UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2010
ADVANCED TECHNOLOGIES GROUP, LTD.
(Exact name of registrant as specified in its charter)
Nevada 0-30987 80-0987213
(State of Incorporation) (Commission (I.R.S. Employer
File Number) Identification Number)
331 Newman Springs Road, Suite 143, Red Bank, NJ 07701
(Address of principal executive offices) (Zip Code)
732-784-2801
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.0001 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
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. [X] Yes [ ] 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
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]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.
The aggregate market value based on the average bid and asked price on the
over-the-counter market of the Registrant's Common Stock, ("Common Stock") held
by non-affiliates of the Company was $1,559,047 as at July 31, 2009.
There were 18,486,535 outstanding shares of Common Stock as of January 31, 2010.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable
FORM 10-K
ADVANCED TECHNOLOGIES GROUP, LTD.
TABLE OF CONTENTS
PART I
Forward Looking Statements 3
Item 1. Business 3
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 13
Item 2. Properties 14
Item 3. Legal Proceedings 14
PART II
Item 4. Reserved 15
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 15
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 22
Item 9A. Controls and Procedures 22
Item 9B. Other Information 24
PART III
Item 10. Directors, Executive Officers and Corporate Governance 24
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 28
Item 13. Certain Relationships and Related Transactions, and Director
Independence 29
Item 14. Principal Accounting Fees and Services 29
PART IV
Item 15. Exhibits and Financial Statement Schedules 30
Signatures 31
2
FORWARD LOOKING STATEMENTS
Some of the information contained in this Annual Report may constitute
forward-looking 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 Annual Report.
ITEM 1. BUSINESS
CORPORATE HISTORY
FXDIRECT
Advanced Technologies Group, Ltd. (the "Company," "ATG," "we," "us" or
"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. The remaining 75% of the joint venture was owned by
Tradition, N.A. ("Tradition"), a subsidiary of Compagnie Financiere Tradition, a
major Swiss-based financial company. On December 29, 2006, Tradition sold 80% of
its 75% membership interest in the joint venture to the Chairman of the Board of
Directors of Tradition, who is now the primary beneficiary. Tradition NA
retained a 15% membership interest.
On January 26, 2009, the Company entered into a purchase and sale agreement
(the "Purchase Agreement"), by and among the Company, FX Direct as purchaser
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(the "Purchaser"), MaxQ Investments, LLC ("MaxQ") which is the majority member
of the Purchaser and Tradition, the remaining member of the Purchaser, 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.
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 $4.7 million had been paid as
of January 31, 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 previously 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.
PROMOTIONSTAT
During October 2001, the Company acquired 100% of the issued and
outstanding shares of Common Stock of Luxury Lounge Inc. ("Luxury") in exchange
for 7,918,565 shares of the Company's Common Stock. Luxury, at the time of
acquisition, operated an on-line interactive web site specializing in marketing
of jewelry, watches and other luxury items at a discount to the retail and
wholesale consumer. In addition, Luxury was also in the process of developing
several ancillary technologies (known as PromotionStat and Promote4Free)
designed to provide on-line marketers with analytical information relating to
the effectiveness of their on-line marketing techniques as well as allowing them
to offer additional services to their customers. Due to economic conditions, the
Company terminated Luxury's on-line marketing operations in order to devote its
efforts and resources to complete the development and initiate the
commercialization of the PromotionStat and Promote4Free technologies. To date,
no revenues have resulted from the PromotionStat e-commerce software platform
and during fiscal 2010, the Company determined to discontinue its development of
this technology.
MOVEIDIOT.COM
Effective as of July 20, 2009, the Company entered into an Asset Purchase
Agreement with Dan Khasis, LLC ("Seller"), pursuant to which ATG 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.
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MoveIdiot.com is a free, Web-based service, that is designed to take the
inconvenience out of moving by allowing users to manage entire moves online. We
believe that MoveIdiot.com's suite of online moving tools solve the fragmented
nature of moving by allowing users to organize items being moved, track shipped
boxes, remember and complete important moving tasks and develop and maintain a
moving budget, without ever logging out of the service.
