TIDMSCAP
RNS Number : 5481T
Shariah Capital, Inc
30 September 2010
Shariah Capital Inc. ("Shariah Capital" or "the Company")
Interim Results
The Board of Shariah Capital is pleased to announce Shariah Capital's interim
results for the period ending 30 June 2010.
Shariah Capital is a U.S.-based company that creates and customises Shariah
compliant financial products and platforms and provides Shariah consulting and
advisory services primarily to financial institutions and investment firms with
product initiatives directed to Islamic investors.
First Half 2010 Discussion
The Company maintained a committed focus to fundamentals during the first half
of 2010. Notable achievements were as follows:
· With its Dubai joint venture partner, the Dubai Multi Commodities Centre
Authority (DMCCA), the Company reconfirmed an approved business plan and budget
for the continuation of its Middle East North Africa (MENA) institutional sales
and marketing effort. This plan now calls for deploying seasoned professionals
in the region to boost sales efforts.
· The Company and DMCCA also approved the establishment of a Dubai-based
retail and takaful (Islamic insurance) initiative for the United Arab Emirates.
· DMCCA, seed investor in the award-winning DSAM Kauthar Funds, agreed to
extend its lock up of $100 million of seed capital with the Funds' managers
until April 30, 2011.
· The Company successfully assumed full responsibility for the Al Safi Trust,
the independent, managed account alternative investment platform launched in
2008 where Shariah Capital is the exclusive Shariah advisor. Now, Shariah
Capital can promote Al Safi to attract new managers and funds to the platform,
create structured products around these funds, and facilitate distribution
channels for the platform's products.
· The Company increased revenues from its core business and prudently reduced
costs. As a result, the Company significantly lowered its net loss from
$1,064,009 in 1H09 to $62,685 in 2010. The Company continued to be exceedingly
careful in its management and deployment of cash. As of 30 June 2010, its cash
reserves remain a solid $4.6 million.
Our commodity-focused DSAM Kauthar Funds continued to garner accolades. For
example, Barclay Hedge ranked the DSAM Kauthar Gold Fund in its Top Ten of
Metals & Mining Hedge Funds for 7 of the past 12 months ending 30 June 2010.
Likewise, the DSAM Kauthar Commodity Fund, our fund-of funds equally allocated
among the four individual DSAM strategies, remains widely cited as one of the
most innovative Islamic products to emerge over the last several years.
While the Company was pleased with its increased revenues and enforced cost
controls, as well as the recognition from our DSAM Kauthar Funds' success, the
sustained global economic downturn continued to negatively impact both the
Company and the Company's business partners in the first half of 2010.
Investment capital in the MENA region, like seed capital in the West, remained
scarce. Gulf institutional investors, similar to investors in the West, conveyed
a growing aversion to risk as hope for an early economic recovery faded.
While the DMCCA re-confirmed its commitment to our Dubai Shariah Asset
Management (DSAM) joint venture by agreeing to maintain a minimum $100 million
of capital in the DSAM Kauthar Funds until at least 30 April 2011, circumstances
in Dubai, the result of the continuing global downturn, required that DMCCA
redeem a significant portion of its seed capital. Consequently, as a result of
DMCCA redemptions, total assets under management for the DSAM Kauthar Funds
decreased to approximately $150 million at 30 June 2010 and to approximately
$104 million as of the date of this letter.
The Company continues to address the above circumstances by maintaining strict
cost controls. These controls resulted in reduced expenditures for the Company
year-on-year from 1H09 to 1H10. Despite challenges on many fronts, the Board is
pleased with management's execution of the Company's strategy thus far in 2010.
Personnel
There were no personnel changes in 1H10.
Financial Review
During the six months ended 30 June 2010, Shariah Capital realised a net loss of
$62,685 compared to a loss of $1,064,009 for the same period in 2009.
