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| IAO > SEC Filings for IAO > Form 10-K on 3-Sep-2009 | All Recent SEC Filings |
3-Sep-2009
Annual Report
INTRODUCTION
We had revenues of $57.1 million for the twelve months ended March 31, 2009 as compared to $38.7 million for the twelve months ended March 31, 2008. We have incurred a net loss $20.2 million for the twelve months ended March 31, 2009 as compared to a net loss of $7.1 million for the twelve months ended March 31, 2008.
During 2008/9, we entered into loans of $.6 million at IA Global and $8.9 million at Global Hotline. During 2008/9, we repaid loans of $1.1 million at IA Global and $12.5 million at Global Hotline.
As of February 25, 2009, all Global Hotline assets are collateralized to H Capital. On approximately April 1, 2009, the Company pledged its ownership in Global Hotline as collateral for the loans, subject to a thirty day notice period in the case of default under the agreement.
At March 31, 2009, we had current and long-term indebtedness of $15.3 million. Global Hotline will need to repay or refinance $13.4 million by March 31, 2010, including approximately $4.4 million in September 30, 2009.
On April 30, 2009, Global Hotline entered into negotiations on $12,379,000 in debt with its Japanese banks. Global Hotline is proposing to refinance this debt on a long term basis and freeze any payments in the short term. To date, eight loans have been renegotiated. We expect to adjust the repayment dates on many loans with our largest lender to a September 30, 2009 due date and then to re-finance the loans on a long term basis.
On May 26, 2009 IA Global received notices from H Capital. On May 27, 2009, Global Hotline and SG Telecom did not repay the loans as requested by H Capital. On June 9, 2009, the unlicensed Japanese lender submitted documents claiming ownership of the Company's 600 shares of Global Hotline.
After review by Japanese corporate counsel, the Company is challenging the validity of the loans and the collateral claimed by H Capital. The Company has discovered that Global Hotline management provided stock certificates to the unlicensed lender in early March 2009 in violation of the loan agreement the Company signed. The Company has disputed all notices received from H Capital. The parties continue to negotiate over the unpaid loans.
The balance due as of July 31, 2009 is 170,000,000 Yen, or approximately $1,753,000 at current exchange rates, plus interest of approximately 15,567,000 Yen, or approximately $160,000 at current exchange rates. Total interest and fees paid during the three months ended March 31, 2009 was 3,329,000 Yen or approximately $34,000 at current exchange rates.
On August 2, 2009, we entered into a Stock Purchase Agreement ("Agreement 1") with Inter Asset Japan LBO No 1 Fund, an existing shareholder (the "Shareholder"). Under the terms of Agreement 1, we agreed to issue and sell to the Shareholder 1,500,000 shares of the Company's common stock, par value $0.01 per share, for an aggregate purchase price of $60,000, or $0.04 per share. On August 17, 2009, we entered into a Stock Purchase Agreement ("Agreement 2") with Inter Asset Japan LBO No 1 Fund. Under the terms of Agreement 2, we agreed to issue and sell to the Shareholder 5,000,000 shares of the our common stock for an aggregate purchase price of $200,000, or $0.04 per share.
Also under the terms of the Agreement 2, the Shareholder has committed to purchase, and we have agreed to issue and sell to the Shareholder, additional shares of our common stock in accordance with the following schedule:
o 2,500,000 shares at a purchase price of US$.04 per share, or an aggregate price of US$100,000 on or before September 4, 2009.
o 1,250,000 shares at a purchase price of US$.04 per share, or an aggregate price of US$50,000 on or before September 18, 2009.
o 50,000,000 shares at a purchase price of US$.04 per share, or an aggregate price of US$2,000,000 on or before November 10, 2009.
The Shareholder's obligation to purchase the foregoing shares by the date specified is conditioned upon the representations and warranties of the Company contained in the Agreement being accurate as of the date of such closing.
Finally, the Shareholder has the option, but not the obligation, to purchase, on or before December 31, 2009, an additional 50,000,000 shares of Common Stock at a purchase price of US$.04 per share, or an aggregate price of US$2,000,000.
