TIDMSCAP
RNS Number : 4582O
Shariah Capital, Inc
30 June 2010
30 June 2010
Shariah Capital Inc. ("Shariah Capital" or the "Company")
Final Results for the year ended 31 December 2009
The Board of Directors of Shariah Capital is pleased to announce the Company's
final results for the year ended 31 December 2009.
Shariah Capital is a U.S.-based company that creates and customizes Shariah
compliant financial products and platforms and provides selective Shariah
consulting and advisory services primarily to global financial institutions and
investment firms with product initiatives directed to Islamic investors.
The Company is best known for its pioneering efforts in Shariah compliant hedge
funds. It developed a proprietary software engine for screening stocks
electronically, devised a Shariah compliant, arboon-based short sale
methodology, and modified prime brokerage documentation that led to one of the
first Shariah compliant hedge funds and fund of hedge funds.
2009 HIGHLIGHTS
Al Safi Trust, DSAM and the DSAM Kauthar Funds
In 2008, with Barclays Capital, the Company launched the Al Safi Trust, a
comprehensive, Shariah compliant platform for alternative investments ("Al
Safi"). Designed as a "one-stop", fully transparent managed account platform
for single strategy hedge funds and other alternative investments, Al Safi
provides Shariah screening along with prime brokerage, administration and
trustee oversight within a pre-established Cayman Islands trust framework.
In September 2008, despite a period of global market turmoil, the Dubai Multi
Commodities Centre Authority ("DMCCA"), an agency of the Dubai government,
seeded three Shariah compliant, commodity-focused long/short equity hedge fund
managers on the Al Safi platform, each with $50 million. A fourth manager was
seeded with $50 million in November, 2008, for a total DMCCA investment of $200
million.
The four hedge fund managers and their strategies seeded by DMCCA were
Tocqueville Asset Management, L.P. (gold), Lucas Capital Management, L.L.C.
(energy), Zweig-DiMenna International Managers, Inc. (natural resources) and
BlackRock Capital Management, Inc. (global resources and mining).
The funds are overseen by Dubai Shariah Asset Management, Ltd ("DSAM"), an asset
management company operating in the UAE. DSAM is a joint venture between the
Company and the Dubai government. Through its wholly-owned subsidiary, Dubai
Commodity Asset Management ("DCAM"), DMCCA owns 51% of DSAM and the Company owns
49%.
DSAM has formed four feeder funds, branded as the "DSAM Kauthar" funds, to
invest in the Al Safi sub-trusts described above. The DSAM Kauthar funds invest
exclusively into the corresponding manager strategies on the Al Safi Trust
platform. The funds are: the DSAM Kauthar Gold Fund, Ltd., DSAM Kauthar Energy
Fund, Ltd., DSAM Kauthar Natural Resources Fund, Ltd. and DSAM Kauthar Global
Resources & Mining Fund, Ltd. Investors can subscribe to the individual DSAM
Kauthar funds or to a fifth fund, a fund-of-funds equally-allocated among the
four strategies, called the DSAM Kauthar Commodity Fund, Ltd. ("DKCF"). DKCF,
as well as the single-strategy funds, were launched 1 January 2009 and currently
are open for investment.
DSAM markets the DSAM Kauthar funds through its relationship with DCAM. DCAM
has been awarded one of twenty Financial Investment Company licenses issued by
the Central Bank of the United Arab Emirates. This license permits DCAM to
offer the DSAM Kauthar funds in the UAE on a private placement basis.
The DSAM Kauthar funds posted award-winning returns in 2009, with the managers
collectively out-performing their peer group. Assets under management grew from
$200 million (the seed capital) to over $250 million as of 31 December 2009. The
increase in assets was attributable to the general outperformance of the
managers in their respective commodity investments.
More significantly, the DSAM Kauthar Gold Fund, Ltd. and the DSAM Kauthar
Commodity Fund, Ltd. received both Shariah and conventional industry performance
awards for their exceptional 2009 results.
Structured Products and Marketing
In December, 2009, the Company began discussions with Barclays Bank plc
("BBPLC") to restructure BBPLC's relationship with Al Safi. Those discussions
subsequently led to an amicable termination of BBPLC as Structured Product
Developer and Marketer for Al Safi. Barclays Capital continues to act as Prime
Broker and Custodian for Al Safi.
