Summary of IA GLOBAL INC - Yahoo! Finance

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements in this report reflect the good-faith judgment of our management and the statements are based on facts and factors as we currently know them. Forward-looking statements are subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, but are not limited to, those discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this report. Readers are urged not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of the 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 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 the three months ended June 30, 2009, IA Global obtained loans of $2.3 million in the aggregate and we repaid loans of $2.1 million owed by Global Hotline.

As of February 25, 2009, all Global Hotline assets were pledged as collateral 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 June 30, 2009, Global Hotline had total indebtedness of $15.5 million. Global Hotline will need to repay or refinance $14.6 million by June 30, 2010, including approximately $14.4 million that is due as of October 16, 2009.

Certain recent developments relating to the outstanding indebtedness of IA Global and our subsidiaries, including our ongoing negotiations with our Japanese lenders, are described in more detail in the notes to the financial statements set forth in this Form 10-Q (see Part I, Item 1 - Financial Statements). Our recent efforts to generate additional liquidity, including through sales of its common stock, are also described in more detail in such financial statement notes.

THE COMPANY AND OUR BUSINESS

IA Global, Inc. ("IA Global" or the "Company") is a broad-based services company with a dedicated focus on growth of existing business, together with expansion through mergers and acquisitions in the Pacific Rim region. Our mission is to identify and invest in business opportunities, apply our skills and resources to nurture and enhance the performance of those businesses across key business metrics, and to deliver accelerating shareholder value.

To realize this plan, the Company is expanding investments in the business process outsourcing ("BPO") and financial services sectors. These sectors demonstrate long-term growth prospects in which we, by applying our skills and resources, can add significant value to our investments. Beyond Japan, we are expanding our reach to encompass the Philippines, Southeast Asia and the outstanding growth opportunities and synergies these markets present.

IA Global takes a long-term approach to its acquisitions and partnerships. It is built on the belief that our people, combining pragmatic hands-on management with extensive operations and financial experience, have the expertise to grow the businesses we invest in, to optimize their potential and provide increasing returns on investment over the long run. IA Global has acquired a select portfolio of investments in Japan and the Philippines, targeted and developed with the aim of producing outstanding growth and profitability. This has laid the foundation for a medium term plan to establish a broad network of complementary subsidiaries and majority-owned investments in the greater Pacific Rim region.

BUSINESS PROCESS OUTSOURCING

In Japan, IA Global is 100% owner of Global Hotline, except as disclosed, a BPO organization, operating several major call centers providing outbound telemarketing services for telecommunications, insurance, credit cards and catalog products. Since our acquisition of Global Hotline in June 2005, this business has expanded rapidly with the signing of significant multi-year contracts with major corporations.

This growth has been driven by new contracts, process improvements, infrastructure expansion, and macro economic trends such as the ongoing gains in the Japanese economy, consistent year on year growth in targeted industries, higher disposable incomes, and the increasingly rapid growth of the senior citizen demographic. As of June 30, 2009, Global Hotline employed 798 full and part-time personnel to support these multi-million dollar contracts. In the Philippines, we acquired 100% of Shift Resources Inc.("Shift") on April 10, 2008 and Asia Premier Executive Suites Inc. ("Asia Premier") on May 27, 2008, multi-service call center operations that have now been merged into a single company operating as Global Hotline Philippines.

HUMAN CAPITAL AND RESOURCES

IA Global has a 20.25% equity investment in Slate Consulting Co Ltd ("Slate"). Slate is a Japan-headquartered executive search firm with operations and business entities in Tokyo and a call center in Manila, Philippines.

FINANCIAL SERVICES

In Japan, we have a 12.6% investment, except as disclosed, as of October 16, 2009 in Taicom Securities Co Ltd ("Taicom"), a Japanese securities firm. Taicom provides a broad range of value-added financial services and competitive products. These services currently include the brokerage of Japanese commodities, options derivatives trading, foreign currency, equities and margin as well as offering wealth management and investment consulting services to diversified clients. In addition to offering a broad news and information gathering network, Taicom offers creative solutions that meet the sophisticated trading needs of its clients.

