QUANTITATIVE ALPHA TRADING INC.
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
For the three months ended March 31, 2012
(Unaudited)
UNAUDITED INTERIM FINANCIAL STATEMENTS
In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors have not reviewed the unaudited consolidated condensed interim financial statements for the three month period ended March 31,2012.
Quantitative Alpha Trading Inc.
Consolidated Condensed Interim Financial Statements
Statements of Loss and Comprehensive Loss
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
| | | March 31, 2012 | | | March 31, 2011 | |
| | | | | | | |
| Revenue | | | | | | |
| Licensing | | $ | 19,749 | | | $ | — | |
| | | | | | | | | |
| Expenses | | | | | | | | |
| Amortization - Equipment | | | 5,097 | | | | 1,978 | |
| Amortization - Intangible | | | 207,744 | | | | 207,744 | |
| Finance costs | | | 1,019 | | | | 22,173 | |
| Foreign exchange loss | | | 8,227 | | | | 31,373 | |
| Management, consulting and administrative | | | 81,459 | | | | 60,405 | |
| Office | | | 18,253 | | | | 10,967 | |
| Professional fees | | | 10,475 | | | | 64,844 | |
| Rent | | | 21,405 | | | | 16,637 | |
| Salary and wages | | | 241,774 | | | | 62,914 | |
| Share based compensation | | | 391,563 | | | | 1,143,272 | |
| Travel | | | 18,458 | | | | 10,194 | |
| Trust and filing fees | | | 7,807 | | | | 11,108 | |
| Loss before the following: | | | (993,532 | ) | | | (1,643,609 | ) |
| Interest and other income | | | (24,674 | ) | | | | |
| | | | | | | | | |
| Net loss and comprehensive loss | | $ | (1,018,206 | ) | | $ | (1,643,609 | ) |
| | | | | | | | | |
| Loss per share, basic | | $ | (0.00 | ) | | $ | (0.01 | ) |
| Loss per share, fully diluted | | $ | (0.00 | ) | | $ | (0.01 | ) |
| | | | | | | | | |
| Weighted average number of common shares outstanding, basic | | | 264,641,070 | | | | 135,344,145 | |
| Weighted average number of common shares outstanding, fully diluted | | | 265,330,933 | | | | 135,500,552 | |
The accompanying notes form an integral part of these consolidated condensed interim financial statements
Quantitative Alpha Trading Inc.
Consolidated Condensed Interim Financial Statements
Statements of Financial Position
| (Unaudited, expressed in Canadian dollars) |
| As at | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Assets | | | | | | |
| | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents (Note 4) | | $ | 690,341 | | | $ | 1,203,430 | |
| Marketable securities | | | | | | | | |
| Other receivables | | | 72,054 | | | | 24,409 | |
| Prepaid expenses | | | 254,991 | | | | 255,160 | |
| | | | 1,017,386 | | | | 1,482,999 | |
| | | | | | | | | |
| Equipment (Note 5) | | | 45,747 | | | | 49,969 | |
| Intangible (Note 6) | | | 6,751,671 | | | | 6,959,415 | |
| Prepaid Expenses - long term | | | 26,042 | | | | 78,125 | |
| Total Assets | | $ | 7,840,846 | | | $ | 8,570,508 | |
| | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | |
| Current liabilities | | | | | | | | |
| Trade and other payables | | $ | 423,044 | | | $ | 526,063 | |
| | | | 423,044 | | | | 526,063 | |
| Shareholders’ equity | | | | | | | | |
| Share capital and warrants (Note 7) | | | 13,874,355 | | | | 13,874,355 | |
| Contributed surplus | | | 5,366,205 | | | | 4,974,642 | |
| Deficit | | | (11,822,758 | ) | | | (10,804,552 | ) |
| | | | 7,417,802 | | | | 8,044,445 | |
| | | | | | | | | |
| Total Liabilities and Shareholders’ Equity | | $ | 7,840,846 | | | $ | 8,570,508 | |
The accompanying notes form an integral part of these consolidated condensed interim financial statements
Quantitative Alpha Trading Inc.