As a result of this restructuring, Shariah Capital and DSAM now have greater
flexibility with a broad range of distributors to market and build structured
products around the DSAM Kauthar funds. The Company plans to market these
aggressively in the UAE through its DSAM joint venture, leveraging access to its
unique investment company license while attracting distributors through fee
retrocession agreements. It also intends to leverage the funds' impressive
performance record to introduce and promote the DSAM Kauthar brand, particularly
in important markets like Saudi Arabia.
Change of Non-Executive Director
Dr. David Rutledge, a non-executive director of the Company, retired in 2009 as
the Chief Executive Officer of DMCCA. Dr. Rutledge has been succeeded by Malcolm
Wall Morris. Consistent with this executive change, Dr. Rutledge retired as a
non-executive board member of the Company and was replaced by Mr. Wall Morris.
The Company welcomes Mr. Wall Morris' participation on the board of directors
and believes his insights and energy will make him a valuable contributor.
PERSONNEL
In October of 2009, the Company announced that Steven J. Adelkoff had been
appointed as its Chief Financial Officer and General Counsel. Mr. Adelkoff
completes Shariah Capital's management team. Mr. Adelkoff previously served as
external legal counsel to the Company while an equity partner of K&L Gates, LLP,
the, Company's legal advisers. Mr. Adelkoff has also assumed the role of
corporate secretary for the Company. That role had been held by William E.
Redman who is no longer with the Company.
FINANCIAL REVIEW
During the twelve months ended 31 December 2009, Shariah Capital realized, for
book purposes, a net loss of $1,637,819, compared to a net loss of $2,974,328
for the same period in 2008. The Company is pleased to have tripled its
revenues in 2009, generating approximately $1,500,000 last year compared to
revenue of approximately $467,000 for the same period in 2008. Loss per share
decreased to $0.03 per share in 2009 compared to $0.05 per share in 2008. The
smaller loss per share is attributable primarily to increased revenues from Al
Safi.
The Company recorded an equity loss of approximately $350,000 in the
unconsolidated DSAM joint venture in 2009, compared to a loss of approximately
$250,000 for the same period in 2008. The loss for DSAM reflects additional
start up and marketing costs.
General and Administrative Expenses for the Company declined to $2,871,294 in
2009 from $3,384,566 in 2008. This decrease in expenses is attributable
primarily to lower stock based compensation expenses, strict cost controls, and
reduced payroll expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's fee receivables, cash, cash equivalent and certificates of deposit
stood at approximately $5.1 million at the end of 2009, of which over $4.65
million was held in cash and certificates of deposit. This compares to cash,
cash equivalents and certificates of deposit at the end of 2008 of approximately
$5.6 million. Fee receivables of approximately $435,000 were attributable to
advisory fees for Al Safi earned in the fourth quarter of 2009 and paid in
January, 2010. The Company believes its cash and cash equivalent position is
sufficient to fulfill existing commitments and pursue additional new business.
AWARDS
The Al Safi Trust was named "Best Islamic Alternative Product" at the Hedge
Funds World Middle East Conference in 2009. At the same conference, Eric Meyer
received the "Special Merit Award for Outstanding Industry Contribution" for his
work developing Shariah compliant hedge funds and funds-of-hedge funds.
Barclay Hedge, an independent research organization with a database of over
5,800 hedge funds, ranked the DSAM Kauthar Gold Fund, Ltd. in its Top 10 of
Metals & Mining hedge funds based on its performance for the months of
September, October, and November, 2009.
These awards, and the funds' outstanding performance in 2009, reconfirm our
longstanding conviction that Shariah compliant funds can compete successfully
with conventional investment funds.
COMPETITION
We presently are unaware of any competing Shariah compliant alternative platform
or Shariah compliant alternative fund-of-hedge funds. The prohibitively high
legal costs, Shariah related expenses, and long lead times necessary to build a
Shariah platform and alternative Shariah funds serve as significant barriers to
entry for competitors in today's budget-conscious environment.
