FOCUS Report Tellimer Markets Inc.

X-17A-5 [Paper] - FOCUS Report

Published: 2013-06-05 16:23:50
Submitted: 2013-05-29
Period Ending In: 2013-03-31
scanned.pdf Scanned paper document

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                                                                                                                                                                                                        Number                    3235-0123

                                                                    SECURITIE                                                                                               ON               Expires       April     30    2013
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                RECEN ED
                                                                           ANNUAL AUDITED REPORT                                                                                                               SEC        FILE    NUMBER

                                                                                 FORM X-17A-5                                                                                                                                     67668

             MAY       29ZQ13                                                                                  PART                       III

       REGISTRATIONS               BRANCH                                                           FACING PAGE
 19                                                                            of Brokers                      and Dealers Pursuant                                         to Section      17 of the
                                                Securities            Exchange Act                       of 1934 and                            Rule 17a-5                  Thereunder

REPORT FOR THE PERIOD BEGINNING                                                                     4/1/2012                                                       AND ENDING                                  3/31/2013

                                                                                                              MM/DD/YY                                                                                        MMIDD/YY

                                                                              REGISTRANT                                IDENTIFICATION

                                                                                                                                                                                                        OFFICIAL          USE     ONLY

   Exotix       USA     InC
                                                                                                                                                                                                               FIRM ID           NO
 ADDRESS          OF PRINCIPAL PLACE OF BUSINESS                                              Do       not use         P.O Box                    No
   444    Madison        Avenue           36th        Floor

                                                                                                          No         and      Street

                                                                               NewYork                                                                                                                  10022
                                                                                                              State                                                                                  Zip      Code

 NAME AND TELEPHONE                             NUMBER             OF PERSON TO CONTACT                                           IN      REGARD               TO     THIS       REPORT

      Deryck     Tweedley                                                                                                                                                                        212       551-3480

                                                                                                                                                                                                 Area    Code   --   Telephone        No

                                                                             ACCOUNTANT                                      IDENTIFICATION

 INDEPENDENT PUBLIC                        ACCOUNTANT                       whose    opinion             is   contained                  in this      Report

      Rothstein       Kass

                                                                              Name       --    if   individual       state        last    first     middle     name

                               Road                                             Roseland                                                                              New     Jersey                                      07068
        Becker        Farm
                                                                                                              City                                                               State                                           Zip   Code

                      Certified        Public    Accountant

                      Public      Accountant

                      Accountant          not   resident      in    United     States         or any      of     its

                                                                                                       FOR OFFICIAL                      USE ONLe

                                                                             hat   the        annual                         be     covered           by     the   opinion       of an independent       public       accountant
  claims for exemption                 from     the   requirement                                         report

      must be    supported        by     statement         offacts         and circumstances                   relied on                 as   the    basis for        the   exemption      See   section 240.1             7a-5e2

  SEC     1410    06-02                     Potential         persons        who    are        to    respond           to    the collection                   of information

                                            contained          in this      form    are not required                         to    respond unless the form displays

                                                 currently         valid    0MB      control            number

                                                                                         OATH OR AFFIRMATION

          Deryck         Tweedley                                                                                                                                                        swear      or   affirm        that     to   the

best of     my   knowledge              and    belief        the   accompanying                    financial     statement         and      supporting        schedules     pertaining       to    the firm of

          Exotix     USA          Inc                                                                                                                                                                                as    of

          March      31                                                 2013                 are    true   and    correct            further      swear or affirm           that   neither    the
nor any                                                            officer             director has any
            partner        proprietor           principal                         or                                  proprietary          interest     in   any account     classified      solely      as   that   of

      customer     except        as    follows


                                                                                                                                 ct                                           Title

                                                                             of   ew         York
                                        Qualified            in Queens   County
                                 CommssiOfl                   Expires July   20

 This    report          contains        check      all      applicable           boxes

