Filed
pursuant to Rule 424(b)(3)
Under
the Securities Act of 1933, as amended
(Registration
Statement 333-146060)
PROSPECTUS
SUPPLEMENT NO. 2
(to
Prospectus dated November 7, 2007)
ATLAS
TECHNOLOGY GROUP, INC.
4,423,660
SHARES OF COMMON STOCK
This
Prospectus Supplement No. 2 supplements and amends the prospectus dated November
7, 2007 (the “Prospectus”) relating to the offer and sale of up to 4,423,660
shares of our common stock which may be offered from time to time by the selling
stockholders identified in the Prospectus for their own accounts. This
Prospectus Supplement is not complete without, and may not be delivered or
used
except in connection with the original Prospectus.
This
Prospectus Supplement No. 2 includes the attached Form 10-KSB of Atlas
Technology Group, Inc. dated April 14, 2008, as filed by us with the Securities
and Exchange Commission.
This
Prospectus Supplement No. 2 modifies and supersedes, in part, the information
in
the Prospectus. Any information that is modified or superseded in the Prospectus
shall not be deemed to constitute a part of the Prospectus, except as modified
or superseded by this Prospectus Supplement No. 2. We may amend or supplement
the Prospectus from time to time by filing amendments or supplements as
required. You should read the entire Prospectus and any amendments or
supplements carefully before you make an investment decision.
Investing
in our common stock involves risk. See “Risk Factors” beginning on page 6 in the
Prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if the Prospectus
or
this Prospectus Supplement No. 2 is truthful or complete. Any representation
to
the contrary is a criminal offense.
The
date
of this Prospectus Supplement No. 2 is April 14, 2008.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
|
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
|
|
|
|
|
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
|
|
|
|
|
OR
|
|
|
|
|
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
|
|
|
|
|
FOR
THE TRANSITION PERIOD FROM N/A TO
N/A
|
COMMISSION
FILE NUMBER: 000-28675
ATLAS
TECHNOLOGY GROUP, INC.
(Name
of
Small Business Issuer in Its Charter)
|
DELAWARE
|
|
494-33707951
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
2001
152nd
AVENUE NE
REDMOND,
WASHINGTON 98052
|
||
|
(Address
of Principal Executive Offices)
|
||
|
|
||
|
(425)
458-2360
|
||
|
(Issuer’s
Telephone Number, Including Area
Code)
|
||
Securities
registered pursuant to Section 12(b) of the Act: NONE
Securities
registered under Section 12(g) of the Exchange Act:
COMMON
STOCK, par value $0.0004 per share
Check
whether the issuer (1) filed all reports required to be filed by Section
13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter
period
that the registrant was required to file such reports), and (2) has been
subject
to such filing requirements for the past 90 days. YES x
NO
o
Check
if
disclosure of delinquent filers in response to Item 405 of Regulation S-B
is not
contained in this form, and no disclosure will be contained, to the best
of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): YES o
NO
x
State
issuer’s revenues for its most recent fiscal year. $574,861.
The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 10, 2008 was approximately $10,017,216 based upon
the
closing price per share of the Common stock of $0.70 on that date.
There
were 39,513,949 shares of the registrant’s Common Stock issued and outstanding
as of April 10, 2008.
Transitional
Small Business Disclosure Format (check one) YES o
NO
x
TABLE
OF CONTENTS
|
Page
|
|||
|
PART
I
|
3
|
||
|
|
|
|
|
|
|
Item
1. Description of Business
|
3
|
|
|
|
|
|
|
|
|
Item
2. Description of Property
|
6
|
|
|
|
|
|
|
|
|
Item
3. Legal Proceedings
|
6
|
|
|
|
|
|
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
6
|
|
|
|
|
|
|
|
PART
II
|
7
|
||
|
|
|
|
|
|
|
Item
5. Market for Common Equity and Related Stockholder
Matters
|
7
|
|
|
|
|
|
|
|
|
Item
6. Management’s Discussion and Analysis or Plan of
Operation
|
9
|
|
|
|
|
|
|
|
|
Item
7. Financial Statements
|
22
|
|
|
|
|
|
|
|
|
Item
8. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure
|
48
|
|
|
|
|
|
|
|
|
Item
8A. Controls and Procedures
|
49
|
|
|
Item
8A(T). Controls and Procedures.
|
49
|
||
|
Item
8B. Other Information
|
50
|
||
|
|
|
|
|
|
PART
III
|
51
|
||
|
|
|
|
|
|
|
Item
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
|
51
|
|
|
|
|
|
|
|
|
Item
10. Executive Compensation
|
54
|
|
|
|
|
|
|
|
|
Item
11. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
|
57
|
|
|
|
|
|
|
|
|
Item
12. Certain Relationships and Related Transactions
|
58
|
|
|
|
|
|
|
|
|
Item
13. Exhibits
|
59
|
|
|
|
|
|
|
|
|
Item
14. Principal Accountant Fees and Services
|
61
|
|
|
|
|
|
|
|
SIGNATURES
|
62
|
||
In
this
report, the terms “we,” “our” and “us,” refer to Atlas Technology Group, Inc.
and its direct and indirect wholly owned subsidiaries, which we refer to
as
“AtlasTG”.
2
PART
I
ITEM
1. DESCRIPTION OF BUSINESS
Overview
We
were
incorporated in August 1998 as Tribeworks Inc., a California corporation
(“California
Tribeworks”).
On
November 2, 1999, we entered into a transaction with Pan World Corporation,
a
publicly-traded Nevada corporation (“Pan
World”),
whereby Pan World agreed to provide financing in connection with the merger
of a
newly formed subsidiary of Pan World into California Tribeworks (the
“Recapitalization”).
Prior
to the Recapitalization, Pan World had no material operations. As a result
of
the Recapitalization, shareholders of California Tribeworks exchanged all
of
their shares of California Tribeworks for Pan World common stock.
Subsequent to the Recapitalization, we were reincorporated in Delaware as
Tribeworks, Inc and at our Annual General Meeting held on July 12, 2007,
we
changed our name to Atlas Technology Group, Inc. (the "Company").
During
2005, the enterprise application development business of Tribeworks was
separated into a wholly-owned subsidiary named Tribeworks Development
Corporation (“TDC”).
The
TDC business was primarily built around the sale of software through two
main
distribution channels: the graphics software tools business and proprietary
products called iShell® or iShell Mobile and an enterprise application
development business. TDC was sold to its former management on September
14,
2006. Until mid-2006, the iShell line of products and an enterprise application
development business were our primary product offering and business. The
former
assets, liabilities, and business operations of TDC were reclassified as
discontinued operations in the financial statements in this annual report
for
the year ended December 31, 2006 on Form 10-KSB.
On
January 20, 2006, we acquired TakeCareofIT Holdings Ltd., doing business
as
Atlas Technology Group, a Malta Corporation that was established in September
2004 to provide external Information Technology (“IT”)
application support services for organizations with large IT functions as
is
referred to hereafter as “AtlasTG”
or
the
“AtlasTG
business.”
This
IT
support business will be our primary business focus going forward and thus
2006
was a transitional year for us. We plan to become a leading IT outsourcing
support company for custom software applications worldwide. After extensive
beta
testing, the Atlas business line is now generating revenue with the first
support customers signed on in February 2007. Our in-house developed tools
and
processes, which are needed to customize the monitoring and support IT
applications and provide remote IT application support and feedback to our
customers.
On
January 26, 2007, the Company acquired all of the assets (but not the
liabilities) and customers of BLive Networks, Inc. Included with these assets
was a Canadian company called InfoBuild Networks (Canada) Inc. The assets
acquired were added to InfoBuild Networks (Canada), Inc. and the name
of it has been changed to BLive Networks Inc. (“BLive”),
and
the business has continued to trade as BLive.
Our
head
operating office is located in Malta. We also have subsidiary offices in
Wellington, New Zealand, and Redmond, Washington, and a data center in Seattle,
Washington. We currently have twenty-one employees and three working executive
directors. Our primary service of remotely supporting custom and complex
software applications for customers who want to outsource non-core business
processes and focus on their core competencies, through the use of
proprietary processes and monitoring systems, is maintained by our
state-of-the-art data centers in Seattle and Malta, and
“follow-the-sun” 24x7 hour support centers in Malta, Redmond/Seattle, and
Wellington.
We
are
leveraging the recent advances in software, monitoring systems, and
communications to build a new leading edge, global support infrastructure,
providing 24x7 software support to large and medium sized companies. Our
new
application onboarding and monitoring processes allows for dramatic cost
savings
over existing IT service providers. With more than thirty years of combined
experience in IT support, our management team brings a significant level
of
knowledge and experience in outsourced application support. Our management
team’s experience includes worldwide application support for companies, such as,
JP Morgan, Microsoft, and Avanade.
We
offer
our services worldwide, with the majority of our targeted customers having
significant in-country or multi-national operations. Our operations are designed
to be a highly distributable venture, with the ability to place people in
the
best possible locations so that we can provide
a
seamless service offering across the world.
3
Global
purchases of IT goods and services - which equal IT vendors’ revenues - will
equal $1.7 trillion in 2008, growing by 6% after a 12% increase in 2007.
A
declining U.S. dollar boosted 2007 growth rates and is expected to do so
in 2008
as well; measured in Euros, global IT purchases growth is expected to be
4%.
Total global spending on technology goods, services, and staff is expected
to
reach $2.4 trillion in 2008, an 8% increase from 2007. (Source: Forrester
Research, Inc. www.forrester.com)
In
terms
of the outsourced IT support services market, this market is also growing,
due
to the increasing complexity of business software applications worldwide.
Application support for large-scale enterprise systems is the last IT service
area that is still primarily kept “in-house,” creating a large potential demand
for AtlasTG’s services. Of the global IT annual expenditure, application and
business support services are projected to be $197.5 billion by 2009 and
exceed
$245 billion by 2011. (Source: Gartner, Inc. www.gartner.com)
According
to Forrester Research Inc. (“Forrester”),
the
percentage of IT budgets spent on maintaining existing applications is over
70%
and increasing. (Source: Forrester Research, Inc. “2005 Enterprise IT Outlook:
Business Technographics North America”).
For
many
industry leaders, outsourcing IT support, or “managed services,” represent an
important change to how technology is delivered and consumed. The managed
services market has expanded rapidly over the past several years, particularly
in the under-served, small- and medium-sized business (“SMB”)
market. The SMB IT services market estimated to be worth $220 billion is
expected to grow at a compound annual growth rate (“CAGR”)
of
7.6% from 2004 to 2008. Remote monitoring and management is the hottest growing
segment expected to grow at 36% CAGR though 2008 in North America. A recent
study by Forrester stated that the SMB market consists of 48% of the U.S.’s
overall IT spending, stating that it will surpass enterprise IT spending
by
2007. (Source: Gartner - Forecast IT Service, Worldwide, November
2005).
In
January of 2007, we acquired all of the assets and customers of BLive. This
acquisition strengthens and widens our capability of delivering high quality
outsourced support into the worldwide IT Support market. The BLive systems
can
be used by companies for remote technical support and sales, both for
external and internal corporate “Helpdesk” support departments. This technology
enables our service providers to deliver faster response times and to create
a
personal connection with users. This acquisition is discussed further in
Note 15
- "Acquisition of BLive,” as stated in our Consolidated Financial Statements and
below.
We
are
currently a reporting company under Section 12(g) of the Securities Exchange
Act
of 1934, as amended, (the “Exchange
Act”)
and
our common stock (“Common
Stock”)
is
quoted on the OTC Bulletin Board under the symbol ATYG.OB.
Products
and Services
We
are in
the business of providing custom outsourced application software support
services to our customers. These services range from supporting specialized
networks and single applications to providing entire IT infrastructure
management for customers who want to outsource IT application support and
focus
on their core business competencies. Through partnerships with other IT
development consultants, fully outsourced IT services can be provided with
hard
performance metrics and predictable costs.
Our
support centers are based in Malta and Wellington, New Zealand, and further
technical support is provided by a small team located in Redmond, Washington,
which will allow us to provide “follow-the-sun” 24x7 hour coverage. As needed,
additional locations will be added to increase capacity. State of the art
VoIP,
call tracking, and monitoring technology provide each employee with the
tools needed to maximize support delivery.
Our
proprietary software, including our unique onboarding and monitoring processes,
allow cost savings over existing legacy IT service providers. Real-time
monitoring and support of our first customer started in March 2007, after
onboarding began in January 2007. We are now servicing five customers, and
our objective is to quadruple this number during 2008; however, there is
no
assurance that we will be able to achieve this objective.
4
Technical
Support and Education
We
provide technical support and training to our customers, as well as in-house
and
external training to our staff. Successfully training our technical support
staff is key to our success. During 2007, all of our technical staff received
training for various Microsoft technical qualifications.
During
2008, we anticipate becoming a Microsoft “Gold Partner” with advanced
infrastructure and learning solutions specializations. We believe that becoming
a Microsoft “Gold Partner” will provide us with additional recognition and,
therefore, additional revenue opportunities.
Competition
IT
software application support is one of the last available outsourcing
opportunities in the IT field. While many other IT functions have been
outsourced, software application support has traditionally been kept in-house.
In recent years, a number of companies have outsourced all of their IT needs
to
large IT companies.
There
are
a large number of traditional consultant competitors competing with us,
including IBM Global Services (“IBM”),
Hewlett-Packard (“HP”),
Electronic Data Systems Corporation (“EDS”),
and
Accenture Ltd. (“Accenture”),
as
well as a number of smaller companies. The industry is broken down into
three segments: (i) the hardware manufacturers that provide additional IT
services; (ii) the large pure-play IT service providers targeting Fortune
500
companies; and (iii) smaller independent companies that generally specialize
in
specific local markets.
The
largest firms that we compete with in terms of revenue are: (1) HP with total
revenues of $104.3 billion in 2007 and $91.7 billion in 2006, of which
approximately $18.8 billion in 2007 and $15.6 billion in 2006 represents
services, including IT outsourcing (Source: www.HP.com); and (2) IBM with
total
sales in 2007 of $98.8 billion and $91.4 billion in 2006 of which approximately
half, or $54 billion in 2007 and $49 billion in 2006, represents services,
and
of this amount approximately $18.7 billion in 2007 and $17.0 billion in 2006
was
derived from the sales of strategic outsourcing services. Strategic outsourcing
services is one of IBM’s fastest growing business segments and is growing
at 9.7% annually (Source: www.IBM.com.)
The
pure-play IT service providers, with the majority of their 2007 revenues
coming
from IT support services include EDS, with $22.1 billion in 2007 and $21.3
billion in 2006 in revenue (Source: www.EDS.com), Computer Sciences Corporation
with $14.9 billion in 2007 and $14.6 billion in 2006 (Source: www.CSC.com),
Accenture with $19.7 billion in 2007 and $16.6 billion in 2006 in revenue
(Source: www.Accenture.com), and BearingPoint Inc with $3.5 billion in 2007
and
$3.4 billion in 2006 revenue (Source: www.BearingPoint.com). Our advantage
over
those larger competitors is that IT support is our main business focus and
not
an ancillary service.
Other
competitors that provide support services and call centers, especially in
India,
include Wipro Limited (“Wipro”)
and
Infosys Technologies Limited (“Infosys”).
Tata
Consultancy Services, Ltd. (“TCS”)
is
another primary competitor that competes with us globally. There are other
regional players that are targeting the SMB market, such as Wavex Technology
Limited (“Wavex”)
and
Motive Inc. (“Motive”).
Our
principal advantage is the ability to access the computers of our customers
remotely. This allows our customers to maintain physical possession of their
computers and continue their daily operations. We also compete against our
competitors by establishing ourselves as a service provider with deep industry
expertise in our sector, which enables us to respond rapidly to market trends
and the evolving needs of clients in our sector. IT support is our
sole business focus, unlike many of our competitors who offer IT support
as an
adjunct to their existing hardware or software sales.
In
addition to the small and large competitors described above, we believe that
our
single biggest competitor is existing in-house support staff maintained by
businesses who are currently providing over 90% of IT support services
worldwide.
Government
Regulation
Laws
regulating the Internet both in the United States and internationally are
constantly changing. A number of new legislative and regulatory proposals
relating to Internet commerce are under consideration with federal, state,
local, and foreign governments. A number of laws or regulations may be adopted
or amended regarding Internet user privacy, Internet security, taxation,
pricing, quality of products and services, and intellectual property
ownership, which may apply to us. The impact of additional or amended
legislation related to the Internet, in areas such as property ownership,
copyrights, trademarks, and trade secrets is uncertain.
5
Proprietary
Rights
We
rely
on a combination of copyright laws, trademark laws, contract laws, and other
intellectual property protection methods (such as signing confidentiality
and
non-disclosure agreements with potential clients) to protect our technology,
names, and logos in the United States and other countries where we conduct
our
business.
On
January 20, 2006, we acquired the AtlasTG business. This acquisition resulted
in
our obtaining additional proprietary rights, such as AtlasTG’s unique onboarding
and monitoring processes, as well as a range of trade secrets relating to
its IT
support technologies. Similarly, through the acquisition of BLive, we acquired
further proprietary rights and processes, as well as a trademark. During
2007,
we established our own marketing and branding program.
Employees
We
have a
total of twenty-one employees and consultants and three working executive
directors working on a full-time basis.
ITEM
2. DESCRIPTION OF PROPERTY
We
have a
six year office lease covering approximately 471 square meters located at
Level
3, 9 Empire Stadium Street, Gzira GZR04, Malta, expiring on August 14, 2010,
at
a base annual rent of € 37,270
(approximately US$55,900), which increases € 4,660 per annum (approximately
US$7,000) until the final year.
We
have a
four year office lease on the second floor of 139-141 Featherston Street
in
Wellington, New Zealand, expiring on July 31, 2009. The office comprises
of
approximately 300 square meters with an annual rental of NZ$66,000 per annum
(approximately US$51,500) plus a 12.5% Goods and Services Tax (“GST”), which is
claimable against GST revenue tax payable or is refundable.
We
have a
three year office lease on Suite 2001 at the Limited Edition Office Park,
2001
152nd
Avenue
NE, Redmond, WA., expiring on July 31, 2009. The office comprises 3,825 rentable
square feet at a base annual rental of US$61,200 in the first year, escalating
to $68,850 in the 2nd
year,
and $76,500 in the 3rd
year.
All
of
the aforementioned leased facilities are adequate for our current
needs.
ITEM
3. LEGAL PROCEEDINGS
We
are
not aware of any legal proceedings (either presently engaged in or contemplated)
by any government authority or other party involving us, our properties,
or our
products.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 2007.
6
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our
Common Stock is currently quoted on the OTC bulletin board under the trading
symbol ATYG.OB. The following table sets forth the range of closing high
and low
closing quotes for each period indicated as reported by the OTC
Bulletin Board and reflects all stock splits effected by us:
|
|
2007
|
2006
|
|||||||||||
|
|
High
|
Low
|
High
|
Low
|
|||||||||
|
First
quarter
|
$
|
1.02
|
$
|
0.90
|
$
|
1.80
|
$
|
1.50
|
|||||
|
Second
quarter
|
$
|
1.01
|
$
|
0.75
|
$
|
1.70
|
$
|
1.46
|
|||||
|
Third
quarter
|
$
|
1.01
|
$
|
0.70
|
$
|
1.60
|
$
|
1.10
|
|||||
|
Fourth
quarter
|
$
|
0.85
|
$
|
0.70
|
$
|
1.19
|
$
|
0.90
|
|||||
The
quotations above reflect inter-dealer prices, without retail mark-up, mark-down,
or commission, and may not represent actual transactions.
We
have
approximately 200 stockholders as of April 10, 2008, comprising both registered
stockholders and those held in “street name.”
We
have
not previously declared or paid any cash dividends on our Common Stock and
presently intend to retain our future earnings, if any, to fund the development
and growth of our business and, therefore, do not anticipate paying any cash
dividends in the foreseeable future. We have accrued $5,880 of dividends
owed to
holders of our Series “B” Convertible Preferred Stock (“Series
B Preferred Stock”).
The
Series B Preferred Stock was converted into Common Stock on December 29,
2006.
We
established our 1999 Stock Option Plan (the “1999
Plan”)
on
November 2, 1999, with 133,333 shares of Common Stock (on an adjusted basis)
approved for issuance. We established our 2001 Stock Plan (the “2001
Plan”)
on
August 16, 2001, with 250,000 shares of Common Stock (on an adjusted basis)
approved for issuance. We established our 2004 Employee Stock Incentive Plan
(the “2004
Plan”)
on
March 24, 2004, which allows us to issue options to staff and consultants
of up
to 25% of our outstanding Common Stock, as determined from time to time,
which
was equal to 9,878,487 shares on December 31, 2007. The purpose of the 1999
Plan
is to grant our Common Stock and options to purchase our Common Stock to
our
employees and key consultants. The purpose of the 2001 Plan is to grant stock
and warrants to purchase our Common stock to employees and key consultants
for
outstanding cash payments due. The purpose of the 2004 Plan is to grant stock
options to purchase our Common Stock, restricted stock (“Restricted
Stock”),
and
stock bonuses to employees, officers, and key consultants. The outstanding
options on December 31, 2006, and December 31, 2007, were:
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
|||||||
|
Equity
Compensation Plans approved by security holders at December 31,
2006
|
134,084
|
$
|
3.10
|
6,123,867
|
||||||
|
Equity
Compensation Plans approved by security holders at December 31,
2007
|
33,084
|
$
|
5.86
|
9,845,403
|
||||||
During
the year ended December 31, 2007, no options were granted or exercised. During
the year ended December 31, 2006, options to purchase 6,250 shares of our
Common
Stock were exercised at an exercise price $0.48 per share. On December 29,
2006,
new options to purchase 90,000 shares of our Common Stock were granted under
the
2004 Plan to two staff members and a consultant at an exercise price of $1.00
per share with the options vesting 20% annually starting December 31, 2007.
70,000 of these options were cancelled during 2007 because one employee and
the
consultant resigned and 15,000 earlier options from the 1999 Plan also expired
during 2007. 4,000 of the remaining options vested during 2007.