Historically, our losses have been financed primarily by the sale of equity in our Company, by loans from related and unrelated parties, by the issuance of convertible debentures and through the issuance of equity for services.
IA Global and each subsidiary manage their cash flow independently. IA Global funds its operations from loans, convertible debentures, inter-company borrowings, loans collateralized by stock, management service fees and dividends from its equity investments. Global Hotline funds its operations from bank debt and at times needs to refinance this bank debt. Global Hotline Philippines funds its operations from inter-company borrowings.
Each entity will need to obtain additional financing in order to continue our current operations. There can be no assurance that we will be able to secure funding for our existing operations, or that if such funding is available, whether the terms or conditions would be acceptable to us.
Volatility and disruption of financial markets could affect our access to credit. The current difficult economic market environment is causing contraction in the availability of credit in the marketplace. This could potentially reduce or eliminate the sources of liquidity for the Company.
If the Company is unable to obtain additional financing, we may need to restructure our operations, divest all or a portion of our business or file for bankruptcy by Global Hotline and/ or IA Global.
CHANGE IN FISCAL YEAR
On July 25, 2007, the Board of Directors resolved that the fiscal year of IA Global that began on January 1, 2007 would end on December 31, 2007, and from that date forward, the fiscal year of the Company will be the period beginning on April 1 of each year and ending on March 31 of the following year. The Company filed a Form 10-K for the calendar year ending December 31, 2007 and filed a Transition Report on Form 10-K to reflect the three month transition period of January 1, 2008 through March 31, 2008.
This Annual Report on Form 10-K is the Company's first annual report for our newly adopted fiscal year-end of March 31, 2009 and covers the twelve months ended March 31, 2009.
RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations information and presentation of that data as a percentage of change from year-to-year.
(dollars in thousands)
Year Ended March 31,
---------------------------------------------
2009 2008 $ Variance % Variance
-------- -------- ---------- ----------
Revenue ................................................... $ 57,107 $ 38,693 $ 18,414 47.6%
Cost of sales ............................................. 13,218 9,978 3,240 32.5%
-------- -------- -------- --------
Gross profit .............................................. 43,889 28,715 15,174 52.8%
Selling, general and administrative expenses .............. 53,444 35,844 17,600 49.1%
-------- -------- -------- --------
Operating loss ............................................ (9,555) (7,129) (2,426) 34.0%
-------- -------- -------- --------
Other Income (Expense):
Interest income ........................................... 19 56 (37) -66.1%
Interest expense and amortization of beneficial conversion
feature ................................................. (757) (1,117) 360 -32.2%
Other Income .............................................. 294 691 (397) -57.5%
Gain (loss) on equity investment in Australia Secured
Financial Limited ....................................... 265 (227) 492 216.7%
Gain on equity investment in GPlus Media Co Ltd ........... 13 20 (7) -35.0%
(Loss) Gain on equity investment in Slate Consulting Co Ltd (10) (44) 34 77.3%
Loss on equity investment in Taicom Securities Co Ltd ..... (422) - (422) -100.0%
Conversion of debenture expense ........................... - (120) 120 100.0%
Retirement of debt ........................................ (60) - (60) -100.0%
Loss on sale of Taicom Securities Co Ltd .................. (1,737) - (1,737) -100.0%
Loss on sale of GPlus Media Co Ltd ........................ (1,287) - (1,287) -100.0%
Impairment of equity investment in Australia Secured
Financial Limited ........................................ (7,195) - (7,195) -100.0%
Foreign currency transaction adjustment ................... (66) 10 (76) -760.0%
-------- -------- -------- --------
Total other expense ....................................... (10,943) (731) (10,212) 1,397.0%
-------- -------- -------- --------
Loss from continuing operations before income taxes ...... (20,498) (7,860) (12,638) 160.8%
Income taxes:
Current benefit ........................................... (257) (916) 659 71.9%
-------- -------- -------- --------
Net loss from continuing operations ....................... (20,241) (6,944) (13,297) 191.5%
Loss from discontinued operations ......................... - (110) 110 100.0%
-------- -------- -------- --------
Net loss .................................................. $(20,241) $ (7,054) $(13,187) 186.9%
======== ======== ======== ========
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YEAR ENDED MARCH 31, 2009 COMPARED TO THE YEAR ENDED MARCH 31, 2008 (UNAUDITED)
Net revenue for the twelve months ended March 31, 2009 increased $18,414,000 to $57,107,000, as compared to the year ended March 31, 2008.