            Facing        page

II          Statement           of Financial            Condition

            Statement           of    Income      Loss
Eli         Statement           of     Changes          in   Financial        Condition

            Statement           of     Changes      in       Stockholders              Equity         or Partners         or Sole Proprietors                 Capital

LI          Statement           of    Changes       in Liabilities                Subordinated             to   Claims         of Creditors

LI          Computation                of    Net Capital

            Computation                for    Determination             of Reserve                 Requirements           Pursuant          to   Rule    15c3-3

             Information              Relating     to     the Possession                or control         Requirements              Under Rule              15c3-3

El               Reconciliation                including           appropriate           explanation             of the        Computation            of Net Capital       Under      Rule    15c3-l      and    the

            Computation                for   Determination              of    the      Reserve         Requirements             Under Exhibit                 of Rule 15c3-3

                 Reconciliation               between the audited and unaudited                                  Statements              of Financial        Condition    with     respect    to   methods of con


             An    Oath     or Affirmation

                  copy     of    the    SIPC     Supplemental                 Report

LI                report    describing           any material            inadequacies                  found     to    exist    or found         to   have    existed    since the date      of the previous              audit

             Independent               auditors     report         on   internal         accounting             control

             Schedule           of segregation               requirements              and    funds        in   segregation--customers                   regulated       commodity        futures     accouni

            pursuant        to    Rule        171-5

      For   conditions          of confidential              treatment            of certain portions                 ofthisfihing          see section 240.1           7a-5e3

            EXOTIX   USA   INC


            MARCH    31 2013

EXOTIX           USA INC


Independent       Auditors    Report

Financial   Statement

    Statement of Financial       Condition

    Notes   to   Financial   Statement       3-9

                                                                                                                      Certified                                              Rothstein              Kass                                                 Beverly       Hills

                                                                                                                                                                                      Becker        Farm        Road

                                                                                                                                                                             Roseland                NJ        07068
                                                                                                                    Accountants                                                                                                                          Denver

                                                                                                                                                                            tel         973.994.6666                                                     Grand       Cayman

                                                                                                                                                                            fax         973     994        0337

                                                                                                                                                                                                                                                         San   Francisco

                                                                                                                                                                                                                                                         Walnut        Creek

Rothstein                           ass

   INDEPENDENT                                           AUDITORS REPORT

   To     Exotix         USA           Inc

   We      have      audited            the    accompanying                   statement of             financial         condition                of        Exotix         USA          Inc the Company as of March

   31 2013              that      you    are
                                          filing pursuant                         to   Rule       17a-5     under        the Securities                      Exchange                   Act of 1934 and the related notes
   to   the      financial         statement

   Managements                         Responsibility                  for    the Financial Statement

   Management                     is
                                        responsible           for      the         preparation            and      fair       presentation                      of     the            statement                   of     financial           condition                  in

   accordance                 with      accounting           principles generally                     accepted               in    the       United           States         of         America                   this       includes          the      design

   implementation                      and    maintenance               of        internal        control     relevant            to    the preparation                     and           fair        presentation                  of the           statement

   of   financial            condition        that    is   free    from material                  misstatement                    whether              due     to    fraud            or error

   Auditors Responsibility

   Our responsibility                    is   to   express an            opinion             on the statement of                        financial            condition                 based              on      our audit               We     conducted

   our     audit     in      accordance              with    auditing             standards          generally          accepted                  in    the     United           States               of       America             Those             standards

                   that      we        plan   and        perform        the audit            to    obtain     reasonable assurance                                    about             whether                  the     statement               of    financial
   condition          is     free      of material         misstatement

