SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Period ended April 30, 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 [ ]
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 April 30, 2009, the registrant had 18,268,104 shares of common stock
$0.0001 par value, issued and outstanding.
- ----------
* The registrant has not yet been phased into the interactive data requirements.
TABLE OF CONTENTS
Item Page
- ---- ----
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements: 4
Balance sheet as of April 30, 2009 and January 31, 2009 5
Statement of income (loss) for three months ended April 30, 2009
and 2008 6
Statement of cash flows for three months ended April 30, 2009 and 2008 7
Statement of changes in shareholders equity for the three months ended
April 30, 2009 8
Notes to condensed consolidated financial statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 1A. Risk Factors 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Securityholders 21
Item 5. Other Information 21
Item 6. Exhibits 21
Signatures 22
2
EXPLANATORY NOTE
We are amending our Quarterly Report on Form 10-Q for the fiscal quarter
ended April 30, 2009 (the "Form 10-Q"), as originally filed with the Securities
and Exchange Commission ("SEC") on June 15, 2009, as previously amended by
Amendment No. 1 thereto ("Form 10-Q/A-1") filed on November 19, 2009, regarding
certain of the disclosure which appeared therein.
We are filing this amendment No. 2 to the Form 10-Q ("Form 10-Q/A-2") in
response to a comment received from the SEC in connection with its review of the
Form 10-K/A-1 and Form 10-Q/A-1 to (1) to evaluate the effectiveness of our
disclosure controls in light of the restatement of our fiscal 2009 financial
statements that was set forth in Amendment No. 1 to the Company's Annual Report
on From 10-K for the fiscal year ended January 31, 2009 and (2) revise the
presentation of the activity of our investment in FX Direct Dealer, LLC ("FX
Direct") from discontinued operations to continuing operations.
Following such evaluation, we have determined that the failure of the
Company to properly account for the sale of its membership interest in FX Direct
was a material weakness in its internal control over financial reporting as a
result of which the Company has amended Item 4 of this Form 10-Q/A-2 to indicate
that its disclosure controls were not effective as of April 30, 2009.
Corresponding changes have been made to Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) of the Form 10-Q/A-2.
All restatements to the financial statements affected are non-cash in nature.
Finally, we are including currently dated officer certifications which
appear as Exhibits 31.1, 31.2 and 32.1 to this amended report. Other than these
changes, all other information concerning our company remains as contained in
the Form 10-Q/A-1.
3
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.
4
Advanced Technologies Group, Ltd.
Consolidated Balance Sheets
As of April 30, 2009 and January 31, 2009
As Restated
Unaudited As Restated
30-Apr-09 31-Jan-09
------------ ------------
ASSETS
Current assets:
Cash & short term deposits $ 5,607,549 $ 134,918
Subordinated note receivable 5,666,667 0
------------ ------------
Total current assets 11,274,216 134,918
Other assets:
Subordinated note receivable 10,861,111 0
Investment in FX Direct Dealer 5,000 2,407,058
Trademark- net 7,117 7,418
Fixed assets- net 2,860 0
------------ ------------
Total assets $ 22,150,304 $ 2,549,394
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable & accrued expenses $ 147,685 $ 3,450,547
Income taxes payable 988,746 0
------------ ------------
Total current liabilities 1,136,431 3,450,547
Deferred income taxes payable 5,063,135 0
Shareholder advance payable 9,872 48,423
------------ ------------
Total liabilities 6,209,438 3,498,970
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 1,827 1,827
Additional paid in capital 32,664,364 32,664,364
Accumulated deficit (22,822,680) (39,713,122)
------------ ------------
Total shareholders' equity (deficit) 15,940,866 (949,576)
------------ ------------
Total Liabilities & Shareholders' Equity $ 22,150,304 $ 2,549,394
============ ============
See the notes to the financial statements.
5
Advanced Technologies Group, Ltd.