OUTLOOK
The Company believes the current environment for alternative investments in the
Gulf is challenging and could remain so throughout 2010. Middle Eastern
institutional investors, our target market, remain cautious with their
investment allocations following the 2008 global financial crisis and related
turbulence in local markets. It is difficult to predict when this investment
appetite for the alternative asset class within our targeted markets will
return.
Nonetheless, the Company recognizes both the challenges and opportunities
created by the current asset-raising environment. It has judiciously controlled
costs and safeguarded cash while focusing on its core competency of creating and
delivering Shariah compliant investment products. It is preparing for the
resumption of a normal investment/asset allocation market by developing and
deepening its relationships with leading investors in the Gulf and reaffirming
ties with its investment managers and strategic partners. It proactively has
stepped up its sales coverage of leading investment houses and banks, whether
Islamic or conventional, and continues developing strong personal relationships
with leading executives in Saudi Arabia, UAE, Bahrain, Kuwait, Qatar and other
Middle Eastern countries. We have taken the adage 'relationships drive
business" to heart and are focusing on strengthening business relationships in
the above countries throughout 2010.
The Company believes that its re-doubled sales commitments to and presence in
the region, along with the continued strong returns of our managers, best
positions the Company to attract investment dollars and investment opportunities
when and as allocators increase their commitments to Shariah compliant
alternative investments.
We believe we are well-positioned to benefit from our industry-leading position
and strong Shariah branding when demand for global equity/alternative products
returns to our markets.
We are grateful to our shareholders for their continued confidence and support.
Eric Meyer
Chairman & Chief Executive Officer
Enquiries:
Eric Meyer
Chairman & CEO
Shariah Capital Inc.
125 Elm Street
New Canaan, CT 06840
Office: +1 (203) 972-0331
Fax: +1 (203) 972-0229
Email: emeyer@shariahcap.com
Website: www.shariahcap.com
David Currie
Martin Smith
Investec Investment Banking
Switchboard: +44 20 7597 5970
Shariah Capital, Inc.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 2009 AND 2008
+-------------------------------------------------------------+------------+
| Independent Auditors' Report | 1 |
| | |
| | |
| Financial Statements | |
| | |
| Balance Sheets | 2 |
| | |
| Statements of Operations | 3 |
| | |
| Statements of Changes in Stockholders' Equity | 4 |
| | |
| Statements of Cash Flows | 5 |
| | |
| Notes to Financial Statements | 6 - 13 |
| | |
+-------------------------------------------------------------+------------+
| | |
+-------------------------------------------------------------+------------+
INDEPENDENT AUDITORS' REPORT
BALANCE SHEETS
+--------+--------+--------+--------+--------+-------------+--+-------------+
| December 31, | | | 2009 | | 2008 |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| ASSETS |
+---------------------------------------------------------------------------+
| | | | | | | | |
+--------+--------+--------+--------+--------+-------------+--+-------------+
| Current assets | | | | | | |
+-----------------+--------+--------+--------+-------------+--+-------------+
| Cash and cash | | | $ | | $ |
| equivalents | | | 1,932,629 | | 3,782,537 |
+--------------------------+--------+--------+-------------+--+-------------+
| Certificates of | | | 2,725,722 | | 1,783,090 |
| deposit | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Fees receivable | | | 434,732 | | 282,373 |
+--------------------------+--------+--------+-------------+--+-------------+
| Due from related | | | 111,527 | | 180,680 |
| parties | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Prepaid expenses and other | | 28,040 | | 71,661 |
| current assets | | | | |
+-----------------------------------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Total current | | | 5,232,650 | | 6,100,341 |
| assets | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Property and equipment, | | | 6,463 | | 8,442 |
| net | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | $ | | $ |
| | | | 5,239,113 | | 6,108,783 |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| LIABILITIES AND STOCKHOLDERS' | | | | |
| EQUITY | | | | |
+-----------------------------------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Current liabilities | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Accounts payable and accrued | | $ | | $ |
| expenses | | 103,533 | | 146,930 |
+-----------------------------------+--------+-------------+--+-------------+
| Investment in DSAM Joint Venture | 2,341 | | 6,399 |
+--------------------------------------------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Total current | | | 105,874 | | 153,329 |
| liabilities | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Stockholders' equity | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Common stock, $.01 par value, | | | | |
| 70,000,000 shares | | | | |
+-----------------------------------+--------+-------------+--+-------------+
| authorized; 61,744,132 | | | | |
| shares issued at | | | | |
