SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Period ended April 30, 2010
Commission File Number 0-30987
ADVANCED TECHNOLOGIES GROUP, LTD.
(Exact name of Registrant as specified in its Charter)
Nevada 80-0987213
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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331 Newman Springs Rd., Bld. 1, 4Fl. Suite 143,
Red Bank, NJ 07701
732-784-2801
(Address and telephone number of principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).* YES [ ] NO [ ]
* The registrant has not yet been phased into the interactive data requirements.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do Not Check if a Smaller Reporting Company)
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of April 30, 2010, the registrant had 18,486,535 shares of common stock
$0.0001 par value, issued and outstanding.
TABLE OF CONTENTS
Item Page
---- ----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements: 3
Balance sheet as of April 30, 2010 and January 31, 2010 4
Statement of income (loss) for three months ended April 30, 2010
and 2009 5
Statement of cash flows for three months ended April 30, 2010
and 2009 6
Statement of changes in shareholders equity for the three months
ended April 30, 2010 7
Notes to condensed consolidated financial statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Reserved 20
Item 5. Other Information 20
Item 6. Exhibits 20
Signatures 21
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2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements have been prepared by
Advanced Technologies Group, Ltd. (the "Company" or "ATG") pursuant to the rules
and regulations of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934 as amended. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principals have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the consolidated financial statements include all adjustments
(consisting only of adjustments of a normal, recurring nature) necessary to
present fairly the financial information set forth herein.
3
Advanced Technologies Group, Ltd.
Consolidated Balance Sheets
As of April 30, 2010 and January 31, 2009
Unaudited
30-Apr-10 31-Jan-10
------------ ------------
ASSETS
Current assets:
Cash & cash equivalents $ 1,173,352 $ 2,747,762
Short term investments 8,827,218 6,220,498
Subordinated note receivable 5,666,667 5,666,667
Deferred tax asset 4,109 0
Prepaid income tax 302,667 471,742
------------ ------------
Total current assets 15,974,013 15,106,669
Other assets:
Subordinated note receivable- non current portion 5,194,445 6,611,111
Investment in FX Direct Dealer 5,000 5,000
Trademark- net 6,512 6,660
Fixed assets- net 2,279 2,420
------------ ------------
Total assets $ 21,182,249 $ 21,731,860
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable & accrued expenses $ 96,848 $ 88,081
Income taxes payable 0 156,576
------------ ------------
Total current liabilities 96,848 244,657
Deferred income taxes payable 4,956,286 5,346,422
Shareholder advance payable 9,872 9,872
------------ ------------
Total liabilities 5,063,006 5,600,951
Shareholders' equity:
Series A preferred stock, one share convertible to one share of common;
non-participating, authorized 1,000,000 shares at
stated value of $3 per share, issued and outstanding 762,081 shares 1,712,601 1,712,601
Series B preferred stock, one share convertible to one share of common;
non-participating, authorized 7,000,000 shares at
stated value of $3 per share, issued and outstanding 1,609,955 shares 4,384,754 4,384,754
Common stock - $.0001 par value, authorized 100,000,000 shares,
issued and outstanding, 18,486,535 shares at January 31, 2010 and
18,486,535 at March 31, 2010 1,849 1,849
Additional paid in capital 32,715,950 32,715,950
Accumulated deficit (22,695,911) (22,684,245)
------------ ------------
Total shareholders' equity 16,119,243 16,130,909
------------ ------------
Total Liabilities & Shareholders' Equity $ 21,182,249 $ 21,731,860
============ ============
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See the notes to the financial statements.
4
Advanced Technologies Group, Ltd.
Consolidated Statements of Operations
For the Quarters Ended April 30, 2010 and April 30, 2009
Unaudited
30-Apr-10 30-Apr-09
------------ ------------
General and administrative expenses:
Salaries and benefits $ 143,481 $ 65,639
Consulting 95,450 58,651
General administration 180,191 292,617
------------ ------------
Total general & administrative expenses 419,122 416,907
------------ ------------
Net loss from operations (419,122) (416,907)
Other revenues and expenses:
Interest income 296,627 151,646
Gain on sale of FXDD interest 0 23,597,942
Gain on short term investments 106,720 0
------------ ------------
Net income (loss) before provision for income taxes (15,775) 23,332,681
Provision for income taxes 4,109 (6,442,239)
------------ ------------
Net income (loss) $ (11,666) $ 16,890,442
============ ============
Basic & fully diluted net income (loss) per common share:
Basic income (loss) per share $ (0.00) $ 0.93
Fully diluted income (loss) per share $ (0.00) $ 0.82
Weighted average of common shares outstanding:
Basic 18,486,535 18,268,104
Fully diluted 18,486,535 20,640,140
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See the notes to the financial statements.
