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 June 29, 2011. The MD&A provides a detailed analysis of the company’s business and compares its 2011 results
with those of the previous periods and should be read in conjunction with the Company’s unaudited condensed
financial statements for the three month period ended March 31, 2011, the Company’s audited Canadian GAAP
Financial Statements and the accompanying notes for the year ended December 31, 2010 and the Company’s MD&A
for the year ended December 31, 2010.
In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”)
and to require publicly accountable enterprises to apply such standards effective for years beginning on or after
January 1, 2011. Accordingly, the Company has commenced reporting on this basis and in the MD&A, the term
“CDN GAAP” refers to Canadian GAAP prior to the adoption of IFRS. Comparative information for the periods
from January 1, 2010 onwards has been restated in accordance with IFRS.
The condensed financial statements have been prepared in accordance with IFRS. 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 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
is also developing two quantitative or black-box systems for distribution to institutional and retail investors. The
systems are called “Trend Crawler” (a market bias based system) and “Virtual Condor” (a statistical arbitrage system).
These systems incorporate aspects of the Company’s proprietary trading software and are expected to undergo testing
in order to be ready for distribution in 2011.
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.
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
Acquisition of a 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 TimingSoftware (the “RTN-StealthSoftware”).
As consideration for the above, the Company issued 5,000,000 Class B preferred series 1 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.
The license agreement for the RTN-Stealth Software provided that each Class B Preferred share would be 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 US$20,000,000.
OnMay17, 2010, the Companyexecuted two definitive agreements:
a. the Companyacquired the RTN-StealthSoftware fromMGS (the “MGS transaction”), and
b. the Companypurchased 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 byMGS (the “PromissoryNotes”), 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 uponthe completionofthe MGS transaction.
The details ofthe PromissoryNotes assumed are as follows:
Duedate
Interest rate
Other terms
PromissoryNotes with the
Principal and interest
BankofCanadaprime
Senior to anyand all other
principal totalling
aredueon May15,
rate+1%per annum
shareholder loansand
C$2,503,500 at May17,
2012
compound annually
shall bepaid in full prior
2010
to repayment bythe
Companyto anyand all
other shareholder loans
On March 31, 2011, with a settlement date of March 23, 2011, the company satisfied the debt owed under the Promissory
Notes in exchange for 47,370,100 common shares. Because some of the Promissory Notes were in U.S. dollars, and the
Company deemed the exchange rate to be 1:1, the common shares were issued at $0.0525. (the “Debt Satisfaction
Transaction”).
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 fromENAJ. The 2,500,000 common shares were issued to ENAJ and are escrowed to be
released in four equal tranches commencing6, 9, 12, and 15 months after May17, 2010.
3
Acquisition of a new business asset (continued)
Details ofthe two software acquisitions are summarized as follows:
RTN – StealthSoftware
Issuance of20,000,000 CommonShares ofthe Companyeach havinga market
value of$0.25 per share onMay17, 2010
$
5,000,000
Assumptionof four PromissoryNotes
2,503,500
Issuance of5,250,000 Class B Preferred Shares onJanuary19, 2010
150,000
7,663,500
EMC– ALGO Software
Issuance of2,500,000 CommonShares ofthe Companyeach havinga market
value of$0.25 per share onMay17, 2010
625,000
Finders fees of125,000 CommonShares ofthe Company havinga market
value of$0.25 per share onMay17, 2010
31,250
$
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)
Expensed in the three months ended March31, 2011
(52,083)
442,708
Less current portion
(208,333)
$
234,375
The current portionofthe prepaid expenses onthe balance sheet includes the deferred management fee of$208,333.
Mr. Boulter subsequently resigned as President of the Company to focus on the role of Chief Operating Officer.
Change of Company’s name - QAT
On April 5, 2011, the Companychanged its name fromRTN StealthSoftware Inc. to Quantitative Alpha TradingInc.
