RTN Stealth Software Inc.
(Formerly Arris Resources Inc.)
Management’s Discussion &
Analysis
For the Three Months Ended
March 31, 2010
200-8338 120thStreet
Surrey, BC
V3W 3N4
Tel: (604) 598-0093 / Fax: (604) 592-6882
Management’s Discussion and Analysis
GENERAL
The following Management Discussion & Analysis (“MD&A”) is intended to assist in the understanding of the
trends and significant changes in the financial condition and results of operations of RTN Stealth Software Inc.
(“RTN Stealth” or the “Company”) for the quarter ended March 31, 2010. The MD&A should be read in
conjunction with the audited consolidated financial statements for the year ended December 31, 2009 and the
unaudited interim consolidated financial statements for the quarter ended March 31, 2010, which are available on
www.sedar.com. This MD&A has been prepared effective May 31, 2010. The Company’s functional currency is the
Canadiandollar.
FORWARD LOOKING STATEMENTS
The information set forth in this MD&A contains statements concerning future results, future performance,
intentions, objectives, plans and expectations that are, or may be deemed to be, forward-looking statements. These
statements concerning possible or assumed future results of operations of the Company are preceded by, followed
by or include the words ‘believes,’ ‘expects,’ ‘anticipates,’ ‘estimates,’ ‘intends,’ ‘plans,’ ‘forecasts,’ or similar
expressions. Forward-looking statements are not guarantees of future performance. These forward-looking
statements are based on current expectations that involve numerous risks and uncertainties, including, but not
limited to, those identified in the Risks & Uncertainties section. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict accurately and many of which underlying the
forward-looking statements are reasonable, any of the assumptions could prove inaccurate. These factors should be
considered carefully, and readers should not place undue reliance on forward-looking statements. The Company has
no intention and undertakes no obligation to update or revise any forward-looking statements, whether written or
oral that may be made by or on the Company's behalf.
OVERALLPERFORMANCE
Corporate Restructuring
On November 2, 2009, the Company and its three former wholly owned subsidiaries Arris Holdings Inc.
(“AHI”), CLI Resources Inc. (“CLI”) and QMI Seismic Inc. (“QMI”), collectively known as the “Parties”,
entered into a plan of arrangement (“Arrangement Agreement”) whereby the three former subsidiaries would
spin-out from the parent company, each becoming a reporting issuer and each acquiring an asset from the
Company in exchange for common shares (the “Common Shares”) of the respective former subsidiary.
The change in corporate structure of the Company was effective on January 5, 2010 with the sequence of
events as summarized below:
I.
Altered the identifying name of the RTN Common Shares to Class A Common Shares without par
value, being the RTN ClassACommon Shares.
II.
Created a class consisting of an unlimited number of common shares without par value (the
“Common Shares”).
III.
Each issued RTN Class ACommon Share was exchanged for one Common Share and one RTN Class
A Preferred Share (with no par value). The RTN Class A Common Share was eliminated upon the
completion of theArrangementAgreement.
IV.
The Company transferred its interest in five mineral claims in Atlin, British Columbia (the Mineral
Properties’) to CLI; an agreement with a British Columbia manufacturing company to distribute its
earthquake sensor products in India (the “Distribution Agreement”) to QMI; and all of the
Company’s marketable securities (the “Equity Portfolio”) to AHI in the consideration for 17,583,372
common shares of each of CLI, QMI, and AHI (collectively known as “Distributed Shares”) issued
by the three former subsidiaries respectively. The details of this transfer are discussed in the
“Related Party Transactions” section of this MD&A.
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V.
The Company redeemed the issued RTN Class APreferred Shares for consideration consisting solely
of the Distributed Shares. Each shareholder of record as of the close business on November 5, 2009,
being the share distribution record date, of the Company has received its pro-rata share of the
Distributed Shares. RTN Class A Preferred Share was eliminated upon the completion of the
ArrangementAgreement.
MineralProperties:Moly Project – Atlin, British Columbia
The Company has acquired 22 mineral claims cover approximately 15,000 acres which are located near Gladys
Lake molybdenum occurence (discovered in late 1960s) in 2008 with the consideration of $295,612. The
molybdenum occurrence is similar to the occurrence at Adanac’s Ruby Creek project. Adanac’s project is located
approximately 15 miles northeast of Atlin in northern BC. The claims are located approximately 30 miles northeast
of Atlin, British Columbia in the Atlin mining district for aggregated consideration of $295,612.