5
Advanced Technologies Group, Ltd.
Consolidated Statements of Cash Flows
For the Quarters Ended April 30, 2010 and April 30, 2009
Unaudited
30-Apr-10 30-Apr-09
------------ ------------
Operating Activities:
Net income (loss) $ (11,666) $ 16,890,442
Adjustments to reconcile net income (loss) items
not requiring the use of cash:
Amortization 148 301
Depreciation 141 46
Gain on sale of FXDD interest 0 (23,597,942)
Changes in other operating assets and liabilities:
Accounts payable & accrued expenses 8,767 (3,302,862)
Deferred tax asset (4,109) 0
Prepaid income tax 169,075 0
Income taxes payable (156,576) 833,043
Deferred income taxes payable (390,136) 5,063,135
------------ ------------
Net cash used by operations (384,356) (4,113,837)
Investing activities:
Purchase of office equipment 0 (2,906)
Investment in short term marketable securities (2,606,720) 0
Proceeds from note receivable 1,416,666 627,925
Proceeds from sale of FXDD investment 0 9,000,000
------------ ------------
Net cash provided (used) by investing activities (1,190,054) 9,625,019
Financing Activities:
Advances received (paid) shareholders 0 (38,551)
------------ ------------
Net cash provided (used) by financing activities 0 (38,551)
------------ ------------
Net increase in cash during the year (1,574,410) 5,472,631
Cash balance at January 31st 2,747,762 134,918
------------ ------------
Cash balance at April 30th $ 1,173,352 $ 5,607,549
============ ============
Supplemental disclosures of cash flow information:
Interest paid during the period $ 0 $ 0
Income taxes paid during the period $ 186,427 $ 390,358
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See the notes to the financial statements.
6
Advanced Technologies Group, Ltd.
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
For the Quarters Ended April 30, 2010 and April 30, 2009
Common Common Preferred Preferred Paid in Accumulated
Shares Par Value Shares Value Capital Deficit Total
------ --------- ------ ----- ------- ------- -----
Balance at January 31, 2010 18,486,535 $1,849 2,372,036 $6,097,355 $32,715,950 $(22,684,245) $16,130,909
Net loss for the period (11,666) (11,666)
----------- ------ ---------- ---------- ----------- ------------ -----------
Balance at April 30, 2010 18,486,535 $1,849 2,372,036 $6,097,355 $32,715,950 $(22,695,911) $16,119,243
=========== ====== ========== ========== =========== ============ ===========
Balance at January 31, 2009 18,268,104 $1,827 2,372,036 $6,097,355 $32,664,364 $(39,713,122) $ (949,576)
Net income for the period 16,890,442 16,890,442
----------- ------ ---------- ---------- ----------- ------------ -----------
Balance at April 30, 2009 18,268,104 $1,827 2,372,036 $6,097,355 $32,664,364 $(22,822,680) $15,940,866
=========== ====== ========== ========== =========== ============ ===========
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See the notes to the financial statements.
7
Advanced Technologies Group, Ltd.
Notes to the Consolidated Financial Statements
For the Quarters Ended April 30, 2010 and April 30, 2009
1. ORGANIZATION OF THE COMPANY AND SIGNIFICANT ACCOUNTING PRINCIPLES
Advanced Technologies Group, Ltd. (the Company) was incorporated in the State of
Nevada in February 2000. In January 2001, the Company purchased 100% of the
issued and outstanding shares of FX3000, Inc., a Delaware corporation, which
owned the rights to the FX3000 currency trading software platform. The FX3000
software program is a financial real time quote and money management platform
used by independent foreign currency traders.
In March 2002, the Company sold the FX3000 software program, for a 25% interest
in a joint venture with Tradition NA, a subsidiary of Compagnie Financiere
Tradition, a publicly held Swiss corporation. The Company and Tradition formed
FX Direct Dealer LLC (FXDD), a Delaware company that marketed the FX3000
software to independent foreign currency traders.