7
Recent
Sales of Unregistered Securities
All
of
the following offerings and sales were deemed or determined by us to be exempt
under Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”).
The
offerings and sales were made in a number of private placements to a limited
number of persons, all of whom represented in writing to us that they were
“accredited investors,” as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
$200,000
was paid to the Company on October 29, 2007, for 585,715 shares of Common
Stock
and warrants exercisable for three years to purchase 292,858 shares of Common
Stock at an exercise price of $0.70 per share. These warrants expire on October
29, 2010. Financing charges of $279,828 were booked with regard to these
shares
and warrants.
$200,000
was paid to the Company on November 30, 2007, for 1,000,000 shares of Common
Stock and warrants exercisable for three years to purchase 1,000,000 shares
of
Common Stock at an exercise price of $0.20 per share. These warrants expire
on
November 30, 2012. Financing charges of $1,075,388 were booked with regard
to
these shares and warrants.
On
December 31, 2007, the Company entered into a Note Amendment and Securities
Purchase Agreement (the “WCOF
Agreement”)
with
West Coast Opportunity Fund LLC (“WCOF”),
as
buyer, (the “Buyer”).
The
WCOF Agreement amends the earlier Securities Purchase Agreement of June 15,
2007, under which our wholly-owned subsidiary, Atlas Technology Group (US)
Inc
(“ATG
US”)
issued
to the Buyer two senior secured promissory notes, each in the principal amount
of $2,500,000.00, dated June 15, 2007 and July 11, 2007 (each, a “Promissory
Note,”
and
together, the “Promissory
Notes”);
6,500,000 shares of the Company’s Common Stock and 6,500,000 warrants to
purchase Common Stock, exercisable for a period of five years from the date
of
issuance at an initial exercise price of $2.60 per share. Pursuant to the
WCOF
Agreement, the Buyer agreed to cancel and return the Warrants to the Registrant,
in consideration for which the Company has agreed to: (i) enter into the
WCOF
Agreement, amending the earlier agreement; (ii) amend the Promissory Note
dated
June 15, 2007, to extend the maturity date from November 30, 2008 to December
31, 2008; (iii) amend and restate the Promissory Note dated July 11, 2007;
and
(iv) issue a yield enhancement consisting of 3,500,000 shares (the “Yield
Enhancement Shares”)
of
Common Stock. As a result of issuing the Yield Enhancement Shares, the Company
incurred a financing charge of $2,973,600.
Repurchases
of Equity Securities
We
did
not repurchase any of our equity securities during the fourth quarter of
fiscal
2007.
8
ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward
Looking Statements
The
following discussion contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act
that are subject to risks and uncertainties. These forward-looking statements
are based on our management’s beliefs, as well as assumptions and information
currently available to us. When used in this report, the words “believe,”
“expect,” “anticipate,” “estimate,” and similar expressions are intended to
identify forward-looking statements. There are several important factors
that
could cause actual results to differ materially from historical results and
percentages and results anticipated by the forward-looking statements, such
as,
but not limited to:
|
·
|
whether
or not our products are accepted by the marketplace and the pace
of any
such acceptance;
|
|
·
|
improvements
in the technologies of our
competitors;
|
|
·
|
changing
economic conditions; and
|
|
·
|
other
factors, some of which will be outside of our
control.
|
We
have
sought to identify most risks to our business but cannot predict whether
or to
what extent any of such risks may be realized. There can be no assurance
that we
have identified all possible risks that might arise. Investors should carefully
consider all such risks before making an investment decision with respect
to our
Common Stock. We caution you not to place undue reliance on any forward-looking
statements, all of which speak only as of the date of this report. You should
refer to and carefully review the information in future documents we file
with
the Securities and Exchange Commission.
Management’s Discussion
and Analysis
Our
business model primarily focuses on delivering remote IT support services.
We
leverage the recent advances in software, IT monitoring systems, and
communications to build a new leading edge global support infrastructure,
providing “follow-the-sun” 24x7 hour software support to large- and medium-sized
companies. The new application onboarding and monitoring processes that we
have
developed should allow for cost savings over existing IT service providers.
We
believe the IT support offered using our software, systems, and processes
will
provide a quality product to a wide range of business enterprises and provide
a
maximum return on our investment.
After
two
years of development and testing, we started onboarding our first pilot customer
in the first quarter of the 2007 and, by year end, we were supporting one
customer on a 24x7 support basis and were in various stages of onboarding
three
other customers. We now have three customers onboarded and are in the final
stages of onboarding two others.
Results
of Operations
The
year
2006 through 2007 was a transitional period for us with the acquisition of
AtlasTG on January 20, 2006, the acquisition of BLive in January 2007, and
the
sale of our previous business, operated from within TDC, on September 14,
2006.
We
incurred an operations net loss of $3,190,059 for the year ended December
31,
2007, as compared to an operations net loss of $1,780,896 for the year ended
December 31, 2006, which is further explained in the sections below.
9
Revenues
Total
revenues were $574,861 for the year ended December 31, 2007. Because 2006
was a
transitional and development year, revenue was limited to $39,706 from
consulting activities performed during the third and four quarters of fiscal
year 2006.
The
2007
revenue of $574,861 can be split into three categories: (i) revenue from
consulting services and placing of consultants with third parties of $205,713;
(ii) sale of IT support services software through our BLive operations of
$102,456 for the eleven months following the acquisition of BLive; and (iii)
$266,692 of onboarding and support sales revenue. The onboarding and support
revenue in 2007 is the first revenue generated by our new mainstream business
and will build over the coming months as new customers are onboarded and
become
mainstream support customers. Consulting services are being provided to
potential software support customers from our Redmond office, and the provision
of consultants is through a joint venture with Breard LLC where we are operating
a staff augmentation consulting service for potential support customers as
a
first step in developing a relationship with these potential
customers.
While
the
revenue in the first quarter came from the provision of consulting services
and
from our new BLive operation, the bulk of the increase in our revenue for
the
second, third, and fourth quarters came primarily from onboarding and support
to
our first IT support customers, for whom we began providing services in March
2007.
We
completed the onboarding of our first customer, Mobile Content Networks,
Inc.
(“MCN”),
in
Palo Alto, California, in March 2007. MCN provides real-time mobile search
solutions to 3GSM mobile telephone networks, such as D2 of Japan and Total
Access Communications Plc (“DTAC”)
of
Thailand.
Subsequent
to December 31, 2007, we have completed the onboarding of our second, third,
and
fourth IT application support customers, Shoe Pavilion Inc (“Shoe
Pavilion”),
Operative, Inc (“Operative”),
and
Pay Plus Benefits, Inc (“PayPlus”)
using
our own staff, and we expect support revenue from these customers to increase
during the year 2008.
Shoe
Pavilion is a Sherman Oaks, California, based independent off-price
footwear retailer with 108 stores located in the western and southwestern
United
States. Operative is a New York, New York, provider of ad operations
software, technology, and outsourcing services. PayPlus is a Pasco,
Washington, based nationally recognized, award-winning Professional
Employer Organization, who outsources human resources administration
and payroll functions for companies.
We
anticipate that revenue from our new IT support services will increase during
the year 2008 as new customers are recruited and onboarded through a direct
marketing campaign and also through our sales and onboarding partners, such
as
Cascade Business Group and Slalom Consulting in the USA, PA Consulting and
Universal Information Technology Group Ltd in the UK, and Bizmatica Sistemi
s.r.l.in Italy. All of these are IT consulting companies with whom we have
signed reseller or partner agreements.
With
the
acquisition of BLive in January 2007, we acquired several hundred established
customers and an established annual revenue base. We are planning to
integrate BLive and its proprietary support tools to strengthen our remote
technical support and sales, both externally and for our internal corporate
Helpdesk support departments and to upgrade the BLive product. BLive targets
users in the worldwide Helpdesk support market, which diversifies our revenue
base.
Cost
of Sales
Our
cost
of sales for the year end December 31, 2007, was $359,749 compared to $269,091
for the nine months ended September 30, 2007; $193,691 for the first six
months
to June 30, 2007; and $83,711 in the first three months to March 31, 2007.
There
was no comparable cost of sales for 2006 because AtlasTG was still developing
its software tools and BLive was acquired in January 2007. Cost of sales
includes an allocation of salary costs related to the consulting work performed
and BLive support services provided, as well as the salaries and engagement
fees
for the consultants provided to third parties and the share of income for
our
joint venture partner. The salary costs for our mainstream support services
are
included under operating expenses with the IT software development and support
line.
The
Gross
Margin for the year ended December 31, 2007, was $215,118 compared to a loss
of
$28,294 for the year ended December 31, 2006. Because we are still getting
systems established, it is too early to predict what gross margin percentages
of
revenue will be going forward. As we get into full support operations, salary
costs of our support staff will be charged as a cost of sales. Previously,
they
have been charged as IT software development expenses since they were primarily
employed over the past two years on the development and testing of our new
suite
of tools and training and preparing for the support function. Some internal
staff was used in the onboarding of the pilot customers so that the tools
can be
tested and further refined for future use.
10
Operating
Expenses
During
2006, we continued to develop our new software tools for onboarding and
monitoring of our customers’ software applications acquired through the AtlasTG
acquisition. In the past, we have expensed all of our software development
costs
in the period the costs were incurred. With the new software purchased and
developed through our AtlasTG line of business reaching the live beta and
production testing stages, and, by year end 2006, the production implementation
stage, our Board of Directors adopted Statement of Financial Accounting
Standards No. 86, “Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed” (“SFAS
86”)
and
capitalized certain software development costs that meet the requirements
of
SFAS No. 86. As a result of the adoption of SFAS No. 86, $293,222 of our
software development costs were capitalized during the year ended December
31,
2007; whereas, $454,942 of software development costs were capitalized during
the year ended December 31, 2006: which are in addition to the $835,192 of
IT software costs we acquired from AtlasTG on January 20, 2006, and the $505,121
of software development costs that we acquired from the acquisition of BLive
assets.
These
capitalized costs will be amortized over three years as the new AtlasTG business
goes into full commercialization. The BLive acquired costs were amortized
during
2007 and $126,280 of this amortization is included in the depreciation and
amortization cost of the attached consolidated financial statements. However,
not all of the software development costs for the year met the requirements
of
SFAS No. 86, and these costs have been charged as an expense to IT software
development in the consolidated statement of operations. The total cost of
this
expenses item was $1,432,633 for the year ended December 31, 2007, compared
to
$829,780 expensed in the year ended December 31, 2006.
Sales
and
marketing expenses for the year ended December 31, 2007 were $314,664 compared
to $136,260 for the year ended December 31, 2006. Sales marketing expenses
consist primarily of compensation and benefits for sales and marketing staff
plus advertising expenses, which are primarily the costs incurred in the
design,
development, and printing of our literature and marketing materials, including
website design. We expense all advertising expenditures as incurred. We spent
more on sales and marketing expenses in 2007 than the prior year because
we are
in the growth stage of marketing our new remote IT support business line
and
towards the end of the year took on extra staff. As we further ramp up our
marketing effort, we expect that this expense will increase as we continue
to
expand our market presence in 2008.
General
and administrative expenses consist primarily of compensation and benefits,
fees
for professional services, and overhead. General and administrative expenses
were $1,199,138 for the year ended December 31, 2007, compared to $650,236
for
the year ended December 31, 2006. The increase between 2006 and 2007 is
attributed to the increase in employees and consultants and extra legal expense
associated with the WCOF financing transaction. In addition, three members
of
the executive team worked without compensation in the first quarter of 2006.
It
is expected that general and administrative costs will not increase further
in
2008 since our aim is to reduce overheads wherever possible over the coming
months.
Depreciation
and amortization expense increased substantially in during 2007. For the
year
ended December 31, 2007, it was $458,741 compared to $106,326 for the year
ended
December 31, 2006. The reason for the sharp increase has been amortization
of
the IT technology and customer lists that we purchased as part of BLive,
which
are being amortized over three years and amounted to $264,410 in the current
year. As we move into the full support phase during 2008, the amortization
of
the capitalized software over three years will begin. This will also be a
significant expense in future periods, which will offset the increase in
revenue
from our application support operations.
Loss
from Operations
Loss
from
operations for the continuing business for the year ended December 31, 2007,
was
$3,190,059 compared to a loss of $1,780,896 for the year ended December 31,
2006. This increased loss was due to additional support cost, sales and
marketing expense, general and administrative expenses, and depreciation
and
amortization as detailed in the above sections. For the quarter ended December
31, 2007, the loss was $957,739 compared to a loss of $833,743 in the
third quarter of 2007 and compared to a loss of $414,929 for the fourth quarter
of 2006. Again, the main factors causing the increased loss were additional
IT
support cost, sales and marketing expense, and depreciation and amortization.
As
revenue increases, the loss from operations will reduce because we have
sufficient office space in all three locations to accommodate our immediate
needs and to accommodate additional staff that we need to hire, and we have
existing staff resource for the initial customers. In addition, general and
administrative costs will remain at the same levels as we build up revenue
over
the coming twelve months.
11
Interest
Income, Expense, and Other Financing Charges
Interest
expense was $155,269 for the year ended December 31, 2007, of which $71,050
was
incurred in the fourth quarter of 2007. The increase is due to the accrual
of
interest on the WCOF term loan and the accrual of $3,000 per quarter of interest
on the Note Payable, which was repaid shortly after December 31, 2007. Interest
expense for the year ended December 31, 2006, was $36,209 and the largest
component of that related to the Note Payable.
Interest
income for the year ended December 31, 2007, was $76,171 compared to $468
for
the year ended December 31, 2006. The increase in the interest income is
primarily attributable to the accrual of interest on the $4,000,000 borrowed
from WCOF that was placed in escrow as detailed in Note 5 to the financial
statements. Interest expense will be an increasing cost during 2008 as interest
expense is accrued and paid on the full WCOF facility of $3.5 million ($1.5
million was repaid early in January 2008 using funds released from escrow)
at an
interest rate of 5% on $2.5 million and 7.5% on the remaining $1 million.
Following
the issuance to WCOF of 6,500,000 shares of Common Stock in the form of “yield
enhancement shares” and the warrants exercisable for five years to purchase
6,500,000 shares of Common Stock at an exercise price of $2.60 per share
(see
Notes 5 and 8 to the financial statements) and other associated transactions,
we
have been required to carry out a series of Black-Scholes valuations to fair
value the various securities that have been issued and then to account for
them
as additional paid in capital. As a result of the issuance of the shares
of
Common Stock and warrants associated with the initial WCOF promissory notes,
the
Company and Atlas US incurred and expensed financing charges of $854,375
for the
three months ended June 30, 2007 and also booked as discount on debt of
$2,429,775. With the drawdown of the Second Note on July 11, 2007, a further
$1,082,071 of financing charges were taken up in the three months ended
September 30, 2007, and $814,606 of the total discount of $5 million dollars
was
amortized. The remaining discount of $4,115,168 was written off to other
financing charges at December 31, 2007, and the net effect is shown in the
Consolidated Statement of Operations for the year ended December 31, 2007.
The
corresponding credit was booked to additional paid-in capital and is included
in
the Stockholder’s equity in the balance sheet. The WCOF transaction accounts for
$6,850,621 of the $9,076,514 of other financing charges during the year ended
December 31, 2007 (nil 2006).
The
remaining $2,225,893 of other financing charges relates to the issue of warrants
associated with the raising of both debt and equity as detailed in Notes
5, 8,
and 9 of the accompanying financial statements.
Other
Comprehensive Income (Expense)
We
incurred a loss on unrealized foreign exchange balances of $247,443 for the
year
ended December 31, 2007 (as compared to a gain of $784 in the year ended
December 31, 2006). These exchange fluctuations occurred during the year
due to
the fall of the U.S. dollar relative to the Euro as our Malta office incurs
costs in Euro tied currency and a large proportion of our creditors and
short-term advances are in Euro-related currencies and, to a significantly
lesser extent, the fall of the U.S. dollar against the New Zealand
dollar.
Provision
for Income Taxes
Our
income tax expense for the year ended December 31, 2007, was $804 compared
to
$1,914 for the year ended December 31, 2006. This cost relates to adjustments
for prior years and a minimum tax charge in the current year.
Comprehensive
Net Income (Loss)
The
comprehensive net loss for the year ended December 31, 2007, was $12,593,918
compared to $1,817,767 for the year ended December 31, 2006, due to the SG&A
previously discussed. With the sale of TDC we made a recovery of $173,853
(after
taxes), which was treated as income from discontinued operations and offset
against the operating loss of $1,991,620 from continuing operations to obtain
the comprehensive loss of $1,817,767 in year ended December 31, 2006.
12
Liquidity
and Capital Resources
During
the year ended December 31, 2007, we raised $1,417,000 compared to $2,439,753
in
the year ended December 31, 2006, through the sale of new equity securities
(before costs) and $5 million of debt to finance the development of the new
AtlasTG business. This new equity and debt was used to fund the business
working
capital requirements to develop our IT support tools and platform for our
new business line during the year ended December 31, 2007, and the
working capital requirements going forward into 2008. .
On
December 31, 2007, we had cash on hand of $25,724 compared to $130,991 at
December 31, 2006. We also had the WCOF Escrow Deposit of $4,011,107. This
was
released on January 3, 2008, and $1,500,000 was used to partially repay the
WCOF
debt and $132,000 was used to repay the loan payable showing in the current
liabilities section of the Consolidated Balance Sheet. A further $550,000
of
creditors and short-term debt was repaid, and $180,000 of placement agent
fees
were paid on the release of the WCOF debt proceeds.
Sales
of
equity have historically been our primary source of funding. We will need
to
continue to successfully raise additional capital through the sale of our
equity
securities throughout 2008 to have sufficient working capital to successfully
bring online new customers to achieve our revenue targets and to enable us
to
repay the balance of the WCOF loan now standing at $3,500,000, plus the interest
accrued thereon. We anticipate that during 2008, revenue will increase as
a
result of sales to our existing IT support customers and new customers, which
we
are targeting as part of our marketing plans so that we can reach a point
where
assets are equal to or higher than liabilities during the 2nd
half of
the 2008 year.
13
Critical
Accounting Policies
Our
critical accounting policies are described in Note 2 - Basis of Presentation
and
Summary of Significant Accounting Policies of the Notes to our financial
statements.
Our
discussion and analysis of financial conditions and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States.
The preparation of the financial statements requires us to make estimates
and
judgments that affect the reported amounts of assets, liabilities, revenues,
expenses, and related disclosure of contingent assets and liabilities. On
an
on-going basis, we evaluate the estimates that we have made. These estimates
have been based upon historical experience and on various other assumptions
that
we believe to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. We believe
the
following critical accounting policies affect our more significant judgments
and
estimates used in the preparation of our consolidated financial
statements.
Allowance
for Doubtful Accounts.
We
regularly review our accounts receivable and, where necessary, set up and
maintain an allowance for doubtful accounts for estimated losses resulting
from
the inability of our customers to make required payments, which is included
in
our bad debt expense. Management determines the adequacy of this allowance
by
regularly reviewing our accounts receivable aging and evaluating individual
customer receivables, considering customers’ financial condition, credit
history, and current economic conditions. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability
to
make payments, additional allowances may be required.
Revenue
Recognition.
Revenue
is generally recognized when all the following criteria are met: (i) persuasive
evidence that contractual agreement exists, (ii) delivery has occurred, and
(iii) the fee is fixed or determinable and collection is probable. If all
aspects but the last have been met or if post-contract customer support could
be
material, revenue is recognized with payments from customers are received.
Any
losses on contracts are recognized immediately.
Income
Taxes.
We
account for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes.” Significant judgment is required in determining our provision for income
taxes. We assess the likelihood that our deferred tax asset will be recovered
from future taxable income, and, to the extent we believe that recovery is
not
likely, we establish a valuation allowance. We consider future taxable income
projections, historical results, and ongoing tax planning strategies in
assessing the recoverability of deferred tax assets. However, adjustments
could
be required in the future if, we determine that the amount to be realized
is
lesser or greater than the amount that we recorded. Such adjustments, if
any,
could have a material impact on our results of our operations.
Stock
Based Compensation
Prior
to
2006, the Company accounted for stock based awards to employees under its
“Equity Incentive Plan” as compensatory in accordance with Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB
25”).
The
Company also recorded stock-based awards for services performed by consultants
and other non-employees in accordance with Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”).
14
New
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51"("SFAS No.
160"),
which will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a
component of equity within the consolidated balance sheets. SFAS No. 160
is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any, that the adoption will have on its financial
position, results of operations or cash flows but we believe that this will
not
affect us.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations, or SFAS No. 141R. SFAS No. 141R will change the accounting
for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction
at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items
in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning
of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be recorded and
disclosed following existing GAAP until January 1, 2009. We expect SFAS No.
141R
will have an impact on accounting for business combinations once adopted
but the
effect is dependent upon acquisitions at that time. We are still assessing
the
impact of SFAS No. 141R.
In
February 2007, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement
No.
115” (hereinafter “SFAS No. 159”). This statement permits entities to choose to
measure many financial instruments and certain other items at fair value.
The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings cause by measuring
related assets and liabilities differently without having to apply complex
hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments. This statement is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007, although earlier adoption is permitted. Management has not determined
the effect that adopting this statement would have on the Company’s financial
condition for results of operations.
15
Risk
Factors
The
following risk factors apply to our business:
We
have a limited operating history and there is a great degree of uncertainty
as
to our future results. We have experienced losses over the past few years
and
may never achieve sustained profitability.
We
have a
limited operating history upon which an evaluation of our business and prospects
can be based. Our prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development, particularly in
light
of the uncertainties relating to the new and evolving markets in which we
intend
to operate and in light of the uncertainty as to market acceptance of our
business model.
We
will
be incurring costs in marketing our products and services to customers and
in
building and developing an administrative organization. To the extent that
revenues do not match these expenses, our business, results of operations,
and
financial conditions will be materially adversely affected. There can be
no
assurance that we will be able to generate sufficient revenues from the new
IT
support business to maintain profitability on a quarterly or annual basis
in the
future. We may not be able to sustain or increase profitability on a quarterly
basis or achieve profitability on an annual basis.
