics are achieved, then the base salary shall be increased to $400,000 during year two and $500,000 during year three. The term of the agreement is for three years which automatically renews for three year periods unless terminated prior to the 90th day following the expiration of the applicable term. Additionally, Dr. Louro will be eligible for annual cash bonuses equal to at least 50% and up to 100% of his salary subject to recommendation of the Compensation Committee or the Board of Directors. Dr. Louro will also 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, as recommended by the Compensation Committee of the Board of Directors or the Board of Directors. Dr. Louro will also be entitled to receive a special bonus upon the closing of capital funding events, through either public or private offerings, subject to approval by the Board. In addition to the salary and any bonus, Dr. Louro will be entitled to receive health and fringe benefits that are generally available to the Company’s management employees. As additional compensation, the Company granted Dr. Louro an initial award of 20,000,000 restricted shares of common stock of the Company and has agreed to provide an equity bonus not to exceed an aggregate of 55,000,000 shares for the years ended March 31, 2012, 2013 and 2014 based on certain operational improvements established by the Board. Dr. Louro will be entitled to receive shares equal to 20% of the operational improvement divided by $0.03.
Dr. Louro has agreed to receive only $1 per year until such time that the Company has sufficient cash flow in order to pay his salary. The salary per the contract will accrue as of June 22, 2011.
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. In June 2011, Mr. Maturo resigned as an officer of the Company.
In April of 2010 salaries to the Executive Officers were put on hold due to capital constraints being experienced by the Company. Salaries were the resumed at a reduced level in June of 2010. On December the Executive Officers entered into certain “Unwinding Agreements” to forgive accrued salaries and to give back stock options previously earned. Thus the 6,000,000 options for Mr. Maturo were canceled.
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 December 31, 2010 Mr. Kosoff entered into an “Unwinding Agreement” with the company wherein he forgave all accrued salary and returned his stock option earned to date to the Company.
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 amount of 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. On December 31, 2010 the Key Managers entered into “Unwinding Agreements where all accrued salaries were forgiven.
On January 20, 2011 salaries were reduced to conserve operating capital for Nicholas Maturo, William Kosoff , Ryan Smith and Rhett Andersen.
The key personnel and their respective positions are listed below:
Ryan Smith, Vice President Operations
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, 2011 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., 287 East 950 South, Orem Utah 84058
(2)
Applicable percentage ownership is based on 532,189,633 shares of common stock outstanding as of March 31,2011, together with securities exercisable or convertible into shares of common stock within 60 days of March 31, 2011 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, 2011 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, 2011 and 2010 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.
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)
4.1
Form of Subscription Agreement dated July 7, 2011 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on July 13, 2011)
4.2
Form of 8% Secured Convertible Note dated July 7, 2011 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on July 13, 2011)
4.3
Form of Common Stock Purchase Warrant dated July 7, 2011 (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed on July 13, 2011)
4.4
Form of Security Agreement dated July 7, 2011 (incorporated by reference to Exhibit 4.4 to the Company’s Form 8-K filed on July 13, 2011)
4.5
Form of Investment Agreement (incorporated by reference to Exhibit 4.4 to the Company’s Form 8-K filed on March 8, 2011)
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, 2008
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 , incorporated by reference to the 10K filed for the fiscal year ending March 31, 2010.
10.13
Employment Agreement by and between Global Investor Services Inc. and Dr. Joseph J. Louro dated June 7, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 29, 2011)
10.14
Letter Agreement by and between Global Investor Services Inc. and Dr. Joseph J. Louro dated June 29, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 29, 2011)
10.15
Agreement by and between Global Investor Services,Inc., Wealth Engineering LLC, Wealth Engineering and Development Incorporated, Annette Raynor and Mario Romano dated July 12, 2011
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 pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the 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.
GLOBAL INVESTOR SERVICES, INC.
Dated: July 14th 2011
By:
/s/ Joseph J. Louro
Joseph J. Louro
Chief Executive Officer
(Principal Executive Officer)
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/ Joseph J. Louro
Chief Executive Officer and Chairman of the Board
July 14th 2011
Joseph J. Louro
(Principal Executive Officer)
/s/ William Kosoff
Acting Chief Financial Officer and Director
July 14th 2011
William Kosoff
(Principal Financial Officer)
/s/ Nicholas S. Maturo
Director
July 14th 2011
Nicholas S. Maturo
/s/ Louis Sagar
Director
July 14th 2011
Louis Sagar
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
GLOBAL INVESTOR SERVICES, INC.
GLOBAL INVESTOR SERVICES, 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, 2011 and 2010 and the related consolidated statements of operations, (deficiency in) stockholders’ equity, and cash flows for each of the years in the two year period ended March 31, 2011. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on 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, 2011 and 2010, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2011, 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, 2011, 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
July 14, 2010
GLOBAL INVESTOR SERVICES, INC.
CONSOLIDATED STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FROM APRIL 1, 2009 THROUGH MARCH 31, 2011
GLOBAL INVESTOR SERVICES, INC.
CONSOLIDATED STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FROM APRIL 1, 2009 THROUGH MARCH 31, 2011
GLOBAL INVESTOR SERVICES, INC.
CONSOLIDATED STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS' EQUITY
FROM APRIL 1, 2009 THROUGH MARCH 31, 2011
The accompanying notes are an integral part of these consolidated financial statements
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
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 that provide financial and educational information to its prospective customers and to its subscribers.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ITT and Razor. All significant inter-company transactions and balances have been eliminated in consolidation.
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 or services 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.
Revenue arises from subscriptions to the websites/software, workshops, online workshops and training and coaching/counseling services where the customers are charged a monthly subscription fee 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.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (Continued)
The Company sells its 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:
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
Use of Estimates
The preparation of 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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2011 and 2010. 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.
As described in Note 19, items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the warrant liability, reset and debt derivative liabilities. Convertible notes were determined at a net discount rate of 2% per annum for the terms of the notes
Stock-Based Compensation
The Company accounts for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to its employees and directors, including employee stock options and restricted stock awards. The Company estimates the fair value of stock options granted using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of time an employee will retain vested stock options before exercising them, the estimated volatility of our common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations.