In March 2009, the Company sold its 25% interest in the joint venture to FXDD
for $26 million.
The Company's principal current business activity is the development of the
MoveIdiot.com website, which the Company acquired in July 2009. In addition, the
Company has been seeking to acquire and/or develop other new technologies and
business opportunities and will also consider investing in commercial real
estate opportunities.
USE OF ESTIMATES- The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make reasonable estimates and assumptions that affect the reported amounts of
the assets and liabilities and disclosure of contingent assets and liabilities
and the reported amounts of revenues and expenses at the date of the financial
statements and for the period they include. Actual results may differ from these
estimates.
CASH AND CASH EQUIVALENTS- For the purpose of calculating changes in cash flows,
cash includes all cash balances and highly liquid short-term investments with an
original maturity of three months or less.
SHORT TERM INVESTMENTS- Short term investments include investments in a
municipal bond fund. The investments are stated at market fair value at April
30, 2010 and April 30, 2009.
8
BAD DEBT EXPENSE- The Company provides, through charges to income, a charge for
bad debt expense, which is based upon management's evaluation of numerous
factors in regards to the account receivable. These factors include economic
conditions, the paying performance of the account receivable, and an analysis of
the credit worthiness of the payee.
SUBORDINATED NOTE RECEIVABLE- The subordinated loan receivable from FXDD results
from the sale of the Company's interest in the joint venture. The estimated fair
value of the subordinated loan receivable from FXDD is based upon the
discounting of the future cash flows from the asset using a risk adjusted
lending rate form loans of similar in risk and duration. At April 30, 2010, the
fair value of the subordinated loan receivable was $12,025,000.
FAIR VALUE MEASUREMENT: Effective January 1, 2008, the Company adopted FASB ASC
820 (formerly Statement of Financial Accounting Standard No. 157, FAIR VALUE
MEASUREMENT), issued by the FASB. ASC 820 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date and sets out a
fair value hierarchy. The fair value hierarchy gives the highest priority to
quoted prices in active markets for identical assets or liabilities (Level 1)
and the lowest priority to unobservable inputs (Level 3). Inputs are broadly
defined under ASC 820 as assumptions market participants would use in pricing an
asset or liability. The three levels of the fair value hierarchy under ASC 820
are described below:
* Level I--Quoted prices are available in active markets for identical
investments as of the reporting date. The type of investments in Level
I include listed equities and listed derivatives.
* Level II--Pricing inputs are other than quoted prices in active
markets, which are either directly or indirectly observable as of the
reporting date, and fair value is determined through the use of models
or other valuation methodologies. Investments which are generally
included in this category include corporate bonds and loans, less
liquid and restricted equity securities and certain over-the-counter
derivatives.
* Level III--Pricing inputs are unobservable for the investment and
includes situations where there is little, if any, market activity for
the investment. The inputs into the determination of fair value
require significant management judgment or estimation. Investments
that are included in this category generally include general and
limited partnership interests in corporate private equity and real
estate funds, funds of hedge funds, distressed debt and non-investment
grade residual interests in securitizations and collateralized debt
obligations.
9
FIXED ASSETS- Office and computer equipment are stated at cost. Depreciation
expense is computed using the straight-line method over the estimated useful
life of the asset. The following is a summary of the estimated useful lives used
in computing depreciation expense:
Furniture & lease improvements 7 years
Office equipment 3 years
Computer hardware 3 years
Software 3 years
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Expenditures for major repairs and renewals that extend the useful life of the
asset are capitalized. Minor repair expenditures are charged to expense as
incurred.
LONG LIVED ASSETS- The Company reviews for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount.
INCOME TAXES- The Company accounts for income taxes in accordance with generally
accepted accounting principles which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between financial
statement and income tax bases of assets and liabilities that will result in
taxable income or deductible expenses in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets and liabilities to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the period
adjusted for the change during the period in deferred tax assets and
liabilities.
The Company follows the accounting requirements associated with uncertainty in
income taxes using the provisions of Financial Accounting Standards Board (FASB)
ASC 740, INCOME TAXES. Using that guidance, tax positions initially need to be
recognized in the financial statements when it is more likely than not the
positions will be sustained upon examination by the tax authorities. It also
provides guidance for derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. As of April 30, 2010,
the Company has no uncertain tax positions that qualify for either recognition
or disclosure in the financial statements. All tax returns from fiscal years
2006 to 2009 are subject to IRS audit.