4
SUMMARY OF QUARTERLY RESULTS
The summaryof quarterlyresults has beenprepared inaccordance withIFRS except where indicated:
For the 3-month ended Accounting Standard
Revenue
Net Income (Loss)
Net Income (Loss)
per share
$
$
$
March 31, 2011
IFRS
-
(1,643,609)
(0.01)
December 31, 2010
IFRS
-
(486,118)
(0.00)
September 30, 2010
IFRS
-
(493,507)
(0.00)
June 30, 2010
IFRS
-
(314,675)
(0.00)
March 31, 2010
IFRS
-
(1,853,285)
(0.02)
December 31, 2009
CDN GAAP
-
(507,977)
0.00
September 30, 2009
CDN GAAP
-
160,220
(0.00)
June 30, 2009
CDN GAAP
-
(211,395)
(0.00)
RESULTS OF OPERATIONS
For the three months ended March 31, 2011
The Company reported a net loss of $1,643,609 ($0.01 per share) for the three months ended March 31, 2011 as
compared to a net loss of $1,853,285 ($0.02 per share) for the three months ended March 31, 2010. The change
was mainly due to a decrease in advertising and promotion and stock based compensation offset by an increase in
software amortization, bank charges and interest, foreign exchange, management consulting and administrative,
professional fees and salary and wages. Details are as follows:
Advertising and promotion costs decreased to $nil from $22,632 for the same quarter in 2010 as result of the
Company’s initial efforts in promoting the acquired Software License.
Stock based compensation has decreased to $1,143,272 from $1,736,064 for the same quarter in 2010. This
change is not comparable as a result of different vesting periods and different quantities of options issued. The
stock based compensation cost in the first quarter for 2011 is described in note 8b to the unaudited condensed
interim financial statements.
Software amortization has increased to $207,744 from $nil for the same quarter in 2010 as the software was
acquired in the second quarter of 2010.
Bank charges and interest increased to $22,173 from $239 in 2009 as a result of the interest on the notes payable.
Foreign exchange loss was $31,373 compared to $nil as a result of cash held in US dollars.
Management, consulting and administrative fees increased to $60,405 from $33,600 for the same quarter in 2010.
In the current quarter the Company engaged more consultants to maintain and develop the trading software
resulting in higher consulting fees.
Professional fees increased to $64,844 from $30,208 for the same quarter in 2010. This increase was a result of the
corporate restructuring during the quarter.
Salary and wages increased to $62,914 from $nil for the same quarter in 2010. The increase is a result of the
Company not having any employees in the prior period.
5
On January 19, 2011, the Company completed a non-brokered private placement for gross proceeds of $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 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 until March 31, 2011. These
warrants were exercised prior to their expiry resulting in additional gross proceeds of $2,000,000.
LIQUIDITY & CAPITAL RESOURCES
The Company does not generate revenues from operations. The Company relies on equity financing for its working
capital requirement to fund its operations, business and software development activities. At March 31, 2011, the
Company had $2,192,098 in cash and cash equivalents (2010 – $478,936) and a working capital of $2,296,677 (2010 –
$423,948).
The Company is not subject to external working capital requirement and does not have significant capital
commitments that it is obligated to make.
To date, the Company has not generated any revenues from its software operations.
OFF BALANCE SHEET ARRANGEMENTS
None
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. Related parties include key management personnel, the Board of Directors, close family
members and enterprises which are controlled by these individuals.
• During the three months ended March 31, 2011, a company controlled by the CFO charged the Company
$2,000 (2010 - $nil) in rent and received $15,000 (2010 - $nil) in accounting fees.
• During the three months ended March 31, 2011, stock based compensation in the amount of $1,143,272 (2010
- $1,736,064) was granted to related parties.
• During the three months ended March 31, 2011, a director of the company and Chief Technology Officer has
charged the Company $30,000 (2010 - $nil) in consulting fees.
• 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.
• 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.
• During the three months ended March 31, 2010, two companies controlled by the former President charged
the Company $14,000 in management and administrative fees and $12,500 in rental expense.
PROPOSED TRANSACTION
There are no proposed transactions that will materially affect the performance of the Company.
6
SUBSEQUENT EVENTS
On March 30, 2011, the shareholders of the Company 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 at the date of these Financial Statements, the Company is in the process of completing the Class B Preferred Share
conversion.
7
SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described in Note 5 to the audited financial statements for the
year ended December 31, 2010 and in Note 4 and Note 11 to the unaudited interim condensed financial statements.
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
The condensed interim financial statements have been prepared on the basis of accounting principles applicable to a
"going concern," which assumes that the Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities in the normal course of operations.
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 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 has addressed short term cash flow requirements through the raising of capital and conversion of
Promissory Notes payable to common shares. The Company's continued existence is dependent upon its ability to
attain profitable operations and obtain financing from its shareholders or external sources as 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. 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 judgments and critical estimates
The preparation of financial statements in conformity with IFRS 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. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
Significant assumptions amount the future and other sources of estimation uncertainty that management has made that
could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results
differ from assumptions made, relate to, but are not limited to the following:
• The estimated useful lives of equipment which are included in the balance sheet and the related amortization
included in the statement of loss;
• The estimated useful live of intangible asset which are included in the balance sheets, the related amortization
included in the statement of loss, and the recoverability of the intangible asset which is dependent on
management’s ability to implement its current business plan. The recoverability analysis of intangible asset
on the balance sheet requires the Company to make assumptions about the future. Changes to one or more
assumptions would result in a change in the recoverable amount calculated; and
• The valuation allowance for future income tax assets.