The Company generated first half revenues of $706,189 compared to $662,696 in
2009, the result of fee income principally from its Al Safi Trust and DSAM
investment products. Expenses decreased to $858,298 for 1H10, compared to
expenses of $1,517,945 for 1H09.
Earnings per share for the period ending 30 June 2010 showed a loss of less than
$0.01, as compared to a loss of $0.02 for the same period in 2009.
Liquidity and Capital Resources
In addition to increasing revenues, the Company diligently reduced spending and
conserved cash during the first half of 2010. As at June 30, 2010, the Company
maintained cash and cash equivalents of over $4.6 million. Management believes
that the Company's assets are adequate to fulfill existing commitments and
pursue additional new business opportunities for the foreseeable future. Unless
an opportunity to acquire or participate in a synergistic business presents
itself, management has no current intentions of seeking a capital raise.
Outlook
Against the backdrop of global economic uncertainty, the Company does not expect
a dramatic change in the cautious mood of Gulf institutional investors toward
alternative investments during the second half of 2010.
However, based on our Funds' strong and compelling track records, we see some
signs of interest. As a result, we consciously have taken a contrarian tact and
increased our visibility in Dubai and the greater MENA region. Rather than
reduce our presence, we plan to enhance it with selected, careful hires. We will
pursue the opportunity to expand our business through new retail and takaful
solutions rather than rely solely on the institutional market. We will re-double
commitments to our local partners and local investors. If a global recovery
begins to take shape by the end of 2010 or the beginning of 2011, we want our
partners and investors to know that we are determined and dedicated to provide
superior, Shariah compliant products from exceptional alternative investment
managers.
As always, we are sincerely grateful to our shareholders for their continued
confidence and support.
Eric Meyer
Chairman and CEO
Enquiries:
Eric Meyer
Chairman and Chief Executive Officer
Shariah Capital, Inc.
Telephone: +1 (203) 972-0331
emeyer@shariahcap.com
Investec Investment Banking
Martin Smith
+44 207 597 5177
SHARIAH CAPITAL, INC.
BALANCE SHEETS
+--------------------------------------------------+---------------+-------------+
| June 30, | 2010 | 2009 |
+--------------------------------------------------+---------------+-------------+
| ASSETS | | |
+--------------------------------------------------+---------------+-------------+
| Current assets | $ | $ |
| Cash and cash equivalents | 4,615,588 | 2,473,463 |
+--------------------------------------------------+---------------+-------------+
| Certificates of deposit | - | 2,710,090 |
+--------------------------------------------------+---------------+-------------+
| Fees receivable | 306,059 | 369,464 |
+--------------------------------------------------+---------------+-------------+
| Investment in DSAM Joint Venture | 172,113 | - |
+--------------------------------------------------+---------------+-------------+
| Due from related parties | 50,399 | 47,281 |
+--------------------------------------------------+---------------+-------------+
| Prepaid expenses and other current assets | 57,950 | 50,388 |
+--------------------------------------------------+---------------+-------------+
| Total current assets | 5,202,109 | 5,650,686 |
+--------------------------------------------------+---------------+-------------+
| Property and equipment, net | 8,145 | 6,933 |
+--------------------------------------------------+---------------+-------------+
| | 5,210,254 | $ |
| | | 5,657,619 |
+--------------------------------------------------+---------------+-------------+
| LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ |
| Current liabilities | 134,027 | 221,030 |
| Accrued expenses and other liabilities | | |
+--------------------------------------------------+---------------+-------------+
| Due to related parties | 3,501 | |
+--------------------------------------------------+---------------+-------------+
| Investment in DSAM Joint Venture | | 99,160 |
+--------------------------------------------------+---------------+-------------+
| Total current liabilities | 137,528 | 320,190 |
+--------------------------------------------------+---------------+-------------+
| Stockholders' equity | 617,441 | 617,441 |
| Common stock, $.01 par value, 70,000,000 shares | | |
| authorized; 61,744,132 shares issued at | | |
| June 30, 2010 and 2009, respectively | | |
+--------------------------------------------------+---------------+-------------+
| Additional paid-in capital | 12,585,957 | 12,193,722 |
+--------------------------------------------------+---------------+-------------+
| Accumulated deficit | (8,025,329) | (7,388,834) |
+--------------------------------------------------+---------------+-------------+
| Treasury stock at cost, 73,900 and 42,450 shares | (105,343) | (84,900) |
| at | | |
| June 30, 2010 and 2009, respectively | | |
+--------------------------------------------------+---------------+-------------+
| Total stockholders' equity | 5,072,726 | 5,337,429 |
+--------------------------------------------------+---------------+-------------+
| | $ | $ |
| | 5,210,254 | 5,657,619 |
+--------------------------------------------------+---------------+-------------+
| See accompanying notes to financial statements. | | |
| | | |
| | | 2 |
+--------------------------------------------------+---------------+-------------+
SHARIAH CAPITAL, INC.
