News Column

FOREX INTERNATIONAL TRADING CORP. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 19, 2014

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the three months ended March 31, 2014. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Quarterly Report on Form 10-Q for our quarter-ended March 31, 2013 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as ''may,'' ''will,'' ''should,'' ''could,'' ''expects,'' ''plans,'' ''intends,'' ''anticipates,'' ''believes,'' ''estimates,'' ''predicts,'' ''potential,'' or ''continue'' or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.

This section of the report should be read together with Notes of the Company unaudited consolidated financials. The unaudited consolidated statements of operations for the three-month ended March 31, 2014 and 2013 are compared in the sections below:

General Overview

Forex International Trading Corp. (the "Company") was incorporated on July 22, 2009 under the laws of the State of Nevada and is headquartered in El Segundo, California. The Company's principal business activities have been to engage in foreign currency market trading for non-US resident professionals and retail clients over its web-based trading systems. While these trading operations have been closed, the Company continues to operate in the consulting segment of the foreign currency market, leveraging its contacts and knowledge, and earned revenue in the first nine months of 2013 by leveraging its consulting expertise in the area of foreign exchange. In addition, the Company is analyzing investments in joint ventures and is selectively pursuing acquisitions.

On September 2, 2013, effective September 1, 2013, the Company entered into an Evaluation License Agreement (the "MDA Agreement") with Micrologic Design Automation, Inc. ("MDA"), pursuant to which MDA will temporarily license to the Company, on a non-exclusive and royalty-free basis, certain technology and related materials for any purpose related to evaluating NanoDRC, NanoRV and NanoLVS technology. The MDA Agreement expires on November 1, 2013 and contains standard confidentiality terms. Upon expiration of the MDA Agreement, the Company must return the licensed technology to MDA. In the event the Company breaches the confidentiality provision in the MDA Agreement, the Company is required to issue 300 million shares of common stock and deliver the shares to MDA. On November 6, 2013, the parties agreed to extend the MDA Agreement until December 31, 2013.

Results of Operations: Three months ended March 31, 2014 and 2013



A comparison of the consolidated statements of operations for the three months ended March 31, 2014 and 2013 is as follows:

Revenues:

The following table summarizes our revenues for the three months ended March 31, 2014 and 2013: Three months ended March 31, 2014 2013 Total revenues $ 30,000$ 30,000



The Company was able to leverage its consulting expertise in the area of foreign exchange in the first quarter of 2014. This revenue was generated by one customer.

Operating expenses: The following table summarizes our operating expenses for the three months ended March 31, 2014 and 2013: Three months ended March 31, 2014 2013 Total operating expenses $ 41,698$ 93,203



The Company downsized its operations during the first quarter of 2014, resulting in a significant reduction in operating expenses. The Company also switched auditors, resulting in a significant savings due to the need to restate prior quarters.

Other income (expenses): The following table summarizes our other income (expenses) for the three months ended March 31, 2014 and 2013:

Three months ended March 31, 2014 2013 Interest income $ 10,000$ 10,000 Interest expense (7,988 ) (8,850 ) Net other income/expense 2,012 1,150 15



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The Company has reduced its debt outstanding by netting $30,000 of revenue for the first quarter against the Glendon note, which in turn reduced interest expense.

The Company has a note receivable from Vulcan at 10% per annum with a face value of $400,000, and therefore accrued $10,000 of interest income during the first quarter. The Company has a note payable with a face value of $500,000, and a debt discount that has been fully amortized. Although interest expense on the note payable increased over the same quarter last year, the reduction in the Glendon note reduced interest expense overall compared to the same period in fiscal 2013.

Liquidity and Capital Resources

Our cash and cash equivalents were $0 and $618 for the periods ended March 31, 2014 and March 31, 2013, respectively, a decrease of $618.

Cash provided by (used by) operating activities for the three months ended March 31, 2014 and 2013 was $29,910, and $(40,976), respectively. The company swung to a profit in the first quarter of fiscal 2014, and the working capital position also improved in the current quarter. In the prior period, the Company amortized a non-cash debt discount of $25,000; in the current period, that debt discount has been fully amortized.

Cash used by investing activities for the three months ended March 31, 2014 and 2013 was $0 and $0, respectively.

Cash provided by (used by) financing activities for the three months ended March 31, 2014 and 2013 was $(29,910) and $(40,380), respectively. During the three months ended March 31, 2014, the Company reduced its note payable to Glendon by the amount of revenue earned during the quarter. During the same three month period of 2013, the Company borrowed more under a note payable.

On February 13, 2012, DirectJV entered into a Joint Venture Agreement (the "JV Agreement") with Vulcan Oil & Gas Inc. ("Vulcan"), whereby the Company would from time to time provide financing to certain Vulcan alternative, green and solar energy projects (the "Projects") with the goal of sharing in any rebates awarded by the government on any of the Projects. Pursuant to the JV Agreement, Direct JV provided Vulcan with $68,000 in cash (the Funding") and credit for inventory valued at $31,328 for a total investment value of $99,328 (the "Investment").

