Quantitative Alpha Trading Inc.
(Formerly known as RTN Stealth Software Inc.)
Management’s Discussion &
Analysis
For the Year Ended
December 31, 2010
Suite 300 - 40 Village Centre Place
Mississauga, ON
L4Z 1V9
Tel: (905) 629-1333
Management’s Discussion and Analysis
GENERAL
Management’s discussion and analysis (“MD&A”) has been prepared based on information available to
Quantitative Alpha Trading Inc. (“QAT” or the “Company”), formerly RTN Stealth Software Inc. (“RTN”), as
of April 29, 2011. The MD&A provides a detailed analysis of the company’s business and compares its 2010
results with those of the previous years and should be read in conjunction with the Company’s audited consolidated
financial statements for the year ended December 31, 2010. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). This MD&A
may contain forward-looking statements about the Company’s future prospects, and the Company provides no
assurance that actual results will meet management’s expectations.
The Company is in the business of providing licensing of its proprietary “trading software” for institutional money
managers and hedge funds. The company offers a unique, direct access trading decision support platform for active
traders. This trading decision support tool is founded on established psychologically quantifiable behavior that
measures trader sentiment and provides traders with insight into a security’s imminent moves. In addition, the
company’s offers a separate decision making software based on the algorithms from the EMC-ALGO Software Suite
(“EMC”) acquired from ENAJ Mercantile Corporation (“ENAJ”) in May 2010, which seeks returns based on pricing
discrepancies and sudden market place changes that occur on an intra-day basis in the futures markets.
The company has acquired and developed trading algorithms that have produced strong results across different
markets including equities, futures, currency, ETFs and commodities.
The company is actively marketing their software to institutional money managers and hedge funds. Subsequent to
year-end the board has authorized management to utilize the company’s proprietary trading systems to trade in
marketable securities to the extent of a maximum of $750,000 of the Company’s cash on hand.
FORWARDLOOKING STATEMENTS
All statements, other than statements of historical fact, constitute “forward-looking statements” and are based on
expectations, estimates and projections as at the date of this MD&A. The words ”believe”, “expect”, “anticipate”,
“plan”, “intend”, “continue”, “estimate”, “may”, ”will”, “schedule” and similar expressions identify forward-looking
statements. The Company cautions the reader that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or achievements of QAT to be
materially different from the Company’s estimated future results, performance or achievements expressed or implied
by the forward-looking statements and the forward-looking statements are not guarantees of future
performance. Factors that could cause results or events to differ materially from current expectations expressed or
implied are inherent to the Company’s business and include, but are not limited to, those discussed in the section
entitled “Risks and Uncertainties”. The Company does not intend, and does not assume any obligation to update these
forward-looking statements, whether as a result of new information, future events or results or otherwise except as
required by applicable laws.
2
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 (the “Arrangement Agreement”) whereby the Company would execute a spin-out transaction of its three
former subsidiaries, each becoming a reporting issuer and each acquiring an asset from the Company in exchange for
common shares (the “Distributed Shares”) of the respective subsidiary.
The change in corporate structure was effective on January 5, 2010 with the sequence of events as summarized below:
i.
The identifying name of the Company’s common shares was altered to Class A Common Shares without par
value, being the RTN Class A Common Shares.
ii.
A class consisting of an unlimited number of Common Shares without par value (the “ Common Shares’’) and a
class consisting of Class A Preference Shares (the “RTN Class A Preferred Share”) were created.
iii.
Each issued RTN Class A Common Share was exchanged for one Common Share and one RTN Class A Preferred
Share (with no par value). The RTN Class A Common Shares were then eliminated upon the completion of the
Arrangement Agreement.
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.
v.
The Company redeemed the issued RTN Class A Preferred Shares for consideration consisting solely of the
Distributed Shares. Each shareholder of record as of the close of 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 Shares were then eliminated upon the completion of the Arrangement Agreement.