Neither the Company nor its predecessor has been involved in a bankruptcy,
receivership or similar proceeding.
DESCRIPTION OF BUSINESS
GENERAL
The Company's business centers around the development and/or acquisition of
new technologies that in management's opinion provide a novel or significantly
improved methodology to solve existing problems, meet current demands among
business and which have the potential for commercialization.
MOVEIDIOT.COM
Effective a 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.
The MoveIdiot.com website commenced operations in January, 2010.
MoveIdiot.com is a free, web-based service, that is designed to take the
inconvenience out of moving by allowing users to manage entire moves online. We
believe that MoveIdiot.com's suite of online moving tools solve the fragmented
nature of moving by allowing users to organize items being moved, track shipped
boxes, remember and complete important moving tasks and develop and maintain a
moving budget, without ever logging out of the service.
MoveIdiot.com is designed to ensure that the packing process runs smoothly
by allowing users to upload, host and organize all items being moved and
categorize items by box and room. Users can upload items individually or batch
upload through MoveIdiot.com's list of popular household items. MoveIdiot.com
allows users to seamlessly print out packing details and create labels.
MoveIdiot.com is designed to ensure that users never forget a to-do item
through MoveIdiot.com's Moving Checklist, which alerts users of everything from
when it's time to notify the user's doctor that the user is moving to reminding
the user to visit the Department of Motor Vehicles in the user's new city.
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Setting and maintaining a moving budget is easy with MoveIdiot.com, users
simply upload or input receipt information and select an applicable moving
category (i.e. travel expenses, hotel expenses). As users input expenditures,
they instantly have access to real-time spending statistics including
percentages spent in each moving category and total amount spent on the move,
making it easy to track and manage spending.
MoveIdiot.com's highly-intuitive box tracking feature allows users to
upload or e-mail tracking information from multiple shipping companies and view
real-time updates through several different viewing options including an
interactive map.
MoveIdiot.com is a completely Web-based service that works on PCs, Macs and
browser-equipped mobile devices. There is no software to download or install. To
register for free, users simply visit http://www.moveidiot.com/ and follow the
registration steps.
The Company generates revenues from the operation of the MoveIdiot.com
website by the sale of advertising and by reselling customer lead data.
The MoveIdiot.com website is supported by a state-of-the-art systems
platform, which was designed with an emphasis on scalability, performance and
reliability. All proprietary software developed to date was developed by Mr. Dan
Khasis. Through Dan Khasis LLC, Mr. Khasis provides the Company with access to
designers, programmers, and other personnel who assist in the ongoing
development and operation of the website.
MoveIdiot.com is hosted on Rackspace Cloud, an Internet-based hosting
service, pursuant to an "open-ended" agreement.
PROMOTIONSTAT, PROMOTE4FREE AND CYBER-FENCE TECHNOLOGIES
The PromotionStat technology is a statistical and analytical internet
traffic-monitoring tool that was designed to help marketing executives monitor
the effectiveness of every dollar spent on internet advertising and promotions
as well as utilize a free promotional tool at a favorable exchange ratio.
PromotionStat was intended to work in conjunction with a free promotional
service known as Promote4Free, an internet banner exchange system.
The Cyber-Fence System is an original software program that is designed to
monitor data flow use in designated methods capable of analyzing and projecting
the possible illegal or destructive use of information accessible over the
Internet. In contrast to present systems of Web-sites traffic analysis the
Cyber-Fence System aims at controlling not statistics of traffic sites but,
rather, Web visitors (or a group of visitors) and their interest in special
information. This means that the System checks not sites, but visitors, with the
ability to forecast and inform about "a critical situation" while it is still in
its formative stages.
During fiscal 2010, the Company conducted an evaluation of the status of
these products and services and determined that the Company would be required to
expend substantial additional funds to upgrade the technologies associated with
them in order to match improvements in competing technologies that have taken
place during the last few years while the Company's development of these
technologies was limited by a lack of funds. Since there is no assurance that
the Company would be successful in such further development efforts, the Company
has decided not to continue the development of the PromotionStat, Promote4Free
and Cyber-Fence products and services.