On January 7, 2013, effective December 31, 2012, the Company, DirectJV and Vulcan entered an agreement pursuant to which the Direct JV Agreement was terminated, the Company issued to Vulcan a 4% convertible promissory note in the principal amount of $500,000 (the "Forex Note") and Vulcan issued to the Company a 10% Secured Promissory Note in the principal amount of $400,000 (the "Vulcan Note" and collectively with the Forex Note, the "Notes") in consideration of the Forex Note.

The Forex Note maturity date is December 31, 2013, which can be extended by the Company for an additional one year at which point the 4% interest rate will increase to 10% per annum. The Forex Note may be prepaid without penalty. The Forex Note conversion price is the Variable Conversion Price, which is defined as 50% multiplied by the average of the lowest three trading prices of the Company's common stock on the OTCBB during the 10 day trading period ending on the latest complete day of trading on the OTCBB prior to the date of conversion. The Variable Conversion Price cannot be less than $0.002. At no time will Vulcan convert any amount of the Forex Note into common stock that would result in Vulcan owning more than 4.9% of the common stock outstanding of the Company.

The Vulcan Note has a 10% one-time interest charge on the principal sum. The interest rate will be increased by an additional 4% per annum (e.g. 14% per annum) in the event the principal is not paid by the December 31, 2013 maturity date. The collateral or security of the Vulcan Note is 50,000 watts of solar modules. The Vulcan Note may be prepaid without penalty.

After closing the Notes and recording of the difference as a debt discount, there are no further balances between the parties and the JV Agreement is null and void. The Company has received Vulcan's consent (subject to a fee to be negotiated upon the Company entering an agreement, with a minimum fee in the amount of the Funding) to begin negotiations with private groups to purchase certain knowledge and assets for the production of proprietary solar modules, directly or via third party. While management is of the opinion that these discussions may successfully produce agreements, there can be no guarantee of this.

We plan to raise working capital that will allow us to conduct our business for the next twelve months. There is no guarantee regarding our ability to raise that capital. We expect to use the proceeds to fund our short-term capital requirements including paying administrative expenses associated with maintaining our public company's filings for the next 12 months. In order to implement our business plan and pay various administrative expenses on a minimal basis for the next 12 months, we expect that we will need approximately $25,000 per month, minimum. We expect to be able to remain in operations for a period of 12 months with cash on hand and/or cash from collecting receivables and/or other debts. The Company expects that its operating results will fluctuate significantly from quarter to quarter in the future and will depend on a number of factors including the state of the worldwide economy and financial markets, which are outside the Company's control.

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a) Rasel LTD - Convertible Notes Payable

On October 6, 2009, the Company signed a note payable for $25,000 to Rasel due on October 6, 2010, bearing interest at 4% per annum. The proceeds were used to pay for half of existing accounts payable for legal fees incurred at the Company's inception. On October 20, 2009, the Company signed a note payable for $50,000 payable to Rasel due on October 20, 2010, bearing interest at 4% per annum. These proceeds were used to pay for startup costs, audit fees and future expenses. On January 22, 2010, the Company signed a note payable for $50,000 payable to Rasel due on October 30, 2011, bearing interest at 4% per annum. These proceeds were used for working capital and expenditures. On January 22, 2010, the Company signed an amendment to extend the maturity date of the promissory notes in the amount of $25,000 and $50,000 dated October 6, 2009 and October 20, 2009, respectively, to October 30, 2011. On March 2, 2011, the Company and Rasel agreed to extend the maturity of all notes to December 31, 2012, in consideration of adding a conversion feature to the notes with either a 5% discount to the market price or a fixed price of $0.60. The extension of maturity was effective as of December 30, 2010.

The balance of the notes as of March 31, 2014 and December 31, 2013, was $147,097 and $145,847, respectively, which includes accrued interest in the amounts of $22,097 and $20,847 at March 31, 2014 and December 31, 2013, respectively. The note is currently in default since the beginning of 2013; and the Company will attempt to reach an amicable settlement with the counterparty.

b) Glendon Note Payable

On December 31, 2012, the Company converted a payable in the amount of $155,242 to a note payable. The note bears annual interest at 10%, and was to mature on December 31, 2012. The Company has negotiated an extension to the maturity date until December 31, 2013. The note is currently in default; the Company will attempt to reach an amicable settlement with the counterparty.

The balance at March 31, 2014 and December 31, 2013, including accrued interest, is $69,015 and $97,552, respectively. The note was reduced for revenue received during the quarter from a customer for which Glendon was handling invoicing and collections.

c) Issuance of note payable to third party On July 24, 2013, the Company entered into a Securities Purchase Agreement with a third party financing source ("Financer"), for the sale of an 8% convertible note in the principal amount of $42,500 (the "July 2013 Note"), of which $2,500 was for legal fees associated with the transaction. The financing closed on July 31, 2013.