3
Corporate Restructuring (continued)
The Arrangement Agreement resulted in the transfer of the Mineral Properties, the Distribution Agreement, and the
Equity Portfolio (collectively the “Transferred Assets’) from the Company to CLI, QMI, and AHI respectively. The
Transferred Assets at carrying value to RTN were as follows:
Carrying value
of the transfer on
January 5, 2010
Mineral Properties
Five mineral claims in the areas located near Gladys
Lake Molybdenumoccurrences in the Atlin Mining
District, British Columbia
$
67,185
Distribution Agreement
Distribution agreement with a British Columbia private
company to distribute its seismic sensors in India
$
1
Carrying value
Number of
of the transfer on
Equity Portfolio
shares
January 5, 2010
Publicly traded common shares
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
Subsequent to the above described transfers, the Company redeemed the RTN Class A Preferred Shares by distributing to
the shareholders the controlling interests in the common shares of CLI, QMI, and AHI, on a pro rata basis. The above
described reorganization and redemption of the preference shares is considered a capital transaction and accordingly the
Company reclassified the accumulated other comprehensive income of $504,770 recorded in fiscal 2009 to account for
the un-realized gain fromthe appreciation in the market value of the Equity Portfolio from“other comprehensive income”
to retained earnings when the Equity Portfolio was transferred to AHI upon the completion of the Arrangement
Agreement.
4
Acquisition of a new business asset
On January 19, 2010, the Company executed a definitive agreement with privately owned Market Guidance Systems Inc.
(“MGS”) whereby the Company acquired an 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 in the capital of the Company
(the “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. Each
Class B Preferred share is convertible into ten common shares of the Company when the cumulative net revenues derived
fromthe license of the RTN-Stealth Software reach a total of US$20,000,000.
On May17, 2010, the Companyexecuted two definitive agreements:
a. the Company acquired the RTN-Stealth Software fromMGS (the “MGS transaction”), and
b. the Company purchased the EMC-ALGO Software Suite fromENAJ (the “ENAJ transaction”).
As part of the MGS transaction, the Company issued 20,000,000 common shares of the Company to MGS shareholders
which are escrowed to be released in four equal tranches at 6, 9, 12, and 15 months, and has assumed four promissory
notes, in an amount totalling $2,503,500, owed by MGS (the “Promissory Notes”), as the consideration of the acquisition.
In addition, the exclusive and perpetual license to market the RTN-Stealth Software that was acquired in January 2010
was cancelled upon the completion of the acquisition of the RTN-Stealth Software.
The details of the promissory notes assumed are as follows:
Due date
Interest rate
Other terms
Promissory Notes with the
Principal and interest
Bank of Canada prime
Senior to any and all other
principal totalling
are due on May 15,
rate + 1% per annum
shareholder loans and
C$2,503,500 at May 17,
2012
compound annually
shall be paid in full prior
2010
to repayment bythe
Company to any and all
other shareholder loans
As part of the ENAJ transaction, the Company issued 2,500,000 Common Shares as consideration for the acquisition of
the EMC-ALGO Software Suite from ENAJ. The 2,500,000 Common Shares were issued to ENAJ and are escrowed to
be released in four equal tranches at 6, 9, 12, and 15 months.
The Company is now in the process of seeking rectifications of certain filings or failures to file under the Business
Corporations Act(British Columbia) to ensure all aspects of the above described arrangement have taken effect.
5
Acquisition of a new business asset (continued)
Details of the two software acquisitions are summarized as follows:
RTN – Stealth Software
Issuance of 20,000,000 Common Shares of RTN each having a market
value of $0.25per share on May17, 2010
$
5,000,000
Assumption offour promissorynotes
2,503,500
Issuance of 5,250,000 Class B preferred shares on January 19, 2010
150,000
Finders fees of 125,000 Common Shares of RTN having a market
value of $0.25per share on May 17, 2010
31,250
7,684,750
EMC – ALGO Software
Issuance of 2,500,000 Common Shares of RTN each having a market
value of $0.25per share on May 17, 2010
625,000
$
8,309,750
Furthermore, the Company entered into a management agreement with Mr. Michael Boulter, the founder and chief
technology officer of ENAJ in exchange for two million five hundred thousand (2,500,000) common shares of the
Company as compensation. The management agreement has a three (3) year term and grants the titles of President and
Chief Operating Officer of the Company. The 2,500,000 million Common Shares of the Company are vested in three
equal tranches at 12, 24, and 36 months from May 17, 2010. As a result, the corresponding management fee is deferred
and amortized as follows:
Total consideration
$
625,000
Expensed in the twelve months ended December 31, 2010
(130,209)
494,791
Less current portion
(208,333)
$
286,458
The current portion of the prepaid expenses on the balance sheet include the deferred management fee of $208,333.