8
SHAREDATA
As at the date of this MD&A the Company has 257,212,934 common shares, 1,363,906 Class B preferred shares,
337,800 warrants and 33,689,581 stock options for a total of 291,240,315 fully diluted common shares outstanding.
The company is anticipating full conversion of the Class B preferred shares which would result in 270,851,994
common shares and 304,879,375 fully diluted common shares outstanding.
FINANCIAL INSTRUMENTS
The company has foreign exchange risk because $1,301,756 in cash is held in US dollars and is exposed to foreign
currency fluctuations.
The company has no interest rate risk as the Company has no long-term debt outstanding as of March 31, 2011.
9
RISKS AND UNCERTAINTIES
In addition to other information and other risk factors set forth elsewhere in this MD&A, the following risk factors
should be carefully considered in evaluating our business because such factors currently may have a significant impact
on our business, operating results and financial condition.
An investment in our securities is highly speculative and involves a high degree of risk and should only
be made by investors who can afford to lose their entire investment.
Prior to making an investment decision, investors should consider the investment risks set forth below and those
described elsewhere in this document, which are in addition to the usual risks associated with an investment in a
business at an early stage of development. The risk factors set forth below are believed to be important in that they
may have a material impact upon our future financial performance and could cause actual results to differ materially
from those expressed in any forward-looking statement the Company makes. Note that unknown factors, not discussed
in this annual report, could also have a material adverse effect on our actual financial and other results. If any of these
risks materialize into actual events or circumstances or other possible additional risks and uncertainties of which the
Company is currently unaware or which they consider not to be material in connection with our business, actually
occur, our assets, liabilities, financial condition, results of operations (including future results of operations), business
and business prospects, are likely to be materially and adversely affected. In such circumstances, the price of our
securities could decline and investors may lose all or part of their investment.
Additional capital requirements
The Company has and may continue to have capital requirements in excess of our currently available resources. In the
event (i) our plans or assumptions change or prove inaccurate or (ii) our capital resources in addition to projected cash
flow, if any, prove to be insufficient to fund operations, the Company could be required to seek additional financing
sooner than currently anticipated. To the extent that any such financing involves the sale of our equity securities, the
interests of our then existing shareholders could be diluted. There can be no assurance that such financing will be
available to us on terms acceptable to us, if at all. To the extent such financing is not available, the Company may not
be able to, or may be delayed in, continuing to commercialize our products and services.
Loss of any directors or officers
The Company depends on key personnel whose loss of service would have an adverse effect. The Company depends
on our Chief Technology Office, Dr. Alex Bogdan, our Chief Executive Officer, Mr. McGovern, our Chairman, Todd
Halpern, our Vice-Chair, Richard Schaeffer and our Chief Operating Officer, Michael Boulter, for the success of our
intended business plan. The loss of their services would have a materially adverse effect upon our future operating
profits and prospects and could cause significant delays in our carrying on business or hinder our ability to continue
carrying on our business.
Issuance of additional shares would dilute the interests of existing shareholders
The Company is authorized to issue an unlimited number of Common Shares. Our Board has the power to issue
additional shares and may in the future issue shares to seek additional financing to meet capital requirements, to
acquire products, equipment or properties, or for other corporate purposes. Any additional issuance by us from our
authorized but unissued share capital would have the effect of diluting the interest of existing shareholders.
Officers and Directors may be indemnified against certain securities liabilities
Under the BCBCA the Company can indemnify any Director, officer, agent and/or employee as to those liabilities and
on those terms and conditions as are specified in the BCBCA. Further, the Company may purchase and maintain
insurance on behalf of any such persons whether or not the Company has the power to indemnify such person against
the liability insured. The foregoing could result in substantial expenditures by us and prevent any recovery from such
officers, Directors, agents and employees for losses incurred by us as a result of their actions. The Company has been
advised that in the opinion of the SEC, indemnification is against public policy as expressed in the U.S. Securities Act,
and is, therefore, unenforceable.