Consolidated Condensed Interim Financial Statements
Statements of Changes in Equity
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
| | | Share Capital and Warrants $ | | Contributed Surplus $ | | Deficit $ | | Total Equity $ | |
| | | | | | | | | | | | | | |
| As at January 1, 2012 | | | 13,874,355 | | | 4,974,642 | | | (10,804,552 | ) | | 8,044,445 | |
| Net loss and comprehensive loss | | | — | | | — | | | (1,018,206 | ) | | (1,018,206 | ) |
| Share based compensation (Note 7) | | | — | | | 391,563 | | | — | | | 391,563 | |
| As at March 31, 2012 | | | 13,874,355 | | | 5,366,205 | | | (11,822,758 | ) | | 7,417,802 | |
| | | | | | | | | | | | | | |
| As at January 1, 2011 | | | 8,939,599 | | | 2,406,438 | | | (5,660,942 | ) | | 5,685,095 | |
| Net loss and comprehensive loss | | | — | | | — | | | (1,643,609 | ) | | (1,643,609 | ) |
| Issuance - private placement (Note 7) | | | 500,000 | | | — | | | — | | | 500,000 | |
| Issuance - conversion of notes payable | | | 2,486,930 | | | — | | | — | | | 2,486,930 | |
| Issuance - warrant exercise (Note 7) | | | 2,000,000 | | | — | | | — | | | 2,000,000 | |
| Share based compensation (Note 7) | | | — | | | 1,091,189 | | | — | | | 1,091,189 | |
| As at March 31, 2011 | | | 13,926,529 | | | 3,497,627 | | | (7,304,551 | ) | | 10,119,605 | |
The accompanying notes form an integral part of these consolidated condensed interim financial statements
Quantitative Alpha Trading Inc.
Consolidated Condensed Interim Financial Statements
Cash Flow Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited. expressed in Canadian dollars) |
| | | March 31, 2012 | | March 31, 2011 | |
| | | | | | | | |
| Cash provided by (used in) | | | | | | | |
| | | | | | | | |
| Operating activities | | | | | | | |
| Loss for the year | | $ | (1,018,206 | ) | $ | (1,643,609 | ) |
| Items not involving cash: | | | | | | | |
| Share based compensation | | | 391,563 | | | 1,143,272 | |
| Amortization | | | 212,841 | | | 209,722 | |
| Accrued interest on notes payable | | | | | | 21,631 | |
| Foreign exchange on notes payable | | | | | | 11,378 | |
| | | | (413,802 | ) | | (257,606 | ) |
| Net changes in non-cash working capital | | | | | | | |
| Other receivables | | | (47,645 | ) | | (729 | ) |
| Prepaid expenses | | | 52,252 | | | (6,000 | ) |
| Trade and other payables | | | (103,019 | ) | | 31,903 | |
| | | | (512,214 | ) | | (232,432 | ) |
| | | | | | | | |
| Investing activities | | | | | | | |
| Purchase of equipment | | | (875 | ) | | | |
| | | | (875 | ) | | | |
| | | | | | | | |
| Financing activities | | | | | | | |
| Common shares issued | | | | | | 2,500,000 | |
| Deposit on private placement | | | | | | (250,000 | ) |
| | | | | | | 2,250,000 | |
| | | | | | | | |
| Increase (decrease) in cash and cash equivalents | | | (513,089 | ) | | 2,017,568 | |
| Cash and cash equivalents, beginning of year | | | 1,203,430 | | | 174,530 | |
| | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 690,341 | | $ | 2,192,098 | |
| | | | | | | | |
| Supplementary information: | | | | | | | |
| Cash received from interest | | $ | – | | $ | – | |
| Non-cash transactions: | | | | | | | |
| Conversion of notes payable | | $ | – | | $ | 2,486,930 | |
The accompanying notes form an integral part of these consolidated condensed interim financial statements
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
| 1. | NATURE OF OPERATIONS AND CORPORATE INFORMATION |
Quantitative Alpha Trading Inc. and subsidiary herein after referred to as “Company” or “QAT” is a public company incorporated in the Province of Ontario, Canada. These financial statements include the results of QAT’s wholly owned US subsidiary, Quantitative Alpha Trading (USA) LLC.