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NEW VENTURES
In addition to the development and marketing of our MoveIdiot.com website,
the Company intends to seek to acquire and/or develop other new technologies and
other business opportunities. Management will also consider investing in
commercial real estate ventures.
COMPETITION
The market for new, Internet-based technologies is evolving rapidly, and
will be intensely competitive reacting quickly to the accelerating pace of
technological change. The Company faces competition in this market sector from a
broad sector of companies in many diverse fields whose primary focus is to
identify problems and to create new technological solutions for these problems.
Further, the search to acquire new technology developed by other for
commercialization is also an intensely competitive area. In its efforts to
acquire new technology the Company will be competing with many companies in a
wide range of industries, most of whom have greater financial resources than the
Company and greater market recognition.
Although management believes that the Company's current technologies
provides a number of competitive advantages in the markets for which they have
been designed, many of its competitors have longer operating histories, a larger
customer base, greater brand recognition and greater financial, technical,
marketing and other resources than the Company. Current and potential
competitors also have established or may establish relationships among
themselves or with others in order to increase the services offered within the
same business sectors as the Company.
GOVERNMENT REGULATION
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet and
other online services, it is possible that a number of laws and regulations may
be adopted with respect to the Internet or other online services covering issues
such as user privacy, pricing, content, copyrights, distribution, and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for online commerce may prompt more stringent
consumer protection laws that may impose additional burdens on those companies
conducting business online. The adoption of any additional laws or regulations
may decrease the growth of the Internet or other online services, which could,
in turn, decrease the demand for our products and services and increase our cost
applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes and personal privacy is uncertain and may take years to resolve.
In addition, as our MoveIdiot.com website is available over the Internet in
multiple states, and as we propose to offer our services to numerous consumers
residing in such states, such jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each such state. We are
7
qualified to do business in only two states, and our failure to qualify as a
foreign corporation in a jurisdiction where it is required to do so could
subject us to taxes and penalties for the failure to qualify. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on us.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our current and future copyrights, service marks, trademarks,
trade dress, trade secrets and similar intellectual property as critical to our
success. We intend to rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
users, partners and others to protect our proprietary rights. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which we may operate to provide services online.
Therefore, the steps we take to protect our proprietary rights may be
inadequate.
We currently hold various web domain names relating to our products and
services, including the "MoveIdiot.com" domain name in the United States.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names and this regulation is subject to change. Governing
bodies may establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we intend to conduct business.
There has been substantial litigation in the software and Internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties can claim that we, or our current or potential future
products, infringe on their intellectual property. We expect that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in industry segments overlaps. Any claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product licensing delays, require us to license or pay royalties for certain
products in order to continue to sell our products, or pay substantial damages.
Licensing or royalty agreements, if required, may not be available on terms
acceptable to us or at all. As a result, our business could be harmed.
EMPLOYEES
As of January 31, 2010, we had two employees. In addition, the Company
utilizes the services of consultants to provide technology, marketing and other
services to the company on a project or as needed basis, including those
provided through Dan Khasis LLC.
SEC REPORTS
We file annual, quarterly, current and other reports and information with
the SEC. These filings can be viewed and downloaded from the Internet at the
SEC's website at www.sec.gov. These reports are also available to be read and
copied at the SEC's public reference room located at Judiciary Plaza, 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the
operation of the public reference room by calling the SEC at 1-800-SEC-0330.
8
ITEM 1A. RISK FACTORS
The following factors, in addition to other information contained on
incorporated by reference in this Form 10-K, should be considered carefully. Our
business, financial condition or results of operations could be materially
adversely affected by any of these risks. The risks described below are not the
only risks facing our company. Additional risks and uncertainties that we are
not aware of or that we currently believe are immaterial may also adversely
affect our business, financial condition, results of operation and liquidity.
The trading price of our shares of Common Stock could decline due to any of
these risks, and you may lose all or part of your investment.