Stock-based compensation expense in connection with options granted to employees and directors for the years ended March 31, 2011 and 2010 was $161,735 and $794,801, 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:
Office equipment
5 years
Software
3 to 7 years
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was $1,471,210 and $126,670 for the years ended March 31, 2011 and 2010, respectively.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2011 and 2010, the Company’s expenditures on research and product development were immaterial.
Impairment of long lived assets
The Company follows 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.
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, 2011 and 2010.
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 were included in cost of net revenues in the current period expenses. During the years ended March 31, 2011 and 2010, the Company did not capitalize any costs associated with the website development.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 only 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 follows 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 consist primarily of derivative liability and stock compensation accounting versus basis differences.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Loss per Share
The Company follows 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.
Reliance on Key Personnel and Consultants
The Company has only 28 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 December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805) “Disclosure of supplementary Pro Forma Information for business combinations”, which specify that if a public entity presents comparative financial statements, the entity should disclosure revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year has occurred as of the beginning of the comparable prior annual reporting period. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. These amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company does not expect the adoption of this ASU will have a material impact on the Company’s consolidated financial statements.
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
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 recurring losses which have resulted in an accumulated deficit of $66,758,348 at March 31, 2011 which raises substantial doubt about the Company’s ability to continue as a going concern.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
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. 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.
3. PREPAID EXPENSES
From time to time, the Company issues shares of its common stock for services to be preformed. The fair value of the common stock is determined at the date of the contract for services and is amortized ratably over the term of the contract. As of March 31, 2011 and 2010, prepaid expenses were $512,759 and $238,198, respectively. During the years ended March 31, 2011 and 2010, the Company charged an aggregate of $706,079 and $862,789, respectively to current period operations.
4. PROPERTY AND EQUIPMENT
The Company’s property and equipment at March 31, 2011 and 2010:
Depreciation expense charged to operations amounted to $653,311 and $771,200, respectively, for the years ended March 31, 2011 and 2010.
5. CUSTOMERS LIST
The Company’s customers list at March 31, 2011 and 2010 consist of the following:
The Company recorded amortization expense of $131,878 and $166,582, respectively, for each of the years ended March 31, 2011 and 2010.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
6. CAPITALIZED FINANCING COSTS
In connection with the issuance of convertible debt on March 8, 2011 as described below, the Company will issue 6,000,000 shares of its common stock and $36,500 cash for placement services. The aggregate fair value of the common stock and cash paid of $246,500 is amortized ratably over the term of the convertible note (26 months).
During the year ended March 31, 2011, the Company amortized $9,481 to current period operations. The 6,000,000 shares of common stock were issued subsequent to the date of the financial statements (see Note 20).
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following at March 31, 2011 and 2010:
8. MARKETING ADVANCES
On April 1, 2010, the Company entered into an agreement with Allied Global Ventures, LLC (“Allied”) whereby Allied invested $300,000 (the “Proceeds”) in three equal tranches, on April 1, 2010, May 1, 2010 and June 1, 2010. The Proceeds are to be used to market the Company’s products and services. The Company is required to utilize 15% of all future revenue in repaying the proceeds borrowed from Allied commencing July 2010. Additionally, after repayment of the Proceeds, the Company will pay Allied an additional 100% on the Proceeds (the “Return”) payable based upon 5% of the Company’s monthly sales for this purpose. Subsequent to the initial agreement, Allied increased the Proceeds to an aggregate of $450,000 under the same terms and conditions.
During the year ended March 31, 2011, the Company made repayment of $89,308. Additionally, the Company accreted and charged to operations in the amount of $180,000 as due relating to the Return based on expected payback term. The balance payable under the Allied marketing including the accumulated accretion was $595,700 at March 31, 2011.
On July 27, 2010, ITT entered into a Marketing Fund Agreement (the “Wealth Agreement”) with Wealth Engineering LLC (“Wealth”) whereby Wealth agreed to invest $100,000 in ITT on a monthly basis. In return for Wealth’s monthly investment, ITT agreed to repay Wealth from the future gross sales revenue derived from ITT’s marketing campaigns in an amount of fifty percent (50%) of the first month’s gross sales and twenty-five percent (25%) of the second and each successive month’s gross sales revenue related to those sales that originated in that particular month and throughout the subscription period. The terms of the Agreement, as agreed to by ITT and Wealth, shall only apply to each month that Wealth funds, in whole or in part, ITT’s media campaign. Moreover, the Agreement is terminable by either ITT or Wealth at any time. As of March 31, 2011, Wealth funded an aggregate of $630,000 under this agreement.
During the year ended March 31, 2011, the Company made repayment of $226,220 reducing balance payable under the Marketing Fund Agreement to $403,780 as of March 8, 2011. On March 8, 2011, the Company issued a convertible note (see below) for $650,000 and 2,500,000 shares of common stock in settlement of the July 27, 2010 Marketing Fund Agreement. The Company recorded a loss of settlement of debt of $333,720 in current period operations.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
9. NOTES PAYABLE
A summary of notes payable at March 31, 2011 and 2010 are as follows:
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 of the Company 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. This Note is currently 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 was fully amortized as of March 31, 2011.
On September 30, 2010, the Company issued a unsecured note payable for $127,000 exchanged previously issued convertible notes (see Note 8, Convertible Note #22 and #25) in an aggregate total of $85,000 recording a loss on settlement of debt of $42,000. The promissory note is payable at 18% per annum and is due in monthly payments through December 2010. As of March 31, 2011, the Company paid $127,000 plus accrued interest in full settlement.
On September 30, 2010, the Company issued an aggregate of $120,000 promissory notes due five years from issuance at 8% per annum payable at maturity in exchange for the cancellation of 3,000,002 previously issued warrants. The fair value of the exchanged warrants, approximately equaled the fair value of the issued notes at the date of the exchange.