The head office and registered office of the Company is located at 36 Toronto Street, Suite 750, Toronto, Ontario, M5C 2C5.
The Company is in the business of developing and licensing sentiment based proprietary trading software for the institutional trading and money manager markets.
These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including International Accounting Standard 34 Interim Financial Reporting. Accordingly, certain information and disclosures normally included in annual consolidated financial statements prepared in accordance with IFRS as issued by the IASB have been omitted or condensed. These consolidated condensed interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 31, 2011, which have been prepared in accordance with IFRS as issued by the IASB.
The policies applied in these consolidated condensed interim financial statements are consistent with the policies disclosed in Note 5 of the consolidated financial statements for the year ended December 31, 2011.
The condensed interim consolidated financial statements were authorized for issue by the Board of Directors on May 8, 2012.
| 3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The principal accounting policies applied to the presentation of these consolidated condensed interim financial statements are as set out in the Company’s annual consolidated financial statements for the year ended December 31, 2011, prepared in accordance with IFRS as issued by the IASB. These policies and methods of computation have been consistently applied to all periods presented unless otherwise stated.
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements
New standards and amendments, that have been issued by the IASB and not yet effective for the fiscal year beginning January 1, 2012, are summarized in the Company’s annual consolidated financial statements for the year ended December 31, 2011.
| 4. | CASH AND CASH EQUIVALENTS |
Cash and cash equivalents include the following components:
| | | March 31, 2012 | | December 31, 2011 | |
| | | | | | | | |
| Cash at bank and in hand: | | | | | | | |
| Canadian dollars | | $ | 59,677 | | $ | 158,223 | |
| US dollars | | | 630,664 | | | 894,043 | |
| Short-term deposits | | | — | | | 151,164 | |
| | | $ | 690,341 | | $ | 1,203,430 | |
| | | Office Equipment $ | | Computer Equipment $ | | Computer Software $ | | Leasehold Improvements $ | | Total $ | |
| Cost | | | | | | | | | | | | | | | | |
| At December 31, 2011 | | | 25,744 | | | 59,904 | | | 10,473 | | | 2,522 | | | 98,643 | |
| Additions | | | — | | | 875 | | | — | | | — | | | 875 | |
| At March 31, 2012 | | | 25,744 | | | 60,779 | | | 10,473 | | | 2,522 | | | 99,518 | |
| | | | | | | | | | | | | | | | | |
| Accumulated Amortization | | | | | | | | | | | | | | | | |
| At December 31, 2011 | | | 4,776 | | | 30,903 | | | 10,473 | | | 2,522 | | | 48,674 | |
| Additions | | | 1,049 | | | 4,048 | | | — | | | — | | | 5,097 | |
| At March 31, 2012 | | | 5,825 | | | 34,951 | | | 10,473 | | | 2,522 | | | 53,771 | |
| | | | | | | | | | | | | | | | | |
| Net book value | | | | | | | | | | | | | | | | |
| December 31, 2011 | | | 20,968 | | | 29,001 | | | — | | | — | | | 49,969 | |
| March 31, 2012 | | | 19,919 | | | 25,828 | | | — | | | — | | | 45,747 | |
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
Intangible assets are reviewed annually for impairment or when events or changes in circumstances indicate that the carrying value may not be recoverable. Management performed its annual impairment review at December 31, 2011 and determined that the recoverable amount of the software was in excess of its carrying value.