+-----------------------------------+--------+-------------+--+-------------+
| December 31, 2009 | | | 617,441 | | 617,441 |
| and 2008 | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Additional paid-in | | | 12,583,785 | | 11,747,738 |
| capital | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Accumulated deficit | | | (7,962,644) | | (6,324,825) |
+--------------------------+--------+--------+-------------+--+-------------+
| Treasury stock at cost, 73,900 | | | | |
| and 42,250 shares at | | | | |
+-----------------------------------+--------+-------------+--+-------------+
| December 31, 2009 and 2008, | | (105,343) | | (84,900) |
| respectively | | | | |
+-----------------------------------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| Total | | | 5,133,239 | | 5,955,454 |
| stockholders' equity | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | $ | | $ |
| | | | 5,239,113 | | 6,108,783 |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+--------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
| | | | | | |
+--------+--------+--------+--------+--------+-------------+--+-------------+
STATEMENTS OF OPERATIONS
+-------------------+----------+----------+----------+-------------+--+-------------+
| Years Ended December 31, | | | 2009 | | 2008 |
+------------------------------+----------+----------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Revenue | | | | | | |
+-------------------+----------+----------+----------+-------------+--+-------------+
| Advisory fee income | | | $ | | $ |
| | | | 1,394,963 | | 330,300 |
+------------------------------+----------+----------+-------------+--+-------------+
| Consulting fee income | | | 113,166 | | 137,230 |
+------------------------------+----------+----------+-------------+--+-------------+
| Expense reimbursement | | | 27,300 | | 24,185 |
+------------------------------+----------+----------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Total revenue | | | 1,535,429 | | 491,715 |
+------------------------------+----------+----------+-------------+--+-------------+
| | | | | |
+-----------------------------------------+----------+-------------+--+-------------+
| Expenses | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Payroll and employee | | | 1,169,329 | | 1,345,676 |
| benefits | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| AIM expenses | | | 91,130 | | 98,225 |
+------------------------------+----------+----------+-------------+--+-------------+
| Computer expenses | | | 101,848 | | 39,206 |
+------------------------------+----------+----------+-------------+--+-------------+
| Depreciation | | | 3,036 | | 2,472 |
+------------------------------+----------+----------+-------------+--+-------------+
| Insurance | | | 57,912 | | 65,929 |
+------------------------------+----------+----------+-------------+--+-------------+
| Marketing | | | 17,197 | | 21,085 |
+------------------------------+----------+----------+-------------+--+-------------+
| Office expense and | | | 14,708 | | 15,526 |
| supplies | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Professional fees and | | | 389,728 | | 412,445 |
| other | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Registrar fees | | | 13,522 | | 14,518 |
+------------------------------+----------+----------+-------------+--+-------------+
| Rent | | | 96,175 | | 134,117 |
+------------------------------+----------+----------+-------------+--+-------------+
| Research and development | | | | | 62,251 |
+------------------------------+----------+----------+-------------+--+-------------+
| Other taxes | | | 15,810 | | 21,229 |
+------------------------------+----------+----------+-------------+--+-------------+
| Stock-based compensation | | | 836,047 | | 937,267 |
+------------------------------+----------+----------+-------------+--+-------------+
| Telephone | | | 12,291 | | 16,138 |
+------------------------------+----------+----------+-------------+--+-------------+
| Travel and entertainment | | | 52,561 | | 198,482 |
+------------------------------+----------+----------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Total expenses | | | 2,871,294 | | 3,384,566 |
+------------------------------+----------+----------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Loss from operations | | | (1,335,865) | | (2,892,851) |
+------------------------------+----------+----------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Other income | | | | |
+-----------------------------------------+----------+-------------+--+-------------+
| Interest and dividend | | | 48,797 | | 167,925 |
| income | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Loss attributable to unconsolidated | | (350,751) | | (249,402) |
| joint venture | | | | |
+-----------------------------------------+----------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Net loss | | $ | | $ |
| | | (1,637,819) | | (2,974,328) |
+-----------------------------------------+----------+-------------+--+-------------+
| | | | | |
+-----------------------------------------+----------+-------------+--+-------------+
| Loss per share, basic and diluted | $ | | $ |
| | (0.03) | | (0.05) |
+----------------------------------------------------+-------------+--+-------------+
| | | | | | |
+------------------------------+----------+----------+-------------+--+-------------+
| Weighted average shares outstanding, basic and | 60,250,707 | | 59,436,388 |