Taicom is a member of the Osaka Stock Exchange. Taicom is headquartered in Tokyo and in Osaka and has three branch offices in Japan.

CORPORATE INFORMATION

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

THE COMPANY'S COMMON STOCK

Our common stock currently trades on the NYSE AMEX Exchange ("NYSE AMEX") under the symbol "IAO."

KEY MARKET PRIORITIES

Our key market opportunities are as follows:

- Improve profitability by increasing sales and gross margins and reducing expenses.

- Expand our Global Hotline Japan operations by adding new contracts and product offerings.

- Expand our Global Hotlines Philippines operations through a marketing agreement with HTMT, and partnering programs with Jones Lang LaSalle and SPi Technologies, and new product offerings.

- Expand our reach to encompass the Philippines, Southeast Asia and the growth opportunities and synergies these markets present. Our long-term "Buy to Hold" approach to our investments gives our management team time to comprehensively analyze, understand and select the companies we invest in, their sectors and competition in depth, and to accurately gauge their potential.

- Enhance the performance of those businesses across key business metrics, and to deliver accelerating shareholder value.

- Enhance our investor relation services.

PRIMARY RISKS AND UNCERTAINTIES

We are exposed to various risks related to legal claims, our need for additional financing, our level of indebtedness, our NYSE AMEX listing, our investment in Taicom Securities Co Ltd, declining economic conditions, our Global Hotline business, our controlling shareholder groups, the sale of significant numbers of our shares and a volatile market price for our common stock. These risks and uncertainties are discussed in more detail below in this item.

RESULTS OF OPERATIONS

         The following table presents certain consolidated statement of
operations information and presentation of that data as a percentage of change
from period-to-period.
(dollars in thousands)
                                                                                   Three Months Ended June 30,
                                                                      ----------------------------------------------------
                                                                         2009          2008       $ Variance    % Variance
                                                                      -----------   -----------   ----------    ----------
                                                                      (unaudited)   (unaudited)
Revenue ..........................................................     $ 13,378      $ 19,688      $ (6,310)       -32.0%
Cost of sales ....................................................        4,086         3,195           891         27.9%
                                                                       --------      --------      --------      -------
Gross profit .....................................................        9,292        16,493        (7,201)       -43.7%
Selling, general and administrative expenses .....................       12,569        14,657        (2,088)       -14.2%
                                                                       --------      --------      --------      -------
Operating (loss) income ..........................................       (3,277)        1,836        (5,113)       278.5%
                                                                       --------      --------      --------      -------
Other income (expense):
Interest income ..................................................            -            15           (15)      -100.0%
Interest expense and amortization of beneficial conversion feature          (67)         (283)          216        -76.3%
Other income .....................................................           15            63           (48)       -76.2%
Gain on equity investment in Australia Secured Financial Limited .            -           256          (256)      -100.0%
Gain on equity investment in GPlus Media Co Ltd ..................            -            33           (33)      -100.0%
Gain on equity investment in Slate Consulting Co Ltd .............           12            23           (11)       -47.8%
Loss on equity investment in Taicom Securities Co Ltd ............            -          (107)          107        100.0%
                                                                       --------      --------      --------      -------
Total other expense ..............................................          (40)            -           (40)       100.0%
                                                                       --------      --------      --------      -------
(Loss) profit before income taxes ................................       (3,317)        1,836        (5,153)       280.7%
Income taxes- current provision ..................................          146         1,105          (959)       -86.8%
                                                                       --------      --------      --------      -------
Net (loss) profit before deemed preferred stock dividend .........       (3,463)          731        (4,194)       573.7%
Deemed preferred stock dividend ..................................         (192)            -          (192)       100.0%
                                                                       --------      --------      --------      -------
Net (loss) profit ................................................     $ (3,655)     $    731      $ (4,386)       600.0%
                                                                       ========      ========      ========      =======

THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2008

Net revenue for the three months ended June 30, 2009 decreased $6,310,000 to $13,378,000 as compared to $19,688,000 for the three months ended June 30, 2008.