The increase was due to the expansion of the Global Hotline business with the signing of significant contracts with major telecommunication and insurance companies in Japan. We experienced a decrease in AIG revenues due to their financial difficulties. While these contracts are in effect, personnel have been allocated to other contracts at this time. In addition, we experienced a softening of our revenues from our telecommunication contracts during the twelve months ended March 31, 2009.
The Company booked a charge for approximately $1,498,000 during the twelve months ended March 31, 2009 in conjunction with termination of a contract with a significant telecommunications customer. During the twelve months ended March 31, 2009, we deferred $814,787 in revenues with Tesco. In addition, the Company recorded deferred revenue of $3.2 million and $0 as of March 31, 2009 and 2008, respectively.
COST OF SALES
Cost of sales for the twelve months ended March 31, 2009 increased $3,340,000 to $13,218,000. The increase resulted from outside agent and outsourcing and other costs of related to the expansion of the Global Hotline business with the signing of significant contracts with major corporations discussed above, $1,283,000 in conjunction with termination of a contract with a significant telecommunications customer and $106,000 related to the Global Hotline Philippines businesses acquired in April and May 2008.
EXPENSES
Selling, general and administrative expenses for the twelve months ended March 31, 2009 increased $17,600,000 to $54,444,000 as compared to the twelve months ended March 31, 2008. This was due to increased operating expenses of $354,000 related to the implementation of SFAS 123R at IA Global, $440,000 related to the Global Hotline Philippines businesses acquired in April and May 2008 and $16,719,000 at Global Hotline for additional staff, hiring costs and training and $2,085,000 in costs associated with downsizing during the three months ended March 31, 2009. The Global Hotline increase was due to the expansion of the Global Hotline business with the signing of significant contracts with major corporations.
Global Hotline opened a fifth and sixth call center in Tokyo and Osaka, Japan in late August and October, 2007, respectively to support its new contracts. In addition, Global Hotline opened four smaller call centers in 2008 to support its customer contracts. During October 2008, Global Hotline sold one call center.
OTHER INCOME/EXPENSE
Other income/ expense for the twelve months ended March 31, 2009 was $10,943,000 as compared to $731,000. The other income/expense increase was primarily related to a net loss on equity investments of $155,000, a loss on sale of securities to Taicom of $1,737,000 and GPlus Media of $1,287,000, an impairment write-down on our ASFL equity investment of $7,195,000, and interest expense of $757,000, offset by other income of $294,000.
NET LOSS
Net loss for the twelve months ended March 31, 2009 was $20,241,000 as compared to $7,054,000 for the twelve months ended March 31, 2008. Increased gross margin of $15,174,000, was offset by increased operating expenses of $17,600,000 and increased other expenses of $10,212,000. The increased operating expenses primarily reflect additional staff, hiring costs and training. The increase resulted from costs related to the expansion of the Global Hotline business with the signing of significant multi-year contracts with major corporations.
The nature of Global Hotline's business model is such that revenues lag expenses by approximately 6-8 months.