On February 23, 2011, the Company issued a $15,000 promissory note due March 8, 2011 at 10% per annum payable at maturity in exchange for payment of certain professional fees. As of March 31, 2011, the promissory note was in default.
On March 31, 2011, the Company issued $227,049 promissory note due March 31, 2013 at 8% per annum in exchange for accrued fees.
At March 31, 2011 and 2010, balances consist of the following:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES
During the year ended March 31, 2011, the Company entered into agreements with certain of its convertible noteholders to induce conversion of notes and exercise of the related warrants. The offer to the note and warrant holders was based on the nature of the class of securities held by each group. The groups consisted of noteholders from the bridge financing done in 2007, the private placements conducted in 2008, and the note and warrant holders from the latest private placements conducted throughout 2009 through the present period. In general, noteholders who held notes without detachable warrants were offered a bonus of 10% added to their principal plus accrued interest earned to be converted at 50% of their original, stated conversion rate. Noteholders with Warrants attached were offered a conversion of their notes at the stated rate plus interest with no additional incentive to convert. Secondly they were offered the right to exercise their warrants at a 50% discount with payment in cash, or the conversion of their warrants through redemption by the Company in exchange for a new non convertible promissory note based on the number of warrants owned by each. All of the note and warrant holders also had the option to keep their current position with their notes and warrants unchanged.
During the year ended March 31, 2011, the Company issued an aggregate of 116,787,625 shares of common stock, valued at $4,634,085, in exchange for convertible notes and accrued unpaid interest. Total loss in connection with the induced conversion or debt and warrants settlement amounted to $807,028 for the year ended March 31, 2011.
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. During the year ended March 31, 2011, the convertible note and all accrued unpaid interest was converted to 1,846,154 shares of common stock. The Company recorded a loss on settlement of debt of $59,428 in the current period operations.
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. During the year ended March 31, 2011, the convertible note and all accrued unpaid interest was converted to 1,846,154 shares of common stock. The Company recorded a loss on settlement of debt of $59,428 in the current period operations.
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. The shares have never been issued and the Note is currently 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 $.15 per share.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
$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. During the year ended March 31, 2011, the remaining balance of $21,970 and all accrued unpaid interest was converted to 790,310 shares of common stock.
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 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 and common stock issued in the amount of $32,333 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the Company issued 783,333 shares of its common stock in settlement of the convertible note and accrued interest representing an effective conversion rate of $0.075 per share. The Company recorded a loss on settlement of debt of $17,625 in the current period operations.
Convertible Notes #6
In May 2008, the Company received $250,000 and exchanged an existing convertible note of $100,000 for a Convertible Notes (“Notes”) in the amount of $350,000 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 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 and common stock issued in the amount of $108,182 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the Company issued an aggregate of 7,178,913 shares of common stock in settlement of the convertible note and accrued interest. The Company recorded a loss on settlement of debt of $127,197 in the current period operations.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
For the years ended March 31, 2011 and 2010, the Company amortized and wrote off debt discount in the amount of $39,617 and $36,061, respectively, to current period operations as interest expense.
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 issued 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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $27,344 is charged operations ratably over the note term as interest expense.
For the years ended March 31, 2011 and 2010, the Company amortized $13,115 to current period operations as interest expense.
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 issued 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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $10,938 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the Company issued 1,175,000 shares of its common stock in settlement of the convertible note and accrued interest representing an effective conversion rate of $0.046 per share. The Company recorded a loss on settlement of debt of $28,688 in the current period operations.
For the years ended March 31, 2011 and 2010, the Company amortized and wrote off $5,670 and $5,239 to current period operations as interest expense, respectively.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
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 issued 600,000 shares of its common stock.
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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $32,813 is charged operations ratably over the note term as interest expense.
For years ended March 31, 2011 and 2010, the Company amortized $15,738 to current period operations as interest expense.
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 issued 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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $43,750 is charged operations ratably over the note term as interest expense.
For the years ended March 31, 2011 and 2010, the Company amortized $20,984 to current period operations as interest expense.
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 issued 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 and a discount against the Convertible Note.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $10,938 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the convertible note and all accrued unpaid interest was converted to 1,712,770 shares of common stock. The Company recorded a loss on settlement of debt of $40,800 in the current period operations.
For the years ended March 31, 2011 and 2010, the Company amortized $5,677 and $5,246 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 issued 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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $10,938 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the Company issued 1,175,000 shares of its common stock in settlement of the convertible note and accrued interest representing an effective conversion rate of $0.046 per share. The Company recorded a loss on settlement of debt of $28,688 in the current period operations.
For the years ended March 31, 2011 and 2010, the Company amortized and wrote off $5,677 and $5,246 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 issued 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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $5,469 is charged operations ratably over the note term as interest expense.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
For the years ended March 31, 2011 and 2010, the Company amortized $2,623 to current period operations as interest expense.
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 issued 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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $128,606 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the Company issued 3,846,154 shares of its common stock in settlement of the convertible note.
For the years ended March 31, 2011 and 2010, the Company amortized and wrote off $51,207 and $61,281 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. There was no imbedded beneficial conversion feature presented in Convertible Note #15.
During the year ended March 31, 2011, the Company issued 675,000 shares of common stock in settlement of the convertible note and accrued interest.
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. 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.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
On September 30, 2010, the Company entered into an agreement with noteholders to settle the above described note, part of Note # 17 (see below) in the amount of $240,000, and a $550,000 note (see Note # 24 below), an aggregate accrued interest of $333,400, and an aggregate of 13,166,667 warrants previously issued in exchange for 27,446,667 shares of its common stock and a convertible promissory notes in aggregate of $1,826,667; 8% per annum, due September 30, 2015 and convertible at $0.03 per share (See Convertible Notes # 26, below). The Company issued 8,746,667 shares as of September 30, 2010, and the remaining 18,700,000 shares of common stock were issued immediately subsequent to September 30, 2010. All original embedded derivatives and warrant liabilities in connection with these converted notes were marked to market at the date of this transaction and reclassified to equity (see Notes 11 and 12).