| | | Software | |
| Cost | | | | |
| At December 31, 2011 | | $ | 8,309,750 | |
| Additions | | | — | |
| At March 31, 2012 | | $ | 8,309,750 | |
| | | | | |
| Accumulated Amortization | | | | |
| At December 31, 2011 | | $ | 1,350,335 | |
| Additions | | | 207,744 | |
| At March 31, 2012 | | $ | 1,558,079 | |
| | | | | |
| Net book value | | | | |
| December 31, 2011 | | $ | 6,959,415 | |
| March 31, 2012 | | $ | 6,751,671 | |
a) Authorized and outstanding shares
As at March 31, 2012 the authorized share capital of the Company consisted of the following:
Unlimited number of Common Shares with no par value
5,250,000 Class B non-voting Preferred Shares with no par value
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
7. | SHARE CAPITAL (CONTINUED) |
A continuity of the outstanding share capital is as follows:
| | | Number of common shares | | Number of Class B preferred shares | |
| | | | | | | | |
| As at January 1, 2012 | | | 263,953,364 | | | 689,863 | |
| Issuance - conversion of preferred shares | | | 2,758,380 | | | (275,838 | ) |
| As at March 31, 2012 | | | 266,711,744 | | | 414,025 | |
| | | | | | | | |
| As at January 1, 2011 | | | 124,862,860 | | | 5,250,000 | |
| Issuance - private placement | | | 9,523,796 | | | — | |
| Issuance - conversion of notes payable | | | 47,370,100 | | | — | |
| Issuance - warrant exercise | | | 38,095,238 | | | — | |
| As at March 31, 2011 | | | 219,851,994 | | | 5,250,000 | |
On January 19, 2011, the Company completed a non-brokered private placement for gross proceeds to the Company of $500,000. Pursuant to the private placement, the Company issued 9,523,796 units at a purchase price of $0.0525 per unit. Each unit consists of one common share of the Company and four common share purchase warrants. Each whole warrant entitles its holder to purchase one additional Common Share at an exercise price of $0.0525. These warrants were exercised prior to their expiry on March 31, 2011 resulting in additional gross proceeds to the Company of $2,000,000. Share issuance costs of $15,590 have been offset against gross proceeds.
On March 30, 2011, the shareholders of the Company, by waiving any condition for conversion, had authorized the early conversion of 5,250,000 Class B Preferred Shares into common shares, thereby ensuring that all of its issued and outstanding equity is represented by voting common shares. Each Class B Preferred Share is convertible into ten common shares at the option of the holder. As of December 31, 2011, 4,410,137 Preferred Shares have been converted into 44,101,370 common shares Share issuance costs of $22,858 have been offset against gross proceeds
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
| 7. | SHARE CAPITAL (CONTINUED) |
As at March 31, 2011, the Company had 337,800 common share purchase warrants outstanding recorded originally at their fair value of $33,442 using the Black Scholes model for pricing options. The weighted average fair value per warrant of $0.099 was calculated using the following weighted average assumptions: dividend yield of 0%, expected volatility of 161%, risk-free interest rate of 1.7% and an expected life of 2 years. These warrants entitled the holder to purchase one common share of the Company at a price of $0.40 per share until May 12, 2012.
b) Stock options
QAT has an incentive stock option plan authorizing the Company to issue incentive stock options to directors, officers, employees and consultants of the Company. The option price shall not be less than the fair market value of the Company’s common shares on the grant date. The volatility used in each of the calculations noted below was based on a historical average volatility over the expected life of the options.
On January 9, 2012, the Company awarded its Chief Financial Officer a total of 100,000 stock options which vest on January 9, 2013 at an exercise price of $0.10. The options granted have an expiry date of January 9, 2022. The fair value of each option at the date of grant was estimated at $0.10/option by using the Black-Scholes option pricing model with the following assumptions:
| Risk free interest rate | | | 1.95% | |
| Expected life | | | 8-10 years | |
| Volatility | | | 252% | |
| Expected dividends | | | nil | |
On August 17, 2011, the Company awarded an employee a total of 2,723,518 stock options which vest immediately upon commencement of employment at an exercise price of $0.10. The options granted have an expiry date of August 17, 2021. The fair value of each option at the date of grant was estimated at $0.10/option by using the Black-Scholes option pricing model with the following assumptions:
| Risk free interest rate | | | 2.95% | |
| Expected life | | | 8-10 years | |
| Volatility | | | 232% | |