Change of Company’s name - QAT
On April 5, 2011, the Company changed its name from RTN Stealth Software Inc. to Quantitative Alpha Trading Inc.
6
SELECTED ANNUAL INFORMATION
The summaryof selected annual information has been prepared in accordance with Canadian GAAP.
2010
2009
2008
$
$
$
Revenues
-
-
-
Net Income (Loss)
(2,628,226)
(599,471)
(305,762)
Net Income (Loss) per Share
(0.02)
(0.01)
(0.01)
Total Assets
9,023,421
2,151,954
892,243
Total Long-termliabilities
(2,095,476)
-
-
Cash dividend
-
-
-
RESULTS OF OPERATIONS
For the Year Ended December 31, 2010
The Company reported a net loss of $2,628,226 ($0.02 per share) for the year ended December 31, 2010
as compared to a net loss of $599,471 ($0.01 per share) for the year ended December 31, 2009.
Significant changes between the 2010 and 2009 year leading to the increase of the net loss are
advertising and promotion, bank charges and interest, management consulting and administrative, office
expenses, professional fees and stock based compensation offset by an increase in foreign exchange gain.
Details are as follows:
Advertising and promotion costs increased to $51,672 from $ 2,041 in 2009 as result of the Company’s
efforts in promoting the acquired Software.
Bank charges and interest increased to $64,458 from $999 in 2009 as a result of the interest on the notes
payable.
Management, consulting and administrative fees increased to $387,323 from $112,205 for 2009. In the
current year the Company engaged more consultants to maintain and develop the trading software
resulting in higher consulting fees.
Office expenses have increased to $36,344 from $3,252 for 2009 as a result of the company moving
offices and additional courier, office supplies, web design and telephone costs.
Professional fees increased to $157,584 from $73,491 for 2009. This increase was a result of the
corporate restructuring during the year.
Stock based compensation has increased to $1,866,273 from $47,360 for 2009. This increase was a
result of the Company awarding its directors, officers, employees and consultants a total of 5,650,000
stock options at an exercise price of $0.32 in February 2010. The 5,650,000 granted options had a fair
value of $1,736,064 and the Company recognized $1,736,064 in stock-based compensation expense. In
addition, $130,209 in stock-based compensation expense relates to the amortization of the management
agreement as described in the acquisition of new business section above.
Foreign exchange gain increased to $108,150 from $548 in 2009 as a result of US dollar denominated
notes and the favorable exchange rate.
7
Q4 Operations
The Company reported net loss for the three months ended December 31, 2010 of $278,375 compared to $507,977 for
the same period in 2009, a decrease of 229,602. This decrease is mainly a combined result of incurring $378,426
write down charge for the mineral & oil and gas properties in 2009 offset by additional professional fees, interest on
notes payable and stock based compensation incurred in 2010 in order for the company to execute its change in
business plan as described above.
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 (Loss)
Net Income (Loss)
per share
$
$
$
December 31, 2010
-
(278,375)
(0.00)
September 30, 2010
-
(285,763)
(0.00)
June 30, 2010
-
(210,803)
(0.00)
March 31, 2010
-
(1,853,285)
(0.02)
December 31, 2009
-
(507,977)
(0.00)
September 30, 2009
-
160,220
0.00
June 30, 2009
-
(211,395)
(0.00)
March 31, 2009
-
(40,319)
(0.00)
LIQUIDITY & CAPITAL RESOURCES
The Company does not generate revenues from operations. The Company relies on equity financing for its working
capital requirements to fund its operations, business and software development activities. At December 31, 2010, the
Company had $174,530 in cash and cash equivalents (2009 – $379,284) and a negative working capital of $304,162
(2009 – positive $2,005,756). For the year ended December 31, 2010 operating expenditures were $2,630,585
compared to $438,906 in 2009.