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 $.03 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 $0.05 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:
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 11 and 12).
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
During the year ended March 31, 2011, the Company issued an aggregate of 25,915,432 shares of its common stock in settlement of $712,000 of the convertible notes and accrued interest, and 3,000,000 of previously issued warrants. The Company also entered into a separate agreement to settle $240,000 of this note (see Note #16).
For the years ended March 31, 2011 and 2010, the Company amortized and wrote off $765,702 and $229,084, respectively, to current period operations as interest expense. After the conversion of the note during the year ended March 31, 2011, the remaining face amount of this note is $77,000 and unamortized debt discount is $34,214.
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 $.03 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 $0.05 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:
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 10 and 11).
During the year ended March 31, 2011, the Company issued an aggregate of 1,026,400 shares of its common stock in settlement of the convertible note and accrued interest.
For the years ended March 31, 2011 and 2010, the Company amortized and wrote off $27,153 and $2,847, respectively, to current period operations as interest expense.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
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 25,149,101 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 $.03 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 $0.05 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.
During the year ended March 31, 2011, the Company issued an aggregate of 25,149,101 shares of common stock in settlement the Convertible Promissory Notes. The Company wrote off the remaining unamortized debt discount of $753,785 to current period operations as interest expense.
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 $.03 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 $0.05 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 $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.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
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.
During the year ended March 31, 2011, the Company issued 6,059,002 shares of common stock in settlement of the Convertible Promissory Notes and accrued interest.
During the year ended March 31, 2011, the Company wrote off and amortized debt discount of $174,840 to current period operations as interest expense.
Convertible Note #21
On 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 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 and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $18,021 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the Company issued 1,000,000 shares of common stock in settlement of $30,000 in Convertible Promissory Notes, accrued unpaid interest, and other fees.
During the year ended March 31, 2011, the Company wrote off and amortized $10,480 to current period operations as interest expense.
Convertible Note # 22
On June 2, 2010, the Company issued a $50,000 Convertible Promissory Note that matures in May 4, 2011. The note bears interest at a rate of 8% and will be convertible into the Company’s common stock at any time at the holder’s option, into common stock at the conversion rate of 60% of the lowest three trading days 10 days prior to notice of conversion.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
The Company's identified embedded derivatives related to the Convertible Promissory Note entered into on June 2, 2010. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value $74,333 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Option Pricing Model based on the following assumptions:
The initial fair value of the embedded debt derivative of $74,333 was allocated as a debt discount up to the proceeds of the note ($50,000) with the remainder ($24,333) charged to current period operations as interest expense.
During the year ended March 31, 2011, the Company entered into an agreement in exchange for and cancellation of the above described note and a secondary note (Note #25 below). The agreement requires the Company to issue a non-convertible promissory note in the amount of $127,000 (see Note 9) plus accrued interest payable in monthly installments through December 15, 2010. The note was paid off as of March 31, 2011.
During the year ended March 31, 2011, the Company amortized or wrote off $50,000 to current period operations as interest expense.
Convertible Note # 23
On July 1, 2010, the Company issued an aggregate of $260,000 Convertible Promissory Note that matures in June 30, 2013. The note bears interest at a rate of 8% and will be convertible into the Company’s common stock at any time at the holder’s option, into common stock at the conversion rate of $.03 per share. Interest will also be converted into common stock at the conversion rate of $.03 per share.
In connection with the issuance of the Convertible Promissory Notes, the Company issued 4,133,335 warrants to purchase the Company’s common stock at $0.05 per share over five years.
Since the issuance of these notes are subsequent to Convertible note # 22, and 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 conversion feature from the host contract and mark to market the reset provision each reporting period. The fair value of the conversion 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:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
In connection with the issuance of the Convertible Promissory Notes, the Company issued 4,133,335 warrants. 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:
The Company allocated proceeds based on the relative fair values of the conversion provisions of the debt and warrants, measured at an aggregate of $260,000, to the warrant and debt conversion 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 10 and 11).
During the year ended March 31, 2011, the Company entered into agreements with the noteholders to issue an aggregate of 9,155,568 shares of its common stock in settlement of the $260,000 of convertible notes and accrued interest.
For the year ended March 31, 2011, the Company amortized or wrote off $260,000 to current period operations as interest expense.
Convertible Note # 24
On July 1, 2010, the Company issued a $550,000 Convertible Promissory Note that matures in June 30, 2013 in exchange for a previously received preferred stock subscription of $500,000. The note bears interest at a rate of 8% and will be convertible into the Company’s common stock at any time at the holder’s option, into common stock at the conversion rate of $.03 per share. Interest will also be converted into common stock at the conversion rate of $.03 per share.
In connection with the issuance of the Convertible Promissory Notes, the Company issued 9,166,667 warrants to purchase the Company’s common stock at $0.05 per share over five years.
Since the issuance of these notes are subsequent to Convertible note # 22, and 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 conversion feature from the host contract and mark to market the reset provision each reporting period. The fair value of the conversion 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:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
In connection with the issuance of the Convertible Promissory Notes, the Company issued 9,166,667 warrants. 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:
The Company allocated proceeds based on the relative fair values of the conversion provisions of the debt and warrants, measured at an aggregate of $550,000, to the warrant and debt conversion 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).
On September 30, 2010, the Company settled the above described note, together with $240,000 of convertible note # 17, and convertible note #16 in the amount of $1,000,000, accrued unpaid interest, and an aggregate of 13,166,667 warrants previously issued in exchange for 27,446,667 shares of its common stock and a convertible promissory notes in aggregate of $1,826,667; 8% per annum, due September 30, 2015 and convertible at $0.03 per share (see Convertible Notes #16).
For the year ended March 31, 2011, the Company amortized and wrote off $550,000 to current period operations as interest expense.