STATEMENTS OF OPERATIONS
+---------------------------------------------------+--------------+-------------+
| Periods Ended June 30, | 2010 | 2009 |
+---------------------------------------------------+--------------+-------------+
| Revenue | $ | $ |
| Advisory fee income | 661,191 | 624,950 |
+---------------------------------------------------+--------------+-------------+
| Consulting fee income | 44,998 | 37,746 |
+---------------------------------------------------+--------------+-------------+
| | | |
+---------------------------------------------------+--------------+-------------+
| Total revenue | 706,189 | 662,696 |
+---------------------------------------------------+--------------+-------------+
| Expenses | 465,302 | 599,376 |
| Payroll and employee benefits | | |
+---------------------------------------------------+--------------+-------------+
| AIM expenses | 41,648 | 45,392 |
+---------------------------------------------------+--------------+-------------+
| Computer expenses | 14,050 | 50,666 |
+---------------------------------------------------+--------------+-------------+
| Depreciation | 1,254 | 1,509 |
+---------------------------------------------------+--------------+-------------+
| Insurance | 29,965 | 31,136 |
+---------------------------------------------------+--------------+-------------+
| Marketing | 8,000 | 8,950 |
+---------------------------------------------------+--------------+-------------+
| Office expense and supplies | 7,916 | 9,194 |
+---------------------------------------------------+--------------+-------------+
| Consulting and professional fees | 207,837 | 243,861 |
+---------------------------------------------------+--------------+-------------+
| Registrar fees | 5,191 | 9,010 |
+---------------------------------------------------+--------------+-------------+
| Rent | 38,025 | 48,026 |
+---------------------------------------------------+--------------+-------------+
| Other taxes | 22,270 | 12,030 |
+---------------------------------------------------+--------------+-------------+
| Stock-based compensation | 2,172 | 445,984 |
+---------------------------------------------------+--------------+-------------+
| Telephone | 4,608 | 5,961 |
+---------------------------------------------------+--------------+-------------+
| Travel and entertainment | 10,060 | 6,850 |
+---------------------------------------------------+--------------+-------------+
| Total expenses | 858,298 | 1,517,945 |
+---------------------------------------------------+--------------+-------------+
| Loss from operations | (152,109) | (855,249) |
+---------------------------------------------------+--------------+-------------+
| Other Income | 23,831 | 21,479 |
| Interest and dividend income | | |
+---------------------------------------------------+--------------+-------------+
| Income (Loss) attributable to unconsolidated | 65,593 | (230,239) |
| joint venture | | |
+---------------------------------------------------+--------------+-------------+
| Net loss | $ | $ |
| | (62,685) | (1,064,009) |
+---------------------------------------------------+--------------+-------------+
| Loss per share, basic and diluted | $ | $ |
| | 0.00 | (0.02) |
+---------------------------------------------------+--------------+-------------+
| Weighted average shares outstanding, basic and | 60,344,132 | 60,244,132 |
| diluted | | |
+---------------------------------------------------+--------------+-------------+
| See accompanying notes to financial statements. | | 3 |
+---------------------------------------------------+--------------+-------------+
SHARIAH CAPITAL, INC.