The Company is not subject to external working capital requirement and does not have significant capital
commitments that are obligated to make.
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. Subsequent to year end (as described in the subsequent
events section), to address cash flow needs the Company has raised an additional $3,000,000 through a private
placements.
OFF BALANCE SHEET ARRANGEMENTS
None
8
RELATED PARTY TRANSACTIONS
All transactions with related parties have occurred in the normal course of operations and in management’s opinion have
been transacted on a basis consistent with those involving unrelated parties, and accordingly that they are measured at fair
value.
* During the year ended December 31, 2010, a company controlled by the former President charged the Company
$26,000 (2009 - $61,750) in consulting and administrative fees and $27,500 (2009 - $60,000) in rental expenses.
Another Company controlled by the former President of Arris Resources also charged the Company $nil (2009 -
$50,000) in property research charges.
* During the year ended December 31, 2010, two companies related to a former director charged the Company
$nil (2009 - $45,000) management fees and $nil (2009 - $48,229) finders’ fees as share issuance costs
respectively.
* During the year ended December 31, 2010, the CFO and former CFO have charged the company $28,600 in
accounting fees
* During the year ended December 31, 2010, a director of the company and chief programmer has charged the
Company $122,000 in consulting fees.
PROPOSED TRANSACTION
There are no proposed transactions that will materially affect the performance of the Company.
9
SUBSEQUENT EVENTS
i.
On January 19, 2011, the Company completed a non-brokered private placement for gross proceeds to the
Company of approximately$500,000. Pursuant to the private placement, the Company issued 9,523,809 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.
ii.
Following the Company’s annual general meeting on March 31, 2011, thefollowing subsequent events occurred:
* In order to position itself for an improved and upgraded listing profile over the coming months, the Company
has approved its continuance from British Columbia into Ontario as its governing jurisdiction, as approved the
adoption of a new general bylaw and has changed its name to Quantitative Alpha Trading Inc.
* In order to simplify and streamline its capital structure, the shareholders have authorized the early conversion of
5,250,000 special Class B Preferred Shares into 52,500,000 Common Shares, thereby ensuring that all of its
issued and outstanding equity is represented by voting Common Shares. In addition, the Company has
streamlined and normalized its capital structure by eliminating all special classes of shares in favour of Common
Shares with only one authorized class of preferred shares.
* In full and final satisfaction of the principal and interest owing under the Promissory Notes, the Company has
issued 47,370,100 Common Shares.
* The Company has raised an additional C$2,500,000 through a non-brokered private placement of units taken up
mostly by existing and new directors of the Company. The private placement consisted of (1) 9,523,809
common shares and (2) warrants on 38,095,238 common shares.
iii.
On April 1, 2011, the Company announced the granting of 30,639,581 stock options of common shares to
members of the Board, management and senior consultants. The options granted are equal to 11.25% of the
issued and outstanding common shares of the Company.
10
SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 5 to the audited consolidated financial
statements for the year ended December 31, 2010. Management considers the following policies to be the most
critical in understanding the judgments and estimates that are involved in the preparation of its consolidated financial
statements.
Going Concern
Canadian GAAP requires management to make an assessment of the Company’s ability to continue as a going
concern, and to disclose any material uncertainties related to events or conditions that may cast significant doubt
upon the entity’s ability to continue as a going concern.
In assessing the appropriateness of the going concern assumption, management is required to consider all available
information about the future which is at least, but not limited to, twelve months from the balance sheet date and to
disclose any material uncertainties related to events or conditions that may cast significant doubt upon the entity’s
ability to continue as a going concern.