(dollars in thousands)
3 Months Ended March 31,
-----------------------------------------------
2008 2007 $ Variance % Variance
-------- -------- ---------- ----------
Revenue ............................................ $ 16,049 $ 6,493 $ 9,556 147.2%
Cost of sales ...................................... 2,950 996 1,954 196.2%
-------- -------- --------- ----------
Gross profit ....................................... 13,099 5,497 7,602 138.3%
-------- -------- --------- ----------
Selling, general and administrative expenses ....... 11,064 5,910 5,154 87.2%
-------- -------- --------- ----------
Operating income ................................... 2,035 (413) 2,448 592.7%
-------- -------- --------- ----------
Other Income (Expense):
Interest income .................................... 39 21 18 85.7%
Interest expense and amortization of beneficial
conversion feature ............................... (337) (196) (141) 71.9%
Other Income ....................................... 86 (1) 87 8700.0%
Loss (gain) on equity investment in Australia
Secured Financial Limited ........................ (94) 13 (107) 823.1%
Gain on equity investment in GPlus Media Co Ltd .... 8 - 8 100.0%
Loss on equity investment in Slate Consulting Co Ltd (17) - (17) -100.0%
Foreign currency transaction adjustment ............ (2) - (2) -100.0%
-------- -------- --------- ----------
Total other expense ................................ (317) (163) (154) 94.5%
-------- -------- --------- ----------
Income (loss) before income taxes ................. 1,718 (576) 2,294 398.3%
Income taxes:
Current provision .................................. 1,358 268 1,090 406.7%
-------- -------- --------- ----------
Net income (loss) .................................. 360 (844) 1,204 142.7%
======== ======== ========= ==========
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THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2007
Net revenue for the three months ended March 31, 2008 increased $9,556,000 to $16,049,000, as compared to the three months ended March 31, 2007. The increase was due to the expansion of the Global Hotline business with the signing of the following significant contracts with major corporations:
1. KDDI Network and Solutions signed on January 1, 2007 and was increased effective July 1, 2007.
2. NTT signed on May 21, 2007 and was effective October 1, 2007.
3. American Life Insurance Company, a Japanese Company which is a subsidiary of AIG, signed and effective on August 8, 2007, September 20, 2007 and December 1, 2007.
4. Increased revenues from other Global Hotline contracts.
COST OF SALES
Cost of sales for the three months ended March 31, 2008 increased $1,954,000 to $2,950,000 as compared to the three months ended March 31, 2007. The increase resulted from outside agent and outsourcing and other costs related to the expansion of the Global Hotline business with the signing of significant contracts with major corporations discussed above.
EXPENSES
Selling, general and administrative expenses for the three months ended March 31, 2008 increased $5,154,000 to $11,064,000 as compared to the three months ended March 31, 2007. This was due to increased operating expenses of $60,000 related to the implementation of Statement of Financial Accounting Standards ("SFAS")No. 123-R, Share-Based Payment ("SFAS 123R") and $5,124,000, for additional staff, and building infrastructure, which included items such as PCs, workstations, and software licenses, as well as significant investment in new staff and training. The increase was due to the expansion of the Global Hotline business with the signing of significant contracts with major corporations.
Global Hotline opened a fifth call center in Tokyo, Japan in late August 2007 to support its new agreements with AIG. This new call center employed over 400 full and part-time employees. In addition, Global Hotline opened a sixth call center in Osaka, Japan on October 1, 2007 to support the NTT contract. This new call center employed 300 full and part-time employees.
For 2008 and 2007, the selling, general and administrative expenses consisted primarily of employee and independent contractor expenses, rent, overhead, equipment and depreciation, amortization of identifiable intangible assets and intellectual property, professional and consulting fees, sales and marketing costs, investor relations, legal, stock option and other general and administrative costs.
OTHER INCOME/EXPENSE
Other expense for the three months ended March 31, 2008 was $317,000 as compared to other expense of $163,000 for the three months ended March 31, 2007. The March 31, 2008 other expense increase was primarily related to interest expense and amortization of the beneficial conversion feature of $337,000 and a loss on equity investment of $103,000 from our equity investments, offset by other income of $86,000. The ASFL loss was due to the sale of the debenture loan business in November 2007 and certain loan losses booked during 2007 and 2008. We expect ASFL to return to profitability during FY 2008/9 with new loans placed and a new line of credit. The Company expects Slate to return to profitability in the three months ended June 30, 2008.
Other expense for the three months ended March 31, 2007 was $163,000. The 2007 other expense was primarily related to interest expense and amortization of beneficial conversion feature of $196,000, offset by a gain on equity investment of $13,000 and interest income of $21,000.