The July 2013 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 29, 2014. The July 2013 Note is convertible into common stock, at Financer's option, at the greater of a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion or $0.00009. In the event the Company prepays the July 2013 Note in full, the Company is required to pay to Financer an amount in cash equal to all principal, interest and any other amounts owing multiplied by (i) 112% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 121% if prepaid 31 days following the closing through 60 days following the closing and (iii) 126% if prepaid 61 days following the closing through 90 days following the closing and (iv) 131% if prepaid 91 days following the closing through 120 days following the closing and (v) 136% if prepaid 121 days following the closing through 150 days following the closing and (vi) 141% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

Financer has agreed to restrict its ability to convert the July 2013 Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this offering was $42,500, less attorneys fees. As of the date of the July 2013 Note, the Company is obligated on the Note issued to Financer in connection with the offering. The July 2013 Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company.

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act") for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, Financer is an accredited investor, Financer had access to information about the Company and their investment, Financer took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

As of March 31, 2014, the convertible note balance and accrued interest is $35,090. As of December 31, 2013, the convertible note balance and accrued interest is $43,925. During the first quarter, Financier converted $9,110 of its note into 8,974,780 shares of common stock at an average conversion price of $0.001015 per share.

d) Note Payable to Vulcan OnJanuary 7, 2013, effective December 31, 2012, the Company, JV and Vulcan entered an agreement pursuant to which the JV Agreement was terminated, the Company issued to Vulcan a 4% convertible promissory note in the principal amount of $500,000 (the "Forex Note") and Vulcan issued to the Company a 10% Secured and Collateralized Promissory Note in the principal amount of $400,000. The Company recognized a debt discount in the amount of $100,000 for the difference in the face value of the note issued and the note received from the same party. The face value of the note payable is shown net of the debt discount. This debt discount will be amortized over the one-year life of the note. The note has a maturity date of December 31, 2013, and can be extended by the Company for an additional one year at which point the 4% interest rate will increase to 10% per annum. The Forex Note may be prepaid without penalty. The Forex Note conversion price is the Variable Conversion Price, which is defined as 50% multiplied by the average of the lowest three trading prices of the Company's common stock on the OTCBB during the 10-day trading period ending on the latest complete day of trading on the OTCBB prior to the date of conversion. The Variable Conversion Price cannot be less than $0.002. At no time will Vulcan convert any amount of the Forex Note into common stock that would result in Vulcan owning more than 4.99% of the common stock outstanding of the Company.

As of December 31, 2013, the entire debt discount has been amortized in the accompanying financial statements, and $20,000 of interest expense was accrued during the year ended December 31, 2013. Another $5,000 of interest expense was accrued during the first quarter. The balance of the Note at March 31, 2014 and December 31, 2013, including accrued interest, is $525,000 and $520,000, respectively.

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Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Estimates

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the useful lives of tangible and intangible assets, depreciation and amortization, allowances for doubtful accounts and loan losses, valuation of common and preferred stock issuances, and the valuation allowance on deferred tax assets. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.

Notes and Short-Term Receivable

The notes and short-term receivable are carried at cost, which approximates fair value. The Company measures the impairment of loans based on its historical loan collection experience and existing economic conditions. Impairment is recognized when management believes it is probable that payments will not be received on some portion of the loan, which is determined on an individual loan basis. The Company evaluates loans for impairment on an annual basis or when there are indications that the loan may not be collected. When management determines that a loan is impaired it is placed on non-accrual status, and an allowance for loan losses is established to recognize the estimated amount of impairment. Payments received on non-accrual loans are generally applied to the outstanding principal balance. Loans are removed from non-accrual status when management believes that the borrower will resume making the payments required by the loan agreement.

Revenue Recognition

Income from foreign currency operations is earned by referring potential customers to foreign exchange trading companies. Foreign exchange trading companies remit a percentage of their revenues to the Company in exchange for customer leads, which the Company recognizes when the exchange trading occurs.

The Company recognizes consulting fees when services have been rendered.

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Share-Based Compensation

The Company calculates stock-based compensation expense including compensation expense for all share-based payment awards made to employees and directors including employee stock options, stock appreciation rights and restricted stock awards based on their estimated grant date fair values. The value of the portion of the award that is ultimately expected to vest is recognized as an expense on a straight-line basis over any required service period. No such expenses were recognized for the three months ended March 31, 2014 and 2013.

Loss Per Share

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share considers the potential dilution that could occur if securities or other contracts to issue common stock were exercised or could otherwise cause the issuance of common stock, such as options, convertible notes and convertible preferred stock, were exercised or converted into common stock or could otherwise cause the issuance of common stock that then shared in loss. Such potential additional common shares are included in the computation of diluted earnings per share. Diluted loss per share has not been computed for the three months ended March 31, 2014 and 2013 because any potential additional common shares would reduce the reported loss per share and therefore have an antidilutive effect.

Dividends

The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid or declared since the Date of Inception.


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Source: Edgar Glimpses