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 July 31, 2009
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)
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)
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 July 31, 2009, the registrant had 18,293,104 shares of common stock
$0.0001 par value, issued and outstanding.
TABLE OF CONTENTS
Item Page
- ---- ----
Part I. FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Financial Statements: 3
Balance sheet as of July 31, 2009 and January 31, 2009 4
Statement of income (loss) for three and six months ended July 31, 2009
and 2008 5
Statement of cash flows for six months ended July 31, 2009 and 2008 6
Statement of changes in shareholders equity for the three and six months
ended July 31, 2009 7
Notes to condensed consolidated financial statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 17
Part II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits 18
Signatures 19
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 July 31, 2009 and January 31, 2009
Unaudited
31-Jul-09 31-Jan-09
------------ ------------
ASSETS
Current assets:
Cash & short term deposits $ 6,729,672 $ 134,918
Account receivable 0 9,000,000
Subordinated note receivable 5,666,664 5,194,444
------------ ------------
Total current assets 12,396,336 14,329,362
Other assets:
Subordinated note receivable- non current portion 9,444,448 11,805,556
Investment in FX Direct Dealer 5,000 5,000
Trademark- net 6,965 7,418
Fixed assets- net 2,713 0
------------ ------------
Total assets $ 21,855,462 $ 26,147,336
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & accrued expenses $ 136,127 $ 3,450,547
Income taxes payable 701,836 1,379,104
------------ ------------
Total current liabilities 837,963 4,829,651
Deferred income taxes payable 5,063,135 5,063,135
Shareholder advance payable 9,872 48,423
------------ ------------
Total liabilities 5,910,970 9,941,209
Shareholders' equity:
Series A preferred stock, one share convertible to one share of
common; 13% cumulative 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; 6% cumulative 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, 18,268,104 shares at January 31, 2009
and 18,293,104 at July 31, 2009 1,830 1,827
Additional paid in capital 32,667,611 32,664,364
Accumulated deficit (22,822,304) (22,557,419)
------------ ------------
Total shareholders' equity (deficit) 15,944,492 16,206,127
------------ ------------
Total Liabilities & Shareholders' Equity $ 21,855,462 $ 26,147,336
============ ============
See the notes to the financial statements.
4
Advanced Technologies Group, Ltd.
Unaudited Consolidated Statements of Operations
For the Six Months and Quarters Ended July 31, 2009 and July 31, 2008
6 Months 6 Months 3 Months 3 Months
31-Jul-09 31-Jul-08 31-Jul-09 31-Jul-08
------------ ------------ ------------ ------------
General and administrative expenses:
Salaries and benefits $ 253,382 $ 8,813 $ 187,743 $ 3,696
Consulting 49,000 17,364 (9,651) 17,364
General administration 568,214 93,579 275,643 38,600
Depreciation 193 0 147 0
------------ ------------ ------------ ------------
Total general & administrative expenses 870,789 119,756 453,882 59,660
------------ ------------ ------------ ------------
Net loss from operations (870,789) (119,756) (453,882) (59,660)
Other revenues and expenses:
Interest income 605,904 68 454,258 11
Sub-lease income 0 61,493 0 20,477
------------ ------------ ------------ ------------
Net income (loss) before provision for income taxes (264,885) (58,195) 376 (39,172)
Provision for income taxes 0 0 0 0
------------ ------------ ------------ ------------
Net income (loss) $ (264,885) $ (58,195) $ 376 $ (39,172)
============ ============ ============ ============
Basic & fully diluted net income (loss) per common share: $ (0.02) $ (0.00) $ 0.00 $ (0.00)
Weighted average of common shares outstanding:
Basic & fully diluted 18,270,604 18,268,104 18,268,104 18,268,104
See the notes to the financial statements.
5
Advanced Technologies Group, Ltd.
Unaudited Consolidated Statements of Cash Flows
For the Six Months Ended July 31, 2009 and July 31, 2008
31-Jul-09 31-Jul-08
----------- -----------
Operating Activities:
Net income (loss) $ (264,885) $ (58,195)
Adjustments to reconcile net loss items
not requiring the use of cash:
Amortization 453 302
Depreciation 193 0
Impairment expense 3,250 0
Changes in other operating assets and liabilities :
Accounts receivable 9,000,000 0
Note receivable 1,888,888 0
Accounts payable (3,314,420) 0
Income taxes payable (677,268) 0
Deferred income taxes payable 0 0
----------- -----------
Net cash provided (used by) operations $ 6,636,211 $ (57,893)
Investing activities:
Purchase of office equipment $ (2,906) $ 0
----------- -----------
Net cash used by investing activities (2,906) 0
Financing Activities:
Advances from shareholders $ (38,551) $ 13,303
----------- -----------
Net cash provided by financing activities (38,551) 13,303
----------- -----------
Net increase (decrease) in cash during the year $ 6,594,754 $ (44,590)
Cash balance at January 31st 134,918 67,287
----------- -----------
Cash balance at July 31st $ 6,729,672 $ 22,697
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 0 $ 0
Income taxes paid during the period $ 677,268 $ 0
See the notes to the financial statements.