| diluted | | | |
+----------------------------------------------------+-------------+--+-------------+
| | | | | | | |
+-------------------+----------+----------+----------+-------------+--+-------------+
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Years Ended December 31, 2009 and 2008 |
+-----------------------------------------------------------------------------------------------------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | |Additional | | | Total |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| | | Common Stock | Paid-in |Accumulated | Treasury |Stockholders' |
+-----------+---------------+------------------------+------------+-------------+-----------+---------------+
| | | Shares | Amount | Capital | Deficit | Stock | Equity |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Balances, December 31, | 58,588,100 | $ | $ | $ | $ | $ |
| 2007, restated | | 585,881 | 5,198,654 | (3,350,497) | - | 2,434,038 |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Stock-based compensation | | | 937,267 | | | 937,267 |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Issuance of common stock | 3,156,032 | 31,560 | 5,611,817 | | | 5,643,377 |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Purchase of treasury | | | | | (84,900) | (84,900) |
| stock | | | | | | |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Net loss | | | | (2,974,328) | | (2,974,328) |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Balances, December 31, | 61,744,132 | $ | $ | $ | $ | $ |
| 2008, restated | | 617,441 | 11,747,738 | (6,324,825) | (84,900) | 5,955,454 |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Stock-based compensation | | | 836,047 | | | 836,047 |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Purchase of treasury | | | | | (20,443) | (20,443) |
| stock | | | | | | |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Net loss | | | | (1,637,819) | | (1,637,819) |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| Balances, December 31, | 61,744,132 | $ | $ | $ | $ | $ |
| 2009 | | 617,441 | 12,583,785 | (7,962,644) | (105,343) | 5,133,239 |
+---------------------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
| | | | | | | | |
+-----------+---------------+------------+-----------+------------+-------------+-----------+---------------+
STATEMENTS OF CASH FLOWS
+---------------------------+--------+--------+-------------+--+-------------+
| Years Ended December 31, | | | 2009 | | 2008 |
+---------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Cash flows from operating | | | | | |
| activities | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Net loss | | | $ | | $ |
| | | | (1,637,819) | | (2,974,328) |
+---------------------------+--------+--------+-------------+--+-------------+
| Adjustments to reconcile net | | | | |
| loss to net cash | | | | |
+------------------------------------+--------+-------------+--+-------------+
| provided by (used in) | | | | |
| operating activities: | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Stock-based | | | 836,047 | | 937,267 |
| compensation | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Loss attributable to | | 350,751 | | 249,402 |
| unconsolidated joint venture | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Unrealized | | | (3,221) | | |
| appreciation | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Depreciation | | | 3,036 | | 2,472 |
+---------------------------+--------+--------+-------------+--+-------------+
| Increase (decrease) in | | | | |
| cash attributable to | | | | |
+------------------------------------+--------+-------------+--+-------------+
| changes in operating | | | | |
| assets and liabilities: | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Fees receivable | | (152,359) | | (282,373) |
+------------------------------------+--------+-------------+--+-------------+
| Prepaid expenses and | | 43,621 | | 21,414 |
| other current assets | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Accounts payable and | | (43,397) | | 47,058 |
| accrued expenses | | | | |
+------------------------------------+--------+-------------+--+-------------+
| | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Net cash used in operating activities | (603,341) | | (1,999,088) |
+---------------------------------------------+-------------+--+-------------+
| | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Cash flows from investing | | | | | |
| activities | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Purchase of | | | (1,160,005) | | |
| certificates of deposit | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Redemptions of | | | 220,594 | | 431,287 |
| certificates of deposit | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Purchase of property | | | (1,057) | | (4,535) |
| and equipment | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Investment in DSAM | | | (354,809) | | (243,003) |
| Joint Venture | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Net cash provided by (used in) investing | (1,295,277) | | 183,749 |
| activities | | | |
+---------------------------------------------+-------------+--+-------------+
| | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Cash flows from financing | | | | |
| activities | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Purchase of treasury | | | (20,443) | | (84,900) |