Convertible Note # 25
On July 16, 2010, the Company issued a $35,000 Convertible Promissory Note that matures in April 20 2011. The note bears interest at a rate of 8% and will be convertible into the Company’s common stock at any time at the holder’s option, into common stock at the conversion rate of 60% of the lowest three trading days 10 days prior to notice of conversion.
The Company's identified embedded derivatives related to the Convertible Promissory Note entered into on July 16, 2010. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Convertible Promissory Note and to fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value $39,952 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Option Pricing Model based on the following assumptions:
The initial fair value of the embedded debt derivative of $39,952 was allocated as a debt discount up to the proceeds of the note ($35,000) with the remainder ($4,952) charged to current period operations as interest expense.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
During the year ended March 31, 2011, the Company entered into an agreement in exchange for and cancellation of the above described note and a secondary note (Note #22 above). The agreement requires the Company to issue a non-convertible promissory note in the amount of $127,000 (see Note 9) plus accrued interest payable in monthly installments through December 15, 2010.
During the year ended March 31, 2011, the Company amortized or wrote off $35,000 to current period operations as interest expense.
Convertible Notes # 26
On September 30, 2010, the Company entered into an agreement with certain noteholders to issue an aggregate of 27,446,667 shares of its common stock and a convertible promissory note in the amount of $1,826,667 in exchange for and cancellation of previously issued notes which consists of Convertible Note #16 in the amount of $1,000,000, part of Convertible Note # 17 in the amount of $240,000, Convertible Note #24 in the amount of $550,000, accrued unpaid interest, and an aggregate of 13,166,667 previously granted warrants. The Convertible Promissory notes bear 8% interest per annum, matures September 30, 2015, and are convertible into the Company's common stock at any time at the holder’s option, into common stock at the conversion rate of $.03 per share. Interest will also be converted into common stock at the conversion rate of $.03 per share.
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 $913,334 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 (five years) as interest expense.
During the year ended March 31, 2011, the Company amortized $91,033 to current period operations as interest expense.
Convertible Notes # 27
On March 8, 2011, the Company entered into an Investment Agreement with several accredited investors (the “Investors”) whereby the Investors provided the Company with an aggregate of $365,000 (the “Funding”) to be used for marketing purposes.
The Company is required to make payments to the Investors equal to a percentage of net revenue that varies between 20% to 50% of the Company’s net revenue generated from its marketing program commencing on the 61st day following closing continuing every 30 days through the 26 month following the closing.
In the event that the Company has not made payments equal to 50% of the funding as of the 91st day after the closing (the “Shortfall”), then the Investor, at its sole option, may convert the Shortfall into shares of common stock of the Company by dividing the shortfall by the conversion price. The conversion price shall be determined by multiplying .50 by the closing bid price on the 91st day following the closing, subject to a conversion floor of $0.02 per share. The conversion option shall expire upon the earlier of the Company paying the shortfall in full or the 301st day following the closing.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
In the event that the Company has not made payments equal to 100% of the funding as of the 181st day after the closing (the “Second Shortfall”), then the Investor, at its sole option, may convert the Second Shortfall into shares of common stock of the Company by dividing the Second Shortfall by the conversion price (the “Second Conversion Option”). The conversion price shall be determined by multiplying .50 by the closing bid price on the 181st day following the closing, subject to a conversion floor of $0.02 per share. The second conversion option shall expire upon the earlier of the Company paying the Second Shortfall in full or the 301st day following the Closing.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #27. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $273,750 is charged operations ratably over the note term as interest expense.
During the year ended March 31, 2011, the Company amortized $7,950 to current period operations as interest expense.
Convertible Notes # 28
On March 8, 2011, the Company issued a convertible note for $650,000 and 2,500,000 shares of common stock in settlement of the July 27, 2010 Marketing Fund Agreement (See Note 8 above). The note requires weekly payments of $12,500 commencing on April 1, 2011 through April 30, 2012.
In the event that the Company has not made payments for a total of $150,000 in a three month period, the noteholder may elect to convert the unpaid balance into shares of the Company's common stock. The conversion price shall be determined by multiplying .50 by the closing bid price on the 181st day following the closing, subject to a conversion floor of $0.02 per share.
In connection with the issuance of the Convertible Note, the Company issued 2,500,000 shares of its common stock.
The Company recorded a loss of settlement of debt of $333,720 in current period operations.
In accordance with ASC 470-20, the Company recognized an imbedded beneficial conversion feature present in Convertible Note #28. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital and a discount against the Convertible Note.
The total debt discount attributed to the beneficial conversion feature and common stock issued in the amount of $487,500 is charged operations ratably over the note term as interest expense.
For the year ended March 31, 2011, the Company amortized $26,760 to current period operations as interest expense.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
Convertible Notes # 29 (related party)
On September 30, 2010, the Company issued an aggregate of $386,750 Convertible Promissory notes that matures September 30, 2012 in exchange for accrued salaries and wages. The Convertible Promissory notes bear 8% interest per annum and are convertible into the Company's common stock at any time at the holder’s option, into common stock at the conversion rate of $.05 per share. Interest will also be converted into common stock at the conversion rate of $.05 per share.
During the year ended March 31, 2011, the officers and employees surrendered their notes to the Company and as such the outstanding liability was reclassified as contributed capital as of March 31, 2011.
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 $0.10 per share at any time at the holders’ option. The convertible promissory notes are held by current employees of ITT and Razor.
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.
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. On September 30, 2010, the note holder agreed to an extension to April 15, 2012, all other terms remaining the same.
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. The remaining balance of this note was $1,000,000 at March 31, 2011 and 2010.
At March 31, 2011 and 2010, convertible note balances consisted of the following:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
10. CONVERTIBLE NOTES (continued)
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
11. CONVERTIBLE NOTES DERIVATIVE LIABILITY
As described in Note 10 above, the Company issued 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 gain on change in fair value of reset derivative liability of $400,201for the year ended March 31, 2011and a loss of $427,412 for the year ended March 31, 2010, and reclassified the derivative liability related the converted notes (as described in Note 10) into equity upon settlement and conversion of those notes.