STATEMENTS OF CASH FLOWS
+--------------------------------------------------+---------------+-------------+
| Periods Ended June 30, | 2010 | 2009 |
+--------------------------------------------------+---------------+-------------+
| Cash flows from operating activities | | |
+--------------------------------------------------+---------------+-------------+
| Net loss | $ | $ |
| | (62,685) | (1,064,009) |
+--------------------------------------------------+---------------+-------------+
| Adjustments to reconcile net loss to net cash | | |
+--------------------------------------------------+---------------+-------------+
| provided by (used in) operating activities: | | |
+--------------------------------------------------+---------------+-------------+
| Stock-based compensation | 2,172 | 445,984 |
+--------------------------------------------------+---------------+-------------+
| Income/loss attributable to unconsolidated joint | (65,593) | 230,239 |
| venture | | |
+--------------------------------------------------+---------------+-------------+
| Unrealized appreciation/(depreciation) | - | 1,507 |
+--------------------------------------------------+---------------+-------------+
| Depreciation | 1,254 | 1,509 |
+--------------------------------------------------+---------------+-------------+
| Increase (decrease) in cash attributable to | | |
+--------------------------------------------------+---------------+-------------+
| changes in operating assets and liabilities | | |
+--------------------------------------------------+---------------+-------------+
| Fees receivable | 128,673 | (87,091) |
+--------------------------------------------------+---------------+-------------+
| Prepaid expenses and other current assets | (29,910) | 21,273 |
+--------------------------------------------------+---------------+-------------+
| Accrued expenses and other liabilities | 30,494 | 74,100 |
+--------------------------------------------------+---------------+-------------+
| Net cash used in operating activities | 4,405 | (376,488) |
+--------------------------------------------------+---------------+-------------+
| | | |
+--------------------------------------------------+---------------+-------------+
| Cash flows from investing activities | | |
+--------------------------------------------------+---------------+-------------+
| Purchase of certificates of deposit | - | (1,160,005) |
+--------------------------------------------------+---------------+-------------+
| Redemptions of certificates of deposit | 2,725,722 | 231,498 |
+--------------------------------------------------+---------------+-------------+
| Purchase of property and equipment | (2,936) | - |
+--------------------------------------------------+---------------+-------------+
| Investment in DSAM Joint Venture | (108,861) | (137,478) |
+--------------------------------------------------+---------------+-------------+
| Net cash provided by (used in) investing | 2,613,925 | (1,065,985) |
| activities | | |
+--------------------------------------------------+---------------+-------------+
| Cash Flows from financing activities | | |
+--------------------------------------------------+---------------+-------------+
| Due from related parties | 61,128 | 133,399 |
+--------------------------------------------------+---------------+-------------+
| Due to related parties | 3,501 | - |
+--------------------------------------------------+---------------+-------------+
| Net cash provided by financing activities | 64,629 | 133,399 |
+--------------------------------------------------+---------------+-------------+
| Net change in cash and cash equivalents | 2,682,959 | (1,309,074) |
+--------------------------------------------------+---------------+-------------+
| Cash and cash equivalents, beginning of year | 1,932,629 | 3,782,537 |
+--------------------------------------------------+---------------+-------------+
| Cash and cash equivalents, end of year | $ | $ |
| | 4,615,588 | 2,473,463 |
+--------------------------------------------------+---------------+-------------+
| Supplemental disclosures of cash flows | | |
| information: | | |
+--------------------------------------------------+---------------+-------------+
| Cash paid for income taxes | $ | $ |
| | 2,270 | 12,030 |
+--------------------------------------------------+---------------+-------------+
1. Nature of operations
Shariah Capital, Inc. (the "Company") was incorporated on September 6, 2006 as a
Delaware Corporation. The Company creates and customizes Shariah-compliant
financial products and platforms and provides Shariah consulting and advisory
services primarily to financial institutions and investment management firms
with product initiatives directed to Islamic investors in the Middle East and
Far East and, specifically to, Islamic institutional and high net worth
investors. The Company has built proprietary solutions endorsed by prominent
Shariah scholars that enable hedge fund and other alternative investment
managers to manage their portfolios consistent with their existing strategies
and processes while complying with Shariah. The Company is exploring business
opportunities with financial and investment management firms in Europe, Asia and
the United States.