We
might require additional capital to support business growth, and this capital
might not be available.
We
intend
to continue to make investments to support our business growth and may require
additional funds to respond to business challenges or opportunities, including
the need to develop new services or enhance our existing service, enhance
our
operating infrastructure, or acquire complementary businesses and technologies.
Accordingly, we may need to engage in equity or debt financings to secure
additional funds. In addition, if we raise additional funds through further
issuances of equity or securities, our existing stockholders would suffer
dilution.
We
face substantial competition in our industry.
While
we
are seeking to position ourselves in a new and unique space, there are also
a
large number of traditional consultancy competitors competing in this space,
including IBM Global Services (“IBM”),
Hewlett-Packard (“HP”),
Electronic Data Systems Corporation (“EDS”),
and
Accenture Ltd. (“Accenture”),
as
well as a number of smaller independent service providers. The industry is
broken down into three segments: first, are the hardware manufacturers that
provide additional IT services; second, are the large pure-play IT service
providers targeting Fortune 500 companies; and, third, are smaller independent
companies that generally specialize in specific local markets.
The
improvement of infrastructure has meant the introduction of additional
competitors to the competitive picture, notably in India, where Wipro Limited
(“Wipro”)
and
Infosys Technologies Limited (“Infosys”)
provide support services and call centers. There are other smaller regional
players, such as Wavex and Motive that are also targeting the SMB market.
In
addition, we believe that the single biggest competitive factor is existing
in-house support groups. We believe that we will be competing with in-house
support groups rather than external competitors in over 90% of competitive
cases.
Our
IT support services may not be accepted by the industries that require IT
support.
Our
future success depends on our ability to create and deliver sophisticated
tools
to support our new IT support business in order to be attractive to a sufficient
number of users to generate significant revenues. We need to develop, attract,
retain, and expand a loyal customer base for our new services so that the
results of our operations and financial condition will materially improve
over
the next twelve months.
Our
success depends on our ability to address potential market opportunities
while
managing our expenses. If we are unable to manage our expenses, our business
and
financial conditions will be materially adversely
affected.
Our
future success depends upon our ability to successfully balance maximizing
market opportunities and managing our expenses. Our need to manage expenses
will
place a strain on our management and operational resources. If we are unable
to
manage our expenses effectively, our business, financial condition, and
operating results will be materially adversely affected. We have experienced
unprofitable years during 2006 and 2007, and we expect increased marketing
and
operational expenses in the near future as we increase the size of our
operations and continue to comply with the requirements of the Sarbanes-Oxley
Act of 2002.
16
Our
future success depends on our ability to attract customers from both within
and
outside the United States. Jurisdictions outside the United States may impose
tax and regulatory burdens on our business, which could have a material adverse
affect on our business, financial condition, and results of
operations.
Our
future success will be affected by our ability to attract customers from
countries outside the United States. Foreign countries could impose withholding
taxes or otherwise tax our foreign income, impose tariffs, embargoes or exchange
controls, or adopt other restrictions on foreign trade or restrictions relating
to use or access of or distribution of software through electronic means.
The
laws
of certain countries also do not protect our intellectual property rights
to the
same extent as the laws of the United States. In addition, we are subject
to the
United States export control regulations that may restrict our ability to
market
and sell our products to certain countries outside of the United States.
Failure
in successfully marketing our products in international markets could have
a
material adverse effect on our business, operating results, and financial
conditions.
Our
success depends on our key personnel and attracting suitably skilled staff.
We
may be unable to attract and retain qualified
employees
Our
performance and success of the existing business is dependent substantially
on
the services of our existing small group of experienced senior staff, as
well as
on our ability to recruit, retain, and motivate our key employees. We will
require a much larger staff as our business grows.
We
do not
have employment contracts with our key officers. Their relationships with
us are
terminable at will. We intend to address the issue of employment contracts
with
our key officers in 2008. Support and general staff have employment contracts
appropriate to their particular locale and the type of services they provide.
Our success also depends on our ability to attract and retain additional
qualified employees. Competition for qualified personnel in all of our locations
is intense and there are a limited number of persons with the knowledge and
experience in our industry. There can be no assurance that we will be able
to
attract and retain key personnel in our key initial recruitment areas of
Malta
and Wellington, New Zealand.
We
expect high variability and uncertainty as to our future operations and
financial results.
We
expect
high variability and uncertainty as to our future operations and financial
results. As we continue to develop and market our business, our quarterly
operating results may fluctuate as a result of a variety of factors. Many
of
these factors are outside of our control, including demand for the development
and introduction of new products and services by our competitors, price
competition or pricing changes in the industry, foreign exchange rate changes,
technical difficulties or system downtime, general economic conditions, and
economic conditions specific to the Internet and related media. Due to these
factors, among others, our operating results may fall below our expectations
and
the expectations of investors.
Our
success depends on our ability to develop services that meet our customers’
requirements and to keep pace with technology trends in an ever evolving
IT
sectors.
Our
success depends on our ability to develop and provide new services that meet
our
customers’ changing requirements. The IT sector and the Internet are
characterized by rapidly changing technology, evolving industry standards,
changes in customer needs, and frequent new service and product innovations.
Our
success will depend, in part, on our ability to assess and effectively use
unproven technologies and unproven standards. We must evaluate and utilize
technical standards developed by industry committees and continue to develop
our
technological expertise, enhance our current services, develop new services
that
meet changing customer needs, and influence and respond to emerging industry
standards and other technological changes on a timely and cost-effective
basis.
If we fail to adequately assess or utilize these standards or proprietary
technologies at the appropriate time in the marketplace, the competitive
advantages of our products and services and our business, financial condition,
and operating results could be materially adversely affected.
17
Our
Independent Auditor’s Report contains a going concern qualification which means
there is substantial doubt about our ability to continue as a going concern
Our
independent registered public accounting firm has concluded that we have
suffered recurring losses from operations and have a working capital deficiency
that raises substantial doubt about our ability to continue as a going concern.
Additionally, we have incurred significant operating and net losses and have
been unable to meet our cash flow needs with internally generated funds.
Our
cash requirements (primarily working capital requirements and cash for product
development activities) have been satisfied through borrowings and the issuance
of securities in a number of private placements. At December 31, 2007, we
had cash and cash equivalents on hand of approximately $4,036,831, including
$4,011,107 of restricted cash, current accounts payable, accruals and short
term
loans of $1,737,951 and promissory notes payable of $5,000,000 due on December
31, 2008. We may need to continue to raise additional equity or debt
financing to adequately fund our strategies and to satisfy our ongoing working
capital requirements. If we are unable to obtain such financing in a timely
manner, we could be forced to curtail or cease operations. Even if we are
able
to pursue these strategies, there can be no assurances that we will ever
attain
profitability. The financial statements included herein do not include any
adjustments that might result from the outcome of this uncertainty.
Increasing
governmental regulation on electronic commerce and legal uncertainties could
limit our growth.
The
adoption of new laws or the adaptation of existing laws to the Internet may
limit use of the Internet, which could in turn limit or decrease the demand
for
our services, increase our cost of doing business, or otherwise harm our
business. Federal, state, local, and foreign governments are considering
a
number of legislative and regulatory proposals related to Internet commerce.
A
number
of laws and regulations may be adopted or amended related to Internet user
privacy, Internet security, taxation, pricing, quality of products and services
on the Internet, and intellectual property ownership. The application of
existing laws to the Internet, in areas such as property ownership, copyrights,
trademarks, and trade secrets could have an adverse effect on our
business.
Capacity
constraints and system disruptions could substantially reduce the products
we
sell and undermine our reputation for reliability among our customers and
potential customers.
The
satisfactory performance, reliability and availability of our data centers,
and
our network infrastructure are critical to attracting and maintaining
relationships with customers. While the primary data center has back-up measures
built into it, and we have some duplication and back-up in our Malta and
Wellington offices, any system interruptions that result in the unavailability
of our data center and slower response times over the Internet for users
could
reduce the attractiveness of our services to our customers. Any disruption
of
our services would have a materially adverse effect on our business, financial
condition, and results of operations.
Our
primary data center is now located in Seattle, Washington. While this area
is
not seismically active, with our operations centralized in a single facility,
a
natural disaster, such as an earthquake, fire, or flood, could substantially
disrupt our operations or destroy our facilities. This could cause delays
and
cause us to incur additional expenses and adversely affect our reputation
with
our customers if we suffer a catastrophic loss from a natural
disaster.
As
resources allow and our growth develops, it is intended that a second data
center will be established so that we can continue operating following a
natural
or other disaster in one of our locations. Until this second data center
is
established, some duplicate files are being kept on the local systems in
Malta
and New Zealand, as well as having redundancy capacity within the existing
system.
We
do
have an insurance policy that partially alleviates some of the financial
losses
that could be incurred due to hacking or other external factors, but this
does
not compensate for reputation loss.
18
There
may be conflicts of interest among our officers, directors, and
stockholders.
Our
executive officers, directors, and their affiliates may engage in other
activities and have interests in other entities on their own behalf or on
behalf
of other persons. Neither we nor any of our stockholders will have any rights
in
these ventures or their income or profits. In particular:
|
|
·
|
Our
executive officers, directors, or their affiliates may have an
economic
interest in, or other business relationship with, partner companies
that
invest in us; and
|
|
|
·
|
Our
executive officers, directors, or their affiliates may have interests
in
entities that provide products or services to
us.
|
In
any of
these cases:
|
|
·
|
Our
executive officers or directors may have a conflict between our
current
interests and their personal financial and other interests in another
business venture;
|
|
|
·
|
Our
executive officers or directors may have conflicting fiduciary
duties to
us and the other entity; and
|
|
|
·
|
The
terms of transactions with the other entity may not be subject
to arm’s
length negotiations and therefore may be on terms less favorable
to us
than those that could be procured through arm’s length
negotiations.
|
We
may be unable to protect our intellectual property rights, or we may infringe
the intellectual property rights of others, which may result in lawsuits
and
prevent us from selling our products.
We
rely
on copyright, patent, and trade secret laws to protect our trademarks, content,
and proprietary technologies and information. There can be no assurance that
such laws will provide sufficient protection to us, other parties will not
develop technologies that are similar or superior to ours, or, given the
availability of our products’ source-code, other parties will not copy or
otherwise obtain and use our content or technologies without authorization.
Effective
trademark, copyright, and other intellectual property protection may not
be
available in every country in which our technology is distributed or made
available through the Internet. There can be no assurance that our means
of
protecting our proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar
technology.
There
are
no pending lawsuits against us regarding infringement of any existing patents
or
other intellectual property rights or any material notices that we are
infringing the intellectual property rights of others. However, there can
be no
assurance that third parties will not assert infringement claims in the future.
If any claims are asserted and determined to be valid, there can be no assurance
that we will be able to obtain licenses of the intellectual property rights
in
question or obtain licenses on commercially reasonable terms.
Our
involvement in any patent dispute, other intellectual property dispute or
action
to protect proprietary rights may have a materially adverse effect on our
business, operating results, and financial condition. Adverse determinations
in
any litigation may subject us to liabilities, require us to seek licenses
from
third parties, and prevent us from marketing and selling our products. Any
of
these situations can have a material adverse effect on our business, operating
results, and financial condition.
19
We
are susceptible to parties who may compromise our security measures, which
could
cause us to expend capital and have a materially adverse effect on our financial
condition and results of operations.
Hackers
may be able to circumvent our security measures and could misappropriate
proprietary information or cause interruptions in our Internet operations.
In
the past, computer viruses or software programs that disable or impair computers
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our users, which
could
disrupt our network or make our systems inaccessible to users. Any of these
events could damage our reputation among our customers and potential customers
and substantially harm our business. We may be required to expend capital
and
resources to protect against the threat of security breaches or to alleviate
problems caused by these breaches. Consumer concern over Internet security
has
been, and could continue to be, a barrier to commercial activities requiring
consumers to send their credit card information over the Internet. Computer
viruses, break-ins, or other security problems could lead to misappropriation
of
proprietary information and interruptions, delays, or cessation in service
to
our customers. Moreover, until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet as a merchandising medium. Further,
our
business is subject to the effects of war and acts of terrorism.
The
following risk factors apply to the securities markets and investments in
our
Common Stock:
Our
stock price is volatile and a stockholder’s investment in our Common Stock could
suffer a decline in value.
The
trading price of our Common Stock has fluctuated significantly in the past.
The
future trading price of our common stock may continue experiencing wide price
fluctuations in response to a number of factors, some of which are beyond
our
control, such as:
|
|
·
|
actual
or anticipated fluctuations in revenue or operating
results;
|
|
|
·
|
changes
in market valuation of companies in our industry
generally;
|
|
|
·
|
announcements
of research activities and technology innovations or new products
or
services by us or our competitors;
|
|
|
·
|
failure
to meet expectations of
performance;
|
|
|
·
|
developments
in or disputes regarding copyrights, trademarks, patents, and other
proprietary rights; and
|
|
|
·
|
general
economic conditions.
|
As
a
result of the registration statement which was filed and declared effective
in
the 4th
quarter
of 2007, a significant number of restricted shares have been registered and
made
available for resale. Sales of a substantial number of shares of our Common
Stock in the public market, including the shares offered under registration
statements and shares available for resale under Rule 144 of the Securities
Act,
or the perception that such sales could occur, could significantly depress
the
prevailing market price of our Common Stock.
We
expect quarterly revenue and operating results to vary in future periods,
which
could cause our stock price to fluctuate.
Our
limited operating results have varied widely in the past, and we expect they
will continue to vary from quarter to quarter as we attempt to commercialize
our
product and develop our new IT support business. Our quarterly results may
fluctuate for many reasons, including a limited operating history and dependence
on a limited number of customers for a significant portion of our
revenue.
As
a
result of these fluctuations and uncertainties in our operating results,
we
believe quarter-to-quarter or annual comparisons of our operating results
are
not a good indication of our future performance. In addition, at some point
in
the future, these fluctuations may likely cause us to perform below the
expectations of public market analysts or investors. If our results fall
below
market expectations, the price of our Common Stock will be adversely affected.
20
In
addition, we believe that various other factors may cause the market price
of
our Common Stock to fluctuate, including announcements of:
|
|
·
|
New
services being offered by our
competitors;
|
|
|
·
|
Developments
or disputes concerning intellectual property proprietary
rights;
|
|
|
·
|
Our
failing to achieve our operational milestones;
and
|
|
|
·
|
Changes
in our financial conditions or securities or analysts’
recommendations.
|
The
stock
markets, in general, and the shares of IT companies, in particular, have
experienced extreme price fluctuations. These broad market and industry
fluctuations may cause the market price of our Common Stock to decline. In
addition, the low trading volume of our stock will accentuate price swings
of
our stock.
We
have an existing obligation pursuant to a registration rights agreement to
register the resale of additional shares of Common Stock that could
have substantial diminution and other materially adverse effects on
existing stockholders and investors.
In
regards to WCOF, we have an existing registration rights agreement with various
investors under which we could be obligated to register the resale of
additional shares of Common Stock. As the rights under this agreement
are exercised, then the additional number of freely-tradable shares
of Common Stock could
significantly depress the prevailing market price of our Common
Stock
and our
existing srtockholders could suffer substantial diminution in the value of
their
shares of Common Stock and other materially adverse effects.
The
market for our stock has not been liquid.
Our
Common Stock is currently quoted for trading on the OTC Bulletin Board. As
a
result, the liquidity of our common stock is limited, not only in the number
of
shares that are bought and sold, but also through delays in the timing of
transactions, and the lack of coverage by security analysts, and the lack
of
coverage by news media of the Company. Therefore, holders of our Common Stock
may have difficulty selling their shares in the public markets.
Our
ability to issue additional securities without stockholder approval could
have
substantial dilutive and other adverse effects on existing stockholders and
investors.
We
have
the authority to issue additional shares of Common Stock and to issue options
and warrants to purchase shares of our Common Stock without stockholder
approval. Future issuance of Common Stock could be at values substantially
below the offered price of the Common Stock offered in the past, and, therefore,
could represent further substantial dilution. As of December 31, 2007, we
had outstanding options exercisable to purchase up to 33,084 shares of Common
Stock and outstanding warrants exercisable to purchase up to 4,107,092 shares
of
Common Stock. Exercise of these warrants and options could have a further
dilutive effect on existing stockholders.
21
ITEM
7. FINANCIAL STATEMENTS
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2007 AND 2006
22
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
|
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
|
24
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
25
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
26
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
27-28
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
|
29
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
30
|
23
Atlas
Technology Group, Inc
Redmond,
WA
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have
audited the accompanying balance sheet of Atlas Technology Group, Inc as
of
December 31, 2007 and 2006, and the related statements of operations,
stockholders’ equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.
The
Company is not required to have, nor were we engaged to perform, an audit
of its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.
An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Atlas Technology Group, Inc
as of
December 31, 2007 and 2006 and the results of its operations, stockholders
equity and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has limited cash. In addition, the Company’s significant
operating losses raise substantial doubt about its ability to continue as
a
going concern. Management’s plans regarding those matters also are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty
Williams
& Webster, P.S.