10
2. NET INCOME (LOSS) PER SHARE
Basic net loss per share has been computed based on the weighted average of
common shares outstanding during the years. Diluted net loss per share gives the
effect of outstanding preferred stock which is convertible into common stock.
The effect of the convertible preferred stock has been excluded from the April
30, 2010 calculation of earnings per share since their inclusion would be
anti-dilutive. The calculation for net income (loss) per share is as follows.
30-Apr-10 30-Apr-09
----------- -----------
Net income (loss) $ (11,666) $16,890,442
=========== ===========
Basic shares outstanding (weighted average) 18,486,535 18,268,104
Preferred stock convertible into common shares 0 2,372,036
----------- -----------
Fully diluted shares outstanding (weighted average) 20,858,571 20,640,140
=========== ===========
Basic income (loss) per share $ (0.00) $ 0.93
Fully diluted income (loss) per share $ (0.00) $ 0.82
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3. PREFERRED STOCK
CLASS A PREFERRED STOCK: Class A preferred stock has a stated value of $3 per
share. Holders of the Class A preferred stock are entitled to receive a common
stock dividend of 13% of the outstanding Class A shares on an annual basis based
on a value of $3 per share. The Class A preferred stock is convertible into
common stock at a conversion ratio of one preferred share for one common share.
CLASS B PREFERRED STOCK: Class B preferred stock has a stated value of $3 per
share. Holders of the Class B preferred stock are entitled to receive a common
stock dividend of 6% of the outstanding Class B shares on an annual basis based
on a value of $3 per share. The Class B preferred stock is convertible into
common stock at a conversion ratio of one preferred share for one common share.
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4. INCOME TAXES
Provision for income taxes is comprised of the following:
30-Apr-10 30-Apr-09
----------- -----------
Net income (loss) before provision for income taxes $ (15,775) $23,332,681
=========== ===========
Current tax expense:
Federal $ 0 $ 838,112
State 0 257,705
----------- -----------
Total 0 1,095,817
Less deferred tax asset (4,109) 0
Add deferred tax payable (benefit):
Long term capital gain (installment payable over 3 years) 0 5,346,422
----------- -----------
Provision for income taxes $ (4,109) $ 6,442,239
=========== ===========
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A reconciliation of provision for income taxes at the statutory rate to
provision for income taxes at the Company's effective tax rate is as follows:
Statutory U.S. federal rate 34% 15%
Statutory state and local income tax 13% 13%
----------- -----------
Effective rate 47% 28%
=========== ===========
Deferred tax asset:
Loss carry-forward expiring in 2030 $ 4,109 $ 0
=========== ===========
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For financial statement purposes, the gain on the sale of the FXDD interest is
included in fiscal year 2010. For tax return purposes, the gain on the FXDD sale
is being recorded as an installment sale and therefore the tax liability on the
gain is recognized as the proceeds from the sale over the next three years is
recognized.
5. COMMITMENTS AND CONTINGENCIES
The Company has executed employment contracts with the chief executive officer
and the president of the Company in April 2002. Under the terms of the
contracts, the two officers are to be paid $250,000 per year each through April
2011.
In purchasing MoveIdiot.com, as discussed more fully in Note 7, the Company has
agreed to issue an additional 50,000 restricted shares of its common stock to
MoveIdiot.com in the event certain revenue targets are met.
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6. CONCENTRATION OF CREDIT RISK
The Company has substantially all of its assets in cash and the subordinated
note receivable from FXDD. In the event FXDD is adversely affect by future
economic conditions relating to its foreign currency dealing business, or in the
event FXDD should become bankrupt, the Company may only receive a pro rata share
of the amounts due it. In addition, in the event of bankruptcy, the Company's
claims against FXDD would be subordinate to the claims of the general creditors
of FXDD.
In addition, the Company has a substantial investment in short term marketable
securities on deposit with a bank which are not fully insured. In the event of
the financial insolvency of this bank, the Company may be limited to a pro rata
share of the amounts invested.
The Company has deposits at banks which may, from time to time, exceed insured
amounts.