| stock | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Due from related | | | 69,153 | | (115,505) |
| parties | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Proceeds from sale of common stock, net | | | 5,643,377 |
| of AIM expenses | | | |
+---------------------------------------------+-------------+--+-------------+
| | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Net cash provided by financing | | 48,710 | | 5,442,972 |
| activities | | | | |
+------------------------------------+--------+-------------+--+-------------+
| | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Net change in cash and cash | | (1,849,908) | | 3,627,633 |
| equivalents | | | | |
+------------------------------------+--------+-------------+--+-------------+
| | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Cash and cash equivalents, | | 3,782,537 | | 154,904 |
| beginning of year | | | | |
+------------------------------------+--------+-------------+--+-------------+
| | | | | |
+------------------------------------+--------+-------------+--+-------------+
| Cash and cash equivalents, end of year | $ | | $ |
| | 1,932,629 | | 3,782,537 |
+---------------------------------------------+-------------+--+-------------+
| | | | | | |
+---------------------------+--------+--------+-------------+--+-------------+
| Supplemental disclosures of cash flow | | | |
| information: | | | |
+---------------------------------------------+-------------+--+-------------+
| Cash paid for income taxes | $ | | $ |
| | 15,810 | | 21,229 |
+---------------------------+--------+--------+-------------+--+-------------+
NOTES TO FINANCIAL STATEMENTS
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 June 29, 2010. Subsequent events have been evaluated through this
date.
Reclassifications
For comparability, certain 2008 amounts have been reclassified to conform to the
financial statement presentation used in 2009. For example, certain expenses
related to 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. The Company maintains cash
balances in certain financial institutions which, 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 December 31, 2009 and 2008.
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 years ended December 31, 2009 and 2008.
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 years
ended December 31, 2009 and 2008.
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.
Valuation of Investments in Securities at Fair Value - Definition and Hierarchy
(continued)
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 quoted market
prices.
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
1,493,425 and 1,653,401 for the years ended December 31, 2009 and 2008,
respectively, are antidilutive and have been excluded from the computation of
loss per share.
Treasury Stock
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. During
December 2009, the Company acquired 31,450 shares of common stock for
approximately $0.65 from an employee.
3. Property and equipment
Property and equipment consists of the following at December 31, 2009 and 2008:
+---------------------------+--------+--------+-----------+--+-----------+
| | | | | | |
+---------------------------+--------+--------+-----------+--+-----------+
| | | | 2009 | | 2008 |
+---------------------------+--------+--------+-----------+--+-----------+
| Computer equipment | | $ | | $ |
| | | 16,151 | | 15,094 |
+------------------------------------+--------+-----------+--+-----------+
| Less accumulated depreciation | | $ | | $ |
| | | 9,688 | | 6,652 |
+------------------------------------+--------+-----------+--+-----------+
| | | | $ | | $ |
| | | | 6,463 | | 8,442 |
+---------------------------+--------+--------+-----------+--+-----------+
Depreciation expense amounted to approximately $3,000 and $2,000 for the years
ended December 31, 2009 and 2008, 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 December 31, 2009 and 2008:
+---------------------------+--------+----+-------------+----------+------------+
| | | | | | |
+---------------------------+--------+----+-------------+----------+------------+
| | | | 2009 | | 2008 |
| | | | Quoted | | Quoted |
| | | | Prices in | | Prices in |
| | | | Active | | Active |
| | | | Markets for | | Markets |
| | | | Identical | | for |
| | | | Assets | | Identical |
| | | | (Level 1) | | Assets |
| | | | | | (Level 2) |
+---------------------------+--------+----+-------------+----------+------------+
| Assets (at fair value) | | | | |
+------------------------------------+----+-------------+----------+------------+
| Investment in mutual funds | | $ | | $ |
| | | 498,605 | | 3,601,865 |
+------------------------------------+----+-------------+----------+------------+
| Certificates of deposit | | $ | | $ |
| | | 2,725,722 | | 1,783,090 |
+---------------------------+--------+----+-------------+----------+------------+
5. Stock-based compensation
The Company granted 2,700,000 shares of restricted stock on December 7, 2006 to
several employees which vest 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 $836,000 and $937,000
for the years ended December 31, 2009 and 2008, respectively. The stock-based
compensation expense to be recognized in future years is approximately $4,000 at
December 31, 2009 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
$5,753,000 to offset future taxable income expiring at various dates through
2029.