   An     audit      involves                                                           to   obtain       audit    evidence                  about           the     amounts                  and         disclosures                in    the       statement
                                        performing           procedures
   of   financial            condition             The                                 selected       depend            on        the       auditors            judgment                    including                  the     assessment                  of the
   risks      of material              misstatement of the statement                                 of   financial          condition                  whether             due          to     fraud            or error           In     making           those

   risk    assessments                   the auditor         considers                 internal      control      relevant              to       the    Companys                       preparation                     and     fair       presentation                  of

   the     statement              of   financial         condition           in    order      to design         audit        procedures                     that     are     appropriate                          in    the    circumstances                         but

   not     for    the
              purpose of expressing    an opinion on the effectiveness    of the Companys internal    control    Accordingly we

           no  such  opinion An  audit  also   includes  evaluating the appropriateness of accounting   policies   used and the
   reasonableness of significant    accounting      estimates   made by management      as well as evaluating        the  overall

   presentation               of the         statement of           financial           condition

   We      believe            that     the    audit        evidence           we        have       obtained        is    sufficient                and        appropriate                      to     provide                  basis         for      our audit



   In    our                           the    statement           of    financial            condition          referred               to    above            presents                                    in     all    material             respects                the
                  opinion                                                                                                                                                              fairly

   financial         position            of    Exotix       USA          Inc           as    of    March        31 2013                     in    accordance                 with              accounting                     principles              generally

   accepted             in   the United            States     of    America

    zzz_ 144w
   Roseland                New         Jersey
   May 23 2013

                                                                                                                                                       An    independent     firrrr      associated            with    AGN   International     Led       AGN

 EXOTIX                  USA              INC


 March 31 2013


 Cash                                                                                6074773

 Restricted cash                                                                      274575

 Receivables                from    affiliate                                         258471

 Fail to       deliver                                                               1015810

 Accounts             receivable          customer                                   1015010

 Income         tax    receivable                                                     430464

 Property         and equipment                    net                                243325

 Security deposit                                                                      28184

 Other assets                                                                         100167


 LIABI LITIES            AND STOcKHOLDERS                            EQUITY


   Accounts            payable and             accrued      expenses                  518097
   Fail   to    receive                                                              1015010
   Accounts            payable customer                                              1015810
   Payable        to    affiliate                                                     380245
   Security       deposit          payable                                             70084
   Deferred           sublease revenue                                                  8855
   Deferred           rent                                                            172767
   Deferred           tax    liabilities                                               23888

          Total       liabilities                                                    3204756

 Stockholders                equity
   Common             stock        $.01    par    value

   1000 shares authorized                          issued      and     outstanding         10
  Additional           paid-in capital                                               1999990
   Retained           earnings                                                       4236023
          Total       stockholders             equity                                6236023


See accompanying               notes      to   financial   statement

EXOTIX                       USA               INC


       Nature of business                           and summary                            of    significant                  accounting             policies

Nature of Business

Exotix        USA             Inc       the     Company                          is             corporation                   formed         under          the   laws     of      Delaware             on     May         15     2007              On
January 14 2008                          the    Company                     became                     broker-dealer                  and          as such         is   registered           with      the     U.S         Securities              and

Exchange             Commission                  SEC                    and           is         member                  of    the    Financial             Industry       Regulatory              Authority              FINRA                    The
company            is
                         wholly-owned                    by Exotix                          Limited              which         is         subsidiary          holding      company                of   Exotix        Holdings            Limited

the    Parent

The      Company                  is    engaged               in     providing              market                information                market          prices       and      efficient           trade    execution                in    fixed

income         and           other      financial             instruments                  to     professional                      and     institutional          investors          in    the    Americas The                    Company
offers       the        intermediation                   of        loans         extended                   to        sovereign            and      corporate           entities       primarily              located        in
markets and                  between           professional                      and       institutional                 investors            on           matched        principal         or    name         give-up          basis The

Company                 conducts              business                 exclusively                     with           institutional            buy         side    investors               securities          dealers            and         other

professional                 market participants

Basis of Presentation

The      financial            statements             have             been            prepared                   in   conformity             with     accounting           principles             generally           accepted                in   the

United        States          of   America           GAAP
These         financial                statements                  were          approved                   by         management                   and       available         for        issuance            on     May         23          2013
Subsequent               events have                been             evaluated                  through               this    date