7. PURCHASE OF MOVEIDIOT.COM
In July 2009, the Company purchased the intellectual property rights to
MoveIdiot.com for $57,000 and 25,000 restricted shares of common stock. The
Company used the market price of the Company's common stock at the date of the
purchase to value the shares given in the transaction. The transaction value at
the time of purchase was $60,250. MoveIdiot.com enables individuals and
businesses to keep track of their property on-line. Users will be able to manage
their possessions on-line and print automatically generated labels that are
sealable to be used in the event of moving from one location to another.
Management impaired the $60,250 value of the transaction to expense at the date
of the purchase of MoveIdiot.com after concluding that future cash flows from
the purchase could not be assured.
As part of the purchase, the Company agreed to issue an additional 50,000
restricted shares of common stock to the sellers of MoveIdiot.com if certain
profitability levels are met. Management has concluded that the profitability
levels will not be met at the date of purchase and therefore assigned no value
to their contingent shares at the date of purchase.
8. SALE OF THE INVESTMENT IN FX DIRECT DEALER
In March 2009, the Company sold its 25% interest in the joint venture to FXDD
for $26 million. The Company received a subordinated note from FXDD for $17
million and $9 million in cash. The subordinated note receivable is unsecured
and subordinated to the claims of the general creditors of FXDD. The note
carries an interest rate of 10% and the principal is payable in 36 equal monthly
installments for the next three years, with interest. The subordinated loan
agreement provides the Company with an increased interest rate in the event of
13
late payments by the Purchaser and with the remedy of liquidation in the event
of a default. The initial payment of the $9 million was received in March 2009
and the monthly payments on the subordinated note began in April 2009. As a
result of the sale, the Company realized a gain of $23,597,942.
9. COMPANY INVESTMENTS
The following table summarizes the valuation of the Company's investments by the
above FASB ASC 820 fair value hierarchy levels as of April 30, 2010.
Level I Level II Level III
---------- ---------- ----------
Investments:
Investment in municipal bond fund $ 0 $8,827,218 $ 0
---------- ---------- ----------
Totals $ 0 $8,827,218 $ 0
========== ========== ==========
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12. SUBSEQUENT EVENTS
The Company has made a review of material subsequent events from April 30, 2010
through the date of this report and found no material subsequent events
reportable during this period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Some of the information contained in this Quarterly Report may constitute
forward-looking statements or statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on current expectations and projections about future events. The words
"estimate", "plan", "intend", "expect", "anticipate" and similar expressions are
intended to identify forward-looking statements which involve, and are subject
to, known and unknown risks, uncertainties and other factors which could cause
the Company's actual results, financial or operating performance, or
achievements to differ from future results, financial or operating performance,
or achievements expressed or implied by such forward-looking statements.
Projections and assumptions contained and expressed herein were reasonably based
on information available to the Company at the time so furnished and as of the
date of this filing. All such projections and assumptions are subject to
significant uncertainties and contingencies, many of which are beyond the
Company's control, and no assurance can be given that the projections will be
realized. Potential investors are cautioned not to place undue reliance on any
such forward-looking statements, which speak only as of the date hereof. Unless
otherwise required by law, the Company undertakes no obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Important factors that could cause actual results to
differ materially from our expectations ("Cautionary Statements") include, but
are not limited to, those set forth under the heading "Risk Factors" in this
Quarterly Report as well as in Item 1A of the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 2010.
BACKGROUND
The Company was incorporated in the State of Nevada in February 2000. In
January 2001, the Company purchased 100% of the issued and outstanding shares of
FX3000, Inc. (formerly Oxford Global Network, Ltd.), a Delaware corporation, the
designer of the FX3000 currency trading software platform. The FX3000 software
program is a financial real time quote and money management platform for use by
independent foreign currency traders.
In March 2002, the Company transferred its FX3000 software program to FX
Direct Dealer, LLC ("FX Direct") a joint venture company that markets the FX3000
software program. The Company received a 25% interest in the joint venture in
return for the transfer. On January 26, 2009, the Company entered into a
purchase and sale agreement (the "Purchase Agreement"), pursuant to which the
Company agreed to sell (the "Sale") its approximate 25% membership interest (the
"Membership Interest") in FX Direct to FX Direct. The Agreement provided that it
was effective as of December 31, 2008, as a result of which the Company was not
15
entitled to receive any allocations of profit, loss or distributions from FX on
account of its Membership Interest after such date. On March 17, 2009, the
Company completed the Sale of the Membership Interest to FX Direct.