On September 9, 2009, the Company announced that it utilized its consulting geologists and mining engineers to
complete its evaluation of the twenty two mineral claims and determined the feasibility for further development of the
claims. As a result, 17 molly claims previously acquired have been allowed to elapse and the Company keeps the
remained 5 claims. As a result, the mineral property has been written down to $67,185 for the year ended December
31, 2009. On January 5, 2010, the Company transferred its interest in the 5 mineral claims to its former subsidiary
CLI Resources Inc. as part of its effort to reconstruct the Company’s share capital which is discussed in the
“Corporate Restructuring” section in above. The Company has not deferred and capitalized any exploration cost in
connection with these mineral properties.
Oil and Gas Properties:Alexander Prospect – Alberta
In February, 2007 the Company entered into a purchase and sale agreement (the “Agreement”) with Arctos
Petroleum Corp. (“Arctos”) whereby Arctos agreed to sell to the Company an interest in the Alexander Area,
Alberta propertyin the consideration of $150,000.
The Company holds a 30% working interest in 64 gross Ha (19.2 Net Ha) of onshore P&NG rights in Alexander,
Alberta. The property includes a producing Ellerslie/Wabamun oil well at 6-7-57-1W5 and a 40% interest in an oil
battery at 3-7-57-1W5. As the Company did not contribute towards the exploration work, the Company is in a non-
participation penalty position on both the well and battery and does not currently receive production or fee revenues
from these assets. As a result, management decided to write down this investment to $1for the year end December 31,
2009. The Company has not deferred and capitalized any exploration or development cost in connection with these
oil and gas properties.
Change of Company’s name and Acquisition of New Business Asset
The Company entered into software business in the quarter and, on January 19, 2010, the Company executed a
definitive agreement with privately owned Market Guidance Systems Inc. (“MGS”) whereby the Company acquired a
fully supported exclusive and perpetual license to the Market Navigation, Trade Execution and Market Timing
Software (the “RTN Stealth Software”).
As consideration for the above, the Company issued 5,000,000 Class B preferred shares to the shareholders of MGS.
In connection with the acquisition, the Company paid a company controlled by a director of the Company a
transaction advisory fee of 250,000 Class B Preferred Shares (Note 8). Each Class B Preferred share is convertible
into ten common shares of the Company when the cumulative net revenues derived from the license of the RTN-
Stealth Software reach a total of $20,000,000.
As a result, the Company changed its name from Arris Resources Inc. to RTN Stealth Software Inc. and changed its
trading symbol to RTN on December 21, 2009. During the quarter, the Company was in its preliminary stage of
promoting the RTN-Stealth Software and did not generate revenue from the sale of the RTN Stealth Software.
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RESULTS OF OPERATIONS
For the three months ended March 31, 2010
The Company reported a net loss of $1,853,285 ($0.02 per share) for the three months ended March 31, 2010 as
compared to a net loss of $40,319 ($0.00 per share) for the same quarter in 2009. The Change was mainly due to
increase in advertising and promotion, professional fees, and stock-based compensation expenses. Details are as
follows:
Advertising and promotion increased to $22,632 from $ nil for the same quarter in 2009. The increase was the
result of the Company’s effort of promoting the RTN-Stealth Software acquired in January 2010.
Professional fees increased to $42,208 from $nil in the same quarter in 2009. The increase of the professional fees
was related to the corporate restructuring in current quarter.
In February 2010, the Company awarded its directors, officers, employees and consultants a total of 5,650,000
stock options at an exercise price of $0.32 with the expiry date of February 24, 2015. The fair value of each option
at the date of grant was estimated at $0.31/option. The 5,650,000 granted options had a fair value of $1,736,064 at
the grant date and all the granted options were vested immediately on issuance. The Company recognized
$1,736,064 stock-based compensation expense in current quarter. There was no similar stock option activity in the
same quarter in 2009. As a result, stock-based compensation expense increased by $1,736,064 from the same
quarter in 2009.
Summary of Quarterly Results
The summary of quarterly results has been prepared in accordance with Canadian GAAP.