10
Our Common Shares are considered penny stocks and are subject to the Penny Stock Rules
Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales practice and disclosure requirements on
certain brokers-dealers who engage in certain transactions involving a “penny stock.” Subject to certain exceptions, a
penny stock generally includes any equity security not traded on an exchange or quoted on NASDAQ that has a market
price of less than US$5.00 per share. Our shares are expected to be deemed penny stock for the purposes of the
Exchange Act. The additional sales practice and disclosure requirements imposed upon brokers-dealers may
discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of
the shares and impede the sale of the shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock, except in limited circumstances prescribed
under federal securities laws, must make a special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise
exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving
a penny stock, a disclosure schedule relating to the penny stock market, unless the broker-dealer or the transaction is
otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the
registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly
statements disclosing recent price information with respect to the penny stock held in a customer's account and
information with respect to the limited market in penny stocks.
Enforcement of Civil Liabilities
The Company is incorporated under the laws of British Columbia, Canada and most of our Directors and officers are
residents of Canada. Consequently, it may be difficult for United States investors to affect service of process within the
United States upon us or upon those Directors or officers who are not residents of the United States, or to realize in the
United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities
Exchange Act of 1934. A judgment of a U.S. court predicated solely upon such civil liabilities may be enforceable in
Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined by
the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully
in Canada against any of such persons or our company predicated solely upon such civil liabilities.
Conflict of Interest of Management
Certain of our Directors and officers are also directors and officers of other companies. Consequently, there exists the
possibility for such Directors and officers to be in a position of conflict. Any decision made by any of such Directors
and officers relating to our company will be made in accordance with their duties and obligations to deal fairly and in
good faith with our company and such other companies.
Recent disruptions in international credit markets and other financial systems and deterioration of global
economic conditions
Since 2007, the U.S. credit markets experienced serious disruption due to a deterioration in residential property values,
defaults and delinquencies in the residential mortgage market and a decline in the value and credit quality of mortgage-
backed securities. Other adverse events include delinquencies in non-mortgage consumer credit and a general decline
in consumer confidence. These conditions worsened in 2008 and have continued through 2011, contributing to
reduced confidence in credit and financial markets around the world and the collapse of, and governmental intervention
in, major financial institutions. Asset price volatility and solvency concerns have increased, and there has been less
liquidity, a widening of credit spreads, a lack of price transparency, increased credit losses and tighter credit conditions.
Notwithstanding various government actions, concerns about the general condition of the capital markets, financial
instruments and financial institutions persist, and stock markets have declined substantially.
These market disruptions have had a significant material adverse impact on companies in many sectors of the economy
and have limited access to capital and credit. These disruptions could, among other things, make it more difficult for
us to obtain, or increase our cost of obtaining, financing for our operations. Failure to raise capital when needed or on
reasonable terms may have a material adverse effect on our business, financial condition and results of operations.
Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be
other than temporary, which may result in impairment losses. If these factors continue, our operations could be
adversely impacted and the trading price of our Common Shares may be adversely affected.
11
The Company is also exposed to liquidity risks in meeting our operating and capital expenditure requirements in
instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may
impact our ability to obtain loans and other credit facilities in the future and on favourable terms. If these increased
levels of volatility and market turmoil continue, our operations could be adversely impacted and the trading price of
our Common Shares could be adversely affected.
The market price of our Common Shares may be subject to wide price fluctuations
The market price of our Common Shares may be subject to wide fluctuations in response to many factors, including
news announcements on our financial position, financial results and business developments, technical developments
and innovations, competitors or third parties, industry developments in high-technology companies in general or
securities trading software companies and securities trading platforms more particularly, on general stock market
conditions, changes in interest rates or general economic conditions, unexpected and extreme general stock market
price and volume fluctuations, a lack of share volume liquidity, or legislative changes and other events outside of our
control may individually or collectively have the effect of causing substantial fluctuations in the traded price of our
common shares. Changes in the trading price of our shares may be unrelated to our performance or future prospects. In
addition, investors in our shares may lose their entire investment if the Company incurs large trading losses or if the
Company fails in our business.
Our stock is ‘thinly-traded’ meaning that the number of persons interested in purchasing our common
stock at or near ask prices may be relatively small.
Our common stock is “thinly-traded”, meaning that the number of persons interested in purchasing our common stock
at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number
of factors, including the fact that the Company is a small company which is relatively unknown to stock analysts, stock
brokers, institutional investors and others in the investment community that generate or influence sales volume. As a
consequence, there may be periods of several days or more when trading activity in our common stock is minimal or
non-existent. The Company cannot give any assurance that a broader or more active public trading market for our
common stock will develop or be sustained, or that current trading levels will be sustained. Due to these conditions, the
Company can give no assurance that holders of our common shares will be able to sell their shares at or near ask prices
or at all if they desire to liquidate their shares.
Our intellectual property may not be appropriately protected and the Company may be infringing upon
the proprietary rights of third parties.