2. Summary of significant accounting policies
Basis of Presentation
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP").
These financial statements were approved by management and available for
issuance on September 29, 2010. Subsequent events have been evaluated through
this date.
Reclassifications
For comparability, certain 2009 amounts have been reclassified to conform to the
financial statement presentation used in the December 31, 2009 audited financial
statements. For example, certain expenses related to maintenance (data feeds)
have now been included in computer expenses.
Cash and Cash Equivalents and Concentration of Credit Risk
Cash and cash equivalents include cash held in banks and money market funds with
original maturities of three months or less. In certain financial institutions,
the Company maintains cash balances that, at times, may exceed federally insured
limits. The Company has not experienced any losses on these accounts, and
believes it is not subject to any significant credit risk.
Fees Receivable and Allowance for Doubtful Accounts
Fees receivable consist of advisory fees and consulting fees. Advisory fees are
based on the percentage of the net assets of the fund for which the Company
serves as the Shariah advisor. Consulting fees primarily consist of up-front
non-refundable fees earned upon the commencement of the engagement, pursuant to
the service agreements, a progress fee based upon completion of certain
deliverables, and a final payment based upon the completion of the consulting
and advisory services. Advisory fees and consulting fees are recognized in the
year they are earned. On a periodic basis, the Company evaluates its fees
receivable and determines if an allowance for doubtful accounts is necessary,
based on the history of collections and current credit conditions. No allowance
for doubtful accounts is deemed necessary at June 30, 2010 and June 30, 2009.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. The
Company provides for depreciation utilizing the straight-line method over the
estimated useful lives of the related assets. Computer equipment is depreciated
using an estimated useful life of five years. Expenditures for repairs and
maintenance are charged to expense as incurred.
Long-Lived Assets
The Company accounts for long-lived assets under GAAP which requires the Company
to review for impairment of long-lived assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, management determines whether there has
been an impairment by comparing the anticipated undiscounted future net cash
flows to the related asset's carrying value. If an asset is considered
impaired, the asset is written down to fair value, which is determined based
either on discounted cash flows or appraised value, depending on the nature of
the asset. The Company did not have any impairment losses on long-lived assets
for the six month periods ended June 30, 2010 and June 30, 2009.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Stock-Based Compensation
GAAP requires an entity to measure the cost of employees services received in
exchange for stock-based awards based on the grant date fair value of the
awards. The grant date fair value of employee restricted stock-based awards
will be estimated based on the market price of the Company's stock on the date
of the grant. All stock-based awards granted to employees are recognized as
compensation expense over the service period (generally the vesting period) in
the financial statements based on their fair values established at the time the
awards are granted. GAAP requires the Company to estimate the future
forfeitures which has an impact on stock-based compensation expense. GAAP also
requires the realization of tax benefits in excess of amounts recognized for
financial reporting purposes to be recognized as a financing activity rather
than an operating activity in the statements of cash flows.
If an award is modified after the grant date, incremental compensation expense,
if any, will be recognized in an amount equal to the excess of the fair value of
the modified award over the fair value of the original award immediately before
modification.