Restricted          Cash

Restricted          cash           consists         of             letter    of       credit      with                financial           institution        in   the   form of             certificate        of deposit            which           is

held    to    secure one                of the      Companys                      leases

Property        and          Equipment

Property           and        equipment                  is        stated        at        cost        less           accumulated                  depreciation           and      amortization                     All     property               and

equipment               is
                              being        depreciated                      on             straight-line                     basis        over the          estimated           useful       lives       of    the        related        assets
Amortization                 of    leasehold             improvement                        is    computed                    on          straight-line           basis    over the estimated                        useful       life        of   the

asset        or the          term       of the      lease             whichever                   is    shorter                The Company                   provides       for    depreciation                and        amortization              as

                   Asset                                                                               Useful            Life                                                     Principal            Method

          Furniture               and    fixtures                                                           years                                                                 Straight-line

          Office         and       other       equipment                                                    years                                                                 Straight-line

          Leasehold                improvements                                                        Shorter               of estimated           life

                                                                                                       of    asset           or lease        term

EXOTIX                     USA                 INC


         Nature of business                          and         summary                of significant                     accounting                  policies         continued

Revenue          and       Expense              Recognition                   from Securities                       Transactions

Securities         transactions                  and        the       related           revenues               and                           are         recorded             on      the trade-date                     basis       at    their
                                                                                                                           expenses                                                                                                                    gross
amounts          less            reserve           for     open        trades       with anticipated                        long     or conditional                   settlement               The Company                        clears        all        of   its

securities         business on                                   disclosed              basis        through Exotix                   Limited an                 affiliate         based                 London
                                                     fully                                                                                                                                         in

Income       Taxes

The      Company            follows            an asset and                  liability        approach                to    financial accounting                        and     reporting               for    income            taxes          Deferred

income       tax    assets             and      liabilities           are     computed                   for   difference            between              the     financial           statement and                      tax     bases       of assets

and      liabilities       that        will    result       in    taxable          or deductible                      amounts          in    the        future        based           on    the         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           the deferred                  income         tax    assets          to    the      amount             expected              to    be     realized

The      determination                  of the       Companys                     provision              for        income        taxes      requires             significant               judgment                the     use of estimates
and      the interpretation                    and                                 of                           tax    laws
                                                         application                     complex                                     Significant                judgment              is
                                                                                                                                                                                           required            in
                                                                                                                                                                                                                     assessing the timing
and      amounts           of deductible                   and        taxable           items        and        the        probability            of sustaining               uncertain                 tax    positions               The      benefits

of uncertain           tax       positions               are     recorded               in    the        Companys                 financial            statements              only         after        determining                      more-likely-
than-not         probability                that     the         uncertain              tax        positions           will      withstand               challenge               if
                                                                                                                                                                                       any from                tax       authorities                  When
facts     and      circumstances                         change              the    Company                     reassesses                these           probabilities                 and        records           any         changes              in    the

consolidated               financial           statements          as appropriate                                   Accrued          interest           and      penalties              related          to    income            tax      matters           are

classified       as         component                      of income tax expense

In    accordance            with         GAAP              the        Company                 is    required           to       determine               whether               tax       position          of       the    Company                is    more
          than      not      to        be     sustained                 upon       examination                       by the        applicable                 taxing         authority                  including          resolution              of
likely                                                                                                                                                                                                                                                      any
related      appeals              or        litigation           processes                   based             on     the        technical              merits        of     the       position                    The     tax     benefit            to     be

recognized            is    measured                 as the largest amount                                     of    benefit       that      is
                                                                                                                                                   greater            than      fifty       percent            likely       of    being         realized

upon      ultimate           settlement                      De-recognition                         of          tax        benefit     previously                 recognized                   could           result       in    the       Company
recording             tax        liability       that       would            reduce           stockholders                      equity            This      policy         also       provides                guidance            on      thresholds
measurement                  de-recognition                           classfication                  interest          and        penalties   accounting in interim periods disclosure    and
transition         that           is     intended                 to        provide                better           financial          statement  comparability   among    different entities