The fair value of the reset liability at March 31, 2011 was determined using the Black Scholes Option Pricing Model with the following assumptions:
At March 31, 2011, the reset derivative liability valued at $50,957, 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.
In addition, as described in Note 10 above, the Company issued an 8% Convertible Promissory Notes on June 2, 2010 and July 16, 2010 which contained of embedded derivatives. The embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments required that the Company record the derivatives at their fair values as of the inception date of the Convertible Promissory Notes in the aggregate amount of $643,724 and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.
The Company recorded a loss on change in fair value of debt derivative of $288,015 and $427,412 for the years ended March 31, 2011 and 2010, respectively.
As of March 31, 2011, all Convertible Promissory Notes that included embedded derivatives as described above were exchanged for non convertible promissory notes or converted to the Company's common stock. Therefore, at the date of the exchange, the Company recorded the derivatives to their fair values and reclassified the aggregate fair values of the debt derivatives at the date of exchange to equity.
12. WARRANT DERIVATIVE LIABILITY
As described in Note 10 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.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
12. WARRANT DERIVATIVE LIABILITY (continued)
The Company recorded a loss on change in fair value of warrant liability of $174,547 and $259,201 for the years ended March 31, 2011 and 2010, and reclassified warrant liability related to the converted notes (as described in Note 10) into equity upon settlement and conversion of those notes.
The fair values of the warrants at March 31, 2011 were determined using the Black Scholes Option Pricing Model with the following assumptions:
At March 31, 2011, the warrant liability valued at $139,109, 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.
13. RELATED PARTY TRANSACTIONS
The Company is periodically advanced noninterest bearing operating funds from related parties and shareholders. The advances are due on demand. At March 31, 2011 and 2010, due to related party was $71,739 and $31,264, respectively.
As described in Note 10 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, 2011 and 2010, the outstanding balance was $1,000,000. The note holders are current employees of the Company’s consolidated group. During the year ended March 31, 2011, the Company charged $86,671 as interest expense to current period operations.
As described in Note 10 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 to officers and employees. The notes are convertible into the Company’s common stock at $0.03 per share and are due three years from issuance. During the year ended March 31, 2011, the Company issued an aggregate of 25,149,101 shares of common stock in settlement of the notes.
As described in Note 10 above, the Company issued an aggregate of $386,750 in convertible promissory notes in exchange for accrued and unpaid salaries. The notes are convertible into the Company’s common stock at $0.05 per share and are due two years from issuance. During the year ended March 31, 2011, the officers and employees surrendered the issued convertible promissory notes. As such, the Company reclassified the obligation as contributed capital due to related party relationship.
As described in Note 8 above, the Company is under contract with Allied Global Ventures, LLC at March 31, 2011, a shareholder of the Company, whereby the related party provides funds for marketing and promotional activity in exchange for an allocated part 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. During the year ended March 31, 2011, the Company repaid an aggregate of $315,528 associated with Allied and Wealth contracts.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
14. 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.
During the year ended March 31, 2011, as described in Note 10 above (Convertible Note #24), the Company issued a convertible promissory note for $550,000 in exchange for the outstanding preferred stock subscription.
Common stock
The Company is authorized to issue 1,500,000,000 shares of common stock with par value $.001 per share. As of March 31, 2011 and 2010, the Company had 652,189,633 shares and 347,967,310 shares of common stock issued and 532,189,633 shares and 347,967,310 shares of common stock outstanding.
In April 2010, the Company issued 1,000,000 shares of its common stock in settlement of $30,000 in convertible notes.
In June 2010, the Company issued an aggregate of 27,526,745 shares of its common stock in settlement of $881,052 in convertible notes and accrued interest.
In June 2010, the Company issued an aggregate of 4,050,000 shares of its common stock for $157,500 of services rendered and $51,500 for future services as prepaid (deferred) compensation.
In June 2010, the Company issued an aggregate of 8,000,000 shares of its common stock in connection with the acquisition of ITT LLC and Razor Data Corp. These shares were accounted for as common shares to be issued in prior year-end.
In July 2010, the Company issued 3,846,154 shares of its common stock in settlement of a $250,000 convertible note.
In August 2010, the Company issued an aggregate of 5,000,000 shares of its common stock for services at $258,000.
In September 2010, the Company issued an aggregate of 3,133,334 shares of common stock and accounted for 3,400,000 shares of common stock to be issued in exchange for an aggregate of $279,600 of services rendered.
In September 2010, the Company issued an aggregate of 34,127,927 shares of common stock and accounted for 40,896,141 shares of common stock to be issued in exchange for settlement of $3,091,966 in convertible notes and accrued interest.
In September 2010, the Company issued an aggregate of 4,783,335 shares of common stock and accounted for 6,375,002 shares of common stock to be issued in exchange for exercise of warrants. The Company received proceeds of $41,333 and recorded warrant subscription receivable of $236,458 and loss from induced warrant exercises in the amount of $278,509 (see Note 18, warrants).
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
14. CAPITAL STOCK (continued)
In September 2010, the Company deposited 120,000,000 shares of common stock into an escrow account in connection with a Sales Agency Agreement (the “Sales Agreement”) with The Cougar Group (see Note 15). None of the shares have been released from the escrow as of March 31, 2011, therefore the shares were not deemed outstanding and are excluded from the calculation of loss per shares.
In October 2010, the Company issued an aggregate of 427,000 shares of its common stock for future services as prepaid (deferred) compensation at $29,890. The deferred compensation is amortized over the service period covered pursuant to the service agreement.
In November 2010, the Company issued 7,800,000 shares of its common stock for services of $429,000.
In December 2010, the Company issued an aggregate of 366,667 shares of its common stock in exchange for exercise of warrants.
In December 2010, the Company issued an aggregate of 13,499,360 shares of its common stock for services at $12,500 and $661,250 for future services as prepaid (deferred) compensation. The deferred compensation is amortized over the service period covered pursuant to the service agreement.