6
Advanced Technologies Group, Ltd.
Consolidated Statement of Changes in Shareholders' Equity
For the Six Months Ended July 31, 2009 and July 31, 2008
Common Common Preferred Preferred Paid in Accumulated
Shares Par Value Shares Value Capital Deficit Total
------ --------- ------ ----- ------- ------- -----
Balance at January 31, 2009 18,268,104 $ 1,827 2,372,036 $6,097,355 $32,664,364 $(22,557,419) $16,206,127
Issuance of common stock for
MoveIdiot.com 25,000 3 3,247 3,250
Net loss for the period (264,885) (264,885)
---------- ------- --------- ---------- ----------- ------------ -----------
Balance at July 31, 2009 18,293,104 $ 1,830 2,372,036 $6,097,355 $32,667,611 $(22,822,304) $15,944,492
========== ======= ========= ========== =========== ============ ===========
Balance at January 31, 2008 18,268,104 $ 1,827 2,372,036 $6,097,355 $32,664,364 $(38,674,366) $ 89,180
Net loss for the period (58,195) (58,195)
---------- ------- --------- ---------- ----------- ------------ -----------
Balance at July 31, 2008-unaudited 18,268,104 $ 1,827 2,372,036 $6,097,355 $32,664,364 $(38,732,561) $ 30,985
========== ======= ========= ========== =========== ============ ===========
See the notes to the financial statements.
7
Advanced Technologies Group, Ltd.
Notes to the Consolidated Financial Statements
For the Six Months Ended July 31, 2009 and July 31, 2008
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%
membership 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, a Delaware company that marketed the
FX3000 software to independent foreign currency traders.
On January 26, 2009, the Company entered into a purchase and sale agreement
effective as of December 31, 2008 (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. 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 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.
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 one place to another. The
Company will also consider investing in commercial real estate ventures.
8
CONSOLIDATION- the accompanying consolidated financial statements include the
accounts of the company and its wholly owned subsidiaries. All significant
inter-company balances have been eliminated.
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.
INVESTMENT IN FX DIRECT DEALER- The Company's interest in the joint venture is
accounted for on a cost basis and adjusted for The Company's share in any net
profits or losses of the joint venture. Profit or loss sharing revenues received
from the joint venture are first applied to the cost of the investment and then
to revenues.
CASH AND INTEREST BEARING DEPOSITS- 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.
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 is stated at fair
value, net of any reserve for uncollectibility. The Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 157, FAIR VALUE
MEASUREMENTS ("SFAS No. 157"), to account for its investment, which among other
things, requires enhanced disclosures about financial instruments carried at
fair value.
After adoption of SFAS No.157, investments measured and reported at fair value
are classified and disclosed in one of the following categories:
* 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
9
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.
The subordinated note receivable at July 31, 2009 is classified as Level II.
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
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 the
Statement of Accounting Standards No. 109 (SFAS No. 109), "ACCOUNTING FOR INCOME
TAXES". SFAS No. 109 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.
2. NET INCOME (LOSS) PER SHARE
The Company applies SFAS No. 128, EARNINGS PER SHARE to compute net loss per
share. In accordance with SFAS No. 128, 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 common stock
equivalents which are convertible into common stock. The effects on net loss per
10
share for the periods of the common stock equivalents are not included in the
calculation of net loss per share since their inclusion would be anti-dilutive.
31-Jul-09 31-Jul-08
------------ ------------
Net loss $ (264,885) $ (58,195)
Preferred dividends in arrears (9,783) 0
------------ ------------
Loss available to common shares $ (274,668) $ (58,195)
============ ============
Shares outstanding 18,293,104 18,268,104
============ ============
Weighted average 18,293,104 18,268,104
============ ============
Loss per common share:
Basic & fully diluted $ (0.02) $ (0.00)
============ ============
3. OPTIONS
The Company applies SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" to
account for option issues. Accordingly, all options granted are recorded at fair
value using a generally accepted option pricing model at the date of the grant.
There is no formal stock option plan for employees.
A listing of options outstanding at July 31, 2009 is as follows.
Wgtd Avg
Wgtd Avg Years to
Amount Exercise Price Maturity
------ -------------- --------
Outstanding at January 31, 2009 3,835,690 $5 0.51
Issued 0
Expired 0
Exercised 0
---------
Outstanding at July 31, 2009 3,835,690 $5 0.02
=========
11
4. PREFERRED STOCK
CLASS A PREFERRED STOCK: Class A preferred stock has a stated value of $3 per
share and a cumulative non-participating dividend of 13%. 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 and a cumulative non-participating dividend of 6%. The Class B preferred
stock is convertible into common stock at a conversion ratio of one preferred
share for one common share.