The aggregate purchase price of the Membership Interest was approximately
$26,000,000, of which $9,000,000 was paid in cash at the closing of the Sale and
the remaining $17,000,000 (of which approximately $6.1 million had been paid as
of April 30, 2010) is payable in 36 equal monthly installments of $472,222.22,
bearing interest at the rate of 10% per annum and evidenced by a subordinated
promissory note that was issued pursuant to a Cash Subordinated Loan Agreement
("Loan Agreement").
The Company intends to seek to acquire and/or develop new technologies and
other business opportunities. In this regard, effective as of July 20, 2009, the
Company entered into an Asset Purchase Agreement with Dan Khasis, LLC
("Seller"), pursuant to which the Company acquired all of the rights to Seller's
website "moveidiot.com" and the related software for a purchase price of $57,000
plus the issuance to Seller of 25,000 restricted shares of Common Stock. In
addition, Seller may receive up to an additional 50,000 restricted shares of
Common Stock if certain membership goals for the moveidiot.com website are met
in the 12 months following the closing. MoveIdiot.com is an online website which
helps people and businesses expedite their move from place to another. The
Company will also consider investing in commercial real estate ventures.
RESULTS OF OPERATIONS
The Company did not generate any revenues from software maintenance in the
three months ended April 30, 2010 ("Fiscal 2010 First Quarter") or the three
months ended April 30, 2009 (the "Fiscal 2009 First Quarter"), as the Company's
software servicing and maintenance services for FX Direct were terminated in
fiscal 2008 (which ended as of January 31, 2008) and there were no revenues
generated by the Company from its other software products during either of these
periods. In addition, the Company's Moreidiot.com website commenced operations
in January 2010 and did not generate any revenue during the fiscal 2010 First
Quarter.
General and administrative expenses in the Fiscal 2010 First Quarter were
$419,122, as compared to $416,907, in the Fiscal 2009 First Quarter, as an
increase in salaries and benefits and consulting fees in the Fiscal 2010 First
Quarter was offset by a decrease in administrative expenses (primarily legal
fees) as a result of the closing of the FX Direct sale in March 2009.
Other revenues and expenses in the Fiscal 2010 First Quarter included
interest income of $296,627 related to the Company's cash balances and note
receivable from FX Direct and a gain of $106,720 on short term investments.
Other revenues and expenses in the Fiscal 2009 Fiscal Quarter included a gain on
the sale of the Company's interest in FX Direct of $23,597,942 and interest
income of $151,646.
16
The Company had an income tax benefit of $4,109 in the Fiscal 2010 First
Quarter as compared to a provision for tax income taxes of ($6,442,239) in the
Fiscal 2009 First Quarter primarily related to the gain on the sale of its
interest in FX Direct in March 2009.
As a result of the foregoing, the Company had a net loss of ($11,666) in
the Fiscal 2010 First Quarter as compared to net income of $16,890,442 in the
Fiscal 2009 First Quarter.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2010, the Company had cash and short term investments on hand
of $10,000,570 as compared to $8,968,260 at January 31, 2010.
On March 17, 2009, the Company completed the Sale of its Membership
Interest to FX Direct. The aggregate purchase price of the Membership Interest
was approximately $26,000,000, of which $9,000,000 was paid in cash at the
closing of the Sale and the remaining $17,000,000 (of which approximately $6.1
million had been paid as of April 30, 2010) is payable in 36 equal monthly
installments of $472,222.22, bearing interest at the rate of 10% per annum and
evidenced by a subordinated promissory note that was issued pursuant to a Cash
Subordinated Loan Agreement ("Loan Agreement"). The Loan Agreement provides the
Company with an increased interest rate in the event of late payments by the
Purchaser and with the remedy of liquidation in the event of a default. The
Company also received approximately $250,000 from the Purchaser in full
satisfaction of amounts owed to the Company for providing certain services to
the Purchaser.
The Company intends to retain the proceeds of the Sale for general working
capital purposes and to engage in new business opportunities. The Company
believes that the proceeds of the sale of its interest in FX Direct will be
sufficient to fund its operations during fiscal 2011.
CASH FLOWS
For the Fiscal 2010 First Quarter, net cash used in operating activities
was ($384,356) as compared to net cash used in operating activities of
($4,113,387) in the Fiscal 2009 First Quarter. The substantial decrease in net
cash used in operating activities in the 2010 First Quarter resulted from an
increase in accounts payable and accrued expenses in the Fiscal 2010 First
Quarter as compared to a substantial decrease in such amounts during the Fiscal
2009 First Quarter that was partially offset by an increase in taxes payable
during the Fiscal 2010 First Quarter.