The decrease was due the reduction in AIG revenues, termination of our NTT contracts and a softening of our revenues from our telecommunication contracts during the three months ended June 30, 2009.

COST OF SALES

Cost of sales for the three months ended June 30, 2009 increased $891,000 to $4,086,000 as compared to $3,195,000 for the three months ended June 30, 2008.

The increase resulted from outside agent, outsourcing and other costs at Global Hotline.

EXPENSES

Selling, general and administrative expenses for the three months ended June 30, 2009 decreased $2,088,000 to $12,569,000 as compared $14,657,000 for the three months ended June 30, 2008. This was due to reduced operating expenses of $2,334,000 at Global Hotline, offset by increased operating expenses at IA Global of $353,000 related to the implementation of SFAS 123R and legal and $251,000 related to the forensic audit expenses. Global Hotline headcount was reduced during the three months ended March 31, 2009.

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 June 30, 2009 was $40,000 as compared to other expense of $0 for the three months ended June 30, 2008. The other expense increase was primarily related to interest expense and amortization of the beneficial conversion feature of $67,000.

The 2008 other expense was primarily related to interest expense and amortization of beneficial conversion feature of $283,000, offset by a net gain on equity investments of $205,000.

NET LOSS

Net loss for the three months ended June 30, 2009 was $3,655,000 as compared to a net profit of $731,000 for the three months ended June 30, 2008 Decreased gross margin of $7,201,000 was offset by decreased operating expenses of $5,113,000 and income taxes of $959,000.

LIQUIDITY AND CAPITAL RESOURCES

We had cash of approximately $1.7 million, a net working capital deficit of approximately $18.4 million (due to the current portion of long term debt of $14.8 million) and total indebtedness of $15.8 million as of June 30, 2009.

During the three months ended June 30, 2009, IA Global obtained loans of $2.3 million in the aggregate and we repaid loans of $2.1 million owed by Global Hotline.

On February 25, 2009, Global Hotline and subsidiaries pledged all accounts receivable to H Capital and provided H Capital with all bank books and corporate seals, which allows H Capital to control all cash.

Certain recent developments relating to the outstanding indebtedness of IA Global and our subsidiaries, including our ongoing negotiations with our Japanese lenders, are described in more detail in the notes to the financial statements set forth in this Form 10-Q (see Part I, Item 1 - Financial Statements). The Company's recent efforts to generate additional liquidity, including through sales of its common stock, are also described in more detail in such financial statement notes.

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, service our debt repayments and acquire businesses. There can be no assurance that we will be able to secure funding, or that if such funding is available, whether the terms or conditions would be acceptable to us.

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

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

Since inception, we have financed our operations primarily through sales of our equity securities in our initial public offering and from several private placements, loans and capital contributions, primarily from related parties. Net cash proceeds from these items have totaled approximately $20.9 million as of March 31, 2009, with approximately $8.8 million raised in the initial public offering, $8.6 million raised in private placements, $4.0 million raised in the conversion of debt and $0.7 million used for the share repurchase program. In addition, we have issued equity for non-cash items totaling $32.1 million, including $7.0 million from the ASFL equity investment, $4.1 million from the Taicom equity investment, $1.4 million each from the GPlus and Slate equity investments, $.3 and $.2 million related to the Asia Premier and Shift acquisition, respectively, $7.1 million issued for services, $3.6 million related to a beneficial conversion feature, $3.9 million from debenture conversions, and $3.1 million related to the Global Hotline acquisition. Additional funding was obtained from notes payable and long term debt of approximately $15.3 million.

OPERATING ACTIVITIES

Net cash used in operating activities for the three months ended June 30, 2009 was $2.4 million. This amount was primarily related to a net loss of $3.5 million, an increase in accounts receivable of $2.6 million, an increase in notes receivable of $1.0 million and a decrease in deferred revenue of $1.2, offset by depreciation and amortization and other non-cash expenses of $.2 million, and an increase in accrued liabilities and payroll taxes of $5.2 million.