The ability of the Company to continue to operate as a going concern is dependent upon its ability to ultimately operate
its business at a profit. To date, the Company has notgenerated any revenues fromoperations 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 has addressed short term cash flow requirements through the raising of capital and conversion of notes
payable to common shares subsequent to year-end. The Company's continued existence is dependent upon its ability to
attain profitable operations and obtain financing from its shareholders or external sources if required. 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 is anticipated to 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. Any issuing of additional equity
securities by the Company may result in 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.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting year. Significant areas requiring the
use of management estimates relate to the recoverability of the software, equipment, valuation allowances for future
income tax assets and depreciation and amortization.
11
Stock-based Compensation
The Company records all stock-based payments using the fair value method. Under the fair value method, stock-based
payments are measured at the fair value of the consideration received or the fair value of the equity instruments issued or
liabilities incurred, whichever is more reliably measurable, and are charged to operations over the vesting period. The
offset is credited to contributed surplus. Consideration received on the exercise of stock options is recorded as share
capital and the related contributed surplus is transferred to share capital.
Share capital issued for non-monetary consideration is recorded at its fair market value based on its trading price on the
Canadian National Stock Exchange on the date the agreement to issue the shares was entered into as determined by the
Board of Directors of the Company.
NEW ACCOUNTING PRONOUNCEMENTS
The new accounting pronouncements the Company yet to adopt are disclosed in the note 5(p) to the 2010 audited
consolidated financial statements.
SHAREDATA
As at the date of this MD&A, subject to the completion of the conversion of the Class B Preferred Shares as
approved by the shareholders, the Company has 272,351,994 common shares and 33,689,581 stock options for a
total of 306,041,575 fully diluted common shares outstanding.
12
FINANCIAL INSTRUMENTS
a) Carrying amounts and fair values of financial instruments
Financial instruments disclosures requires the Company to provide information about: a) the significance of financial
instruments to the Company’s financial position and performance and, b) the nature and extent of risks arising from
financial instruments to which the Company is exposed during the period and at the balance sheet date, and how the
Company manages those risks.
Financial instruments – Fair values
Following is a table which sets out the fair values of recognized financial instruments using the valuation methods and
assumptions described below:
2010
2009
Carrying
Fair
Carrying
Fair
Value
Value
Value
Value
Financial assets
Cash and cash equivalent
$
174,530 $
174,530 $
379,284 $
379,284
Accounts receivable
28,664
28,664
242,744
242,744
Marketable securities
-
-
1,448,800
1,448,800
Financial liabilities
Accounts payables and accrued
liabilities
115,046
115,046
75,072
75,072
Deposit on private placement
250,000
250,000
-
-
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and the
deposit on private placement approximate their fair value due to the short termnature of these instruments.
The fair value of the notes payable is not readily determinable with sufficient reliability due to the uncertainty around the
maturities and the future cash flows associated with the promissory note. Subsequent to year end, the notes payable were
converted to common shares.
The fair value hierarchy for financial instruments measured at fair value is Level 1 for cash and cash equivalents and
marketable securities. The Company does not have Level 2 or Level 3 inputs.
b) Financial instrumentrisk exposure and risk management
The Company is exposed in varying degrees of financial instrument related risks. The Board approves and monitors the
risk management processes, including treasury policies, counterparty limits, controlling and reporting structures. The
types of risk exposure and the way in which such exposure is managed are provided as follows:
1) Credit risk
The Company is exposed to credit risk with respect to its cash, cash equivalents and accounts receivable. Accounts
receivable are primarily amounts owing fromgovernment agencies.
The Company estimates its maximum exposure to be the carrying value of the cash and cash equivalents, and accounts
receivable.
The Company manages credit risk by maintaining bank accounts with Schedule 1 Canadian banks and investing only in
Guaranteed Investment Certificates. The Company’s cash is not subject to any external limitations.
13
FINANCIAL INSTRUMENTS (continued)
2) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company manages liquidity by maintaining sufficient cash balances.