Certified
Public Accountants
Spokane,
Washington
April
10,
2008
24
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 AND 2006
|
2007
|
2006
|
||||||
|
ASSETS
|
|
|
|||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
25,724
|
$
|
130,991
|
|||
|
Cash
Escrow Deposit
|
4,011,107
|
—
|
|||||
|
Accounts
receivable
|
64,387
|
10,229
|
|||||
|
VAT
receivable
|
13,345
|
40,705
|
|||||
|
Prepaids
and deposits
|
18,636
|
23,731
|
|||||
|
Total
Current Assets
|
4,133,199
|
205,656
|
|||||
|
|
|||||||
|
OTHER
ASSETS
|
|||||||
|
Equipment
and furniture, net
|
168,024
|
209,853
|
|||||
|
Software
development, net
|
647,782
|
421,727
|
|||||
|
IT
technology, net
|
1,216,827
|
835,193
|
|||||
|
Customer
lists and Trademarks, net
|
414,388
|
||||||
|
Total
Other Assets
|
2,447,021
|
1,466,773
|
|||||
|
|
|||||||
|
TOTAL
ASSETS
|
$
|
6,580,220
|
$
|
1,672,429
|
|||
|
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Bank
Overdrafts
|
$
|
47,896
|
$
|
—
|
|||
|
Accounts
payable
|
972,977
|
552,971
|
|||||
|
Accrued
expenses
|
341,304
|
150,999
|
|||||
|
Income
taxes payable
|
2,292
|
5,440
|
|||||
|
Loans
payable, related parties
|
241,481
|
70,582
|
|||||
|
Loans
payable
|
132,000
|
120,000
|
|||||
|
WCOF
Loan of $5,000,000 less accrued finance charges of $2,975,000
|
3,025,000
|
—
|
|||||
|
Total
Current Liabilities
|
3,762,950
|
899,992
|
|||||
|
|
|||||||
|
COMMITMENTS
AND CONTINGENCIES
|
—
|
—
|
|||||
|
|
|||||||
|
STOCKHOLDERS’
EQUITY
|
|||||||
|
Redeemable
convertible preferred stock: 10,000,000 authorized - None issued
|
—
|
—
|
|||||
|
Common
stock, $0.0004 par value; 200,000,000 shares authorized 39,513,949
and 25,081,805 shares issued and outstanding respectively for 2007
and
2006
|
15,797
|
10,024
|
|||||
|
Additional
paid-in capital
|
20,905,146
|
6,272,168
|
|||||
|
Accumulated
(Deficit)
|
(17,857,014
|
)
|
(5,510,539
|
)
|
|||
|
Other
comprehensive income (loss)
|
(246,659
|
)
|
784
|
||||
|
Total
Stockholders’ Equity
|
2,817,270
|
772,437
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
6,580,220
|
$
|
1,672,429
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements
25
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS
ENDED DECEMBER 31, 2007 AND 2006
|
|
2007
|
2006
|
|||||
|
REVENUES
|
$
|
574,861
|
$
|
39,706
|
|||
|
|
|||||||
|
COST
OF REVENUE
|
359,743
|
68,000
|
|||||
|
|
|||||||
|
GROSS
PROFIT (LOSS)
|
215,118
|
(28,294
|
)
|
||||
|
|
|||||||
|
EXPENSES
|
|||||||
|
IT
software development
|
1,432,633
|
829,780
|
|||||
|
Sales
and marketing
|
314,664
|
136,260
|
|||||
|
General
and administrative
|
1,199,138
|
650,236
|
|||||
|
Depreciation
|
458,741
|
106,326
|
|||||
|
Total
Expenses
|
3,405,177
|
1,
752,602
|
|||||
|
|
|||||||
|
LOSS
FROM OPERATIONS
|
(3,190,059
|
)
|
(1,780,896
|
)
|
|||
|
|
|||||||
|
OTHER
INCOME (EXPENSE)
|
|||||||
|
Interest
Income
|
76,171
|
468
|
|||||
|
Interest
expense
|
(155,269
|
)
|
(27,558
|
)
|
|||
|
Other
financing charges and amortization
|
(9,076,514
|
)
|
(8,651
|
)
|
|||
|
Total
Other Income/Expenses
|
(9,155,612
|
)
|
(35,741
|
)
|
|||
|
|
|||||||
|
NET
LOSS
|
(12,345,671
|
)
|
(1,816,637
|
)
|
|||
|
|
|||||||
|
INCOME
TAX EXPENSE
|
(804
|
)
|
(1,914
|
)
|
|||
|
NET
LOSS
|
(12,346,475
|
)
|
(1,818,551
|
)
|
|||
|
|
|||||||
|
LOSS
FROM CONTINUING OPERATIONS
|
(12,346,475
|
)
|
(1,992,404
|
)
|
|||
|
|
|||||||
|
INCOME
FROM DISCONTINUED OPERATIONS
|
—
|
173,853
|
|||||
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|||||||
|
Foreign
exchange translation
|
(247,443
|
)
|
784
|
||||
|
COMPREHENSIVE
LOSS
|
$
|
(12,593,918
|
)
|
$
|
(1,817,767
|
)
|
|
|
|
|||||||
|
NET
LOSS PER SHARE OF COMMON STOCK:
|
|||||||
|
BASIC
AND DILUTED FROM CONTINUING OPERATIONS
|
$
|
(0.37
|
)
|
$
|
(0.09
|
)
|
|
|
NET
LOSS PER SHARE OF COMMON STOCK:
|
|||||||
|
BASIC
AND DILUTED FROM DISCONTINUED OPERATIONS
|
$
|
—
|
$
|
0.01
|
|||
|
|
|||||||
|
WEIGHTED
AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING, BASIC AND DILUTED
|
33,853,472
|
22,582,863
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements
26
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2007 AND 2006
|
|
2007
|
2006
|
|||||
|
Cash
Flows from Operating Activities
|
|
|
|||||
|
Net
(loss)
|
$
|
(12,346,475
|
)
|
$
|
(1,992,404
|
)
|
|
|
Discontinued
operations income
|
—
|
173,853
|
|||||
|
|
(12,346,475
|
)
|
(1,818,551
|
)
|
|||
|
Adjustments
to reconcile net loss to net cash (used) by operating
activities:
|
|||||||
|
Non-cash
financing charges associated with issue of stock and
warrants
|
9,076,514
|
8,651
|
|||||
|
Depreciation
and amortization
|
458,741
|
104,587
|
|||||
|
Changes
in assets and liabilities:
|
|||||||
|
(Increase)
decrease in accounts receivable
|
(54,158
|
)
|
10,229
|
||||
|
(Increase)
decrease in VAT receivable
|
27,360
|
—
|
|||||
|
(Increase)
decrease in prepaids and deposits
|
5,096
|
9,476
|
|||||
|
Increase
(decrease) in Overdrafts
|
47,896
|
—
|
|||||
|
Increase
(decrease) in accounts payable
|
420,006
|
10,480
|
|||||
|
Increase
(decrease) in accrued expenses
|
190,305
|
(153,915
|
)
|
||||
|
Increase
(decrease) in tax payable
|
(3,148
|
)
|
1,558
|
||||
|
Net
cash provided (used) by discontinued operations
|
—
|
(169,610
|
)
|
||||
|
Net
cash provided (used) by operating activities
|
10,168,612
|
(1,997,095
|
)
|
||||
|
|
|||||||
|
Cash
Flows from Investing Activities
|
|||||||
|
Purchase
of Atlas Technology Group
|
—
|
(37,235
|
)
|
||||
|
Cash
from acquisition of BLive Networks/Atlas Technology Group
|
414
|
93,273
|
|||||
|
Purchase
of equipment and furniture
|
(83,145
|
)
|
(55,869
|
)
|
|||
|
Purchase
of software and software development
|
(433,465
|
)
|
(455,267
|
)
|
|||
|
Net
cash provided (used) by discontinued operations
|
—
|
1,912
|
|||||
|
Net
cash used in investing activities
|
(516,196
|
)
|
(453,186
|
)
|
|||
|
|
|||||||
|
Cash
Flows from Financing Activities
|
|||||||
|
Proceeds
from issuance of stock
|
1,417,000
|
2,439,753
|
|||||
|
Repayment
of borrowing
|
—
|
(175,175
|
)
|
||||
|
Increase
in Note Payable
|
12,000
|
—
|
|||||
|
Proceeds
from borrowing
|
5,170,899
|
270,582
|
|||||
|
Restricted
cash in escrow
|
(4,011,107
|
)
|
—
|
||||
|
Net
cash provided (used) by discontinued operations
|
—
|
(6,232
|
)
|
||||
|
Net
cash provided by financing activities
|
2,588,792
|
2,528,928
|
|||||
|
|
|||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(105,267
|
)
|
78,,647
|
||||
|
Cash
and cash equivalents beginning of period
|
130,991
|
52,344
|
|||||
|
|
|||||||
|
Cash
and cash equivalents
|
$
|
25,724
|
$
|
130,991
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements
27
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2007 AND 2006
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
2007
|
2006
|
|||||
|
Income
taxes paid
|
$
|
3,299
|
$
|
—
|
|||
|
Interest
paid
|
$
|
134,036
|
$
|
23,715
|
|||
|
|
|||||||
|
|
|||||||
|
NON-CASH
FINANCING AND INVESTING ACTIVITIES
|
|||||||
|
Acquired
IT technology from Atlas TG
|
$
|
—
|
$
|
835,193
|
|||
|
VAT
receivable from Atlas TG
|
$
|
—
|
$
|
22,596
|
|||
|
Loan
and interest exchanged from AtlasTG
|
$
|
—
|
$
|
1,143,690
|
|||
|
Equipment
acquired from AtlasTG
|
$
|
—
|
$
|
225,030
|
|||
|
Deposits
and prepaid expenses acquired from AtlasTG
|
$
|
—
|
$
|
4,924
|
|||
|
Stock
issued for debt
|
$
|
—
|
$
|
100,000
|
|||
|
Cash
|
$
|
414
|
$
|
—
|
|||
|
Accounts
Receivable, net (since collected)
|
$
|
150,520
|
$
|
—
|
|||
|
Computer
equipment
|
$
|
57,204
|
$
|
—
|
|||
|
Acquisition
of IT Technology from BLive
|
$
|
505,121
|
$
|
—
|
|||
|
Acquisition
of customer list and trademarks from BLive
|
$
|
555,312
|
$
|
—
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements
28
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
YEARS
ENDED DECEMBER 31, 2007 AND 2006
|
|
Additional
|
|
||||||||||||||||||||
|
|
Common
Stock
|
Preferred
Stock
|
Paid-in
|
Accumulated
|
||||||||||||||||||
|
|
Shares
|
Amount
$
|
Shares
|
Amount
$
|
Capital
$
|
Deficit
$
|
Total
$
|
|||||||||||||||
|
Opening
Balances at December 31, 2005
|
21,607,555
|
$
|
8,635
|
84,000
|
$
|
34
|
$
|
4,098,902
|
$
|
(3,691,988
|
)
|
$
|
415,583
|
|||||||||
|
Exercise
of staff options at $0.48 per share
|
6,250
|
2
|
—
|
—
|
2,998
|
—
|
3,000
|
|||||||||||||||
|
Placement
of common stock issued at $0.50
|
1,714,000
|
686
|
—
|
—
|
439,025
|
—
|
439,711
|
|||||||||||||||
|
Placement
of common stock issued at $1.25
|
1,140,000
|
456
|
—
|
—
|
1,424,544
|
—
|
1,425,000
|
|||||||||||||||
|
Placement
of common stock issued at $0.50
|
80,000
|
32
|
—
|
—
|
39,968
|
—
|
40,000
|
|||||||||||||||
|
Placement
of common stock issued at $1.00
|
300,000
|
120
|
—
|
—
|
299,880
|
—
|
300,000
|
|||||||||||||||
|
Exercise
of Warrants at $1.00 per share
|
50,000
|
20
|
—
|
—
|
49,980
|
—
|
50,000
|
|||||||||||||||
|
Common
Stock issued in settlement of debt at $1.00 per share and 50,000
warrants
|
100,000
|
40
|
—
|
—
|
108,611
|
—
|
108,651
|
|||||||||||||||
|
Application
monies for unallocated stock
|
—
|
—
|
—
|
—
|
43,540
|
—
|
43,540
|
|||||||||||||||
|
Warrants
issued for issuance costs
|
—
|
—
|
—
|
—
|
8,550
|
—
|
8,550
|
|||||||||||||||
|
Preferred
‘B’ stock converted to common stock and warrants
|
84,000
|
34
|
(84,000
|
)
|
(34
|
)
|
(5,880
|
)
|
—
|
(5,880
|
)
|
|||||||||||
|
Net
costs of new issues
|
—
|
—
|
—
|
—
|
(237,950
|
)
|
—
|
(237,950
|
)
|
|||||||||||||
|
Other
comprehensive income, foreign exchange
|
—
|
—
|
—
|
—
|
—
|
784
|
784
|
|||||||||||||||
|
Net
income (loss)
|
—
|
—
|
—
|
—
|
—
|
(1,818,551
|
)
|
(1,818,551
|
)
|
|||||||||||||
|
Balances
at December 31, 2006
|
25,081,805
|
$
|
10,024
|
—
|
$
|
—
|
$
|
6,272,168
|
$
|
(5,509,755
|
)
|
$
|
772,437
|
|||||||||
|
Issue
of 1,150,000 shares of Common stock re acquisition of BLive Networks
Inc
at $1.00
|
1,150,000
|
460
|
—
|
—
|
1,149,540
|
—
|
1,150,000
|
|||||||||||||||
|
Adjustment
for warrants issued re BLive acquisition
|
—
|
—
|
—
|
—
|
87,900
|
—
|
87,900
|
|||||||||||||||
|
Placement
of Common stock issued at $1.00
|
100,000
|
40
|
—
|
—
|
99,960
|
—
|
100,000
|
|||||||||||||||
|
Placement
of Common stock issued at $1.00
|
200,000
|
80
|
—
|
—
|
199,920
|
—
|
200,000
|
|||||||||||||||
|
Adjustment
for warrants issued in association with debt raised
|
—
|
—
|
—
|
—
|
32,982
|
—
|
32,982
|
|||||||||||||||
|
Shares
issued to West Coast Opportunity Fund at effective rate of
$0.85
|
3,250,000
|
1,300
|
—
|
—
|
2,761,200
|
—
|
2,762,500
|
|||||||||||||||
|
Adjustment
for warrants issued in association with WCOF debt
|
—
|
—
|
—
|
—
|
507,650
|
—
|
507,650
|
|||||||||||||||
|
Adjustment
for warrants issued to WCOF broker
|
—
|
—
|
—
|
—
|
40,612
|
—
|
40,612
|
|||||||||||||||
|
Adjustment
for shares issued in association with consulting work done
|
140,000
|
56
|
—
|
—
|
118,944
|
—
|
119,000
|
|||||||||||||||
|
Shares
issued for repayment of debt with adjustment for warrants issued
in
association with repayment of debt
|
650,000
|
260
|
—
|
—
|
750,425
|
—
|
750,685
|
|||||||||||||||
|
Adjustment
for shares and warrants issued in association with extension of
debt
Note
|
25,000
|
10
|
—
|
—
|
35,265
|
—
|
35,275
|
|||||||||||||||
|
Shares
issued to West Coast Opportunity Fund at effective rate of
$0.92
|
3,250,000
|
1,300
|
—
|
—
|
2,988,700
|
—
|
2,990,000
|
|||||||||||||||
|
Adjustment
for warrants issued in association with WCOF debt
|
—
|
—
|
—
|
—
|
593,172
|
—
|
593,172
|
|||||||||||||||
|
Exercise
of Warrants at $1.00 per common share
|
10,000
|
4
|
—
|
—
|
9,996
|
—
|
10,000
|
|||||||||||||||
|
Placement
of Common Stock at $0.35
|
571,429
|
229
|
—
|
—
|
399,772
|
—
|
400,000
|
|||||||||||||||
|
Adjustment
for warrants issued in association with $0.35 Stock
|
—
|
—
|
—
|
—
|
73,003
|
—
|
73,003
|
|||||||||||||||
|
Placement
of Common Stock at $0.35
|
585,715
|
234
|
—
|
—
|
409,766
|
—
|
410,001
|
|||||||||||||||
|
Adjustment
for warrants issued in association with $0.35 Stock
|
—
|
—
|
—
|
—
|
74,828
|
—
|
74,828
|
|||||||||||||||
|
Placement
of Common Stock at $0.20 and issue of 1 million warrants
|
1,000,000
|
400
|
—
|
—
|
1,274,988
|
—
|
1,275,388
|
|||||||||||||||
|
Shares
issued to West Coast Opportunity Fund on reorganization of
loan
|
3,500,000
|
1,400
|
—
|
—
|
2,973,600
|
—
|
2,975,000
|
|||||||||||||||
|
Warrants
issued for consulting
|
—
|
—
|
—
|
—
|
50,756
|
—
|
50,756
|
|||||||||||||||
|
Net
Income (Loss)
|
—
|
—
|
—
|
—
|
—
|
(12,346,475
|
)
|
(12,346,475
|
)
|
|||||||||||||
|
Other
Comprehensive Income (Loss) - foreign exchange
|
—
|
—
|
—
|
—
|
—
|
(247,443
|
)
|
(247,443
|
)
|
|||||||||||||
|
Balances
at December 30, 2007
|
39,513,949
|
$
|
15,797
|
—
|
$
|
—
|
$
|
20,905,146
|
$
|
(18,103,673
|
)
|
$
|
2,817,270
|
The
accompanying notes are an integral part of these consolidated financial
statements
29
ATLAS
TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
YEARS
ENDED DECEMBER 31, 2007 AND 2006
NOTE
1 - NATURE OF BUSINESS
We
were
incorporated in August 1998 as Tribeworks Inc., a California corporation
(“California
Tribeworks”).
On
November 2, 1999, we entered into a transaction with Pan World Corporation,
a
publicly-traded Nevada corporation (“Pan
World”),
whereby Pan World agreed to provide financing in connection with the merger
of a
newly-formed subsidiary of Pan World into California Tribeworks (the
“Recapitalization”).
Prior
to the Recapitalization, Pan World had no material operations. As a result
of
the Recapitalization, shareholders of California Tribeworks exchanged all
of
their shares of California Tribeworks for Pan World common stock.
Subsequent to the Recapitalization, we were reincorporated in Delaware as
Tribeworks, Inc and at our Annual General Meeting held on July 12, 2007,
the
name of the Company was changed to Atlas Technology Group, Inc.
During
2005, the enterprise application development business of Tribeworks was
separated into a wholly-owned subsidiary named Tribeworks Development
Corporation (“TDC”).
The
TDC business was primarily built around the sale of software through two
main
distribution channels: the graphics software tools business and proprietary
products called iShell® or iShell Mobile and an enterprise application
development business. TDC was sold to its former management on September
14,
2006. Until mid-2006, the iShell line of products and the enterprise application
development business were our primary product offering and business. The
former
assets, liabilities, and business operations of TDC were reclassified as
discontinued operations in the financial statements in this annual report
for
the year ended December 31, 2006 on Form 10-KSB.
On
January 20, 2006, we acquired TakeCareofIT Holdings Ltd., doing business
as
Atlas Technology Group, a Malta Corporation that was established in September
2004 to provide external Information Technology (“IT”)
application support services for organizations with large IT functions as
is
referred to hereafter as “AtlasTG”
or
the
“AtlasTG
business.”
This
IT
support business will be our primary business focus going forward and thus
2006
was a transitional year for us. We plan to become a leading IT outsourcing
support company for custom software applications worldwide. After extensive
beta
testing, the Atlas business line is now generating revenue with the first
support customers signed on in February 2007. Our in-house developed tools
and
processes, which are needed to customize the monitoring and support IT
applications and provide remote IT application support and feedback to our
customers, are now ready to meet the needs of our customers and are being
marketed to five customers who are either fully utilizing our remote IT support
or in the final process of being installed (“Onboarded”)
as
fully serviced customers.
On
January 26, 2007, the Company acquired all of the assets (but not the
liabilities) and customers of BLive Networks, Inc. Included with these assets
was a Canadian company called InfoBuild Networks (Canada) Inc. The assets
acquired were added to this Company and the name of it has been changed to
BLive
Networks Inc. (“BLive”),
and
the business has continued to trade through this Company.
Our
head
operating office is located in Malta. We also have subsidiary offices in
Wellington, New Zealand, and Redmond, Washington, and a data center in Seattle,
Washington. We currently have twenty-one employees and three working executive
directors. Our primary service of remotely supporting custom and complex
software applications for customers who want to outsource non-core business
processes and focus on their core competencies, through the use of
proprietary processes and monitoring systems, is maintained by our
state-of-the-art data centers in Seattle and Malta, and “follow-the-sun” 24x7
hour support centers in Malta, Redmond/Seattle, and Wellington.
30
After
two
years of development and testing, the Company is now implementing and marketing
its IT application support services and is pursuing sales in the western
United
States and in the European Union (“EU”),
specifically the United Kingdom (“UK”)
and
Italy. The Company now has support contracts with five customers in the United
States. The Company will continue to target customers in Italy, the UK, and
the
United States before it later expands its sales efforts worldwide. The Company
is initially marketing to four targeted groups of potential
clients:
|
1)
|
Directly
to initial pilot customers, who will serve as final beta test
opportunities for the Company’s systems, software monitoring, and incident
management systems and directly to smaller customers with existing
in-house support operations;
|
|
2)
|
Agent
companies, who are strategic partners and will represent the Company
in
specific regions in defining strategic reseller and onboarding
partners;
|
|
3)
|
Onboarding
partners who have the internal capabilities to select and technically
audit, harden, stress-test, and document complex software systems;
and
|
|
4)
|
Reseller
channel partners who will be the backbone of the Company’s sales strategy.
With existing customer bases of large and complex software systems,
resellers will be provided the advanced AtlasTG tools and systems
to
monitor and support highly complex software systems on an ongoing
basis.
|
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
This
summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes
are
representations of our management, which is responsible for their integrity
and
objectivity. These accounting policies conform to accounting principles
generally accepted in the United States of America and have been consistently
applied in the preparation of the financial statements.
Accounting
Methods
The
Company’s financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in
the
United States of America.
Basis
of Consolidation
The
financial statements of the Company are presented on a consolidated basis
and
include the Company and its wholly owned subsidiaries. As the acquisition
of
Atlas TG business was January 20, 2006, the 2006 comparative figures include
that business for 2006, while the business and assets of TDC (sold September
14,
2006) have been treated as discontinued operations.
On
January 26, 2007, the Company acquired all of the assets (but not the
liabilities), (including IT Technology, trademarks, and customers of BLive
Networks Inc.) in exchange for 1,150,000 shares of Common Stock of the Company.
Included in these assets purchased from BLive Networks Inc was 49% of a Canadian
company called InfoBuild Networks (Canada) Inc., and subsequent to the initial
acquisition an option to purchase the remaining 51% of InfoBuild Networks
(Canada) Inc was exercised. The assets acquired have been injected into this
company and the name of it has been changed to BLive Networks Inc. and the
BLive
business has continued to trade through this company and this business is
referred to as “BLive”.
The
assets acquired have been consolidated into these financial statements and
the
results of BLive from January 26, 2007.
The
financial statements of the Company are presented on a consolidated basis
and
include the Company and its wholly-owned subsidiaries since the first quarter
of
2006:
|
Atlas
Technology Group Holdings Limited
|
|
Malta
|
|
Atlas
Technology Group Limited
|
|
Malta
|
|
Atlas
Technology Group (NZ) Limited
|
|
New
Zealand
|
|
Atlas
Technology Group (US) Inc.
|
|
Washington
State, USA
|
|
Atlas
Technology Group Consulting Inc.
BLive
Networks Inc
|
|
Washington
State, USA
British
Columbia, Canada
|
The
Company and its two U.S. subsidiaries listed above are all Delaware companies,
operating in Washington State.
All
material inter-company transactions have been eliminated.
31
Advertising
Expenses
Advertising
expenses consist primarily of costs incurred in the design, development,
and
printing of literature and marketing materials including website design.
The
Company expenses all advertising expenditures as incurred. Advertising expenses
were $45,163 and $36,260 for the years ended December 31, 2007 and 2006,
respectively.
Accounts
Receivable
Accounts
receivable are reported at net realizable value. The Company provides an
allowance for doubtful accounts and records bad debts based on a periodic
review
of accounts receivable to consider the collectability of each
account.
At
December 31, 2007, we had $64,387 (2006: $10,229) outstanding accounts
receivable plus $13,345 of valued added tax refunds receivable at December
31,
2007 (2006: $40,705).
Cash
and Cash Equivalents
For
purposes of the statements of cash flows, the Company considers all highly
liquid investments (or short-term instruments) with original maturities of
three
months or less to be cash equivalents.
Compensated
Absences
Employees
are entitled to paid vacation, sick, and personal days off, depending on
job
classification, length of service, and other factors, after the employee
has
worked for a minimum period of one year. The Company’s policy is to recognize
the cost of compensated absences when actually paid to employees as the
compensation can also be lost if not taken within a specified time. If the
amounts were estimable, it would not be currently recognized as the amount
would
be deemed immaterial because of the small number of employees who have been
with
us for more than a year and who have leave owing.
Comprehensive
Income
The
Company has adopted Statement of Financial Accounting Standards No. 130,
“Reporting Comprehensive Income” (hereinafter “SFAS
No. 130”),
which
was issued in June 1997. SFAS No. 130 established rules for the reporting
and
display of comprehensive income and its components. SFAS No. 130 requires
unrealized gains and losses on our foreign currency translation to be included
in comprehensive income.
Concentration
of Credit Risk
The
Company and each subsidiary maintain cash in both local currency and U.S.
dollar
commercial bank accounts with major reputable financial institutions. The
financial institutions are considered credit worthy and have not experienced
any
losses on their deposits at December 31, 2007 or 2006. Cash balances did
not
exceed Federal Deposit Insurance Corporation (FDIC) limits within the United
States, except the Cash Escrow Deposit with Wells Fargo Trust, which exceeds
the
limit by $3,911,107. Funds were held in accounts with HSBC in Canada, Malta,
and
New Zealand, countries not covered by FDIC.
Customer
Concentrations
In
2007,
three customers accounted for 35%, 29%, and 5% of total revenues, respectively.
In 2006, three customers accounted for 77%, 13%, and 10% of total revenues,
respectively. At December 31, 2007 and 2006, accounts receivable from these
major customers totaled $23,961 and $10,229 respectively.
Revenues
from international customers were approximately 4% and 90% of total revenues
in
2007 and 2006, respectively. Revenues are paid in U.S. dollars and Euros.
Approximately 4% and 11% of revenues in 2007 and 2006, respectively, were
generated from non-U.S. based customers. At December 31, 2007 and 2006, accounts
receivable from all international customers totalled approximately $4,424
and
$10,301, respectively.