The Company has a deferred tax asset of approximately $2,400,000 and $3,385,000
at December 31, 2009 and 2008, respectively, and has recorded a tax benefit of
approximately $2,400,000 and $3,385,000 for the years ended December 31, 2009
and 2008, respectively, primarily for the tax effect of stock-based compensation
expense. In recognition of the uncertainty regarding the ultimate amount of
income tax benefit to be derived, the Company has recorded a valuation allowance
at December 31, 2009 and 2008 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 $96,000 and $134,000 for the
years ended December 31, 2009 and 2008, respectively.
The Company has a month-to-month operating lease agreement for its corporate
office in Dubai, which commenced in April 2007 and ended in July 2008.
The minimum annual rental payments are as follows:
+---------------------------+--------+--------+-----------+--+
| | | | | |
+---------------------------+--------+--------+-----------+--+
| Year ending December 31 | | | | |
+---------------------------+--------+--------+-----------+--+
| 2010 | | $ | |
| | | 66,000 | |
+------------------------------------+--------+-----------+--+
| 2011 | | $ | |
| | | 6,000 | |
+------------------------------------+--------+-----------+--+
| | | | $ | |
| | | | 72,000 | |
+---------------------------+--------+--------+-----------+--+
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, 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.
The Company paid cash bonuses to certain employees as additional compensation
for services rendered in the amount of approximately $1,000 and $132,000 for the
years ended December 31, 2009 and 2008, respectively.
Non-Executive Director Service Agreement
A non-executive director for the Company received compensation of approximately
$16,000 for serving as a member on the Board of Directors of the Company for
each of the years ended December 31, 2009 and 2008.
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 September 2008, three
sub-trusts were formed on Al Safi, each of which was seeded with $50,000,000 by
the Dubai Multi Commodities Centre Authority ("DMCCA"). In November 2008, a
fourth sub-trust was seeded by DMCCA in the amount of $50,000,000, for an
aggregate total of $200,000,000 in invested capital. Advisory fee income from
Al Safi amounted to approximately $1,395,000 and $330,000 for the years ended
December 31, 2009 and 2008, respectively. Consulting fee income from Al Safi
amounted to approximately $23,000 and $37,000 for the years ended December 31,
2009 and 2008, 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. In conjunction with the joint venture, DMCCA purchased a 4.99%
equity share of the Company and an executive from DMCCA was elected to the
Company's Board of Directors as a non-executive director.
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
$90,000 and $100,000 for the years ended December 31, 2009 and 2008,
respectively.
DCAM and the Company each pay expenses on behalf of DSAM and these payments are
considered capital contributions to DSAM. Much of the Company's travel expense
for 2009 was recorded as an expense for DSAM.
The Company's loss attributable to DSAM amounted to approximately, $351,000 and
$249,000, for the years ended December 31, 2009 and 2008, respectively and is
included in the accompanying statements of operations.
The Company had a receivable from DMCCA in the amount of approximately $112,000
and $181,000 at December 31, 2009 and 2008, respectively, based on the
allocation of expenses from DSAM. These amounts were subsequently repaid by
DMCCA in January 2010 and March 2009, respectively.
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 the Company anticipates DMCCA will redeem an additional amount of
capital at the end of the second quarter of 2010, subject to the DMCCA's capital
commitment.
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 years ended December 31,
2009 and 2008.
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
years ended December 31, 2009 and 2008.
10. Revised financial statements
The 2008 financial statements were restated by management of the Company due to
the inaccurate recognition of stock-based compensation during 2007. The
restatement adjustments reduced the previously reported additional paid-in
capital and accumulated deficit by approximately $690,000.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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