The following are the principal contractual maturities of financial liabilities:
Contractual
Over 3
As at December 31, 2010
Obligations
2011
2012
2013
years
Accounts payable and
accrued liabilities
$
115,046 $ 115,046 $
- $
- $
-
Deposit on private placement
250,000
250,000
-
-
-
Notes payable
2,453,921
- 2,453,921
-
-
Total liabilities
$ 2,818,967 $ 317,796 $ 2,453,921 $
- $
-
Contractual
Over 3
As at December 31, 2009
Obligations
2010
2011
2012
years
Accounts payable and
accrued liabilities
$
75,072 $ 75,072 $
- $
- $
-
Total liabilities
$
75,072 $ 75,072 $
- $
- $
-
3) Market risk
Foreign exchange risk
The Company’s foreign currency transactions make it subject to foreign currency fluctuations and inflationary pressures
which may adversely affect the Company’s financial position, results of operations, and cash flows. The Company is
affected by changes in exchange rates between the Canadian Dollar and US Dollar. During the fiscal year 2010, the
Company attempted to transact its business predominantly inCanadian Dollars to mitigate the foreign exchange risk.
As at December 31, 2010 the financial assets and liabilitiesof the Company are all held in Canadian dollars except for the
long termnotes payable balance.
4) Interest rate risk
Interest rate risk consists of two components:
1.To the extent that payments made or received on the Company’s monetary assets and liabilities are affected by
changes in the prevailing market interest rate, the Company is exposed to interest rate cash flow risk.
2.To the extent that changes in prevailing market interest rates differs from the interest rates attached to the
Company’s monetary assets and liabilities, theCompany is exposed to interest rate price risk.
The Company is exposed to interest rate risk on its floating rate notes payable.
14
RISKSAND UNCERTAINTIES
Ability to Adapt our Business Model
As we have changed our business from resource exploration to software, we need to successfully change
our business model and strategic direction. We may or may not be able to do this successfully.
Management must manage the changeover to a new business model that involves the inherent risks
associated with change in general such as learning about the new products, new expectations and
resistance to change, but more specifically we must identify with the new corporate objective and adapt
to the demands of our potential customer base by developing and marketing a product that meets their
needs.
Demand for our Software Solutions
There may be little demand for our new software solutions, and they may not be broadly accepted by the
investor market. If we do not derive any benefit from our efforts to market our software, our operating
results could be adversely affected. 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.
Competitive Environment
The Company currently faces competition from software providers and websites that also offer trading tools.
The software industry is a rapidly changing environment with constant competition and many new product
introductions. The ability of the Company to achieve market success and a competitive advantage will
depend on its capability for ongoing research and development and the integration of any technological
advances into its products.
Current Economic Conditions
An economic slowdown could cause demand for our products to decline. Since trading in the securities
market is inherently risky, a recession may exacerbate these risks in the minds of our potential customers,
causing them to delay or to decide against trying a new trading platform. It is impossible to predict the
impact current economic conditions will have on our future results, and we cannot know when the economy
will improve.
15
CONTROLSAND PROCEDURES
Disclosure Controls and Procedures
The Chief Financial Officer and Chief Executive Officer, is responsible for establishing and maintaining effective
disclosure controls and procedures for the Company as defined in National Instrument 52-109 Certification of
Disclosure in Annual and Interim Filings. Management has concluded that as of December 31, 2010 controls are
effective enough to provide reasonable assurance that material information relating to the Company would be known
to them, particularly during the period in which reports are being prepared.
Internal Control over Financial Reporting
Management has concluded that internal control over financial reporting will be effective. The design and operation of
internal control over financial reporting will provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with applicable generally
accepted accounting principles.
Internal control over financial reporting will include those policies and procedures that establish the following:
maintenance of records in reasonable detail, that accurately and fairly reflect the transactions and dispositions of assets;
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with applicable generally accepted accounting principles; receipts and expenditures are only being made in
accordance with authorizations of management and the Board of Directors; and reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of assets.
Management have designed internal control over financial reporting to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
Canadian GAAP.
INTERNATIONALFINANCIALREPORTINGSTANDARDS (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. As a result, the
conversion from Canadian GAAPto IFRS will be applicable to the Company’s reporting for the first quarter
of fiscal 2011 for which current and comparative information will be prepared on an IFRS basis.
In light of these requirements, the Company has adopted a four phase approach to ensure successful
conversion to IFRS, including:
Phase 1 - diagnostic impact assessment: This phase is essentially complete.