32
Earnings
(Loss) per Share
Basic
earnings per share (“EPS”)
is
computed based on net income (loss) divided by the weighted average number
of
shares of Common Stock outstanding. Diluted EPS is computed based on net
income
(loss) divided by the weighted average number of shares of Common Stock and
potential Common Stock equivalents outstanding.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the consolidated financial statements in the period they are
determined.
Fair
Value of Financial Instruments
The
Company’s financial instruments defined by SFAS No. 107 “Disclosures about Fair
Value of Financial Instruments” include cash, receivables, and short-term debt
for which the Company believes, due to the short maturity of these financial
Instruments, approximates fair value at December 31, 2007.
Foreign
Currency Translation
Transactions
in foreign currencies are translated at the rates of exchange ruling on the
dates of the transactions. Monetary assets and liabilities expressed in foreign
currencies are translated at the rates of exchange prevailing
at the end-of-period exchange rates and the translation differences are dealt
with through the profit and loss account.
Atlas
Technology Group Holdings Limited and Atlas Technology Group Limited functional
currency during 2007 and 2006 was Maltese Lira (“MTL”);
however, the statutory financial statements are presented in terms of Euros
as
required by Article 187 of the Companies Act, 1995 (Malta), which stipulates
that a company must draw up its annual accounts in the same currency as that
of
its share capital. As from January 1, 2008, Malta adopted the Euro and this
will
be the functional currency in future years. The U.S. companies use U.S. dollars
and the New Zealand subsidiary uses New Zealand dollars as their functional
currencies. The AtlasTG financial statements have been converted into U.S.
dollars and reformatted to conform to U.S. GAAP. The prime accounting records
transactions denominated in foreign currencies are translated at the rates
of
exchange ruling on the dates of the transactions. Monetary assets and
liabilities expressed in foreign currencies are translated at the rates of
exchange prevailing at balance sheet date. Transaction differences are dealt
with through the operating statement. Unrealized gains or losses on foreign
currency translations are included in comprehensive income.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. The Company reported net
losses
during both 2007 and 2006. These factors, among others, indicate that the
Company may be unable to continue as a going concern for a reasonable period
of
time unless breakeven (where assets are equal to liabilities) can be attained
within a reasonable time. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
To
continue developing the AtlasTG business stream, which is now in the initial
production stages and is being deployed with customers, management plans
to
raise additional equity before the end of 2008. Unless breakeven (where assests
are equal to liabilities) is achieved and new equity is raised there is
substantial doubt about the Company’s ability to continue as a going concern.
The recoverability of the recorded assets and satisfaction of the liabilities
reflected in the accompanying balance sheets is dependent upon our continued
operation, which is in turn dependent upon our ability to raise additional
equity to meet its cash flow requirements on a continuing basis and to succeed
in its future operations. There can be no assurance that management will
be
successful in implementing its plans. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
33
Income
Taxes
The
Company accounts for income taxes and the related amounts under the liability
method. Deferred tax assets and liabilities are determined based on the
differences between the financial statement carrying amounts and the income
tax
basis of assets and liabilities. A valuation allowance is applied against
any
net deferred tax asset if, based on available evidence, it is more likely
than
not that some or all for the deferred tax assets will not be
realized.
In
July
2006, FASB issued FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty
in Income Taxes - an Interpretation of FASB Statement 109”, which clarifies the
accounting for uncertainty in tax positions. Under FIN 48, the impact of
an
uncertain income tax position on the income tax return must be recognized
at the
largest amount that is more likely than not to be sustained upon audit by
the
relevant taxing authority. An uncertain income tax position will not be
recognized if it has less than a 50% likelihood of being sustained.
Additionally, FIN 48 provides guidance on de-recognition, classification,
interest, penalties, accounting in interim periods, disclosure, and transition.
We adopted the provisions of FIN 48 on January 1. 2007. There were no
unrecognized tax benefits as of the date of adoption. As a result of the
implementation of FIN 48, we did not recognize an increase in the liability
for
unrecognized tax benefits. The adoption of FIN 48 did not impact our financial
condition, results of operations, or cash flows.
Our
policy is to recognize interest and/or penalties related to income tax matters
in income tax expense. We had no accrual for interest or penalties on our
balance sheets at December 31, 2007 or 2006.
New
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51"("SFAS No.
160"),
which will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a
component of equity within the consolidated balance sheets. SFAS No. 160
is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any, that the adoption will have on its financial
position, results of operations or cash flows but we believe that this will
not
affect us.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
Combinations, or SFAS No. 141R. SFAS No. 141R will change the accounting
for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction
at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items
in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning
of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations we engage in will be recorded and
disclosed following existing GAAP until January 1, 2009. We expect SFAS No.
141R
will have an impact on accounting for business combinations once adopted
but the
effect is dependent upon acquisitions at that time. We are still assessing
the
impact of SFAS No. 141R.
In
February 2007, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement
No.
115” (hereinafter “SFAS No. 159”). This statement permits entities to choose to
measure many financial instruments and certain other items at fair value.
The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings cause by measuring
related assets and liabilities differently without having to apply complex
hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments. This statement is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007, although earlier adoption is permitted. Management has not determined
the effect that adopting this statement would have on the Company’s financial
condition for results of operations.
In
September, 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87,88,106, and 132(R)” (hereinafter “SFAS
No. 158”).
This
statement requires an employer to recognize the overfunded or underfunded
status
of a defined benefit postretirement plan (other than a multiemployer plan)
as an
asset or liability in its statement
of financial position and to recognize changes in that funded status in the
year
in which the changes occur through comprehensive income of a business entity
or
changes in unrestricted net assets of a not for profit organization. This
statement also requires an employer to measure the funded status of a plan
as of
the date of its year end statement of financial position, with limited
exceptions. The adoption of this statement had no immediate material effect
on
our financial condition or results of operations.
34
In
September, 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 157, “Fair Value Measurements” (hereinafter
“SFAS
No. 157”).
This
statement defines fair value, establishes a framework for measuring fair
value
in generally accepted accounting principles (“GAAP”),
and
expands disclosure about fair value measurements. This statement applies
under
other accounting pronouncements that require or permit fair value measurements.
This statement does not require any new fair value measurements, but for
some
entities, the application of this statement may change current practice.
The
adoption of this statement had no immediate material effect on our financial
condition or results of operations.
In
June
2006, the Financial Accounting Standards Board issued FASB Interpretation
No.
48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109”, which prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company does not expect the
adoption of FIN 48 to have a material impact on its financial reporting,
and the
Company is currently evaluating the impact, if any, the adoption of FIN 48
will
have on its disclosure requirements.
In
March
2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 156, “Accounting for Servicing of Financial Assets - an
amendment of FASB Statement No. 140.” This statement requires an entity to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
any of the following situations: a transfer of the servicer’s financial assets
that meets the requirements for sale accounting; a transfer of the servicer’s
financial assets to a qualifying special-purpose entity in a guaranteed mortgage
securitization in which the transferor retains all of the resulting securities
and classifies them as either available-for-sale securities or trading
securities; or an acquisition or assumption of an obligation to service a
financial asset that does not relate to financial assets of the servicer
or its
consolidated affiliates. The statement also requires all separately recognized
servicing assets and servicing liabilities to be initially measured at fair
value, if practicable and permits an entity to choose either the amortization
or
fair value method for subsequent measurement of each class of servicing assets
and liabilities. The statement further permits, at its initial adoption,
a
one-time reclassification of available for sale securities to trading securities
by entities with recognized servicing rights, without calling into question
the
treatment of other available for sale securities under Statement 115, provided
that the available for sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing assets or
servicing liabilities that a servicer elects to subsequently measure at fair
value and requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial
position and additional disclosures for all separately recognized servicing
assets and servicing liabilities. This statement is effective for fiscal
years
beginning after September 15, 2006, with early adoption permitted as of the
beginning of an entity’s fiscal year. Management believes adoption of this
statement will have no immediate impact on our financial condition or result
of
operations.
In
February 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Standards No. 133 and 140” (hereinafter
“SFAS
No. 155”).
This
statement established the accounting for certain derivatives embedded in
other
instruments. It simplifies accounting for certain hybrid financial instruments
by permitting fair value remeasurement for any hybrid instrument that contains
an embedded derivative that otherwise would require bifurcation under SFAS
No.
133 as well as eliminating a restriction on the passive derivative instruments
that a qualifying special-purpose entity (“SPE”)
may
hold under SFAS No. 140. This statement allows a public entity to irrevocably
elect to initially and subsequently measure a hybrid instrument that would
be
required to be separated into a host contract and derivative in its entirety
at
fair value (with changes in fair value recognized in earnings) so long as
that
instrument is not designated as a hedging instrument pursuant to the statement.
SFAS No. 140 previously prohibited a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. This statement is effective
for fiscal years beginning after September 15, 2006, with early adoption
permitted as of the beginning of an entity’s fiscal year. Management believes
the adoption of this statement will have no impact on our financial condition
or
results of operations.
35
Property
and Equipment
Property
and equipment are stated at cost. Depreciation of property and equipment
is
calculated using the straight-line method over the estimated useful lives
of the
assets, which range from three to seven years. See Note 4.
Revenue
Recognition
Revenue
is generally recognized when all contractual obligations have been satisfied
and
collection of the resulting receivable is probable.
Software
Development Costs
The
Company has in the past expensed all of its software development costs in
the
period the costs are incurred. With the new software purchased with AtlasTG
and
being developed by AtlasTG reaching the beta stage, the Company has adopted
Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS
86”)
and
has capitalized certain development costs that meet the requirements of SFAS
86.
Capitalized
costs will be amortized over three years from the date on which the new AtlasTG
business goes into full commercialization. Not all of the development costs
for
the period meet the requirements of SFAS 86, and $1,432,633 (2006: $859,780)
of
software development costs have been expensed in the period. Our intangible
assets are summarized as follows:
|
|
2007
|
2006
|
|||||
|
Software
Development
|
$
|
748,164
|
$
|
454,942
|
|||
|
IT
Technology Acquired
|
1,340,313
|
835,192
|
|||||
|
Customer
List and Trademarks
|
555,312
|
—
|
|||||
|
Less:
Accumulated Amortization
|
(364,792
|
)
|
(33,540
|
)
|
|||
|
|
$
|
2,278,997
|
$
|
1,256,594
|
|||
Stock-Based
Awards
Prior
to
2006, the Company accounted for stock based awards to employees under its
“Equity Incentive Plan” as compensatory in accordance with Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB
25”).
The
Company also recorded stock-based awards for services performed by consultants
and other non-employees in accordance with Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”).
In
December 2004, the FASB issued a revision to SFAS No. 123R, “Accounting for
Stock Based Compensation.” This statement supersedes Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees,” and its related implementation guidance. This
statement establishes standards for the accounting of transactions in which
an
entity exchanges its equity instruments for goods or services. It
also addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity’s equity
instruments or that may be settled by the issuance of those equity
instruments. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment
transactions. This statement does not change the accounting guidance
for share-based payment transactions with parties other than employees provided
in SFAS No. 123R. This statement does not address the accounting for
employee share ownership plans, which are subject to the American Institute
of
Certified Public Accountants Statement of Position 93-6, “Employers’ Accounting
for Employee Stock Ownership Plans.” The Company expects no changes
to its financial reporting as a result of the application of the foregoing
because it is already reporting and complying with the fair value method
of SFAS
No. 123R.
36
NOTE
3 - LOAN TO ATLAS TECHNOLOGY GROUP
During
2005, Tribeworks advanced $1,073,744 to Atlas Technology Group Holdings Limited,
then controlled by the current directors of AtlasTG, to pursue its business
plan. Subsequent to the acquisition of Atlas Technology Group Limited on
January
20, 2006, that company is now fully consolidated into the consolidated accounts
presented in these financial statements and the loan is now treated as an
inter-company advance and eliminated in the consolidation.
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. The useful
lives of property, plant and equipment for purposes of computing depreciation
are five to forty years. The following is a summary of property, equipment,
and
accumulated depreciation:
|
|
2007
|
2006
|
|||||
|
Computer
Equipment
|
$
|
317,299
|
$
|
234,154
|
|||
|
Office
Furniture and Fittings
|
46,746
|
46,746
|
|||||
|
Total
Property and Equipment
|
364,045
|
280,900
|
|||||
|
Less:
Accumulated Amortization
|
(196,021
|
)
|
(71,047
|
)
|
|||
|
|
$
|
168,024
|
$
|
209,853
|
|||
Depreciation
and amortization expense for the year ended December 31, 2007 was $124,974
(2006: $71,047). We evaluate the recoverability of property and equipment
when
events and circumstances indicate that such assets might be impaired. We
determine impairment by comparing the undiscounted future cash flows estimated
to be generated by these assets to their respective carrying amounts.
Maintenance and repairs are expensed as incurred. Replacements and betterments
are capitalized. The cost and related reserves of assets sold or retired
are
removed from the accounts and any resulting gain or loss is reflected in
results
of operations.
NOTE
5 - LOANS, ADVANCES, AND NOTE PAYABLE
On
March
30, 2005, the Company announced a plan of reorganization, intended to allow
the
Company to maintain its public reporting requirements, reduce its debt, and
explore new business directions. The plan of reorganization included the
transfer of most assets and liabilities to the Company’s operating subsidiary,
TDC. As part of this initial reorganization, the balance of an earlier Note
issued on January 21, 2001 was acquired by a financier who agreed to provide
under a new note agreement (“Note”)
which
provided for unsecured borrowing at 4% in an amount of up to $100,000 to
help
cover reorganization costs. As of December 31, 2005, the Company had borrowed
$91,474 against the new Note agreement increasing the total amount owing
under
the Note to $175,175.
During
2006, the Note was renegotiated with the financing party agreeing to take
up
100,000 shares in the Company at $1.00 per share plus 50,000 2 year warrants
exercisable at $1.25 per new share with balance plus accrued interest being
converted into a new Note for $120,000. During 2007, further interest of
$12,000
was accrued. Subsequent to balance date, the Note showing in the Consolidated
Balance Sheet as a Loan payable for $132,000 has been repaid in
full.
In
addition to the Note, parties associated with shareholders who hold more
than 5%
of the Common Stock of the Company (“Related
Parties”)
have
made various advances totalling $241,481 during 2007 and $70,582 during 2006.
Since December 31, 2007 one advance made in Euros equivalent to $100,000
has
been repaid and the lender of a further $100,000 has agreed to accept Common
Stock in exchange for those advances.
On
June
15, 2007, Atlas Technology Group (US), Inc., (“Atlas
US”)
entered into a Securities Purchase Agreement with West Coast Opportunity
Fund
LLC (“WCOF”).
Pursuant to the terms of the Securities Purchase Agreement, Atlas US agreed
to
issue and sell to WCOF two senior secured non-convertible promissory notes
in
the initial amount of $2,500,000 (the “Initial
Note”)
which
was issued on June 15, 2007 and a second promissory note in the amount of
$2,500,000 (the “Second
Note”
and
together with the Initial Note, the “Promissory
Notes”),
which
was issued on July 11, 2007.
37
NOTE
5 — LOANS, ADVANCES, AND NOTE PAYABLE (Continued)
Interest
on the Promissory Notes was calculated at an annual rate of 5% and is due
and
payable bi-annually and the first interest payment was made November 30,
2007.
In
connection with the issuance of the Initial Promissory Note, pursuant to
the
Securities Purchase Agreement, the Company issued WCOF a warrant to purchase
3,250,000 shares of Common Stock of the Company and upon the issuance of
the
Second Promissory Note, the Company issued WCOF an additional warrant for
the
purchase of 3,250,000 shares of Common Stock of the Company. These warrants
were
exercisable for a period of five years at a price of $2.60 per share - see
further comment below. The Company was also permitted to force the exercise
of
these warrants if the Common Stock of the Company closes at a price above
$10.00
per share for twenty out of thirty days, certain trading volume requirements
are
satisfied and the resale of the Common Stock underlying these warrants have
been
registered with the U.S. Securities and Exchange Commission (the “SEC”)
and
such registration statement has been declared effective.
In
connection with the issuance of the Promissory Notes, the Company and all
of its
subsidiaries (other than Atlas US) signed a Guaranty Agreement (the
“Guaranty”)
that
provides WCOF with a guarantee to repay the Promissory Notes on behalf of
Atlas
US if Atlas US fails to repay the Promissory Notes. In addition to the Guaranty,
the Company and all of its subsidiaries provided WCOF a first lien security
interest in all of each entity’s assets pursuant to the terms of a Pledge and
Security Agreement (the “Security
Agreement”).
Of
the
$2,500,000 paid by WCOF for the Initial Note on June 15, 2007, Atlas US received
$1,000,000 less certain fees and expenses and $1,500,000 was placed into
escrow
pursuant to the terms of an escrow agreement (the “Escrow
Agreement”)
between Atlas US, WCOF and Wells Fargo Bank, N.A. and the Company or any
of its
subsidiaries was required to enter into contracts with certain customer
entities, totalling $1,000,000 in annual, non-contingent future revenues
prior
to 5:00 p.m. on December 31, 2007. In addition, the entire proceeds of the
Second Note were also placed into the escrow account and again the Company
or
any of its subsidiaries were required to enter into contracts with certain
customer entities, totalling $5,000,000 in non-contingent future revenues
prior
to 5:00 p.m. on December 31, 2007.
On
December 31, 2007, the Company entered into a Note Amendment and Securities
Purchase Agreement (the “WCOF
Agreement”),
with
WCOF. The WCOF Agreement amends the earlier Securities Purchase Agreement
of
June 15, 2007 under which ATG US issued to WCOF the above promissory notes,
shares, and warrants. Pursuant to the WCOF Agreement, WCOF agreed to cancel
and
return the 6,500,0000 warrants to the Company in consideration for which
the
Company has agreed to the following: (i) enter into the WCOF Agreement, amending
the earlier agreement; (ii) amend the Promissory Note dated June 15, 2007,
to
extend the maturity date from November 30, 2008 to December 31, 2008 and
increase the interest rate to 7.5% per annum; (iii) amend and restate the
Promissory Note dated July 11, 2007 to extend the maturity date from November
30, 2008 to December 31, 2008; and (iv) issue a yield enhancement consisting
of
3,500,000 shares (the “Yield
Enhancement Shares”)
of
Common Stock. As a result of issuing the Yield Enhancement Shares, the Company
incurred a financing charge of $2,975,000, which has been offset against
the
$5,000,000 of debt owing to WCOF and this will be amortized evenly over 2008
until the debt becomes repayable on December 31, 2008.
As
a
result of the issuance of the shares of Common Stock and warrants associated
with the initial Promissory Note, the Company and Atlas US incurred and expensed
financing charges of $854,375 for the three months ended June 30, 2007 and
also
booked as discount on debt of $2,429,775. With the drawdown of the second
Promissory Note on July 11, 2007, a further $1,082,071 of financing charges
were
taken up in the three months ended September 30, 2007, and $814,606 of the
total
discount of $5 million dollars was amortized. The remaining discount of
$4,115,168 was written off to other financing charges at December 31, 2007,
and
the net effect is shown in the Consolidated Statement of Operations for the
year
ended December 31, 2007. The corresponding credit was booked to additional
paid-in capital and is included in the Stockholder’s equity in the balance
sheet.
In
the
event that Atlas US, the Company, or any of its subsidiaries has not entered
into the contracts described above, the amounts in the escrow account will
be
returned to WCOF and will be applied to the repayment of the Promissory Notes.
38
NOTE
5 — LOANS, ADVANCES, AND NOTE PAYABLE (Continued)
Subject
to certain grace periods, the Promissory Notes provide the following events
of
default (among others):
|
·
|
Failure
of the Company to pay principal and interest when
due;
|
|
·
|
Any
form of bankruptcy or insolvency proceeding is instituted by or
against
the Company or any of its subsidiaries that is not withdrawn within
90
days;
|
|
·
|
A
breach by the Company or Atlas US of any material representation
or
warranty made in the Securities Purchase
Agreement;
|
|
·
|
An
uncured breach by the Company or Atlas US of any material covenant,
term,
or condition in the Securities Purchase Agreement or the Promissory
Notes;
and
|
|
·
|
Any
event of default set forth in the Security
Agreement.
|
Subject
to certain grace periods, the Security Agreement provides the following events
of default (among others):
|
·
|
Any
event of default set forth in the Promissory
Notes;
|
|
·
|
A
breach by the Company, or any of its subsidiaries, of any material
representation or warranty made in the Security Agreement;
and
|
|
·
|
Failure
of the Company, or any of its subsidiaries, to observe or perform
any of
its obligations under the Security
Agreement.
|
Upon
the
occurrence of an event of default, the payment of the principal amounts under
the Promissory Notes may be accelerated and the interest rate applicable
to the
principal amounts is increased to 7.5% per annum during the period the default
exists.
As
further consideration for the purchase of the Initial Note, the Company issued
and sold 3,250,000 shares of Common Stock of the Company to WCOF, for a purchase
price of $1,000 pursuant to the terms of the Securities Purchase Agreement.
Upon
the issuance of the Second Note, the Company issued and sold an additional
3,250,000 shares of Common Stock to WCOF for a purchase price of $1,000.
Members
of the Company’s management team and certain of its stockholders executed a
lock-up agreement with WCOF that prohibits them from selling any of their
holdings of Common Stock until ninety (90) days following the repayment of
the
Promissory Notes.
The
Company paid its placement agent, Equity Source Partners, LLC (“ESP”),
a
NASD member investment firm, cash commissions of approximately $80,000 on
the
closing date for the initial Promissory Note and issued 5-year warrants to
purchase 30,769 shares of common stock of the Company on equal terms to the
warrants issued to WCOF. Atlas US also agreed to pay the legal fees of counsel
to WCOF in an amount not to exceed $15,000. ESP will receive further commissions
equal to 8% of the funds released from escrow and issued warrants on similar
terms as for the first funds release. The Company has also reimbursed ESP
for
its reasonable expenses incurred in connection with the WCOF financing
transaction. With renegotiation of the WCOF Agreement ESP became eligible
to
receive further fees of $200,000 (which they agreed to take in cash of $180,000
paid subsequent to balance date and 40,000 shares of Common Stock in the
Company) and 280,000 3 year warrants at a strike price of $0.70.