For the 3-month ended
Revenue
Net Income
Net Income
(Loss)
(Loss)
$
per share
March 31, 2010
-
(1,865,297)
(0.02)
December 31, 2009
-
(507,977)
(0.00)
September 30, 2009
-
160,220
0.00
June 30, 2009
-
(211,395)
(0.02)
March 31, 2009
-
(40,319)
(0.00)
December 31, 2008
-
(194,531)
(0.02)
September 30, 2008
-
(51,256)
(0.00)
June 30, 2008
-
(61,428)
(0.00)
LIQUIDITY & CAPITAL RESOURCES
Financing of operations, business development, and investment in capital assets is achieved primarily by equity
financing. At March 31, 2010, the Company had $478,936 in cash and cash equivalent, a short term investment of
$10,012, and a positive working capital of $423,948.
The Company is not subject to external working capital requirement. Other than the two acquisitions of assets in
May 2010 (discussed in the “Subsequent Events” section) that were paid by the issuance of the Company’s common
shares, the Company does not have significant capital commitment that is obligated to make. Management believes
that the Company has adequate liquidity and resources to maintain its operation and conduct its investment when
needed in the next 12 months. While the Company believes it will be able to raise the additional financing when
required, the impacts of the current global economic downturn and uncertainty in the global capital market provide
no guarantees that the Company can complete an equity or a debt financing when needed.
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OFF BALANCE SHEET ARRANGEMENT
None
RELATED PARTY TRANSACTIONS
a) During the three months ended March 31, 2010, two companies controlled by the President charged the
Company $14,000 in management and administrative fees, and $12,500 in rental expense. As at March 31,
2010 the Company owed $3,000 for these expenses. These transactions have occurred in the normal course of
operations on a basis consistent with those involving unrelated parties. Accordingly they are measured at
their fair values.
b) The Arrangement Agreement (discussed in the “Corporate Restructuring” section of this MD&A) envisions
the transfer of the Mineral Properties, the Distribution Agreement, and the Equity Portfolio (collectively the
“Transferred Assets’) from RTN Stealth to CLI, QMI, and AHI respectively. As consideration for the transfer,
the controlling interests in the common shares of CLI, QMI, and AHI were immediately distributed to the
shareholders of RTN Stealth. The shareholders of RTN Stealth at the time of the transfer will continue to
collectively own the Transferred Assets. Consequently, there was no substantive change in the beneficial
ownership of the Transferred Assets at the time that the Transferred Assets were vended to RTN Stealth. As
such the transfer of the Mineral Properties, Distribution Agreement, and the Equity Portfolio was recorded, in
accordance with the Canadian generally accepted accounting principles, at the carrying values of the
Company as follows:
Value of the transfer being the carrying
value at RTNStealth’saccount on
Mineral Properties
January 5, 2010
five mineral claimsinthe areaslocated near Gladys
Lake Molybdenum occurrences in the Atlin Mining
District, BritishColumbia
$
67,185
DistributionAgreement
Distribution Agreement with a British Columbia
private company to distribute itsseismic sensors in
India.
$
1
Value of the transfer being the
Number of
carrying value at RTNStealth’s
Equity Portfolio
share
account on January 5, 2010
Publicly traded commonshares
-Desert Gold Ventures Inc.
300,000
$
240,000
-Ona Power Corp.
2,800,000
509,600
-Maxtech Ventures Inc.
440,000
228,800
Share purchase warrants of publicly traded
shares
-Ona Power Corp.
2,800,000
470,400
$
1,448,800
PROPOSED TRANSACTION
There are no proposed transactions that will materially affect the performance of the Company.
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SUBSEQUENT EVENTS
On May 17, 2010, subsequent to the end of current quarter, the Company executed two definitive agreements
subject to CNSX approval. In the first case the Company has acquired of all of the assets of MGS, the Company
that sold the RTN-stealth Software to the Company in January 2010, and in the second case the Company has
purchased the EMC-ALGO Software Suite from ENAJ Mercantile Corporation (“ENAJ”), a privately owned
company. The Company has issued to MGS shareholders twenty million common shares escrowed in four equal
tranches at 6, 9, 12, and 15 months and assume $2.45 million of liabilities owed by MGS.
As to ENAJ, the Company has issued five million common shares as consideration for the acquisition of the
EMC-ALGO Software Suite. The first 2.5 million common shares have been issued to ENAJ and are escrowed
in four equal tranches at 6, 9, 12, and 15 months. The remaining 2.5 million common shares were issued to the
owner of ENAJ, and are escrowed, in three equal tranches at 12, 24, and 36 months.
CRITICALACCOUNTING POLICIES
The Company’s completed accounting policies are described in the note 2 to the audited consolidated financial
statements for the year ended December 31, 2009. There were no changes of the accounting policies in this quarter.