Phase 2 - design and planning: to identify specific changes required to existing accounting policies,
information system, and business processes. This phase is essentially complete.
Phase 3 – solution development: Involves the selection of the Company’s accounting policies among
alternatives allowed under IFRS by senior management and the review by theAudit Committee, the
quantification of the impact of changes on the Company’s existing accounting policies on the opening IFRS
balance sheet and the development of the draft IFRS financial statements. During the final quarter of fiscal
2010, management continued to review the choices available under IFRS, First-timeAdoption of IFRS.
This phase is currently in process.
Phase 4 – implementation– to execute the changes to information systems and business processes,
completing formal authorization processes to approve recommended accounting policies changes and
training programs across the Company’s finance and other staff, as needed. This phase is currently in
process.
16
Following areas are identified that may have impacts to the financial statements under IFRS:
Area
Canadian GAAP
IFRS
Analysis and preliminary
(as currently applied)
conclusion
Property,
1. PP&E is recorded at cost.
PP&E is initially recorded at
The existing accounting policy
plant, and
cost.
is likely to be maintained per
equipment
Subsequent measurement can
preliminary evaluation.
(“PP&E”)
be done either by cost method
or by revaluation method if
fair value of the PP&E can be
reliably measured.
2. Depreciation is taken based
Depreciation is based on the
The Company does not have
on their useful lives.
useful lives of each significant significant PP&E as at the date
component within PP&E
of this MD&A. Management
will assess the impact when the
Company has acquired PP&E
with respect to the
componentization.
Impairment of 1. Impairment testing of long- Like Canadian GAAP,
No significant impact.
long-lived
lived assets is performed when impairment testing is
assets
there is an indication the
performed when there is an
carrying value may not be
indication of impairment.
recoverable.
2. The impairment test is a
The impairment test is a one-
Impairment tests under IFRS
two-step process.An asset
step process.
could generate a greater
(group) is first assessed as to
likelihood of write downs in the
whether impairment exists
An impairment loss is
future.
based on whether the asset’s
recognized if the asset’s
(group’s) carrying value
(group’s) carrying value
exceeds the undiscounted
exceeds its recoverable
future cash flow of the asset
amount, which is the greater of
(group).
fair value less costs to sell and
If an impairment exists, then
value in use (based on the net
the impairment loss is
present value of future cash
measured based on the excess
flow).
of carrying value over the fair
value of the asset (group)
3. Write downs to net
Write downs to net realizable
Potential increasing volatility in
realizable value are permanent. value can be reversed if the
profit and loss could arise as a
conditions of impairment cease result of the difference in the
to exist.
treatment of write downs in the
future.
17
Share-based
1. Share-based compensation
IFRS 2 requires both equity-
No impact- the Company’s
compensation
is determined using fair value
settled awards and cash-settled share-based payments are all
model for equity-settled
awards to be measured based
equity-settled payments.
awards and the intrinsic model on fair values.
for cash-settled awards
2. When a share-based award
When a share-based award
No impact - the Company has
vests in installments over the
vests in installments over the
not granted share-based awards
vesting period, the Company
vesting period, each
vesting in installments in 2010.
has an election to recognize
installment is accounted for a
the share-based compensation
separated arrangement for
on a straight-line basis or a
recognition of cost (graded
graded method which
method).
recognizes share-based
compensation faster than the
straight-line method
Software
Software is amortized once put Software is amortized when
Amortization will be recorded in
into use
available for use
2010 for the period that the
software was available for use
Income taxes
Deferred income tax assets are Deferred income tax assets are The term “Probable” is not
recognized to the extent that it recognized to the extent it is
defined in IAS 12. However,
is “more likely than not” that
“probable” that the taxable
entities have often used a
the deferred income tax assets profit will be realized.
definition of “more likely than
will be realized
not” similar to Canadian GAAP.
Accordingly, our preliminary is
that there is no significant
impact.
OTHER
To view the public documents of the Company, pleasevisit the Company's profile on the SEDAR website at
www.sedar.com.
18