THE COMPANY HAS A LIMITED HISTORY OF OPERATIONS ON WHICH TO JUDGE ITS FUTURE
PERFORMANCE.
The Company has only a limited history of operations. In 2002, the Company
transferred its principal technology to FX Direct in exchange for a 25% interest
in this joint venture, which interest was sold in March 2009. The Company's
principal business activity at January 31, 2010 was the development of the
MoveIdiot.com website, which the Company acquired in July 2009 (see the next
risk factor). 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. There can be no assurance
that the Company will be successful in locations, acquiring and developing any
new technologies or other business opportunities. The Company is subject to all
of the risks inherent in the establishment of a new business, including the
absence of a significant operating history, lack of market recognition and
limited banking and financial relationships.
OUR MOVEIDIOT.COM WEBSITE IS A RECENTLY ORGANIZED BUSINESS THAT DOES NOT HAVE
ANY OPERATING HISTORY AND IS SUBJECT TO THE RISKS, EXPENSES AND UNCERTAINTIES
FREQUENTLY ENCOUNTERED BY COMPANIES IN THE EARLY STAGES OF DEVELOPMENT.
We acquired the assets that comprise the MoveIdiot.com website in July 2009
and the website only commenced operations in January 2010. Accordingly, we have
no operating history on which you can evaluate MoveIdiot.com and its prospects.
We may not be able to successfully implement our business model for this
website, expand our operations and facilities, manage our business to achieve or
maintain profitability, and our prospects are subject to the risks, expenses and
uncertainties frequently encountered by companies in the early stages of
development in new and evolving markets for online services. If we do not
successfully manage these risks, our business will suffer. We cannot assure you
that we will successfully address these risks or that our business strategy for
MoveIdiot.com will be successful.
IF FX DIRECT IS UNABLE TO PAY ITS SUBORDINATED NOTE TO THE COMPANY, IT WILL HAVE
A MATERIAL ADVERSE EFFECT ON THE COMPANY'S FINANCIAL CONDITION.
$17 million of the purchase price for the Company's interest in FX Direct
was represented by a subordinated note from FX Direct that is payable in 36
monthly installments, of which approximately $4.7 million had been paid through
January 31, 2010. In the event FX Direct is adversely affected by future
9
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 bankruptcy, the
Company's claims would be subordinate to the claims of the general creditors of
FX Direct.
THE COMPANY IS LARGELY DEPENDENT ON ITS MANAGEMENT.
The Company is largely dependent upon the personal efforts of its current
management, the loss of any of which could have a material adverse effect upon
the Company's business and prospects. The Company does not have key-man life
insurance upon the life of any of its officers or directors. Additionally, as
the Company implements its commercial operations, it will require the services
of additional skilled personnel. There can be no assurance that the Company can
attract persons with the requisite skills and training to meet its future needs
or, even if such persons are available, that they can be hired on terms
favorable to the Company.
MANAGEMENT MAY NOT BE ABLE TO CONTROL THE COMPANY'S COSTS AND EXPENSES.
With respect to the Company's development of its technologies and the
implementation of commercial operations, the Company cannot accurately project
or give any assurance, with respect to management's ability to control the
Company's development and operating costs and/or expenses. Consequently, if
management is not able to adequately control costs and expenses, such operations
may not generate any profit or may result in operating losses.
THE COMPANY MAY BE ADVERSELY AFFECTED BY REGULATORY CHANGES.
At present, none of the business segments where the Company plans to
operate have significant government regulation that could be expected to
adversely affect the commercialization of the Company's technologies. However,
all of the Company's present technology is related to the Internet and it is
possible that the current federal, state or local laws and regulations which
apply to the Internet and which relate to services the Company plans to offer
its customers, may change in the future. Although it is not possible to predict
the extent of any such changes, and although management is not aware of any
pending adverse changes in the regulations applicable to its planned business
operations, it is possible that future or unforeseen changes may have an adverse
impact upon the Company's ability to continue or expand operations as presently
planned.
THE COMPANY MAY NOT BE ABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS.