In December 2010, the Company issued an aggregate of 2,096,680 shares of its common stock in exchange for settlement of $90,000 in convertible notes and accrued interest.
In February 2011, the Company issued an aggregate of 1,100,000 shares of its common stock for services of $41,800.
In March 2011, the Company issued an aggregate of 7,000,000 shares of its common stock for services of $12,000 and $238,000 for future services as prepaid (deferred) compensation. The deferred compensation is amortized over the service period covered pursuant to the services agreement.
In March 2011, the Company issued an aggregate of 7,293,978 shares of its common stock in exchange for settlement of $200,000 in convertible notes and accrued interest.
In March 2011, the Company issued 2,500,000 shares of its common stock in connection with the issuance of convertible notes (Note 10).
15. 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.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
15. COMMITMENTS AND CONTINGENCIES (continued)
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, 2010 for two more years commencing February 6, 2011 at an annual compensation rate of $150,000.
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 at an annual compensation rate of $225,000 per year, 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.
Cougar Agreement
On September 23, 2010, the Company entered into a Sales Agency Agreement (the “Sales Agreement”) with The Cougar Group, a Hong Kong corporation (“Cougar”), pursuant to which Cougar agreed, and the Company appointed, Cougar to act as the exclusive agent for the Company in South Korea and Japan (“Tier One Countries”) as well as China, Australia, Hong Kong, Singapore, Philippines, Indonesia, New Zealand and India (“Tier Two Countries”). Cougar will act as sole exclusive agent for the Company’s products in the Tier One Countries and the Tier Two Countries. The term of the Sales Agreement is for a period of five years. However, the Company may terminate the Sales Agreement in the event that Cougar does not reach its sales objectives or fails to pay the Notes (as defined below) in full. In consideration for the services under the Sales Agreement, the Company issued Cougar 120,000,000 shares of common stock (the “TCG Shares”) in consideration of the issuance of 4% promissory notes payable by Cougar to the Company in the aggregate amount of $10,000,000 (the “Notes”). The Notes associated with the Tier One Countries, in the principal amount of $2,000,000, mature on March 31, 2011. The Notes associated with the Tier Two Countries, in the principal amount of $8,000,000, mature on September 31, 2011. Cougar may prepay the Notes at any time in minimum intervals of $250,000. Further, upon achieving revenue targets as set forth in the Sales Agreement at intervals of no less than $250,000, the principal balance of the Notes shall be reduced by the amount of such sales target, resulting in compensation expense in the equal amount.
The Company, Cougar and the Law Officers of Stephen M. Fleming PLLC (the “Escrow Agent”) have entered into an Escrow Agreement pursuant to which the TCG Shares were placed in escrow with the Escrow Agent. Upon payment of the Notes, the Company will direct the TCG Shares in the appropriate amounts. Further, Cougar and the Company have entered into a Voting Agreement whereby Cougar has appointed Nicholas Maturo and Ryan Smith to vote the TCG Shares as they deem fit at all times while the TCG Shares are held by the Escrow Agent. Cougar was granted the right to appoint a director to the Company’s Board of Directors. As of March 31, 2011, Cougar has not met any sales target and no shares have been released from the escrow, therefore neither the note nor the common stock is recorded within the financial statements.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
15. 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. In December 2010, the Company settled for $134,848.92 requiring monthly payments of $5,000 until paid. As of March 31, 2011, the outstanding unpaid balance was $109,849. 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 other than described above as of March 31, 2011.
16. LOSS PER COMMON SHARE
The following table presents the computation of basic and diluted loss per share for the years ended March 31, 2011 and 2010:
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.
17. 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 primarily include stock compensation and other equity-related non-cash charges, capitalized financing costs, the basis difference of derivative liabilities and certain accruals.
At March 31, 2006, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $6,700,000, expiring in the fiscal year 2026, that may be used to offset future taxable income. The Company has not filed its income tax returns since fiscal year ended March 31, 2007, and therefore has not been able to estimate its net operating loss carryforwards for tax purposes as of March 31, 2011. The Company has provided a valuation reserve against the full amount of any net operating loss benefit and will be also for against the net operating losses to be determined for years subsequent to fiscal year ended March 31, 2007, 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.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
17. INCOME TAXES (continued)
The Company files income tax returns in the U.S. Federal jurisdiction, and various state jurisdictions. The Company is no longer subject to U.S. Federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2008.
The Company follows the provision of uncertain tax positions as addressed in FASB Accounting Standards Codification 740-10-65-1. The Company recognized no increase in the liability for unrecognized tax benefits. The Company has no tax position for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at March 31, 2011 and 2010. The Company’s utilization of any net operating loss carry forward may be unlikely as a result of the continuing operating losses.
18. 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, 2011. The qualified plan adopted in October of 2008 authorizing 25,000,000 shares was approved by a majority of the Shareholders on September 16, 2009. To date 8,500,000 shares have been granted as of March 31, 2011.
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees of the Company at March 31, 2011:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
18. STOCK OPTIONS AND WARRANTS (continued)
Employee Stock Options (continued)
Transactions involving stock options issued to employees are summarized as follows:
During the year ended March 31, 2010, the Company granted an aggregate of 8,500,000 options to purchase the Company's common stock with exercise prices from $0.05 to $0.06. The Company has not granted employee options during the year ended March 31, 2011.
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 operations during the year ended March 31, 2010.
The fair values of the options granted or re-priced during the year ended March 31, 2010 were determined using the Black Scholes option pricing model with the following assumptions:
During the year ended March 31, 2011 officers surrendered 9,000,000 previously issued options. The remaining unrecognized compensation was charged to current period operations.
Stock-based compensation expense in connection with options granted to employees for the years ended March 31, 2011 and 2010 was $161,735 and $785,420, respectively.