For the Fiscal 2010 First Quarter, net cash used in investing activities
was ($1,190,054), representing collections on the FX Direct subordinated note
receivable, offset by the purchase of short-term investments, as compared to net
cash provided by investing activities of $9,625,019 in the Fiscal 2009 First
Quarter, which consisted of the initial proceeds of the FX Direct Sale and
collections on the subordinated note receivable.
17
For the Fiscal 2010 First Quarter, there was no net cash used in financing
activities as compared to net cash used in financing activities of ($38,551) in
the Fiscal 2009 period, representing repayment of shareholder advances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At April 30, 2010, the Company had no outstanding loan facilities.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Our principal executive officer and our principal financial officer
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
as amended) as of the end of the period covered by this report. Based on that
evaluation, such principal executive officer and principal financial officer
concluded that, the Company's disclosure control and procedures were not
effective as of the end of the period covered by this report because of the
material weakness described below.
As indicated in the Company's Form 8-K filed with the SEC on November 17,
2009, the Chief Financial Officer of the Company in consultation with the Board
of Directors and Donohue Associates, L.L.C., its independent registered public
accounting firm determined that it was necessary to amend and restate the
Company's financial statements for the fiscal year ended January 31, 2009
included in the Form 10-K as well as the Company's quarterly reports for the
periods ended April 30, 2009 and July 31, 2009 with respect to the timing of the
sale of the Company's approximately 25% joint venture interest (the "Membership
Interest") in FX Direct.
The Company's management assessed the effect of the restatement on the
Company's disclosure controls and procedures and internal control over financial
reporting, and determined that a material weakness existed with respect to our
reporting of complex and non-routine transactions.
A "material weakness" is a 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 in our internal control over financial reporting exists as we
have limited staff that does not allow us to maintain effective processes and
controls over the accounting for and reporting of complex and non-routine
transactions.
During fiscal 2010, the Company hired a part-time accountant to prepare the
Company's financial statements under the supervision of the Company's chief
financial officer. In addition, to address the material weakness, the Company
intends to engage outside experts to provide counsel and guidance in areas where
18
it cannot economically maintain the required expertise internally (e.g., with
the appropriate classifications and treatments of complex and non-routine
transactions).
However, at present, due to its limited scope of operations, the Company
only has two full time employees, only one of whom, our chief financial officer,
is involved in overseeing our financial reporting process. We have determined
that this deficiency caused by the limited staffing constitutes a material
weakness in the area of segregation of duties and adequacy of personnel.
(b) CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
No change in our internal control over financial reporting occurred during
our most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect our internal control over financial reporting.
(c) OTHER.
We believe that a controls system, no matter how well designed and
operated, can not provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. Therefore, a control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Our disclosure controls and procedures
are designed to provide such reasonable assurances of achieving our desired
control objectives, and, for the reasons described above, our principal
executive officer and principal financial officer have concluded, as of April
30, 2010, that our disclosure controls and procedures were not effective.
19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 3 in the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 2010.
ITEM 1A. RISK FACTORS
An investment in the Company involves a high degree of risk. In addition to
the other information set forth in this Report, you should carefully consider
the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on
Form 10-K for the fiscal year ended January 31, 2010, which could materially
affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks facing the Company.
Other unknown or unpredictable factors could also have material adverse effects
on future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. RESERVED
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS
(a) Exhibits
Incorp by
Exhibit Ref. to
Number Exh. Description
------ ---- -----------
31.1 * Certification pursuant to 18 U.S.C. Section 1350 as adopted
|
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Alex Stelmak, as Chief Executive Officer
31.2 * Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Alex Stelmak, as Chief Financial Officer
32.1 * Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
by Alex Stelmak, as Chief Executive Officer and Chief
Financial Officer
* Filed herewith
20
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed in
its behalf by the undersigned, thereunto duly authorized.
Date: June 14, 2010 By: /s/ Abel Raskas
---------------------------------------
Abel Raskas
President
Date: June 14, 2010 By: /s/ Alex Stelmak
---------------------------------------
Alex Stelmak
Chairman of the Board of Directors and
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
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