For non-employee stock-based awards, the Company recognizes an expense in
accordance with GAAP and values the stock-based award on the fair value of the
grant date of the award with subsequent adjustments based on the fair value of
the award as it vests. The fair value of the restricted stock-based award is
estimated based on the market price of the Company's stock.
Income Taxes
The Company is responsible for minimum taxes to the States of Delaware and
Connecticut. Due to losses incurred for the years ended December 31, 2009 and
2008, no income tax provision for Federal taxes has been recorded in the
accompanying financial statements.
The Company complies with the provisions of GAAP which requires an asset and
liability approach to financial reporting for income taxes. Deferred income tax
assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in future
taxable or deductible amounts, based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred income
tax assets to the amount expected to be realized.
In accordance with GAAP, the Company is required to determine whether a tax
position is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The
Company files an income tax return in the U.S. federal jurisdiction, and may
file income tax returns in various U.S. state and local jurisdictions.
Generally the Company is no longer subject to income tax examinations by major
taxing authorities for years before 2006.The tax benefit recognized is measured
as the largest amount of benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. De-recognition of a tax
benefit previously recognized results in the Company recording a tax liability
that reduces retained earnings. This policy has been applied to all existing
tax positions upon the Company's initial adoption for the year ended December
31, 2008. Based on its analysis, the Company has determined that the adoption
of this policy did not have a material impact on the Company's financial
statements upon adoption. However, the Company's conclusions regarding this
policy may be subject to review and adjustment at a later date based on factors
including, but not limited to, on-going analyses of and changes to tax laws,
regulations and interpretations thereof. The Company recognizes interest
accrued and penalties related to unrecognized tax benefits in income taxes
payable, if assessed. No interest or penalties have been assessed for the six
month periods ended June 30, 2010 and June 30, 2009.
Valuation of Investments in Securities at Fair Value - Definition and Hierarchy
In accordance with GAAP, fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability (i.e., the "exit
price") in an orderly transaction between market participants at the measurement
date.
In determining fair value, the Company uses various valuation approaches. In
accordance with GAAP, a fair value hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when
available. Observable inputs are those that market participants would use in
pricing the asset or liability based on market data obtained from sources
independent of the Company. Unobservable inputs reflect the Company's
assumptions about the inputs market participants would use in pricing the asset
or liability developed based on the best information available in the
circumstances. The fair value hierarchy is categorized into three levels based
on the inputs as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to access.
Valuation adjustments and block discounts are not applied to Level 1 securities.
Since valuations are based on quoted prices that are readily and regularly
available in active market, valuation of these securities does not entail a
significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or
for which all significant inputs are observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement.
Valuation Techniques
The Company values investments in mutual funds, which are included in cash and
cash equivalents, based on the quoted market price of the net asset value of
shares held at year end. Certificates of deposits are based on a market value
pricing model.
Loss Per Share
Loss per share is based on the weighted average number of common shares
outstanding. The Company complies with GAAP, which requires dual presentation
of basic and diluted earnings per share on the face of the statement of
operations. Basic loss per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average common shares
outstanding for the year.
The unvested weighted average of the restricted stock granted to employees of
1,400,000 and 1,500,000 for the six month periods ended June 30, 2010 and June
30, 2009, respectively, are antidilutive and have been excluded from the
computation of loss per share.
Treasury Stock
During December 2009, the Company acquired 31,450 shares of common stock for
approximately $0.65 from an employee. During December 2008, the Company
acquired 42,450 shares of common stock for approximately $2.00 from an employee
relating to the vesting of certain restricted stock which is held as treasury
stock by the Company.
3. Property and equipment
Property and equipment consists of the following at June 30, 2010 and 2009:
+----------------------+----------------------+----------------------+
| | 2010 | 2009 |
| | | |
+----------------------+----------------------+----------------------+
| Computer equipment | 14,184 | 15,094 |
+----------------------+----------------------+----------------------+
| Less accumulated | 6,039 | 8,161 |
| depreciation | | |
+----------------------+----------------------+----------------------+
| | 8,145 | 6,933 |
+----------------------+----------------------+----------------------+
Depreciation expense amounted to approximately $1,300 and $1,500 for the six
month periods ended June 30, 2010 and 2009, respectively.