Managements                  conclusions                    regarding              this       policy           may be            subject          to    review          and     adjustment                    at         later    date      based               on
factors      including                 but    not     limited           to on-going                      analyses of and                    changes              to   tax     laws           regulations                 and      interpretations

The      Company            files        its    income                tax    returns           in    the       U.S         federal         and         various          state         and      local          jurisdictions                Generally
the    Company              is    no        longer         subject           to    income                tax    examinations             by major taxing                              authorities              for       years       before           2009
Any      potential          examinations                     may            include          questioning                   the    timing  and amount of deductions                                                  the     nexus          of    income

among        various             tax        jurisdictions               and        compliance                       with        U.S      federal                state      and         local        tax        laws            The        Companys
management does                          not       expect that the                      total        amount                of   unrecognized                    tax     benefits            will    materially              change              over the
next twelve months

EXOTIX                  USA                  INC


       Nature of business                       and summary                    of significant            accounting               policies             continued

Use    of   Estimates

The      preparation              of    financial           statements          in
                                                                                      conformity           with         GAAP           requires             the       Companys                 management                    to    make
estimates         and        assumptions that                     affect     the     amounts        disclosed             in   the        financial         statements                   Actual        results            could     differ

from those        estimates

Translation        of Foreign                Currency and                  Foreign    Exchange             Gain/Loss

Assets and         liabilities          denominated                   in   foreign    currencies           are translated                  into    United             States      dollar       amounts               at    the    March
31     2013
          exchange  rates Transactions                                               denominated                 in     foreign           currencies                  including          purchases               and         sales          of

investments and income and expenses                                                are     translated           into    United            States       dollar          amounts            on    the     transaction                 date
Adjustments            arising          from     foreign          currency         transactions          are         reflected       in    the    statement of operations

The      Company              has            bank       account            denominated             in    Pound           Sterling           GBP             to    offset        the      risk    of     settlement                of    the

transactions           conducted                with      the        Parent        For the year ended                         March         31      2013            there        was            loss     of     approximately
$162000 as                result        of the fluctuation                  of the   exchange            rate        on the cash             held      in    this      account

Rental      Income

Rental      income           is    accounted           for      in
                                                                     conformity           with    GAAP           and     is    recorded            over the terms of the leases                                  on             straight-

line   basis       Rental           income          for     the      year ended            March        31 2013          of approximately                        $154000            is    included         in    other            income
on the accompanying                       statement of operations

       Customer transactions

In   the   normal course of business                                 the    Company           affects          as agent          transactions                    on     behalf      of    customers on                          basis       of

either      delivery         or    receipt       versus              payment         If    these agency                transactions               do        not       settle     due      to    failure         to        perform by
either      the    customer                or    the        counterparty              the        Company               may      be        obligated               to    discharge              the      obligation                of    the

nonperforming party and as                                      result        may         incur         loss     if    the     market value                  of     the        securities        is    different            from the
contract amounts The risk of                                    loss       to the Company                  is
                                                                                                                     normally          limited         to        differences             in    market           values            of    the

securities        compared              to    their     contract           amounts

       Related party                   transactions

Receivables            from        Affiliate

Substantially           all       of the     Companys                  commission             revenue           is     derived       from effecting                     securities            transactions                 on     behalf

of    customers           primarily             United        States         institutional         investors             and      in       some        cases            with     its     affiliates             Pursuant               to

clearing      arrangement                    with      an    affiliate        the   Companys                   commissions                  from       customers                 are      collected          by an affiliate
and    remitted         to        the    Company              monthly              As of March                 31 2013            there           was             receivable              from        affiliate  under this

arrangement             of    approximately                  $258000           for    commissions                from customers collected                                 by the         affiliate