Unaudited Consolidated Statements of Operations
For the Quarters Ended April 30, 2009 and April 30, 2008
As Restated
30-Apr-09 30-Apr-08
------------ ------------
General and administrative expenses:
Salaries and benefits $ 65,639 $ 5,117
Consulting 58,651 0
General administration 292,571 54,979
Depreciation 46 0
------------ ------------
Total general & administrative expenses 416,907 60,096
------------ ------------
Net loss from operations (416,907) (60,096)
Other revenues and expenses:
Gain on sale of FX Direct Dealer (net of tax) 17,155,703 0
Interest income 151,646 57
Sub-lease income 0 41,016
------------ ------------
Net income (loss) before provision for income taxes 16,890,442 (19,023)
Provision for income taxes 0 0
------------ ------------
Net income (loss) $ 16,890,442 $ (19,023)
============ ============
Basic net income (loss) per common share $ 0.93 $ (0.00)
------------ ------------
Fully diluted income (loss) per share $ 0.83 $ (0.00)
------------ ------------
Weighted average of common shares outstanding:
Basic 18,268,104 18,268,104
Fully diluted 20,640,140 18,268,104
See the notes to the financial statements.
6
Advanced Technologies Group, Ltd.
Unaudited Consolidated Statements of Cash Flows
For the Quarters Ended April 30, 2009 and April 30, 2008
As Restated
30-Apr-09 30-Apr-08
------------ ------------
Operating Activities:
Net income (loss) $ 16,890,442 $ (19,023)
Adjustments to reconcile net loss items
not requiring the use of cash:
Amortization 301 0
Depreciation 46 149
Gain on sale of FX Direct Dealer (net of tax) (17,155,703) 0
Changes in other operating assets and liabilities:
Note receivable 627,925 0
Accounts payable (3,302,862) 0
Income taxes payable 988,746 0
Deferred income taxes payable 5,063,135 0
------------ ------------
Net cash provided (used by) operations 3,112,030 (18,874)
Investing activities:
Purchase of office equipment (2,906) 0
Sale of FX Direct Dealer investment 2,402,058 0
------------ ------------
Net cash provided by investing activities 2,399,152 0
Financing Activities:
Advances from shareholders (38,551) 0
------------ ------------
Net cash provided by financing activities (38,551) 0
------------ ------------
Net increase (decrease) in cash during the year 5,472,631 (18,874)
Cash balance at January 31st 134,918 67,287
------------ ------------
Cash balance at April 30th $ 5,607,549 $ 48,413
============ ============
Supplemental disclosures of cash flow information:
Interest paid during the period $ 0 $ 0
Income taxes paid during the period $ 390,358 $ 0
See the notes to the financial statements.
7
Advanced Technologies Group, Ltd.
Consolidated Statement of Changes in Shareholders' Equity
For the Quarters Ended April 30, 2009 and April 30, 2008
(April 30, 2009 Restated)
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 $(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
========== ====== ========= ========== =========== ============ ===========
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 (19,023) (19,023)
---------- ------ --------- ---------- ----------- ------------ -----------
Balance at April 30, 2008 18,268,104 $1,827 2,372,036 $6,097,355 $32,664,364 $(38,693,389) $ 70,157
========== ====== ========= ========== =========== ============ ===========
See the notes to the financial statements.
8
Advanced Technologies Group, Ltd.
Notes to the Consolidated Financial Statements (As Restated)
For the Quarters Ended April 30, 2009 and April 30, 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% 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.
In March 2009, the Company sold its 25% interest in the joint venture to FX
Direct Dealer, LLC for $26 million.
Currently the Company has no business operations; however, it is pursuing
various business opportunities in the areas of real estate and software
development.
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 at cost and adjusted for the Company's share in any net profits or
losses of the joint venture. The Company has received no cash distributions
since its investment in the joint venture in March 2002.
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.
9
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
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 April 30, 2009 is classified as Level II.
10
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.
11
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 (see Note 4). The effects on
net loss per share for the periods of the common stock equivalents are not
included in the calculation of net loss per share if their inclusion would be
anti-dilutive.
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 April 30, 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 April 30, 2009 3,835,690 $5 0.27
==========
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.