5. INCOME TAXES
Provision for income taxes is comprised of the following:
31-Jul-09 31-Jul-08
--------- ---------
Net income (loss) before provision for income taxes $(264,885) $ (58,195)
========= =========
Current tax expense:
Federal 0 0
State 0 0
--------- ---------
Total 0 0
Add deferred tax payable (benefit):
Timing differences (112,746) (15,082)
Allowance for recoverability 112,746 15,082
--------- ---------
Provision for income taxes $ 0 $ 0
========= =========
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%
Timing differences -47% -28%
--------- ---------
Effective rate 0% 0%
========= =========
Deferred income taxes are comprised of the following:
Timing differences $ 112,746 $ 15,082
Allowance for recoverability (112,746) (15,082)
--------- ---------
Deferred tax benefit $ 0 $ 0
========= =========
12
6. FIXED ASSETS
Fixed assets at July 31, 2009 are comprised as follows:
Equipment $ 2,906
Accumulated depreciation (193)
-------
Fixed assets- net $ 2,713
=======
7. COMMITMENTS AND CONTINGENCIES
The firm 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 9, the Company has
agreed to issue an additional 50,000 shares of its common stock to MoveIdiot.com
in the event certain revenue targets are met.
8. CONCENTRATION OF CREDIT RISK
The Company has substantially all of its assets in the account receivable and
subordinated note receivable from FX Direct, LLC. In the event FX Direct is
adversely affect by future economic conditions relating to its foreign currency
dealing business, or in the event FX Directs should become bankrupt, the Company
may only receive a pro rata share of the amounts due it. In the event of an FX
Direct Dealer bankruptcy, the Company's claims would be subordinate to the
claims of the general creditors of FX Direct.
9. PURCHASE OF MOVEIDIOT.COM
In July 2009, the Company purchased MoveIdiot.com for $57,000 and 25,000 shares
of common stock. 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 full value to
expense at the date of the purchase of MoveIdiot.com after concluding that
future cash flows from the purchase, if any, could not be determinable.
13
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, 2009.
BACKGROUND
Advanced Technologies Group, Ltd. (the "Company," "we," "us" and "our") 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 effective as of December 31, 2008 (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. On March 17, 2009, the Company completed the Sale of the Membership
Interest to FX Direct.
14
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 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 one 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 and six month periods ended July 31, 2009 or the three and six month
periods ended July 31, 2008, 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 any of these periods.
General and administrative expenses in the three and six month periods
ended July 31, 2009 increased to $453,882 and $870,789, respectively, as
compared to $59,660 and $119,756, respectively, in the three and six month
periods ended July 31, 2008, primarily as a result of an increase in
professional fees in connection with closing the Sale and in responding to a
previously disclosed SEC investigation and increased compensation expenses.
Other revenues and expenses in the three and six month periods ended July
31, 2009 included $454,258 and $605,904, respectively, in interest income
generated from the proceeds of the Sale. Other revenues and expenses in the
three and six month periods ended July 31, 2008 included sublease income of
$20,477 and $61,493, respectively.
As a result of the foregoing, the Company had net income of $376 and a net
loss of ($264,885), respectively, in the three and six month periods ending July
31, 2009, as compared to net losses of ($39,172) and ($58,195), respectively, in
the three and six month periods ending July 31, 2008.
15
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2009, cash on hand was $6,729,672 as compared with $134,918 at
January 31, 2009.
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 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 2010.
CASH FLOWS
For the six months ended July 31, 2009 net cash provided by operating
activities was $6,636,211 as compared to cash used in operating activities of
($57,893) for the six months ended July 31, 2008. The substantial increase in
cash provided by operating activities in the 2009 period reflected the
collection of a $9,000,000 accounts receivable and $1,888,888 in notes
receivable in connection with the Sale, which was partially offset by the
reduction of an accounts payable of $3,314,420 in connection with the payment of
accrued compensation expenses and income taxes of $677,268.
For the six months ended July 31, 2009, cash used in investing activities
and financing activities was ($2,906) and ($38,551), respectively, as compared
to no cash used in investing and $13,303 provided by financing activities in the
six months ended July 31, 2008.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At July 31, 2009, the Company had no outstanding loan facilities.
16
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 effective
as of the end of the period covered by this report at the reasonable level of
assurance
(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 our principal executive officer and principal financial
officer have concluded, as of July 31, 2009, that our disclosure controls and
procedures were effective in achieving that level of reasonable assurance.
17
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, 2009.
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, 2009, 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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
18
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: September 14, 2009 By: /s/ Abel Raskas
--------------------------------------------
Abel Raskas
President
Date: September 14, 2009 By: /s/ Alex Stelmak
--------------------------------------------
Alex Stelmak
Chairman of the Board of Directors and
Chief Executive Officer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
19