| Expected dividends | | | nil | |
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
| 7. | SHARE CAPITAL (CONTINUED) |
b) Stock options (continued)
On April 4, 2011, the Company awarded a consultant a total of 680,880 stock options of which 226,960 vest immediately at an exercise price of $0.34, 226,960 vests on the first anniversary of the grant date with an exercise price of $0.34 and 226,960 vests on the second anniversary of the grant date with an exercise price of $0.34. The options granted have an expiry date of April 4, 2021. The fair value of each option at the date of grant was estimated at $0.34/option by using the Black-Scholes option pricing model with the following assumptions:
| Risk free interest rate | | | 2.95% | |
| Expected life | | | 8-10 years | |
| Volatility | | | 235% | |
| Expected dividends | | | nil | |
On March 30, 2011, the Company awarded its directors, officers, employees and consultants a total of 29,958,701 stock options of which 10,440,143 vest immediately at an exercise price of $0.10, 9,759,279 vest on the first anniversary of the grant date with an exercise price of $0.16 and 9,759,279 vest on the second anniversary of the grant date with an exercise price of $0.24. All options granted have an expiry date of March 30, 2021. The fair value of each option at the date of grant was estimated at $0.10/option by using the Black-Scholes option pricing model with the following assumptions:
| Risk free interest rate | | | 2.90% | |
| Expected life | | | 8-10 years | |
| Volatility | | | 230% | |
| Expected dividends | | | nil | |
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
| 7. | SHARE CAPITAL (CONTINUED) |
b) Stock options (continued)
The continuity of the outstanding stock options of the Company is as follows:
| | | For the three months ended March 31, 2012 | | For the year ended December 31, 2011 | |
| | | Number | | Weighted average exercise price | | Number | | Weighted average exercise price | |
| | | | | | | | | | | | | | |
| Balance at beginning of period | | | 36,413,099 | | $ | 0.18 | | | 5,650,000 | | $ | 0.32 | |
| Granted | | | 100,000 | | | 0.10 | | | 33,363,099 | | | 0.17 | |
| Exercised | | | — | | | — | | | — | | | — | |
| Cancelled or expired | | | (3,050,000 | ) | | 0.32 | | | (2,600,000 | ) | | 0.32 | |
| Balance at end of period | | | 33,463,099 | | | 0.17 | | | 36,413,099 | | $ | 0.18 | |
| | | Outstanding Options | | Exercisable Options | |
| Exercise price per share | | | Number outstanding | | | Weighted average remaining life (years) | | | Weighted average exercise price | | | Number exerciseable | | | Weighted average exercise price | |
| $0.09 - $0.25 | | | 32,782,219 | | | 9.04 | | $ | 0.17 | | | 22,922,948 | | $ | 0.13 | |
| $0.26 - $0.50 | | | 680,880 | | | 9.02 | | | 0.34 | | | 226,960 | | | 0.34 | |
| | | | 33,463,099 | | | 9.04 | | $ | 0.17 | | | 23,149,908 | | $ | 0.14 | |
Quantitative Alpha Trading Inc.
Notes to the Consolidated Condensed Interim Financial Statements
For the three months ended March 31, 2012 and 2011
| (Unaudited, expressed in Canadian dollars) |
| 8. | RELATED PARTY TRANSACTIONS |
The Company’s related parties include its key management personnel. Unless otherwise stated, transactions with related parties do not incorporate special terms and conditions and no guarantees were given or received.
Transactions with key management personnel
Key management of the Company includes the Board of Directors as well as executive management. Transactions with key management personnel includes the following amounts:
| ● | During the three months ended March 31, 2012, the Company received $19,749 in revenues from a director of the Company; |
| ● | During the three months ended March 31, 2011, a director and Chairman of the Company received 9,557,035 common shares of the Company as part of the Debt Satisfaction transaction; and |
| ● | During the three months ended March 31, 2011, a company related to a director and Chief Executive Officer of the Company received 5,714,285 common shares of the company as part of the Debt Satisfaction Transaction. |
For the three months ended March 31, 2012, the Company was charged approximately $525,785 (2011 1,190,272) by related parties of the Company for management services, property lease rentals, share-based payments, and salary and wages, as set out in the table below:
| | | | | | | |
| | | March 31, 2012 | | | March 31, 2011 | |
| Management services | | $ | — | | | $ | 30,000 | |
| Professional fees | | | — | | | | 15,000 | |
| Property lease rentals | | | — | | | | 2,000 | |
| Share-based payments (Note 7b) | | | 391,563 | | | | 1,143,272 | |
| Salary and wages | | | 134,222 | | | | — | |
| | | $ | 525,785 | | | $ | 1,190,272 | |