4. Fair value measurements
The Company's assets recorded at fair value have been categorized based upon a
fair value hierarchy in accordance with GAAP. See Note 2 for a discussion of
the Company's significant accounting policies.
The following table presents information about the Company's assets measured at
fair value as of June 30, 2010 and 2009:
+----------------------+----------------------+----------------------+
| | 2010 | 2009 |
| | Quoted Prices in | Quoted Prices in |
| | Active Markets for | Active Markets for |
| | Identical Assets | Identical Assets |
| | (Level 1) | |
| | | (Level 2) |
| | | |
| | | |
+----------------------+----------------------+----------------------+
| Assets (at fair | | |
| value) | | |
+----------------------+----------------------+----------------------+
| Investment in mutual | $- | $- |
| funds | | |
+----------------------+----------------------+----------------------+
| Certificates of | $- | $2,710,090 |
| deposit | | |
+----------------------+----------------------+----------------------+
5. Stock-based compensation
The Company granted 2,700,000 shares of restricted stock on December 7, 2006 to
several employees, which had an initial vesting schedule of over three years.
The fair value of the shares on the grant date was $2,700,000. In December
2007, the Company amended the terms of the granted restricted stock awards. The
amendment increased the December 7, 2006 shares for certain employees by 5% or
47,500 shares, and extended the vesting period from December 7, 2007 to March
31, 2008, subject to earlier acceleration at the option of the Company. In
December 2008, the Company amended the terms of the granted restricted stock
awards for two of its employees. The amendment extended the vesting date for
600,000 shares of common stock from December 7, 2008 to December 7, 2009. In
December 2009, the Company amended the terms of the granted restricted stock
awards for two of its employees. The amendment extended the vesting date for
1,400,000 shares of common stock from December 7, 2009 to December 7, 2010.
The fair value of each restricted stock award was estimated on the date of grant
or the date of modification, if there was an additional incremental compensation
cost, based on the market price of the Company's stock at that date.
Stock-based compensation expense amounted to approximately $2,000 and $446,000
for the six month periods ended June 30, 2010 and 2009, respectively. The
stock-based compensation expense to be recognized in future periods is
approximately $2,000 at June 30, 2010 and is expected to be recognized over the
remaining vesting periods.
6. Income taxes
The Company has available net operating loss carry forward of approximately
$5,858,228 to offset future taxable income expiring at various dates through
2029.
The Company has a deferred tax asset of approximately $2,100,000 and $3,385,000
at December 31, 2009 and 2008, respectively, and has recorded a tax benefit of
approximately $2,100,000 and $3,385,000 for the years ended December 31, 2009
and 2008, respectively. In recognition of the uncertainty regarding the
ultimate amount of income tax benefit to be derived, the Company has recorded a
valuation allowance at June 30, 2010 and 2009 for the full amount of the
deferred tax asset.
7. Commitments and contingencies
Operating Leases
In February 2010, the Company entered into an operating lease for its corporate
office in Connecticut, which expires in January 2011, with an optional one year
extension. Rent expense amounted to approximately $38,000 and $48,000 for the
six month periods ended June 30, 2010 and 2009, respectively.
The minimum annual rental payments are as follows:
+--------------------------+----------+
| Year ending December 31, | |
+--------------------------+----------+
| 2010 | $36,000 |
+--------------------------+----------+
| 2011 | $6,000 |
+--------------------------+----------+
| | $42,000 |
+--------------------------+----------+
Employment Agreements
The Company entered into employment agreements with its management employees
effective December 7, 2006, whereby annual salaries aggregate $1,050,000. The
agreements have no termination date; however, they provide for six to twelve
months-notice of termination and annual salaries to be paid through the
termination date. In addition, the agreement with the Chairman and Chief
Executive Officer of the Company provides for a $650,000 termination fee.