NET INCOME (LOSS)
Net income for three months ended March 31, 2008 was $360,000 as compared to a net loss from of $844,000 for the three months ended March 31, 2007. This was due to increased gross margin of $7,602,000, offset by increased operating expenses of $5,154,000 and income taxes of $1,090,000. The increased operating expenses reflect additional staff, and building infrastructure, which included items such as PCs, workstations, and software licenses, as well as significant investment in new staff and training. The increase resulted from costs related to the expansion of the Global Hotline business with the signing of significant multi-year contracts with major corporations.
The nature of Global Hotline's business model is such that revenues lag expenses by approximately 6-8 months.
(dollars in thousands)
Year Ended December 31,
-----------------------------------------------
2007 2006 $ Variance % Variance
-------- -------- ---------- ----------
Revenue ............................................ $ 29,136 $ 19,139 $ 9,997 52.2%
Cost of sales ...................................... 8,024 2,895 5,129 177.2%
-------- -------- --------- ----------
Gross profit ....................................... 21,112 16,244 4,868 30.0%
-------- -------- --------- ----------
Selling, general and administrative expenses ....... 30,690 19,066 11,624 61.0%
-------- -------- --------- ----------
Operating loss ..................................... (9,578) (2,822) (6,756) 239.4%
-------- -------- --------- ----------
Other Income (Expense):
Interest income .................................... 37 92 (55) -59.8%
Interest expense and amortization of beneficial
conversion feature ............................... (975) (851) (124) 14.6%
Other Income ....................................... 603 179 424 236.9%
Loss (gain) on equity investment in Australia
Secured Financial Limited ........................ (120) 70 (190) -271.4%
Gain on equity investment in GPlus Media Co Ltd .... 13 - 13 100.0%
Loss on equity investment in Slate Consulting Co Ltd (26) - (26) -100.0%
Conversion of debenture expense .................... (120) - (120) -100.0%
Foreign currency transaction adjustment ............ 11 (130) 141 108.5%
-------- -------- --------- ----------
Total other expense ................................ (577) (640) 63 -9.8%
-------- -------- --------- ----------
Loss from continuing operations before income taxes (10,155) (3,462) (6,693) 193.3%
Income taxes:
Current (benefit) provision ........................ (2,006) 515 (2,521) -489.5%
-------- -------- --------- ----------
Net loss from continuing operations ................ (8,149) (3,977) (4,172) -104.9%
-------- -------- --------- ----------
Loss (gain) from disposal of discontinued operations (110) 463 (573) -123.8%
Gain from discontinued operations .................. - 76 (76) -100.0%
Loss on impairment of note receivable from sale of
discontinued operations .......................... - (332) 332 100.0%
-------- -------- --------- ----------
Total loss (gain) from discontinued operations ..... (110) 207 (317) 153.1%
-------- -------- --------- ----------
Net loss ........................................... $ (8,259) $ (3,770) $ (4,489) 119.1%
======== ======== ========= ==========
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YEAR ENDED DECEMBER 31, 2007 VS. YEAR ENDED DECEMBER 31, 2006
Net revenue for the year ended December 31, 2007 increased $9,997,000 to $29,136,000, as compared to the year ended December 31, 2006. The increase was due to the expansion of the Global Hotline business with the signing of the following significant contracts with major corporations:
1. KDDI Network and Solutions signed on January 1, 2007 and was increased effective July 1, 2007.
2. NTT signed on May 21, 2007 and was effective October 1, 2007.
3. American Life Insurance Company, a Japanese Company which is a subsidiary of AIG, signed and effective on August 8, 2007, September 20, 2007 and December 1, 2007.
4. AFLAC signed and effective December 29, 2006.
COST OF SALES
Cost of sales for the year ended December 31, 2007 increased $5,129,000 to $8,024,000 as compared to the year ended December 31, 2006. The increase resulted from outside agent and outsourcing and other costs related to the expansion of the Global Hotline business with the signing of significant contracts with major corporations discussed above.
EXPENSES
Selling, general and administrative expenses for the year ended December 31, 2007 increased $11,624,000 to $30,690,000, as compared to the year ended December 31, 2006. This was due to increased operating expenses of $175,000 related to the implementation of SFAS 123R and $11,400,000, for . . .
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