12
5. INCOME TAXES
Provision for income taxes is comprised of the following:
30-Apr-09 30-Apr-08
----------- -----------
Net income (loss) before provision for income taxes $16,890,442 $ (19,023)
=========== ===========
Current tax expense:
Federal $ 1,012,004 $ 0
State 367,100 0
----------- -----------
Total $ 1,379,104 $ 0
Add deferred tax payable (benefit):
Timing differences 5,063,135 (119,581)
Allowance for recoverability 0 119,581
----------- -----------
Provision for income taxes $ 6,442,239 $ 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% 34%
Statutory state and local income tax 13% 9%
Timing differences -19% -43%
----------- -----------
Effective rate 28% 0%
=========== ===========
Deferred income taxes are comprised of the following:
Timing differences $ 0 $ 119,581
Allowance for recoverability 0 (119,581)
----------- -----------
Deferred tax benefit $ 0 $ 0
=========== ===========
6. FIXED ASSETS
Fixed assets at April 30, 2009 are comprised as follows:
Equipment $ 2,906
Accumulated depreciation (46)
-------
Fixed assets- net $ 2,860
=======
13
7. COMMITMENTS AND CONTINGENCIES
During fiscal 2008, the Company was committed to a non-cancelable lease for
office space in New York City, expiring in 2012. In July 2006, the Company
entered into a sub-leasing agreement with a company for the bulk of its office
space in New York City, also expiring in 2012. In July 2008, the Company
assigned its rights and responsibilities under the lease to the sub-tenant;
however, the Company remains liable on the original lease in the event of a
default by the subtenant. The minimum required base rent on the lease is as
follows:
2009 $135,245
2010 139,302
2011 143,481
2012 24,448
--------
Total $442,475
========
Rent expense for the fiscal years 2009 and 2008 was $61,218 and $111,853,
respectively.
The firm had executed employment contracts with the chief executive officer and
the president of the Company since April 2002. Under the terms of the contracts,
the two officers are to be paid $250,000 per year each through April 2011.
8. CONCENTRATION OF CREDIT RISK
The Company has substantially all of its assets in the 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. SALE OF THE INVESTMENT IN FX DIRECT DEALER
In March 2009, the Company sold its 25% interest in the joint venture to FX
Direct Dealer for $26 million. The Company received a subordinated note from FX
Direct for $17 million and $9 million in cash. The subordinated note receivable
is unsecured and subordinated to the claims of the general creditors of FX
Direct. 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
payment of the $9 million cash is due in March 2009 and the monthly payments on
the subordinated note begin in April 2009. As a result of the sale, the Company
realized a gain of $17,155,703 , which is net of $6,442,239 in tax
In March 2009, the Company received $9 million in cash from FX Direct as per the
terms of the sale.
In April 2009, the first installment on the subordinated note receivable was
received from FX Direct Dealer, LLC.
14
10. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Subsequent to the issuance of the quarterly financial statements for the period
ended April 30, 2009, management determined that the effective date of the sale
of its interest in FX Direct Dealer, as discussed in Note 9, occurred in March
2009 and not in January 2009. Accordingly, the result of the sale of the
interest has been adjusted to a sale date of March 9, 2009. The sale of this
investment and resulting gain have been reflected in these financial statements
for the quarter ended April 30, 2009.