The Company depends on its ability to protect the core proprietary software technologies the Company has developed.
In this regard, the Company relies on a combination of trade secrets, technical complexity, common law copyright and
trademark protection, licensing agreements, password protection and software encryption schemes, as well as on the
physical security of our source code. Despite these measures and precautions, it may be possible for an unauthorized
third-party to copy our core technologies and either offer them to the marketplace as its own, or to use them without
paying. To date, the Company has not sought to obtain copyright registration or patent protection for any of our
software products, though the Company may do so in the future. There can be no assurance, however, that such
registration will be granted if applied for. Also, certain aspects of our software products are not subject to intellectual
property protection in law, and to the extent such protection might be available, practical and legal distinctions may
apply in different jurisdictions. In addition, there can be no assurance that competitors will not develop similar
technology, products and services, and if they do, this could reduce the value of our proprietary technology and our
ability to effectively compete.
Although the Company believes that the Company has the right to use all of the intellectual property incorporated in
our software products, third parties may claim that our software products violate their proprietary rights, including
copyrights and patents. The cost of litigation necessary to defend our right to use the intellectual property incorporated
in our software products may be prohibitive. If any such claims are made and found to be valid or the Company
determines it prudent to settle any such claims, the Company may have to re-engineer our software products or obtain
licenses from third parties to continue offering our software products or in whole or in part cease using such
technology. Any efforts to re-engineer our software products or obtain licenses from third parties or cease using such
technology may not be successful and could substantially increase our costs and have a material adverse effect on our
business, financial condition and results of operations.
12
The Company operates in a highly competitive market
The financial services market is intensely competitive and characterized by the existence of larger established trading
and trading software companies along with the frequent entry of new competitors and introductions of new software
programs, features and technical innovations. Numerous competitors are already established in this marketplace. Many
of these companies may have greater resources, and recognition than us. In addition, there can be no assurance that the
Company will be successful in our efforts, or, if successful, that the Company will have the resources to sustain any
early growth or market penetration the Company may achieve.
In addition, the market for online trading of stocks and related services accessible to personal computer users is
changing rapidly. The applications growth and emergence of the Internet as a low-cost source of worldwide financial
market data, subscriptions, trade execution and research services, has already threatened the existence of established
data and information vendors, as well as full-service brokers. This creates technical, competitive and business trends,
the outcomes of which are uncertain and which may adversely affect our business.
The Company may be a Passive Foreign Investment Company, which may result in material adverse U.S.
federal income tax consequences to U.S. investors.
Investors in our Common Shares that are U.S. taxpayers should be aware that the Company may be a “passive foreign
investment company” under Section 1297(a) of the U.S. Internal Revenue Code (a “PFIC”). See “Item 10.E. Taxation
- United States Federal Income Tax Consequences” for a more detailed discussion of material United States federal
income tax consequences for U.S. shareholders.
No dividends
The payment of dividends on our Common Shares is within the discretion of the Board and will depend upon our
future earnings, our capital requirements, our financial condition, and other relevant factors. The Company does not
currently intend to declare any dividends on our shares for the foreseeable future.
Acquisitions or other Business Transaction
The Company may, when and if the opportunity arises, acquire other products, technologies or businesses involved in
activities, or having product lines, that are complementary to our business. Acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the
diversion of management’s attention from other business concerns, risks associated with entering markets or
conducting operations with which the Company has no or limited direct prior experience and the potential loss of key
employees of the acquired company. Moreover, there can be no assurance that any anticipated benefits of an
acquisition will be realized. Future acquisitions by us could result in potentially dilutive issuances of equity securities,
the use of cash, the incurrence of debt and contingent liabilities, and write-off of acquired research and development
costs, all of which could materially and adversely affect our financial condition, results of operations and cash flows.
Discretionary Court Order Rectifying certain Filings with the B.C. Registry
Prior to the appointment of the current Board of Directors, the Company did not make certain timely filings with the
B.C. Registry in 2009 and are currently pursuing an Application to the Court under Section 68 of the BCBCA
validating the creation and issuance of the Common Shares and the Preferred Shares on the grounds that it is just and
equitable to do so given that the failure to make the required filings was in error. Though the Company anticipates
that the court order will be obtained, the judge has discretion regarding whether or not to grant the relief that the
Company is seeking. In the event the order the Company is seeking is not granted, it will be extremely difficult to
reconcile our share registry and determine who our shareholders are.
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CONTROLSAND PROCEDURES
Disclosure Controls and Procedures
The Chief Financial Officer and Chief Executive Officer are 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 March 31, 2011 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 is 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 includes 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 has 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
IFRS.
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