In January, 2010, in an effort to reduce costs, two executive officers reduced
their base annual salary by $25,000 and $50,000 respectively, thereby saving the
Company $75,000 in base salary expense for fiscal year 2010.
The Company made a non-recourse loan of $50,000 to an employee and member of the
Board of Directors in January, 2010, which loan is secured by 100,000 shares of
stock in the Company.
Non-Executive Director Service Agreement
A non-executive director for the Company received compensation of $7,500 and
$4,800 for the six month periods ending June 30, 2010 and 2009, respectively,
for serving as a member on the Board of Directors of the Company.
8. Related party transactions
During 2008, the Company and other enterprises formed the Al Safi Trust, a
Cayman Islands trust with related sub-trusts ("Al Safi"). Al Safi is a
Shariah-compliant alternative investment platform, and the first platform to
provide an infrastructure for long and short-term Shariah-compliant investments.
The Company is the Shariah adviser and receives a Shariah advisory fee based on
the net asset value of all Al Safi sub-trusts. In 2008, four sub-trusts were
formed on Al Safi, each of which was seeded with $50,000,000 by the Dubai Multi
Commodities Centre Authority ("DMCCA"). Advisory fee income from Al Safi
amounted to approximately $661,000 and $625,000 for the six month periods ended
June 30, 2010 and 2009, respectively. Consulting fee income from Al Safi
amounted to approximately $10,000 and $13,000 for the six month periods ended
June 30, 2010 and 2009, respectively.
In connection with forming the Al Safi Trust, the Company announced a joint
venture with DMCCA. The joint venture entity, Dubai Shariah Asset Management
Company, Ltd. ("DSAM") is owned 51 percent by Dubai Commodity Asset Management
("DCAM"), which is wholly owned by DMCCA, and 49 percent by the Company. The
investment is accounted for under the equity method of accounting for long-term
investments.
DSAM develops and manages Shariah-compliant investment products focused on
commodities. DSAM has the right to assess a fee based on a percentage of the
net asset value of the four sub-trusts seeded by the DMCCA (exclusive of capital
invested by the DMCCA).
The Company is the Shariah adviser to DMCCA for related Shariah-compliant
investments. Consulting fee income from the DMCCA amounted to approximately
$35,000 and $25,000 for the six month periods ended June 30, 2010 and 2009,
respectively.
DCAM and the Company each pay expenses on behalf of DSAM and these payments are
considered capital contributions to DSAM.
The Company's income (loss) attributable to DSAM amounted to approximately,
$66,000 and $(230,000), for the six month periods ended June 30, 2010 and 2009,
respectively and is included in the accompanying statements of operations.
The Company had a payable to DMCCA in the amount of approximately $4,000 at June
30, 2010 and had a receivable from DMCCA in the amount of approximately $47,000
at June 30, 2009, based on the allocation of expenses from DSAM. The receivable
amount was subsequently repaid by DMCCA in January 2010.
Subsequent to December 31, 2009, the DMCCA issued a letter committing to
maintain investment capital (net of investment losses) of no less than
$100,000,000 in sub-trusts of Al Safi Trust through April 30, 2011. The DMCCA
redeemed a portion of its investment capital at the end of the first quarter of
2010 and an additional portion of investment capital at the beginning of the
third quarter of 2010. The assets under management in the Al Safi Trust are in
excess of $104,000,000 as of September 18, 2010.
9. Major customers
The Company had advisory fee income from one related party that accounted for
100% of the Company's total advisory fee income for the six month periods ended
June 30, 2010 and 2009.
The Company had consulting fee income from two related parties that accounted
for approximately 100% of the Company's total consulting fee income for the six
month periods ended June 30, 2010 and 2009.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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