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, 2011:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
18. STOCK OPTIONS AND WARRANTS (continued)
Non-Employee Stock Options (continued)
Transactions involving stock options issued to consultants and non-employees are summarized as follows:
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, 2011:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
18. STOCK OPTIONS AND WARRANTS (continued)
Warrants (continued)
Transactions involving the Company’s warrant issuance are summarized as follows:
On March 31, 2010, warrants of 33,141,225 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 149.90% to 154.99% and risk free rate of 2.24% to 2.55%. As described in Note 11 above, certain of these warrants contain certain reset provisions which require the Company to classify the market value of the warrants outside of equity.
On July 1, 2010, warrants of 13,300,002 were issued in connection with the issuance of Convertible Promissory Notes (see Note 8, Convertible Note #23 and #24). 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 167.45% and risk free rate of 1.80%.
During the year ended March 31, 2011, the Company issued an aggregate of 11,325,006 shares of its common stock in exchange for warrants exercised at $0.025 per share. These warrants had original exercise price of $0.05 per share, the Company recorded loss in connection with the induced exercise of warrants in the amount of $283,509. In addition, the Company issued convertible notes in exchange for the cancellation of 16,166,668 warrants exercisable at $0.05 per share (see Note 10, Convertible Note #17 and #26).
During the year ended March 31, 2011, officers and employees surrendered an aggregate of 12,053,717 previously issued warrants exercisable at $0.05 per share. In addition, an aggregate of 2,047,500 warrants expired and cancelled.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
19. 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 warrant liability, reset and debt derivative liabilities. Convertible notes were determined at a net discount rate of 2% per annum for the terms of the notes:
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
19. FAIR VALUE MEASUREMENT (continued)
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2011:
20. SUBSEQUENT EVENTS
The Company entered into Investment Agreements (the “Agreements”) with several accredited investors (the “Investors”) whereby the Investors provided the Company with an aggregate of $37,500 on April 8, 2011, $50,000 on April 15, 2011, $37,500 on April 21, 2011 and $50,000 on April 29, 2011 (the “Funding”) to be used for marketing purposes.
Under the Agreements, the Company is required to make payments to the Investors equal to a percentage of net revenue that varies between 20% to 50% of the Company’s net revenue generated from its marketing program commencing on the 61st day following closing continuing every 30 days through the 26th month following the closing.
GLOBAL INVESTOR SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2011 AND 2010
20. SUBSEQUENT EVENTS (continued)
In the event that the Company has not made payments equal to 50% of the Funding as of the 91st day after the Closing (the “Shortfall”) and each subsequent closing, then the Investor, at its sole option, may convert the Shortfall into shares of common stock of the Company by dividing the Shortfall by the Conversion Price (the “Conversion Option”). The Conversion Price shall be determined by multiplying .50 by the closing bid price as reported by a reliable reporting service on the 91st day following the Closing and each subsequent closing but may not be less than $0.02 per share. The Conversion Option shall expire upon the earlier of the Company paying the Shortfall in full or the 301st day following the Closing and each subsequent closing.
In the event that the Company has not made payments equal to 100% of the Funding as of the 181st day after the Closing (the “Second Shortfall”) and each subsequent closing, then the Investor, at its sole option, may convert the Second Shortfall into shares of common stock of the Company by dividing the Second Shortfall by the Conversion Price (the “Second Conversion Option”). The Conversion Price shall be determined by multiplying .50 by the closing bid price as reported by a reliable reporting service on the 181st day following the Closing and each subsequent closing but may not be less than $0.02 per share. The Second Conversion Option shall expire upon the earlier of the Company paying the Second Shortfall in full or the 301st day following the Closing and each subsequent closing.
In addition, the Company compensated HFP Capital Markets LLC for assisting in the sale of the investment by paying it commissions in the amount of $17,500.
In April 2011 the Company issued 6,000,000 shares of common stock to HFP Capital Markets. LLC and their designees as compensation for providing the marketing funding per the agreements of February 7, 2011.
In April 2011 the Company filed a Schedule 14c with the SEC which increased the authorized common shares from 700,000,000 to 1,500,000,000 shares; established a class of “Blank Check Preferred Stock consisting of 10,000,000 shares; and approved a 25,000,000 share Qualified Employee Stock Option Plan.
In June of 2011 the Company entered into a 3 year employment contract with Joseph J. Louro as Chief Executive Officer and as a condition of his acceptance of this position the Company issued 20,000,000 shares of common stock to Joseph J. Louro as a recruitment bonus for accepting the position of Chief Executive Officer.
In June 2011 the Company issued 3,000,001 shares of common stock to HFP Capital Markets. LLC and their designees as compensation for providing the marketing funding per the agreements of February 7, 2011
In June 2011 the Company converted five defaulted notes payable and interest due of $712,485 into 28,499,400 shares of common stock.
In June of 2011 the Company converted notes payable, an advance from a shareholder, and interest due of $79,000 into 2,991,667 shares of common stock.
In June of 2011 the Company issued 4,000,000 of common stock to the principals of ITT and Razor Data per the acquisition agreements of January 15th 2008 as the agreed anniversary stock award.
In June 2011 the Company issued 1,000,000 shares of registered stock to a vendor for $15,000 in services.
In June of 2011 the Company issued 1,470,668 of registered common stock to employees in lieu of $22,060 in payroll in a voluntary program to exchange a portion of payroll for stock.
In June 2011 the Company issued 3,032,200 shares to consultants for services rendered.
In June 2011 the Company in order to obtain funding for working capital, the Company entered into a Subscription Agreement (the "Agreement") with several accredited investors (collectively, the "Investors") on July 7, 2011 for the sale of (i) $1,200,000 in 8% secured convertible promissory notes (the "Notes") and (ii) common stock purchase warrants (the "Warrants") to purchase 30,000,000 shares of our common stock. The closing occurred on July 7, 2011 but was deemed to be effective as of June 30, 2011. A total of $1,200,000 was received from the accredited investors.
In July 2011, the Company entered into an Agreement with Wealth Engineering LLC, Wealth Engineering and Development Incorporated, Annette Raynor and Mario Romano (collectively, the “Wealth Parties”) pursuant to which the Company, among other matters, agreed to issue the Wealth Parties 17,500,000 shares of common stock.