FINANCING ACTIVITIES

Net cash provided by financing activities for the three months ended June 30, 2009 was $.5 million.

During the three months ended June 30, 2009, Global Hotline entered into loans of approximately $2.3 million and repaid loans of $2.1 million.

Other Material Commitments. The Company's unaudited contractual cash obligations as of June 30, 2009 are summarized in the table below (1):

Contractual                           Less Than                                Greater Than
Cash Obligations          Total        1 Year       1-3 Years     3-5 Years      5 Years
--------------------   -----------   -----------   -----------   -----------   -----------
Operating leases ...   $ 3,088,210   $ 1,950,981   $ 1,000,503   $   136,726   $         0
Note payable .......    15,848,144    14,762,636       678,120       371,070        36,318
Capital expenditures       100,000       100,000             0             0             0
Acquisitions .......             0             0             0             0             0
                       -----------   -----------   -----------   -----------   -----------
                       $19,036,354   $16,813,617   $ 1,678,623   $   507,796   $    36,318
                       ===========   ===========   ===========   ===========   ===========

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

INCOME TAXES

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

STOCK-BASED COMPENSATION

Effective January 1, 2006, we began recording compensation expense associated with stock-based awards and other forms of equity compensation in accordance with SFAS 123R as interpreted by SEC Staff Accounting Bulletin No.
107. We adopted the modified prospective transition method provided for under SFAS 123R and consequently has not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock-based awards recognized in 2006 includes 1) quarterly amortization related to the remaining unvested portion of stock-based awards granted prior to December 15, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and 2) quarterly amortization related to stock-based awards granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In addition, we record expense over the vesting period in connection with stock options granted. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the expected term of the award on a straight line basis.

REVENUE RECOGNITION

Global Hotline revenue was derived from its multiple call centers undertaking the telemarketing of telecommunications products and services, and a range of insurance products and services in Japan. Revenue is considered realized when the services have been provided to the customer, the work has been accepted by the customer and collectability is reasonably assured. Furthermore, if an actual measurement of revenue cannot be determined, we defer all revenue recognition until such time that an actual measurement can be determined. If during the course of a contract management determines that losses are expected to be incurred, such costs are charged to operations in the period such losses are determined.

Revenues are deferred when cash has been received from the customer but the revenue has not been earned. We recorded deferred revenue of $2.3 million and $3.5 as of June 30, 2009 and March 31, 2009, respectively.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable consists primarily of amounts due us from our normal business activities. We maintain reserves to reflect the expected non-collection of accounts receivable based on past collection history and specific risks identified within our portfolio. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, or if payments from customers are significantly delayed, additional allowances might be required.

INVESTMENTS

We account for our investments using the equity method unless its value has been determined to be other than temporarily impaired, in which case we write the investment down to its impaired value. We review these investments periodically for impairment and make appropriate reductions in carrying value when an other-than-temporary decline is evident; however, for non-marketable equity securities, the impairment analysis requires significant judgment. During our review, we evaluate the financial condition of the issuer, market conditions, and other factors providing an indication of the fair value of the investments. Adverse changes in market conditions or operating results of the issuer that differ from expectation, could result in additional other-than- temporary losses in future periods. Our equity investments for Slate and Taicom were not considered permanently impaired as of June 30, 2009.

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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

THE COMPANY COULD BE EXPOSED TO LEGAL CLAIMS

We could be exposed to legal claims.

On April 30, 2009, Global Hotline entered into negotiations to refinance $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, all banks but Mitsubishi Tokyo UFJ Bank Co Ltd. have agreed to freeze all payments through September 30, 2009. Global Hotline continues to negotiate with our Japanese banks on the repayment of the debt.

On May 26, 2009, we received notices from H Capital. On May 27, 2009, Global Hotline and SG Telecom did not repay the Loan as requested by H Capital. On June 9, 2009, the unlicensed Japanese lender submitted documents claiming ownership of the Company's ownership interest in 600 shares of Global Hotline.

After review by Japanese corporate counsel, we are challenging the . . .