EXOTIX                  USA                     INC


        Related         party         transactions               continued

Payable         to   Affiliate

The       Company            incurred            legal fees            on    behalf       of   the    affiliate     during   the   year     As      of    March     31 2013            there    was
payable         to   affiliate        of   approximately $380000

Clearance Fees

The Company               pays clearing fees                      to    an    affiliate        Clearing       feesexpense to this           affiliate         amounted     to    $84000         for   the

year ended             March  31 2013 The                         Company                receives      the    commission revenue                from customers           after      deducting         the

commission             expense              owing     to   the     affiliates         As        result      there    are   no commissions           payable to      affiliates

        Property         and equipment

Details      of property          and           equipment         at    March       31 2013           are   as follows

  Office     and       other      equipment                                                    236229
  Leasehold            impro\ements                                                             29959
  Furniture          and     fixtures                                                          400628

  Less      accumulated                    depreciation

      and    amortization                                                                      423491


Depreciation                     amortization              expense           for   the    year ended          March     31 2013     was    approximately           $65000

        Net capital          requirement

The     Company            as          member            of     FINRA         is
                                                                                    subject      to   the     SEC    Uniform Net Capital            Rule        5c3-1     This      Rule       requires
the     maintenance              of   minimum            net     capital      and      that     the   ratio   of    aggregate indebtedness               to   net capital       both     as defined
          not    exceed          15        to     and      that
shall                                                              equity          capital       may not be withdrawn              or    cash    dividends        paid   if   the      resulting      net

capital      ratio    would           exceed        10     to           At    March          31 2013 the Companys                  net    capital        was    approximately           $3894000
which       was      approximately                $3644000              in   excess          of its minimum requirement             of   $250000

EXOTIX                    USA           INC


        Income taxes

The      provision         for    income      taxes      consists           of the following


     Federal                                                                              154328
     State   and        local                                                                 24438



     Federal                                                                                    8816
 State       and        local                                                                   7727



At    March        31 2013           the     Company           had         deferred           tax   liabilities       of approximately                  $24000            The Companys                 deferred           tax

liabilities        are    primarily attributable               to     the differences                between           depreciation             for     tax   purposes          and     depreciation         for    book

purposes           and     deferred        rent     used    for financial            reporting

        Concentrations                of credit         and         off-balance               sheet risk

Concentrations                  of Credit    Risk

In    the    normal course of business                         the        Companys customer                          activities         involve       the     execution         settlement          and     financing
of various           customer         securities transactions                        These                                                        the    Company                 off-balance-sheet
                                                                                                      activities          may expose                                       to                                      risk    in

the event          the     customer         or other       broker          is   unable         to   fulfill   its    contracted             obligations        and   the    Company             has    to   purchase
or    sell   the    financial       instrument          underlying              the contract           at         loss

The      Company                maintains         its   cash        balances             in   various         financial            institutions             These     balances           are     insured       by     the

Federal        Deposit           Insurance        Corporation              up to $250000                    per     institution

Off-Balance              Sheet      Risk

Pursuant           to    clearance         agreements                the    Company                 introduces            all    of   its   securities transactions                to    its   affiliated    clearing

broker        on         fully-disclosed            basis           All    of the    customers                money balances                      and     long      and    short      security        positions       are

carried       on the books            of the clearing                broker         In    accordance                with        the clearance           agreements              the   Company           has agreed
to    indemnify           the     clearing       broker       for         losses     if
                                                                                          any which                 the     clearing         broker         may     sustain      from carrying              securities

transactions             introduced         by    the   Company

EXOTIX                    USA INC


       Exemption             from        Rule    15c3-3

The     Company              is    exempt        from       the     SEC        Rule     15c3-3        pursuant         to        the    exemptive                    provisions            of    sub-paragraphs
k2i   and                 therefore         is   not   required           to   maintain           Special        Reserve               Bank      Account               for    the     Exclusive           Benefit    of


       Fair     value       of     financial      investments

The     fair   value       of the        Companys            financial         instruments           including    trade           receivables                  and     payables             approximates the
carrying        value      due      to   their   short-term          nature