NEW ACCOUNTING PRONOUNCEMENTS
The new accounting pronouncements the Company yet to adopt are disclosed in the note 3(i) to the unaudited
interim consolidated financial statements for the three months ended March 31, 2010.
SHAREDATA
As at the date of this MD&A, the Company has 124,416,860 common shares, 5,250,000 Class B Preferred shares
that can be converted into 52,500,000 common shares, and 5,650,000 stock options outstanding for a total of
182,566,860 fully diluted common shares outstanding.
RISKSAND UNCERTAINTIES
Going Concern
As the Company had changed its business from resource exploration into the software business, it is unsure
whether the Company may successfully change its business model and strategic direction. The ability of the
Company to continue to operate as a going concern is dependent on its ability to ultimately operate its business
at a profit. To date, the Company has not generated any revenues from operations and will most likely require
additional funds to meet its obligations and the costs of its operations. As a result, further losses are anticipated
prior to the generation of any profits. The Company’s future capital requirements will depend on many factors,
including the costs of operating the software business. The Company’s anticipated operating losses and
increasing working capital requirements may require that it obtain additional capital to continue operations.
The Company will depend almost exclusively on outside capital. Such outside capital will include the sale of
additional shares. There can be no assurance that capital will be available as necessary to meet these continuing
operating costs or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of
additional equity securities by the Company may result in significant dilution to the equity interests of its current
shareholders. Obtaining commercial loans, assuming those loans would be available, will increase the
Company’s liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts
and on terms deemed acceptable, the business and future success may be adversely affected, thus giving rise to
doubt about the Company’s ability to continue as a going concern. The audited consolidated financial statements
for the year ended December 31, 2009 and unaudited interim consolidated financial statements for the quarter
ended March 31, 2010 do not reflect adjustments to the carrying values of assets, liabilities or reported results
should the Company be unable to continue as a going concern.
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Other risk factors
None of the Company’s oil and gas properties currently have reserves. The Company has limited financial
resources to finance its operation and further development.
The oil and gas interests the Company has are in the exploration stages only, are without proven reserves
of commercial levels of production. Oil and gas exploration involves a high degree of risk and few properties,
which are explored, are ultimately developed into commercially producing wells. If the Company’s efforts do not
result in commercial production at the Alexander Prospect, the Company will be forced to dispose its oil and gas
interests.
The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it
operates, including provisions relatingto propertyreclamation, discharge of hazardous material and other matters.
CONTROLSAND PROCEDURES
Venture issuers are not required to include representations relating to the establishment and maintenance of disclosure
controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in National
Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings (“NI 52-109”). In particular, the
Company’s certifying officers are not making any representations relating to the establishment and maintenance of:
i)
controls and other procedures designed to provide reasonable assurance that information required to be
disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under
securities legislation is recorded, processed, summarized and reported within the time periods specified in
securities legislation; and
ii)
a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with the Company’s generally accepted accounting
principles.
The Company’s certifying officers are responsible for ensuring that processes are in place to provide them with
sufficient knowledge to support the representations they make. Investors should be aware that inherent limitations on
the ability of the Company’s certifying officers to design and implement on a cost effective basis DC&P and ICFR as
defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and
annual filings and other reports provided under securities legislation.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In February 2008, the Canadian Accounting Standards Board announced that 2011 is the changeover date for publicly
accountable profit-oriented enterprises to use IFRS, replacing Canadian GAAP for interim and annual financial
statements relating to fiscal years beginning on or after January 1, 2011. The Company will commence reporting in
IFRS in the first quarter of the 2011 fiscal year, with comparative figures.
The company will use a four phase approach to ensure successful conversion to IFRS,
including:
•
diagnostic impact assessment;
•
design and planning;
•
solution development and;
•
implementation.
The Company has begun developing its detailed IFRS conversion plan, including commencement of an education
process for management and the board of directors, and evaluating the effect of the new standards on its financial
statements.
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The Company has identified six major areas to date that will impact the financial statements under IFRS, including:
•
Petroleum properties;
•
Impairment of petroleum properties;
•
Foreign currency translation;
•
Stock based compensation;
•
Revenue recognition;
•
Income taxes; and
•
First-time adoption of International Financial Reporting Standards (IFRS 1).
It is not practically possible at this time to quantify the impact of these differences.
OTHER
To view the public documents of the Company, pleasevisit the Company's profile on the SEDAR website at
www.sedar.com.
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