39
NOTE
6 - INCOME TAXES
The
Company accounts for income taxes and the related accounts under the liability
method. Deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and the income
tax
basis of assets and liabilities. A valuation allowance is applied against
any
net deferred tax asset if, based on available evidence, it is more likely
than
not that some or all of the deferred tax assets will not be
realized.
At
December 31, 2007 and 2006, the Company had gross deferred tax assets calculated
at the expected rate of 34% of $1,855,181 and $743,668, respectively,
principally arising from net operating loss carryforwards for income tax
purposes. Because management of the Company cannot determine that it is more
likely than not that the Company will realize the benefit of the deferred
tax
asset, a valuation allowance of $1,855,181 and $743,668 has been
established at December 31, 2007 and 2006, respectively.
Additionally,
the future utilization of our net operating loss carryforwards to offset
future
taxable income may be subject to annual limitations, pursuant to IRC Section
382
and 383 as a result of ownership changes that have occurred previously or
that
could occur in the future.
The
significant components of the deferred tax assets at December 31, 2007 and
2006
were as follows:
|
|
December
31,
2007
|
December
31,
2006
|
|||||
|
Net
operating loss carryforwards
|
$
|
5,456,416
|
$
|
2,187,259
|
|||
|
Gross
deferred tax assets (liabilities):
|
|||||||
|
Deferred
tax asset
|
$
|
1,855,181
|
$
|
743,668
|
|||
|
Valuation
allowance
|
$
|
(1,855,181
|
)
|
$
|
(743,668
|
)
|
|
At
December 31, 2007 and 2006, the Company has net operating loss carryforwards
of
$5,456,416 and $2,187,259, respectively, which expire in the years 2021 through
2025. The net change in the allowance account was an increase of $1,111,513
and
$677,151, for December 31, 2007 and 2006, respectively.
The
majority of these losses are in companies outside of the United States and
are
subject to various restrictions as to their future use and any changes in
ownership not dissimilar to the restrictions imposed by The Tax Reform Act
of
1986 and Internal Revenue Code. Under such circumstances, the Company’s ability
to utilize its net operating losses against future income may be
reduced.
We
have
not determined the amount of net operating losses allowed for inclusion in
our
U.S. federal filing from our operations outside of the United States at this
time, therefore, these net operating losses are not included.
NOTE
7 - CAPITAL STOCK
The
Company has an authorized share capital of: 200,000,000 shares of Common
Stock
of $0.0004 each and 10,000,000 shares of preferred stock of $0.0004
each.
The
Company has sold a number of placements of equity at various prices, which
have
been both over and under market value. For each placement of Common Stock
or
warrants, a fair value calculation is made at the issuance date using a
Black-Scholes option pricing model with the following assumptions: risk free
interest rate of 4-5%, expected volatility of 45-48%, expected option life
of
3-5 years, and dividend yield of $0.00.
In
the
fourth quarter of 2005, the Company received $417,289 of subscription monies
to
subscribe for shares. Further private placement subscription monies were
received during the first quarter of 2006 and the Company then issued 1,714,000
shares of Common Stock at a price of $0.50 per share.
During
the quarter ended March 31, 2006, a staff option holder under the 1999 Stock
Incentive Plan exercised 6,250 options into 6,250 shares of Common Stock
for a
total consideration of $3,000.
40
During
the quarter ended June 30, 2006, 1,140,000 shares of Common Stock were sold
to
five European investment funds at a price of $1.25 per share. Along with
these
shares, the Company also issued one warrant for every two new shares of Common
Stock purchased. The warrants have an exercise price of $1.75 per share.
The
warrants have a two year term and expire on May 31, 2008. Each investor
represented in writing to the Company that it is “accredited investor” as that
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act. In addition to brokerage and commission fees of $85,500 for raising
the
funds discussed above, Westmount Capital was issued 85,500 warrants with
an
exercise price of $1.75 per share. These warrants have a two-year term that
expires on June 16, 2008 and have a fair market value of $8,550.
The
Board
of Directors exercised its discretion to convert the 84,000 Series B Preferred
Stock on December 29, 2006 into 84,000 shares of Common Stock per the terms
of
the issue together with the issue of one warrant for every two new shares
of
Common Stock to subscribe for shares of Common Stock at $1.00 per share of
Common Stock within one year. Dividends totalling $5,880 were accrued, being
the
entitlement to an annual cumulative dividend of 10% of the Stated
Value.
During
the fourth quarter of 2006, 50,000 warrants to purchase shares of Common
Stock
at $1.00 per share were exercised. In addition 100,000 shares of Common Stock
were issued for debt at $1.00 per share including 50,000 warrants exercisable
at
$1.25 per share, 80,000 shares of Common Stock were issued at 50 cents per
share. Additionally, 300,000 shares were issued at $1.00 per share, along
with
one warrant for every two shares of Common Stock issued. These warrants are
exercisable at a price of $1.25 per share of Common Stock and are exercisable
for a period of two years. Financing charges of $45,347 were booked to
additional paid in capital with regard to these shares and warrant.
During
the quarter ended March 31, 2007, the Company issued 1,150,000 of shares
of
Common Stock for the acquisition of the assets of BLive. 150,000 of these
1,150,000 shares of Common Stock were an M&A advisory fee. 100,000 of shares
of Common Stock (at a price of $1 per share) were sold along with a warrant
to
purchase 300,000 shares of Common Stock exercisable for a period of two years
with an exercise price of $1.25 per share at an aggregate purchase price
of
$100,010. The warrants have a fair market value of $87,900, which has been
recorded as a financing charge and as additional paid-in capital.
During
the quarter ended June 30, 2007, the Company issued 200,000 shares of Common
Stock at a price of $1.00 per share. This was in exchange for $200,000 of
subscription monies held by us as of March 31, 2007. In addition, we issued
a
warrant exercisable for a period of two years to purchase 200,000 shares
of
Common Stock at an exercise price of $1.25 per share in connection with this
placement of 200,000 shares of Common Stock. These warrants expire on February
28, 2009.
On
June
15 and on July 11, two tranches of 3,250,000 shares of Common Stock and a
warrant exercisable for five years to purchase 3,250,000 shares of Common
Stock
at an exercise price of $2.60 per share were issued to WCOF as part of a
Securities Purchase Agreement. As a result of the issuance of the shares
of
Common Stock and warrants, associated with this issue, the Company (described
in
Note 5 above) incurred and expensed financing charges of $854,375 for the
three
months ended June 30, 2007, a further $1,082,071 of financing charges were
taken
up in the three months ended September 30, 2007, and $814,606 of financing
charges were booked in the quarter ended December 3, 2007, with the
corresponding credit being booked to additional paid-in capital and is included
in the Stockholder’s equity in the Consolidated Balance Sheet.
During
the quarter ended June 30, 2007, 650,000 shares of Common Stock and a warrant
exercisable for three years to purchase 650,000 shares of Common Stock at
an
exercise price of $1.30 per share were issued in exchange for $500,000 of
debt.
These warrants expire on June 26, 2010. In addition, 140,000 shares of Common
Stock were issued in exchange for a debt owing for previously incurred
consulting fees. Financing charges of $398,917 were booked regarding these
shares and warrants.
During
the quarter ended September 30, 2007, the Company issued 10,000 shares of
Common
Stock with regard to the exercise of 10,000 warrants. In addition, 25,000
shares
of Common Stock and warrants exercisable for two years to purchase 50,000
shares
of Common Stock at an exercise price of $1.00 per share were issued regarding
the extension of the repayment terms of a Note Payable. The warrant expires
on
July 26, 2009. Financing charges of $35,765 were booked regarding these shares
and warrants.
$200,000
was paid to the Company on September 28, 2007 for 571,429 shares of Common
Stock
and warrants exercisable for three years to purchase 285,715 shares of Common
Stock at an exercise price of $0.70 per share. These warrants expire on
September 28, 2010. Financing charges of $273,003 were booked with regard
to
these shares and warrants.
$205,000
was paid to the Company on October 29, 2007 for 585,715 shares of Common
Stock
and warrants exercisable for three years to purchase 292,858 shares of Common
Stock at an exercise price of $0.70 per share. These warrants expire on October
29, 2010. Financing charges of $279,828 were booked with regard to these
shares
and warrants.
$200,000
was paid to the Company on November 30, 2007 for 1,000,000 shares of Common
Stock and warrant exercisable for three years to purchase 1,000,000 shares
of
Common Stock at an exercise price of $0.20 per share. These warrants expire
on
November 30, 2012. Financing charges of $1,075,388 were booked with regard
to
these shares and warrants.
41
NOTE
8 - STOCK OPTIONS AND STOCK WARRANTS
Stock
Options
The
Company maintains a 1999 Equity Incentive Plan for the issuance of stock
options
to employees, directors, and consultants. The exercise price is generally
the
estimated fair market value at the grant date as determined by the Company’s
Board of Directors. The options vest over a period up to four years. At December
31, 2005, there were 50,334 shares reserved for issuance under the 1999 Equity
Incentive Plan. During the quarter ended March 31, 2006, a staff option holder
under the 1999 Stock Incentive Plan exercised 6,250 options at an option
price
of 48 cents per share for a total consideration of $3,000. 15,000 of shares
under this plan have been cancelled leaving 29,084 still outstanding.
The
Company also maintains a 2004 Employee Stock Incentive Plan (“2004
Plan”)
for
the issuance of stock options, Common Stock, restricted stock, and stock
bonuses
to employees, officers, and key consultants. At December 31, 2007, it was
possible to award a total of options for 9,878,487 shares under the 2004
Employee Stock Incentive Plan, which equated to 25% of the issued Common
Stock
of the Company. On December 29, 2006, the Company made the first issue of
90,000 options under the 2004 Plan. These options have an exercise price
of
$1.00, which was the market price on the date of issue, and vest as to 20%
per
annum starting December 31, 2007. 70,000 of these options were forfeited
and 4,000 of the remaining options have vested.
A
summary
of the Company’s stock options as of December 31, 2007 and 2006 and changes
during the years ending on those dates is presented below:
|
|
2007
|
2006
|
|||||||||||
|
|
Shares
Under
Options
|
Weighted
Ave Exercise Price
|
Shares
Under
Options
|
Weighted
Ave
Exercise
Price
|
|||||||||
|
Outstanding
at beginning of year
|
134,084
|
$
|
3.10
|
50,334
|
$
|
6.53
|
|||||||
|
Exercised
during the year
|
(6,250
|
)
|
$
|
(0.48
|
)
|
||||||||
|
Issued
during the year
|
90,000
|
$
|
1.00
|
||||||||||
|
Cancelled
|
(85,000
|
)
|
(1.62
|
)
|
|||||||||
|
Outstanding
at end of year
|
49,084
|
$
|
2.91
|
134,084
|
$
|
3.10
|
|||||||
|
Options
exercisable at end of year
|
33,084
|
$
|
5.86
|
44,084
|
$
|
7.39
|
|||||||
|
Weighted-average
fair value of options granted during the year
|
90,000
|
$
|
1.00
|
||||||||||
|
|
|||||||||||||
|
Fair
market value of non-vested stock options
|
$
|
13,600
|
|||||||||||
|
The
following table summarizes information about stock options outstanding
at
December 31, 2007:
|
|
|
|
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||
|
Options
Outstanding
|
Weighted
Average
Remaining
Life
|
Weighted
Average
Exercise
Price
|
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||
|
1,667
|
1.50
years
|
$
|
0.60
|
1,667
|
$
|
0.60
|
|||||||||
|
2,083
|
2.40
years
|
33.60
|
2,083
|
33.60
|
|||||||||||
|
2,500
|
2.55
years
|
37.08
|
2,500
|
37.08
|
|||||||||||
|
2,000
|
2.65
years
|
30.00
|
2,000
|
30.00
|
|||||||||||
|
1,667
|
2.88
years
|
12.00
|
1,667
|
12.00
|
|||||||||||
|
2,500
|
3.22
years
|
3.00
|
2,500
|
3.00
|
|||||||||||
|
16,667
|
4.47
years
|
0.42
|
16,667
|
0.42
|
|||||||||||
|
20,000
|
5.00
years
|
1.00
|
4,000
|
1.00
|
|||||||||||
|
49,084
|
2.91
|
33,084
|
5.86
|
||||||||||||
42
NOTE
8 - STOCK OPTIONS AND STOCK WARRANTS (cont’d)
Stock
Warrants
The
Company has issued stock warrants in connection with the issuance of Common
Stock, debt, and the settlement of debt and for services. Activity related
to
stock warrants was as follows:
|
|
Warrants
|
Weighted
Ave
Exercise
Price
|
|||||
|
Outstanding
at December 31, 2005
|
534,000
|
1.10
|
|||||
|
Expired
|
(15,000
|
)
|
(4.50
|
)
|
|||
|
Exercised
|
(50,000
|
)
|
1.00
|
||||
|
Issued
during 2006
|
655,500
|
1.75
|
|||||
|
Issued
during 2006
|
200,000
|
1.25
|
|||||
|
Issued
during 2006
|
42,000
|
1.00
|
|||||
|
Outstanding
at December 31, 2006
|
1,366,500
|
1.43
|
|||||
|
Expired
|
(511,000
|
)
|
(1.00
|
)
|
|||
|
Exercised
|
(10,000
|
)
|
1.00
|
||||
|
Issued
during 2007
|
202,250
|
1.00
|
|||||
|
Issued
during 2007
|
500,000
|
1.25
|
|||||
|
Issued
during 2007
|
650,000
|
1.30
|
|||||
|
Issued
during 2007
|
30,769
|
2.60
|
|||||
|
Issued
during 2007
|
878,573
|
0.70
|
|||||
|
Issued
during 2007
|
1,000,000
|
0.20
|
|||||
|
Outstanding
at December 31, 2006
|
4,107,092
|
0.96
|
|||||
|
15,000
warrants outstanding from pre-December 31, 2004 expired on January
1, 2006
and were not exercised.
|
|||||||
|
50,000
warrants due to expire on January 5, 2007 were exercised during
the 2006
year
|
|||||||
|
570,000
2 year warrants with an exercise price of $1.75 per share were
issued in
conjunction placement of 1,140,000 shares of Common
Stock. These warrants expire on May 31, 2008
|
|||||||
|
85,500
2 year warrants with an exercise price of $1.75 per share were
issued as
part of the brokerage fees paid for placement of 1,140,000
common shares. These warrants expire on June 16, 2008
|
|||||||
|
200,000
2 year warrants with an exercise price of $1.25 per share were
issued in
conjunction placement of 400,000 shares of Common
Stock. These warrants expire on December 29, 2008
|
|||||||
|
42,000
warrants were granted in conjunction with the conversion of 84,000
Series
‘B’ Preferred shares.
|
|||||||
|
300,000
2 year warrants with an exercise price of $1.25 per share were
issued in
conjunction with the acquisition of the assets and business of
BLive
Networks Inc. These warrants expire on January 19, 2009
|
|||||||
|
469,000
warrants outstanding at December 31, 2005 expired on January 7,
2007 and
were not exercised.
|
|||||||
|
200,000
2 year warrants with an exercise price of $1.25 per share were
issued in
conjunction placement of 200,000 shares of Common
Stock. These warrants expire on February 28, 2009
|
|||||||
|
31,500
2 year warrants with an exercise price of $1.00 per share were
issued in
conjunction with borrowing $150,000. These warrants
expire on March 29, 2009
|
|||||||
|
47,250
2 year warrants with an exercise price of $1.00 per share were
issued in
conjunction with borrowing $150,000. These warrants
expire on April 26, 2009
|
|||||||
|
52,250
2 year warrants with an exercise price of $1.00 per share were
issued in
conjunction with borrowing $150,000. These warrants
expire on May 29, 2009
|
|||||||
|
3,250,000
5 year warrants with an exercise price of $2.60 per share were
issued in
conjunction with borrowing $2,500,000. These
warrants were cancelled on December 31, 2007
|
|||||||
|
30,769
5 year warrants with an exercise price of $2.60 per share were
issued in
conjunction with borrowing $2,500,000. These warrants
expire on June 15, 2012
|
43
NOTE
8 - STOCK OPTIONS AND STOCK WARRANTS (cont’d)
|
650,000
5 year warrants with an exercise price of $1.30 per share were
issued in
conjunction with conversion of $500,000 of
borrowings
to Common Stock. These warrants expire on June 26, 2012
50,000
2 year warrants with an exercise price of $1.00 per share were
issued in
conjunction with extension of debt note. These
warrants
expire on July 26, 2009
|
|
|
3,250,000
5 year warrants with an exercise price of $2.60 per share were
issued in
conjunction with borrowing $2,500,000. These warrants were cancelled
on
December 31, 2007
|
|
|
285,715
3 year warrants with an exercise price of $0.70 per share were
issued in
conjunction placement of 571,429 shares of
Common
Stock. These warrants expire on September 27, 2010
|
|
|
21,000
3 year warrants with an exercise price of $1.00 per share were
issued in
conjunction with a loan of US$100,000. These
warrants
expire on September 28, 2010
|
|
|
300,000
2 year warrants with an exercise price of $0.70 per share were
issued in
conjunction with a Consulting engagement.
These
warrants expire on October 15, 2009
|
|
|
292,858
3 year warrants with an exercise price of $0.70 per share were
issued in
conjunction placement of 585,715 shares of
Common
Stock. These warrants expire on October 29, 2010
|
|
|
1,000,000
5 year warrants with an exercise price of $0.20 per share were
issued in
conjunction placement of 1,000,000 shares
of
Common Stock. These warrants expire on November 30,
2012.
|
|
The
following table summarizes information about stock warrants outstanding at
December 31, 2007:
|
Warrants
Outstanding
|
Warrants
Exercisable
|
|||||||||||||||||
|
Warrants
Outstanding
|
Weighted
Average
Remaining
Life
|
Exercise
Price
|
Warrants
Exercisable
|
Exercise
Price
|
Expiration
Date
|
|||||||||||||
|
560,000
|
5
months
|
$
|
1.75
|
560,000
|
$
|
1.75
|
5/31/08
|
|||||||||||
|
85,500
|
6
months
|
$
|
1.75
|
85,500
|
$
|
1.75
|
6/16/08
|
|||||||||||
|
150,000
|
11
months
|
$
|
1.25
|
150,000
|
$
|
1.25
|
11/28/08
|
|||||||||||
|
50,000
|
12
months
|
$
|
1.25
|
50,000
|
$
|
1.25
|
12/29/08
|
|||||||||||
|
300,000
|
13
months
|
$
|
1.25
|
300,000
|
$
|
1.25
|
1/19/09
|
|||||||||||
|
200,000
|
14
months
|
$
|
1.25
|
200,000
|
$
|
1.25
|
2/28/09
|
|||||||||||
|
31,500
|
15
months
|
$
|
1.00
|
31,500
|
$
|
1.00
|
3/29/09
|
|||||||||||
|
47,250
|
16
months
|
$
|
1.00
|
47,250
|
$
|
1.00
|
4/26/09
|
|||||||||||
|
52,500
|
17
months
|
$
|
1.00
|
52,500
|
$
|
1.00
|
5/29/09
|
|||||||||||
|
30,769
|
54
months
|
$
|
2.60
|
30,769
|
$
|
2.60
|
6/15/12
|
|||||||||||
|
650,000
|
55
months
|
$
|
1.30
|
650,000
|
$
|
1.30
|
6/26/12
|
|||||||||||
|
50,000
|
17
months
|
$
|
1.00
|
50,000
|
$
|
1.00
|
7/28/09
|
|||||||||||
|
285,715
|
33
months
|
$
|
0.70
|
285,715
|
$
|
0.70
|
9/27/10
|
|||||||||||
|
21,000
|
33
months
|
$
|
1.00
|
21,000
|
$
|
1.00
|
9/28/10
|
|||||||||||
|
300,000
|
20
months
|
$
|
0.70
|
300,000
|
$
|
0.70
|
10/15/09
|
|||||||||||
|
292,858
|
32
months
|
$
|
0.70
|
292,858
|
$
|
0.70
|
10/29/09
|
|||||||||||
|
1,000,000
|
31
months
|
$
|
0.20
|
1,000,000
|
$
|
0.20
|
11/30/10
|
|||||||||||
|
4,107,092
|
4,107,092
|
|||||||||||||||||
44
NOTE
9 - COMMITMENTS
Leases
AtlasTG
has a six year office lease covering approximately 471 square meters located
at
Level 3, 9 Empire Stadium Street, Gzira GZR04, Malta, expiring on August
14,
2010, at a base annual rent of Euro37,270 (approx US$55,900), which escalates
by
Euro4,660 per annum (approximately US$7,000) until the final year.
AtlasTG
has a four year office lease of the second floor of 139-141 Featherston Street
in Wellington, New Zealand, expiring on July 31, 2009. The office comprises
approximately 300 square meters with an annual rental of NZ$66,000 per annum
(approximately US$51,500) plus 12.5% Goods and Services Tax (“GST”) which is
claimable against GST revenue tax payable or is refundable.
AtlasTG
has a three year office lease of Suite 2001 at the Limited Edition Office
Park,
2001 152nd
Avenue
NE, Redmond, WA., expiring on July 31, 2009. The office comprises 3,825 rentable
square feet at a base annual rental of US$61,200 in the first year, escalating
to $68,850 in the 2nd
year and
$76,500 in the 3rd
year.
Approximate
future lease commitments are as follows:
|
2007
|
$
|
150,000
|
||
|
2008
|
$
|
183,250
|
||
|
2009
|
$
|
149,500
|
||
|
2010
|
$
|
70,000
|
NOTE
10 - RELATED PARTY TRANSACTIONS
Due
to
Shareholders and Related Parties
The
$241,481 (2006: $70,582) of advances and loans showing in current liabilities
are owed to shareholders who hold more than 5% of the Company which makes
them a
related party. $100,000 of these loans incurred interest of 5% and has also
been
repaid since December 31, 2007. The remaining advances are at call and interest
free and the party loaning $100,000 of the remaining advances has agreed
to
accept Common Stock in the Company as repayment.
The
Loan
payable of $132,000 is interest bearing at 10% per annum and has been repaid
subsequent to balance date.