10 Commitments                       and contingencies

Operating Leases

The Company    leases its office space    under operating                                                 leases        that           expire        at        various            times         through      January
2020 The leases are secured by     security deposit totaling                                               $28184            and           letter         of    credit       with          financial      institution

in    the   amount           of    $274575             in   the     form       of      certificate       of    deposit            which         is    included               in    restricted         cash    in    the

statement of financial condition                            at    March        31 2013        Aggregate          future           minimum annual                         rental      commitments              are    as

               Year       Ending         March 31
                                  2014                                                                         455365
                                  2015                                                                         388599
                                  2016                                                                         387305
                                  2017                                                                         387305
                                  2018                                                                         387305
                           Thereafter                                                                          710059


Rent     expense           for    the    year    ended           March    31 2013          was     approximately             $448000                 and        is    included        in
                                                                                                                                                                                            occupancy         on the
statement           of   operations

Employment Agreements

The     Company            has      employment              agreements              with   four key employees  whereby    the Company    agrees to pay those
employees             base        salaries ranging               from $50000          to  $225000 per annum These agreements          provide for bonuses  to

be paid        to   such     employees            at    the       Companys           discretion    These agreements    provide for separation for cause or at

the    option        of   the      employee         or      employer            providing         proper      notice        is    given         pursuant to                  the    specific         agreements
These       employment               agreements             have     no expiration

EXOTIX                   USA               INC


10 Commitments                        and contingencies                             continued

Employment Agreements                             continued

The       Company             has     an     employment                      agreement                  with                                                     the     Company
                                                                                                                      key    employee                whereby                                      agrees        to    pay that
employee                 base        salary        of        $225000                per      annum The                     Company             also    pays     this    employee              an        incentive       bonus
calculated          as                one                           of the          net
                            thirty               percent                                     brokerage               revenue            generated by the employee during   the applicable

quarterly period              the     incentive              bonus          shall       before          any        payment         is    due be reduced by the amount of the base salary
paid      to the     employee              during        the        applicable             quarterly               period    The Company also has      compensation  arrangement
with   this    employee              in    which        the        employee               receives             3%     per    annum of earnings before interest taxes depreciation
and       amortization             EBITDA                     and        3%        of   the    increase               in    EBITDA  year over year The agreement      provides   for

separation           for      cause         or    at         the    option           of      the        employee             providing               proper    notice     is         given         The        employment
agreement            has no expiration

Legal Proceeding

The    Company               has     been        named             as            defendant              in         legal    matter           Management         of the      Company                 after      consultation

with   legal       counsel           believes          that        the   resolution            of       this   matter       will    not       have       material      effect        on the       financial          condition
results     of operations             or    cash        flows        of the         Company

11 Rentals under                     operating                leases

The Company subleases     portion                                      of    its    office     space           to    two tenants               One     lease    expires         in    2014        and    the     other    lease

expires in 2015 The following    is                                          schedule              of    approximate               future          minimum base           rentals          under         non-cancelable

operating          lease      agreements                in    effect        at   March        31 2013

       Year        Ending          March 31
                         2014                                                                            163000
                         2015                                                                            124000
                         2016                                                                                38000

Additionally          the      leases        contain               various          clauses             for    tenants       to     reimburse the              Company               for   real     estate       taxes      and

operating          expenses           which        are not included                       above

12 Employee                  benefit        plan

The Company                 maintains              retirement                plan       the    Plan                 pursuant        to       Section    401k      of the        Internal          Revenue            Code    for

eligible     participants            to    make         voluntary                contributions                of      portion           of   their    annual compensation    on                          deferred        basis
subject       to    limitations           provided              by the             Internal         Revenue                Code              The     Company   matches    up to                     5%      of   employee
contributions          to    the     Plan         At     March           31 2013              the        Company             incurred              expenses    related     to        the   Plan     in    the    amount of

approximately              $24000

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