The restatement affected the previously issued consolidated statements of
operations. A highlight of the changes to specific accounts and earnings (loss)
per share calculations for quarter ended April 30 2009 is as follows:
As Reported As Restated
30-Apr-09 30-Apr-09
------------ ------------
Total assets $22,150,304 $22,150,304
Total liabilities $ 6,209,438 $ 6,209,438
Shareholders' equity (deficit) $15,940,866 $15,940,866
Gain on disposal of FX Direct Dealer $ 0 $17,155,703
Net income (loss) $ (265,261) $16,890,442
Earnings (loss) per share $ (0.02) $ 0.93
In the initial amendment to the Company's quarterly financial statements, as
described above, the Company had previously reported the gain on the sale from
the Company's investment in FX Direct as a "discontinued operation." Management
has now determined that the disposition of this investment did not meet the
requirements of a "discontinued operation" and as such , has restated its April
30 2009 financial statements as a second amendment to the Company's financial
statements, to reflect the gain on sale of the FX Direct investment as part of
continuing operations. The effects of this restatement are as follows:
As Reported As Restated
2009 2009
----------- -----------
Total Revenue $ 0 $ 0
Income (Loss) from continuing
operations $ (265,261) $16,890,442
Discontinued Operations $17,155,703 $ 0
Net Income $16,890,442 $16,890,442
Basic income (loss) per share:
Continuing operations $ (0.01) $ 0.93
Discontinued operations $ 0.94 $ 0
Income per share $ 0.93 $ 0.93
Diluted income per share $ 0.93 $ 0.83
15
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/A 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 (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
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.
16
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").
In addition to the development and marketing of our PromotionStat and
Cyber-Fence software platforms, the Company intends to seek to acquire and/or
develop other new technologies and other business opportunities. In this regard,
management is reviewing the possibility of entering into the aircraft recovery
and used aircraft parts business. Preliminary research by management has shown
the existence of a substantial shortage of used aircraft parts and that healthy
profit margins can be made with respect to that environmentally friendly
business. Management 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, 2009 or the three months ended April 30, 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 in either
period.
General and administrative expenses in the three months ended April 30,
2009 increased to $416,907 as compared to $60,096 in the three months ended
April 30, 2008, primarily as a result of an increase in professional fees and
compensation expenses.
The Company had a gain on sale of its interest in FX Direct in the three
months ended April 30, 2009 of $17,155,703.
As a result of the foregoing, the Company had net income of $16,890,442 in
the three months ending April 30, 2009 as compared to a net loss of ($19,023 )
in the three months ending April 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2009 cash on hand was $5,607,549 as compared with $134,918 at
April 30, 2008.
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
17
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 three months ended April 30,2009 cash provided by operating
activities was $3,112,030 as compared to cash used in operating activities of
($18,874) for the three months ended April 30,2008. The substantial increase in
cash provided by operating activities in the 2009 period reflected the initial
proceeds from the closing of the Sale, which was partially offset by the
reduction of an accounts payable of $3,302,862 in connection with the payment of
accrued compensation expenses.
For the three months ended April 30, 2009, cash provided by investing
activities and used in financing activities was $2,399,152 and ($38,551),
respectively, as compared to no cash used in investing and financing activities
in the three months ended April 30, 2008.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At April 30, 2009, the Company had no outstanding loan facilities.
18
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, and in light of the material weakness in our internal controls
described below, 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.
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 originally accounted for the Sale as being effective in the
fiscal year ended January 31, 2009. However, following review of comments from
the Staff of the SEC, the Company determined that the closing of the Sale should
have been recorded in the first quarter of fiscal 2010.
The Company's management has assessed the effect of the restatement on the
Company's disclosure controls and procedures and internal control over financial
reporting, and has determined that a material weakness exists 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 as of January
31, 2009 existed as we had limited staff that did not allow us to maintain
effective processes and controls over the accounting for and reporting of
complex and non-routine transactions.
During the first quarter of 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
19
weakness, the Company intends to engage outside experts to provide counsel and
guidance in areas where it cannot economically maintain the required expertise
internally (e.g., with the appropriate classifications and treatments of complex
and non-routine transactions). .
In light of the determination concerning the material weakness, our
management concluded that our disclosure controls and procedures were not
effective as of April 30, 2009.
(b) CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
Other than as described above, 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 April 30, 2009, that our disclosure controls and
procedures were not effective in achieving that level of reasonable assurance.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Item 3 in the Company's Annual Report on Form 10-K/A 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/A 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/A 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
Exhibit by Ref.
Number to 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
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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: January 26, 2010 By: /s/ Abel Raskas
---------------------------------------
Abel Raskas
President
Date: January 26, 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)
22