NOTE
11 - DISCONTINUED OPERATIONS AND SALE OF TDC
The
Company’s principal business activity in 2005 and prior years was focused on the
commercialization of the iShell® technology. The rights to the iShell®
technology were sold to a former staff member in mid-2006 together with the
lease commitments to the office in San Francisco.
During
2005, the former business of the Company was transferred into a wholly-owned
subsidiary called Tribeworks Development Corporation (“TDC”).
On
September 14, 2006, TDC was sold to two of the former management team by
way of
a sale to 541368 LLC, a California limited liability company, which purchased
100% of the stock of TDC for an aggregate consideration of $100 and the
settlement of certain disputes between Tribeworks and certain members of
the
management of 541368 LLC, who formerly served as the management of Tribeworks
and TDC. In addition, the Company agreed to make a one-time cash payment
of
$44,500 to TDC in full satisfaction of the Company’s obligations under an
existing support agreement dated as of August 1, 2005 between the Company
and
TDC, and the support agreement was terminated pursuant to the sale agreement.
The sale agreement also contained customary representations, warranties,
covenants, and mutual indemnity provisions.
45
The
assets and liabilities disposed of from the discontinued operations of TDC
at
June 30, 2006 (the financial statements used in the sale) were as
follows:
|
Assets:
|
|
|||
|
Accounts
receivable
|
$
|
108,661
|
||
|
Prepayments
|
4,291
|
|||
|
Computers
and equipments, net
|
811
|
|||
|
Total
assets
|
$
|
113,763
|
||
|
Liabilities:
|
||||
|
Bank
overdraft
|
$
|
14,810
|
||
|
Accounts
payable and accruals
|
373,676
|
|||
|
Total
Liabilities
|
$
|
388,486
|
||
In
June
2002, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 146, “Accounting for Costs Associated with Exit or
Disposal Activities” (hereinafter “SFAS
No. 146”).
SFAS
No. 146 addresses significant issues regarding the recognition, measurement,
and
reporting of costs associated with exit and disposal activities, including
restructuring activities. SFAS No. 146 also addresses recognition of certain
costs related to terminating a contract that is not a capital lease, costs
to
consolidate facilities or relocate employees, and termination benefits provided
to employees that are involuntarily terminated under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS No. 146 was issued in June 2002, effective
December 31, 2002 with early adoption encouraged. The effect on the Company’s
financial statement of the adoption of SFAS No. 146 is reflected in discontinued
operations.
The
Company’s financial results for prior periods have been reclassified to reflect
the discontinued operations of TDC in 2005. Condensed results of discontinued
segments are as follows:
|
|
December
31,
2006
|
|||
|
Net
Sales
|
122,370
|
|||
|
Net
Income (Loss)
|
$
|
173,853
|
||
NOTE
12 — ACQUISITION OF ATLAS TECHNOLOGY GROUP
On
January 20, 2006, Tribeworks acquired 100 percent of the issued capital of
Atlas
Technology Group Holdings Limited (formerly called TakeCareofIT Holdings
Limited, a Malta corporation, and its subsidiaries, which had been collectively
doing business as Atlas Technology Group, for $37,235 in cash and the assumption
of $1,144,106 of current liabilities (of which $1,073,744 plus interest was
due
to the Company). Atlas Technology Group Holdings Ltd (“ATG
Holdings”)
was
established in September 2004 to provide external Information Technology
(IT)
application support services for organizations with large IT
functions.
The
acquisition of ATG Holdings was accounted for using the purchase method of
accounting. The purchase price was allocated to the tangible and intangible
net
assets acquired based on the management’s evaluation of their respective
replacement values on the acquisition date in accordance with SFAS No. 141.
Upon
acquisition, ATG Holdings became a wholly-owned subsidiary of the Company.
The
results of ATG Holdings operations, commencing with the date of acquisition,
January 20, 2006, are included in these financial statements.
46
The
purchase price was allocated as follows:
|
Cash
|
$
|
93,273
|
||
|
VAT
receivable
|
22,596
|
|||
|
Deposits/prepaids
|
4,924
|
|||
|
Equipment
|
225,030
|
|||
|
IT
Technology
|
835,192
|
|||
|
|
$
|
1,181,015
|
NOTE
13 - ACQUISITION OF BLIVE
On
January 19, 2007, the Company entered into an Asset and Stock Purchase Agreement
(the “BLive
Agreement”)
with
BLive, Forte Finance Limited, a Maltese limited liability company (“Forte”),
and
Petroleum Corporation of Canada Limited, an Alberta corporation (“Petroleum
Corp.”),
pursuant to which the Company purchased substantially all of the assets of
BLive
in exchange for 1,000,000 fully paid shares of Common Stock in the Company.
This
agreement was closed on January 26, 2007.
Additionally,
in consideration of the payment by Petroleum Corp. of $100,010, the Company
agreed to issue to Petroleum Corp. 100,000 fully paid shares of the Company’s
Common Stock and warrants to purchase 300,000 shares of Common Stock of the
Company at $1.25 per share exercisable for a period of two years. The shares
issued in connection with this transaction have been issued to Petroleum
Corp.,
as a creditor of BLive. In addition, 150,000 shares of Common Stock have
been
issued to Forte as an M&A fee for the transaction (“Advisory
Shares”).
The
shares issued in connection with this transaction are “restricted securities”
(as defined in the Securities Act). In connection with the BLive Agreement,
the
Company also entered into an escrow agreement with the following parties
with
the following terms: (a) an Escrow Agreement between Petroleum Corp. and
the
Company, whereby 300,000 shares of Common Stock will be held in escrow until
the
receipt of certain Canadian tax refunds owed to InfoBuild (refunds since
received); and (b) an Escrow Indemnification Agreement between Forte and
the
Company, whereby the 150,000 shares of Common Stock issued to Forte will
be held
in escrow until the expiration of a twelve month indemnity period that was
signed pursuant to an agreement with Forte, dated January 19, 2007.
As
part
of the BLive Agreement, the Company has also acquired a 49% ownership interest
in BLive’s Canadian affiliate, InfoBuild Networks (Canada) Inc. InfoBuild
Networks (Canada) Inc has subsequently been renamed BLive Networks Inc.,
and the
business is now trading through this entity. The Company subsequently exercised
an option agreement to purchase the remaining 51% and this is now 100%
owned.
47
The
offering of these unregistered securities were exempt from registration pursuant
to Rule 506 promulgated under the Securities Act. Each of these investors
represented to us, in writing, that it was an “accredited investor” as that term
is defined in Rule 501(a) of Regulation D promulgated under the Securities
Act.
The proceeds from these sales of unregistered securities are being used for
general working capital purposes.
The
purchase price was allocated as follows:
|
Cash
|
$
|
414
|
||
|
Accounts
Receivable, net (since collected)
|
150,520
|
|||
|
Computer
equipment
|
57,204
|
|||
|
Customer
list and Trademarks
|
555,312
|
|||
|
IT
Technology
|
505,121
|
|||
|
|
1,268,571
|
|||
|
Less
Creditors
|
(6,448
|
)
|
||
|
|
$
|
1,262,123
|
NOTE
14 - SUBSEQUENT EVENTS
On
December 31, 2007, the Company entered into a Note Amendment and Securities
Purchase Agreement (the “WCOF
Agreement”),
with
West Coast Opportunity Fund, LLC, a Delaware limited liability company (the
“Buyer”).
The
WCOF Agreement amends the earlier Securities Purchase Agreement of June 15,
2007, under which ATG US issued to the Buyer two senior secured promissory
notes, each in the principal amount of $2,500,000.00, dated June 15, 2007
and
July 11, 2007 (each, a “Promissory
Note,”
and
together, the “Promissory
Notes”),
6,500,000 shares of the Company’s common stock and 6,500,000 warrants to
purchase common stock, exercisable for a period of five years from the date
of
issuance at an initial exercise price of $2.60 per share. Pursuant to the
WCOF
Agreement, the Buyer agreed to cancel and return the warrants to the Registrant,
in consideration for which the Company has agreed to: (i) enter into the
WCOF
Agreement, amending the earlier agreement; (ii) amend the Promissory Note
dated
June 15, 2007, to extend the maturity date from November 30, 2008 to December
31, 2008; (iii) amend and restate the Promissory Note dated July 11, 2007;
and
(iv) issue a yield enhancement consisting of 3,500,000 shares (the “Yield
Enhancement Shares”)
of
Common Stock.
The
Escrow Deposit of $4,011,107 was drawn down on January 3, 3008, and $1,500,000
was repaid to WCOF leaving an outstanding loan balance of $3,500,000 now
repayable on December 31, 2008. From the balance of the funds, $132,000 was
used
to repay the Note Payable and $550,000 was used to repay old creditors and
short-term debt, as well as $180,000 of brokerage to ESP in relation to
arranging the WCOF debt. 680,000 of shares of Common Stock will also be issued
subsequent to balance date and will used in association with some of the
cash
paid out to further reduce accounts payable and short-term debt.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On
October 13, 2006, the Board of Directors approved the dismissal of HLB Cinnamon,
Jang, Willoughby, Chartered Accountants, as our independent registered public
accounting firm (who were originally appointed on August 19, 2005).
No
report
of HLB Cinnamon, Jang, Willoughby, Chartered Accountants, on the financial
statements for either of the past two years contained any adverse opinion
or
disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope, or accounting principle. During the fiscal years ended December 31,
2005
and 2006 and through October 13, 2006, there were no disagreements with HLB
Cinnamon, Jang, Willoughby, Chartered Accountants, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or
procedure, which disagreement(s), if not resolved to the satisfaction of
HLB
Cinnamon, Jang, Willoughby, Chartered Accountants, would have caused it to
make
reference thereto in any report. During the fiscal years ended December 31,
2005
and 2006 and through October 13, 2006, there were no reportable events (as
defined in Item 304(a)(1)(v) of Regulation S-K). We requested that HLB Cinnamon,
Jang, Willoughby, Chartered Accountants, furnish us with a letter addressed
to
the Securities and Exchange Commission (“SEC”)
stating whether or not it agrees with the above statements and such a letter
was
filed with the SEC as an exhibit to a Current Report on Form 8-K.
On
October 13, 2006, we engaged the firm of Williams & Webster, P.S. as our
principal independent accountant to audit our financial statements. Since
we do
not currently maintain an audit committee, our full Board of Directors approved
the engagement of Williams & Webster, P.S. Prior to the engagement of
Williams & Webster, P.S., neither we, nor any person on our behalf consulted
Williams & Webster, P.S. regarding either: (i) the application of accounting
principles to a specified completed or proposed transaction or the type of
audit
opinion that might be rendered on our financial statements, or (ii) any matter
that was the subject of a disagreement (as defined in Item 304(a)(1)(iv)
of
Regulation S-K and the related instructions to such Item) or a reportable
event
(as defined in Item 304(a)(1)(v) of Regulation S-K).
48
ITEM
8A. CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
In
connection with the preparation of this annual report on Form 10-KSB, an
evaluation was carried out by Atlas TG’s management, with the participation of
the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(“Exchange Act”)) as of December 31, 2007. Disclosure controls and procedures
are designed to ensure that information required to be disclosed in reports
filed or submitted under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the SEC rules and forms
and
that such information is accumulated and communicated to management, including
the Chief Executive Officer and the Chief Financial Officer, to allow timely
decisions regarding required disclosures.
Based
on
that evaluation, our management concluded, as of the end of the period
covered by this report, that the Company’s disclosure controls and procedures
were effective in recording, processing, summarizing, and reporting information
required to be disclosed, within the time periods specified in the SEC’s rules
and forms.
ITEM
8A (T). CONTROLS AND PROCEDURES.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. AtlasTG’s internal control over financial
reporting is a process, under the supervision of the Chief Executive Officer
and
the Chief Financial Officer, designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the Company’s
financial statements for external purposes in accordance with United States
generally accepted accounting principles (GAAP). Internal control over financial
reporting includes those policies and procedures that:
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the Company’s
assets;
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of the financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
are
being made only in accordance with authorizations of management
and the
Board of Directors; and
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
AtlasTG
management conducted an assessment of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2007, based
on
criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). In the course of the evaluation, management identified a material
weakness in internal control over financial reporting.
A
material weakness is a control deficiency, or a combination of deficiencies,
in
internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the Company’s annual or interim
financial statements will not be prevented or detected on a timely
basis.
The
material weakness identified is described below:
Procedures
for preparation of the financial reports from the Company’s books and records
are currently manually intensive, and rely heavily on the knowledge and
expertise of two individuals. Circumstances arose in the preparation
of the 2007 financial statements that prevented one of the individuals with
expertise from fully participating in the preparation of financial reports,
resulting in untimely detection of required adjustments to the financial
statements.
49
As
a
result of the material weaknesses in internal control over financial reporting
described above, our management has concluded that, as of December 31,
2007, the Company’s internal control over financial reporting was not effective
based on the criteria in Internal
Control - Integrated Framework
issued
by the COSO.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. We were not required to have, nor have we, engaged our independent
registered public accounting firm to perform an audit of internal control
over
financial reporting pursuant to the rules of the SEC that permit us to provide
only management’s report in this annual report.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As
of the
end of the period covered by this report, there have been no changes in internal
control over financial reporting (as defined in Rule 13a-15(f) of the Exchange
Act) during the quarter ended December 31, 2007, that materially affected,
or
are reasonably likely to materially affect the Company’s internal control over
financial reporting.
ITEM
8B. OTHER INFORMATION
None
50
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(a) OF THE EXCHANGE ACT
Our
Management
Set
forth
below is the name, age, years of service, and positions of the executive
officers and directors of the Company as of March 31, 2008.
|
Name
|
|
Age
|
|
Position
|
|
Director
Since
|
|
Robert
E Altinger
|
|
46
|
|
Director
|
|
August
2005
|
|
|
|
|
|
|
|
|
|
Andrew
J E Berger
|
|
47
|
|
Director
|
|
June
2006
|
|
|
|
|
|
|
|
|
|
W.
Gordon Blankstein
|
|
57
|
|
Director
|
|
August
2005
|
|
|
|
|
|
|
|
|
|
Robert
C. Gardner
|
|
67
|
|
Director
|
|
August
2005
|
|
|
|
|
|
|
|
|
|
Peter
B. Jacobson
|
|
47
|
|
Director
and CEO
|
|
June
2005
CEO
since August 2005
|
|
|
|
|
|
|
|
|
|
B.S.P.
(Paddy) Marra
|
|
61
|
|
Director
and CFO
|
|
December
2005
CFO
since September 2005
|
|
|
|
|
|
|
|
|
|
Michael
T Murphy
|
|
40
|
|
Chief
Operating Officer
|
|
June
2006
|
The
directors serve until their successors are elected by the stockholders.
Vacancies on the Board of Directors may be filled by appointment of the majority
of the continuing directors. The executive officers serve at the discretion
of
the Board of Directors. The directors named above will serve until our next
annual general meeting of stockholders in 2008. Directors will be elected
for
one-year terms at the annual general meeting. All officers and directors
listed
above will remain in office until the next annual general meeting of our
stockholders and until their successors have been duly elected and
qualified.
There
are
no agreements with respect to the election of directors. During 2007, we
have
not compensated our directors for service on our Board of Directors, any
committee thereof, or reimbursed them for expenses incurred for attendance
at
meetings of our Board of Directors and/or any committee of our Board of
Directors. Officers are appointed annually by our Board of Directors and
each
Executive Officer serves at the discretion of our Board of Directors. We
do not
have any standing committees. Our Board of Directors may in the future determine
to pay directors’ fees and reimburse directors for expenses related to their
activities.
None
of
our officers and/or directors have ever filed any bankruptcy petition, been
convicted of or been the subject of any criminal proceedings, or the subject
of
any order, judgment, or decree involving the violation of any state or federal
securities laws.
51
Biographical
Information of Executive Officers and Directors
Robert
Altinger, 46 - Director
Prior
to
founding AtlasTG, Robert Altinger was Principal Consultant of WebConsult,
Inc, a
Microsoft- approved vendor of IT consulting services since September 2001.
Prior
to joining WebConsult, Inc., Mr. Altinger had over twenty years of IT
experience, including serving as Director of Worldwide IT Operations for
Avanade
Corp, in various capacities at Microsoft, including Director of Product Group
IT
Services, and prior to that at JP Morgan. Mr Altinger obtained a BSc (Eng)
from
Exeter University in the United Kingdom in 1986.
Andrew
Berger, 47 - Director
Andrew
Berger recently retired from the position of Vice President of Alien Technology
Europe, a world leader in RFID technologies. Mr. Berger was responsible for
all
European activity. Prior to joining Alien Technology, Mr. Berger was an equity
Partner and founding member of Accenture's strategy practice. He also led
Accenture's Northern European supply chain practice and global Supply Chain
Innovation team. Prior to joining Accenture, he served as an operational
Intelligence Officer with the Airborne and Special Forces divisions of the
British Army. He has a Bachelor's of Science from Bristol University and
an MBA
with Distinction from London Business School.
W.
Gordon Blankstein, 57 - Director
Gordon
Blankstein is currently a member of the Board of Directors of Genco Resources,
Ltd., a publicly-traded mining company listed on the Toronto Stock Exchange
and
has been since 2002. He is also a director of Digifonica (International)
Limited. From 1997 through 2002, Mr. Blankstein was Chairman and Chief Executive
Officer of Global Light Telecommunications, Inc., an American Stock
Exchange-listed company. Mr. Blankstein obtained a B.Sc. (Agri.) from the
University of British Columbia in 1973 and an MBA from the University of
British
Columbia in 1976.
Robert
C. Gardner, 67 - Director
Robert
Gardner is currently Chairman of the Boards of Directors of Genco Resources,
Ltd., a publicly-traded mining company listed on the Toronto Stock Exchange;
Andover Ventures, Inc., a publicly-traded mining company listed on the Toronto
Stock Exchange; and Stealth Energy, Inc., a publicly-traded oil and gas
company traded on the Canadian Venture Exchange. He is also a Director of
Kootenay Gold Inc., a publicly-traded mining company listed on the Toronto
Stock
Exchange, and is a partner in the law firm of Gardner & Associates in
Vancouver, BC, Canada. Mr. Gardner is a corporate lawyer and has practiced
law
there since 1989. Mr. Gardner obtained a M.A. from Cambridge University in
Cambridge, United Kingdom, in 1961 and a L.L.M. degree from Cambridge University
in 1962.
Peter
B. Jacobson, 47 - Director and CEO
Prior
to
joining Atlas and Tribeworks, Peter Jacobson was founder and President of
Monitor Technologies, Inc., an IT network and support company to Fortune
1000
firms from 1985 to 1995; a partner and Marketing Director of OceanPC, Inc.,
a
leader in computer-based marine GPS navigation systems from 1995 to 2002;
and
subsequently was President of First Call Wireless, LLC., a worldwide cellular
distribution company, from 2002 until 2005. Peter Jacobson has served on
numerous Boards of Directors, including The Seattle Center, Northwest Children’s
Fund, Lakeside Technology Foundation, and Creditnet.com. He is a past President
of the Washington Young Entrepreneurs Organization. Mr Jacobson obtained
a BA
from the University of Washington in 1985.
Byran
S.P. (Paddy) Marra, 61 - Director and CFO
Paddy
Marra has over thirty years of corporate finance experience, including recently
with FreshXtend Technologies Corp. (Canada) (CEO and now Deputy Chairman),
a
TSX-V listed company; CFO of the Brierley Investments Limited group (New
Zealand); and Chairman and CEO of Chamundi Power Corporation Ltd (India).
Paddy
Marra has degrees in both Accounting and Finance (BCA) and in Economics and
Economic History (BA) from Victoria University of Wellington, New Zealand.
He is
also a Fellow (FCA) of the Institute of Chartered Accountants of New Zealand
and
is a former member of the Financial Reporting Standards Board in New Zealand
and
numerous other Boards of Directors and directorships of publicly-traded
companies. Paddy Marra acts as Corporate Secretary to the Board of
Directors.
52
Michael
Murphy, 40 - Chief Operating Officer
Mike
Murphy joined us after a successful fifteen year career at Microsoft Corporation
where he was most recently the Senior Director leading the Business Group
IT
organization. At Microsoft, Mr. Murphy was responsible for critical aspects
of Microsoft’s business, including source code management and product
localization. His experience includes leading teams throughout the United
States, Europe, Eastern Asia, and India. Mr. Murphy holds a B.A. in Information
Systems from Washington State University.
Family
Relationships
None
Certain
Legal Proceedings
No
director, nominee for director, or executive officer of ours has appeared
as a
party in any legal proceeding material to an evaluation of his ability or
integrity during the past five years.
Code
of Ethics
We
have
not yet adopted a Code of Ethics for our officers, directors, or employees,
but
the Company is in the process of adopting one. At this time, and pending
final review and approval, the Board of Directors plans to
adopt a written Code of Ethics for the Company in the year
2008.
Audit
Committee Financial Expert
We
do not
have an audit committee or an "audit committee financial expert" within the
meaning of such phrases under applicable regulations of the Securities and
Exchange Commission. Our Board of Directors believes that each of its directors
is financially literate and experienced in business matters and that one
or more
directors are capable of:
|
·
|
understanding
generally accepted accounting principles, or GAAP, and financial
statements;
|
|
·
|
assessing
the general application of GAAP principles in connection with our
accounting for estimates, accruals, and
reserves;
|
|
·
|
analyzing
and evaluating our financial statements;
and
|
|
·
|
understanding
our internal controls and procedures for financial reporting;
|
all
of
which are attributes of an audit committee financial expert. However, the
Board
of Directors believes that our directors have not obtained these attributes
through the experience specified in the SEC's definition of "audit committee
financial expert."
53
Section
16(a) Beneficial Ownership Reporting Compliance
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to
us
during, and Forms 5 and amendments thereto furnished to us with respect to,
the
fiscal year ended December 31, 2007, and any written representations from
reporting persons that no Form 5 is required, the following table sets forth
information regarding each person who, at any time during the fiscal year
ended
December 31, 2007, was a director, officer, or beneficial owner of more than
10%
of our common stock who failed
to
file on a timely basis, as disclosed in the above forms, reports required
by
Section 16(a) of the Exchange Act during the fiscal year ended December 31,
2007:
|
Name
|
Number
of
Late
Reports
|
Number
of
Transactions
Not
Reported
on a
Timely
Basis
|
Known
Failures to File a Required Form
|
|||||||
|
Robert
Altinger
|
0
|
|
|
0
|
|
|
-
|
|
||
|
|
||||||||||
|
Andrew
Berger
|
0
|
|
|
0
|
|
|
-
|
|||
|
|
||||||||||
|
W.
Gordon Blankstein
|
0
|
|
|
0
|
|
|
-
|
|||
|
|
||||||||||
|
Robert
C. Gardner
|
0
|
|
|
0
|
|
|
-
|
|
||
|
|
||||||||||
|
Peter
Jacobson
|
0
|
|
|
0
|
|
|
-
|
|||
|
|
||||||||||
|
B.S.P.
(Paddy) Marra
|
0
|
|
|
0
|
|
|
-
|
|||
|
|
||||||||||
|
Michael
T. Murphy
|
0
|
|
|
0
|
|
|
-
|
|
||
ITEM
10. EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Compensation
Philosophy and Overall Objectives
We
believe that the compensation program for our Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer, and other directors and key
consultants (collectively, the “Named Executive Officers”), should be designed
to reward the achievement of specific annual, long-term and strategic goals,
and
should align executives, directors, and consultants’ interests with those of the
stockholders by rewarding performance above established goals, with the ultimate
objective of improving shareholder value. The compensation program should
also be sufficient to attract and retain highly qualified leaders who can
create
value for us, as well as provide meaningful incentives for superior performance.
Setting
Executive Compensation
Due
to
the unique nature of each Named Executive Officer’s duties, our criteria for
assessing performance and determining the compensation in any given year
are
inherently subjective and are not based upon specific formulas, benchmark,
or
weighting of factors. We also use companies in similar industries as
benchmarks when initially establishing Named Executive Officers’ compensation.
However, we are a growth stage company that has a limited operating history
and
has experienced
losses over the past few years.
As a result, our compensation plan necessarily reflects our limitations in
this respect.
Discussion
of Specific Compensation Elements
Base
Salary:
We
determine the base salaries for all Named Executive Officers by reviewing
company and individual performance, the value each Named Executive Officer
brings to us, and general labor market conditions. The base salary for
each Named Executive Officer is determined on a subjective basis after
consideration of these factors and is not based on target percentiles or
other
formal criteria. The base salaries of Named Executive Officers are reviewed
on
an annual basis and any annual increase is the result of an evaluation of
our
performance and of the individual Named Executive Officer’s performance for the
period. An increase or decrease in base pay may also result from a promotion
or
other significant change in a Named Executive Officer’s responsibilities during
the year.
54
Performance-Based
Incentive Compensation:
We do
not have a performance-based incentive compensation program at this time.
Long-Term
Incentive Compensation:
We
provide long-term incentive compensation through awards of stock options,
restricted stock, warrants, and/or stock awards. Our equity compensation
program is intended to align the interests of the Named Executive Officers
with
those of our shareholders by creating an incentive for our officers and
consultants to maximize shareholder value.
The
equity compensation program also is designed to encourage officers and
consultants to remain employed with us despite a competitive labor market,
and
the fact that we are a growth stage company that has a limited operating
history
and has experienced
losses over the past few years,
and may
not necessarily be able to sustain a market rate base salary. Stock
options, stock grants, warrants, and other incentives are based on combination
of factors including the need and urgency for such an executive, the experience
level of the executive, and the balance of such incentives with a lower than
market base salary or fees that is paid in cash. Employees, directors, and
consultants are granted such incentives from time to time to maintain their
continuing services, sometimes without increases in salaries or fees. To
such
end, the
Company maintains the 1999 Equity Incentive Plan for the issuance of stock
options to employees, directors, and consultants. The Company also maintains
the
2004 Employee Stock Incentive Plan for the issuance of stock options, Common
Stock, restricted stock, and stock bonuses to employees, officers, and key
consultants.
Deferred
Compensation Benefits:
We do not have a deferred compensation program at this time.
Retirement
Benefits:
We do not have a 401(k) plan or other retirement program at this time.
Executive
Perquisites and Generally Available Benefits:
We have no executive perquisite program at this time.
Compensation
Committee:
As of February 15, 2008, we have a compensation committee that consists of
directors Andrew Berger, W. Gordon Blankstein and Robert C.
Gardner.
Tax
and Accounting Implications
We
review
and consider the deductibility of executive compensation under Section 162(m)
of
the Internal Revenue Code, which provides that we may not deduct compensation
of
more than $1,000,000 that is paid to certain individuals. We believe that
compensation paid under the management incentive plans are generally fully
deductible for federal income tax purposes.
Role
of Executive Officers in Compensation Decisions
Decisions
as to the compensation of our executive officers are made by the Board of
Directors. The executive officers who are also Board members participate
in the discussion and determination of their compensation.
Director
Compensation
Directors
do not receive any compensation for their services as members of the Board
of
Directors during 2007, although this could be subject to change during
2008. Directors are reimbursed for expenses in connection with attendance
at
Board of Directors and committee meetings. Directors are eligible to participate
as optionees under our compensatory equity plans.
55
Executive
Compensation
The
following table provides certain summary information concerning compensation
of
our executives for the year ended December 31, 2007. No executive officer,
other
than as listed below, received total compensation from us in excess of $100,000
during 2007. The current CEO and CFO do not have employment agreements.
|
Annual
Compensation
|
Long
Term Compensation
|
||||||||||||||||||||||||
|
Awards
|
Payouts
|
||||||||||||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary/
Fees
($)
|
Bonus
($)
|
Other
Annual
Compensation
|
Restricted
Stock
Awards
($)
|
Securities
Underlying
Options/SARs
|
LTIP
Payout
($)
|
All
Other Compensation
($)
|
|||||||||||||||||
|
Robert
Altinger, Executive Chairman
|
2007
|
145,000
|
(1)
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||
|
|
|||||||||||||||||||||||||
|
Peter
B. Jacobson, Chief Executive Officer and Director
|
2007
|
120,000
|
(1)
|
0
|
1,820
|
0
|
0
|
0
|
0
|
||||||||||||||||
|
|
|||||||||||||||||||||||||
|
B.
S. P. (Paddy) Marra, Chief Financial Officer, and Director
|
2007
|
120,000
|
(1)
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||
|
|
|||||||||||||||||||||||||
|
Michael
T Murphy, Chief Operating Officer
|
2007
|
168,000
|
0
|
|
0
|
0
|
0
|
0
|
|||||||||||||||||
(1)
Robert Altinger and Paddy Marra are not direct employees, but are engaged
through consulting companies who are responsible for paying their salaries,
taxes, and benefits. Peter Jacobson receives his salary on an independent
contractor basis.
Option
Grants in Last Fiscal Year
There
were no grants of stock options or warrants to any of the executive officers
named in the compensation table above during fiscal years 2006 or
2007.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
No
options or warrants were granted or exercised in 2006 or 2007 by any executive
officers.
56
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a)
of the Exchange Act.
The
following table sets forth as of April 10, 2008, contains certain information
regarding the beneficial ownership of our Common Stock by: (i) all persons
known
to the Company who own more than 5% of the outstanding Common Stock, (ii)
each
director, (iii) each of our executive officers, and (iv) all executive officers
and directors as a group. Unless otherwise indicated, the persons named in
the
table below have sole voting and investment power with respect to all shares
of
Common Stock shown as beneficially owned by them.
|
Name
and Address of Beneficial Owner
|
Shares
Beneficially Owned (1)
|
Percent
of Class (2)
|
|||||
|
West
Coast Asset Management Inc
|
|
|
|||||
|
2151
Alessandro Drive, Suite 100
|
|
|
|||||
|
Ventura
CA 93001
|
10,000,000
|
(3)
|
25.30
|
%
|
|||
|
Cede
& Co
P.O.
Box 222
Bowling
Green Station
New
York, N.Y. 10274
|
5,821,289
|
14.7
|
%
|
||||
|
Michael
T. Murphy
2812
West Lake Sammamish Pkwy NE
Redmond,
WA 98052
|
4,338,636
|
(4)
|
11.0
|
%
|
|||
|
Robert
Blankstein
Suite
550 - 999 Hastings Street West
Vancouver,
B.C., Canada
|
3,767,144
|
9.5
|
%
|
||||
|
|
|||||||
|
WebConsult
Limited
Bankhaus
Carl Spangler
Schwatzstr
17 A 5030, Austria
|
2,202,274
|
5.6
|
%
|
||||
|
|
|||||||
|
Pharaoh
Properties Corporation
Alves
De Souza Houman Colart
6
Cours De Rive
1204
Geneva, Switzerland
|
2,002,272
|
5.1
|
%
|
||||
|
|
|||||||
|
Peter
Jacobson
111
Via Quito
Newport
Beach, CA 92663-5503
|
1,575,000
|
(5)
|
4.0
|
%
|
|||
|
|
|||||||
|
Robert
Altinger
The
Ridge
31st
March Street
Gharghur,
Malta
|
1,575,000
|
(6)
|
4.0
|
%
|
|||
|
|
|||||||
|
W.
Gordon Blankstein
8011
240 St.
Vancouver,
B.C., Canada
|
600,000
|
(7)
|
1.5
|
%
|
|||
|
|
|||||||
|
Robert
C. Gardner
2153,
349 West Georgia St.
Vancouver,
B.C., Canada
|
500,000
|
1.3
|
%
|
||||
|
|
|||||||
|
Officers
and Directors as a group (7 persons)
|
6,638,636
|
(8)
|
16.8
|
%
|
|||
57
(1)
Includes all shares of our Common Stock with respect to which each holder
directly, through any contract, arrangement, understanding, relationship,
or
otherwise has or shares the power to vote or direct voting of such shares
or to
dispose or direct the disposition of such shares.
(2)
Based
upon 39,513,949 shares of our Common Stock issued and outstanding as of April
10, 2008.
(3)
West
Coast Asset Management Inc holds these shares on behalf of West Coast
Opportunity Fund LLC.
(4)
This
figure includes 975,000 shares held by AMJ Holdings. We anticipate that the
shares held by AMJ Holdings will be granted in the form of stock options
to our
employees in the future. Mr. Murphy, Mr. Altinger, and Mr. Jacobson serve
as
co-trustees of shares held by AMJ Holdings.
(5)
Mr.
Jacobson personally owns 600,000 shares of our Common Stock. This figure
also
includes 975,000 shares held by AMJ Holdings. We anticipate that the shares
held
by AMJ Holdings will be granted in the form of stock options to our employees
in
the future. Mr. Murphy, Mr. Altinger, and Mr. Jacobson serve as co-trustees
of
shares held by AMJ Holdings. Mr. Jacobson’s wife, Georgina Jacobson, owns 40,000
shares of our Common Stock. Mr. Jacobson expressly disclaims beneficial
ownership of shares owned by his wife.
(6)
This
figure includes 975,000 shares held by AMJ Holdings. We anticipate that the
shares held by AMJ Holdings will be granted in the form of stock options
to our
employees in the future. Mr. Murphy, Mr. Altinger, and Mr. Jacobson serve
as
co-trustees of shares held by AMJ Holdings.
(7)
Mr.
Blankstein personally owns 600,000 shares of our Common Stock. Yvonne
Blankstein, the wife of Gordon Blankstein, owns 530,083 shares of our Common
Stock and holds 500,000 shares of Common Stock in trust for Shelby Blankstein.
Mr. Blankstein expressly disclaims beneficial ownership of shares owned by
his
wife and shares that his wife holds in trust for Shelby Blankstein.
(8)
This
group includes seven people, five of whom are listed on the accompanying
table.
Paddy Marra, an officer and director, and Andrew Berger, a director, are
not
listed on the accompanying table and do not currently own any of our Common
Stock. To avoid double-counting, the 975,000 shares of Common Stock held
by AMJ Holdings and deemed to be beneficially owned by Robert Altinger, Peter
Jacobson, and Michael Murphy, as a result of their position as co-trustees
of
AMJ Holdings, have only been included once in the total (see Note (5), (7),
and
(8) above).
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
As
of
March 31, 2007, other than as already disclosed above we have not entered
into
any other contractual arrangements with any related parties. There are no
other
currently proposed transaction, or series of the same, to which we are a
party,
in which the amount involved exceeds $60,000 and in which, to our knowledge,
any
director, executive officer, nominee, promoter, control person, 5% shareholder,
or any member of the immediate family of the foregoing persons, have or will
have a direct or indirect material interest.
58
ITEM
13. EXHIBITS
(a) The
following is a list of exhibits, some of which are incorporated by
reference:
|
Exhibit
Number
|
|
Description
of Exhibits
|
|
|
|
|
|
2.1
|
|
Agreement
of Merger between Tribeworks, Inc., a California corporation, and
Tribeworks Acquisition Corporation, dated November 2, 1999 (Incorporated
by reference to Exhibit 2.1 to the Registrant’s Form 10-SB/A filed July
10, 2000)*
|
|
|
|
|
|
2.2
|
|
Share
Transfer Agreement between Tribeworks Inc. and TakeCareofIT Limited,
dated
January 20, 2006 (incorporated by reference to Exhibit 2.01 to
the
Registrant’s Current Report in Form 8-K filed January 26,
2006)*
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Tribeworks, Inc., a Delaware Corporation (incorporated
by reference to Exhibit 3.1 to the Registrant’s Form 10-SB/A filed July
10, 2000 and Exhibit A to the Registrant’s Proxy Statement on Schedule 14A
filed April 14, 2004)*
|
|
|
|
|
|
3.2
|
|
Bylaws
of Tribeworks, Inc., a Delaware Corporation (incorporated by reference
to
Exhibit 3.2 to the Registrant’s Form 10-SB/A filed July 10,
2000)*
|
|
3.3
|
Certificate
of Amendment to Certificate of Incorporation (incorporated by reference
to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed July 31,
2007)*
|
|
|
|
|
|
|
4.1
|
|
Certificate
of Designation, Preferences, Rights and Limitations of Series B
Convertible Redeemable Preferred Stock of Tribeworks Inc. (incorporated
by
reference to Exhibit 4.1 to the Registrant’s Current Report in Form 8-K
filed October 11, 2005)*
|
|
|
|
|
|
10.1
|
|
Pan
World Corporation 1999 Stock Option Plan (incorporated by reference
to
Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed
September 26, 2001)*
|
|
|
|
|
|
10.2
|
|
Tribeworks,
Inc. 2001 Stock Plan (incorporated by reference to Exhibit 4.1
to the
Registrant’s Registration Statement on Form S-8 filed September 26,
2001)*
|
|
|
|
|
|
10.3
|
|
Tribeworks,
Inc. 2004 Employee Stock Incentive Plan (incorporated by reference
to
Exhibit B to the Registrant’s Proxy Statement on Schedule 14A filed April
14, 2004)*
|
|
|
|
|
|
10.4
|
|
Share
Transfer Agreement, dated January 19, 2006, between TakeCareofIT
Limited
and Tribeworks, Inc., (incorporated by reference to Exhibit 2.01
to the
Registrant’s Current Report in Form 8-K filed January 26,
2006)*
|
|
|
|
|
|
10.5
|
|
Stock
Transfer Agreement, dated September 14, 2006, between and 541368
LLC and
Tribeworks, Inc. (incorporated by reference to Exhibit 10.1 to
the
Registrant’s Current Report in Form 8-K filed October 5,
2006)*
|
|
|
|
|
|
10.6
|
|
Asset
and Stock Purchase Agreement, dated January 19, 2007, between BLive
Networks, Inc., Forte Finance Limited, Petroleum Corporation of
Canada
Limited and Tribeworks, Inc. (incorporated by reference to Exhibit
10.1 to
the Registrant’s Current Report in Form 8-K filed January 25,
2007)*
|
59
|
10.7
|
|
Registration
Rights Agreement, dated January 19, 2007, between Petroleum Corporation
of
Canada Limited and Tribeworks, Inc. (incorporated by reference
to Exhibit
10.2 to the Registrant’s Current Report in Form 8-K filed January 25,
2007)*
|
|
|
|
|
|
10.8
|
|
Forte
Agreement, dated January 19, 2007, between Forte Finance Limited
and
Tribeworks, Inc. (incorporated by reference to Exhibit 10.3 to
the
Registrant’s Current Report in Form 8-K filed January 25,
2007)*
|
|
10.9
|
|
Securities
Purchase Agreement, dated June 15, 2007, by and among Tribeworks,
Inc.,
all of its subsidiaries and West Coast Opportunity Fund, LLC (incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed June 19, 2007)*
|
|
10.10
|
Promissory
Note, dated June 15, 2007, between Atlas Technology Group (US ),
Inc. and
West Coast Opportunity Fund, LLC (incorporated by reference to
Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed June 19,
2007)*
|
|
|
10.11
|
Pledge
and Security Agreement, dated June 15, 2007, between Tribeworks,
Inc., all
of its subsidiaries and West Coast Opportunity Fund, LLC (incorporated
by
reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
10.12
|
Guaranty,
dated June 15, 2007, between Tribeworks, Inc. and all of its subsidiaries
other than Atlas Technology Group (US), Inc. and West Coast Opportunity
Fund, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K filed June 19, 2007)*
|
|
|
10.13
|
Escrow
Agreement, dated June 15, 2007, by and among Tribeworks, Inc.,
Atlas
Technology Group (US), Inc. and West Coast Opportunity Fund, LLC
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
10.14
|
Registration
Rights Agreement, dated June 15, 2007, between Tribeworks, Inc.
and West
Coast Opportunity Fund, LLC (incorporated by reference to Exhibit
10.6 to
the Registrant’s Current Report on Form 8-K filed June 19,
2007)*
|
|
|
10.15
|
Form
of Warrant issued by Tribeworks, Inc., to West Coast Opportunity
Fund, LLC
(incorporated by reference to Exhibit 10.7 to the Registrant’s Current
Report on Form 8-K filed June 19, 2007)*
|
|
|
10.16
|
Form
of Lock-up Agreement, dated June 15, 2007, between West Coast Opportunity
Fund, LLC and certain stockholders of Tribeworks, Inc. (incorporated
by
reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
10.17
|
Promissory
Note, dated July 11, 2007, between Atlas Technology Group (US),
Inc. and
West Coast Opportunity Fund
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed July 13, 2007)*
|
|
|
10.18
|
Promissory
Note, dated March 29, 2005 (incorporated by reference to Exhibit
99.3 to
the Registrant’s Current Report on Form 8-K filed on March 31,
2005)*
|
|
|
21.1
|
|
Subsidiaries
of the Issuer
|
|
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) and
15d-14(a)
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) and
15(d)-14(a)
|
|
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 1350 of Title 18
of the
United States Code
|
|
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 1350 of Title 18
of the
United States Code
|
|
|
*
Previously filed
60
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Set
out
below are the various fees paid to or accrued for our present auditors, Williams
& Webster P S, and for our previous auditors, HLB Cinnamon, Jang,
Willoughby, Chartered Accountants for services provided during the years
ended
December 31, 2007 and 2006:
|
|
Fees
for the Year Ended
|
||||||
|
|
December
31,
2007
|
December
31,
2006
|
|||||
|
Audit
fees (1)
|
$
|
42,876
|
$
|
51,284
|
|||
|
Audit-related
fees (2)
|
36,822
|
25,855
|
|||||
|
Tax
fees (3)
|
—
|
—
|
|||||
|
All
other fees (4)
|
9,371
|
2,727
|
|||||
|
Total
fees for services
|
$
|
89,069
|
$
|
56,336
|
|||
|
(1)
|
Audit
fees are the fees billed for professional services rendered for
the audit
of our annual financial statements. This category also includes
fees for
statutory audits required domestically and internationally, comfort
letters, consents, assistance with and review of documents filed
with the
SEC, attest services, work done by tax professionals in connection
with
the audit or quarterly reviews, and accounting consultations and
research
work necessary to comply with generally accepted auditing
standards.
|
|
(2)
|
Audit-Related
fees are the fees billed for assurance and related services by
the
principal accountant that are reasonably related to the performance
of the
audit or review and are not reported as audit
fees.
|
|
(3)
|
Tax
fees are the fees billed for professional services rendered for
tax
compliance, tax advice, and tax planning, except those provided
in
connection with the audit or quarterly
reviews.
|
|
(4)
|
All
other fees include fees billed for professional services not covered
by
(1) through (3) above.
|
The
Board
of Directors, acting as the Audit Committee, pre-approves all audit and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Company by its independent auditor.
61
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
Atlas
Technology Group, Inc.
a
Delaware corporation
|
|
|
|
|
|
Date:
April 14, 2008
|
By:
|
/s/
Peter B. Jacobson
|
|
|
Peter
B. Jacobson, Chief Executive Officer
|
|
|
|
(Registrant’s
Principal Executive Officer)
|
|
|
|
|
|
|
Date:
April 14, 2008
|
By:
|
/s/
B.S.P. Marra
|
|
|
B.S.P.
Marra, Chief Financial Officer
|
|
|
|
(Registrant’s
Principal Financial Officer)
|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the
dates indicated.
|
Date:
April 14, 2008
|
|
/s/
Robert Altinger
|
|
|
Robert Altinger, Director |
|
|
|
|
|
|
Date:
April 14, 2008
|
|
/s/
Andrew J E Berger
|
|
|
Andrew J E Berger, Director |
|
|
|
|
|
|
Date:
April 14, 2008
|
|
/s/
W. Gordon Blankstein
|
|
|
W. Gordon Blankstein, Director |
|
|
|
|
|
|
Date:
April 14, 2008
|
|
/s/
Robert C. Gardner
|
|
|
Robert C. Gardner, Director |
|
|
|
|
|
|
Date:
April 14, 2008
|
|
/s/
Peter B. Jacobson
|
|
|
Peter B. Jacobson, Director |
|
|
|
|
|
|
Date:
April 14, 2008
|
|
/s/
B.S.P. Marra
|
|
|
B.S.P. Marra, Director |
|
62