The Company's success will depend in significant part on certain
methodologies it plans to utilize in connection with the commercial applications
for its newly acquired technology and on proprietary intellectual property
rights it has and may in the future develop. The Company plans to rely on a
combination of nondisclosure and other contractual arrangements and trade
secrets, copyright, patent and trademark laws to protect its proprietary rights
and the proprietary rights of third parties from whom the Company may licenses
intellectual property. The Company also plans to enter into confidentiality
agreements with its employees and consultants and limits access to, and
distribution of, proprietary information. There can be no assurance that the
steps planned by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.
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SUBSTANTIAL LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS EXISTS IN THE
SOFTWARE INDUSTRY. WE EXPECT THAT SOFTWARE PRODUCTS MAY BE INCREASINGLY SUBJECT
TO THIRD-PARTY INFRINGEMENT CLAIMS AS THE NUMBER OF COMPETITORS IN OUR INDUSTRY
SEGMENTS GROWS AND THE FUNCTIONALITY OF PRODUCTS IN DIFFERENT INDUSTRY SEGMENTS
OVERLAPS.
Third parties may make a claim of infringement against us with respect to
our products and technology or claims that our intellectual property rights are
invalid. Any claims, with or without merit, could:
* be time-consuming to defend;
* result in costly litigation;
* divert management's attention and resources;
* delay product delivery, or
* result in substantial damage awards.
In addition, if our products were found to infringe a third party's
proprietary rights, we could be required to enter into royalty or licensing
agreements in order to continue to be able to sell our products. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all. A successful claim of product infringement against us and our
failure or inability to license the infringed or similar technology could have a
material adverse effect on our business.
THE COMPANY'S SOFTWARE PRODUCTS WILL REQUIRE ONGOING MAINTENANCE AND UPGRADING.
The satisfactory performance, reliability and availability of the Company's
Internet-based technologies, transaction-processing systems and network
infrastructure are critical to its operating results, as well as to its ability
to attract and retain customers and maintain adequate customer service levels.
Any system interruptions that result in the unavailability of or reduced
performance of the Company's systems would reduce the volume of revenues and the
functionality of the Company's technology. Further, any interruptions in such
service could adversely impact the effectiveness of the Company's technology and
its ability to perform the functions for which they have been designed. This
would seriously harm the Company's business, operating results and financial
conditions. Management expects that there will be a need to periodically upgrade
its system architecture to accommodate increased traffic and processing needs as
the Company's business continues to develop. Management expects this process to
be time consuming and expensive without any assurance that such upgrades will be
successful.
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THE SUCCESS OF THE COMPANY'S SOFTWARE PRODUCTS IS DEPENDENT UPON THE INCREASED
ACCEPTANCE AND USE OF THE INTERNET.
The Company's future revenues depend upon the increased acceptance and use
of the Internet and other online services as a medium of commerce. The market
for Internet services is in an early stage of growth. Rapid growth in the use of
the Internet, the Web and online services is a recent phenomenon. As a result,
acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of customers may not adopt, and/or continue to use, the
Internet and other online services as a medium of commerce.
THE COMPANY'S PRODUCTS ARE SUBJECT TO A RISK OF TECHNOLOGICAL OBSOLESCENCE.
All industries based upon innovative technology, such as the Company's
planned Internet-based systems, are characterized by rapid technological
advances, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new developments and
technological enhancements. As a result, the Company's ability to remain
competitive will depend in significant part upon its ability to continually
upgrade its systems and service to keep up with such technological advances and
changes in a timely and cost-effective manner in response to both evolving
demands of the marketplace, requirements of applicable laws and regulations and
product/service offerings by its competitors. In addition, over the longer term,
the Company's ability to remain competitive will depend in significant part upon
its ability to develop and introduce, in a timely and cost-effective manner,
enhancements to its basic systems and products, which incorporate new
technological advances that provide an advantage over its competition. If the
Company faces material delays in introducing new services, products and
enhancements, customers may forego the use of the Company's system and services
and use those of competitors.
OUR BUSINESS DEPENDS ON THIRD PARTIES, INCLUDING PROVIDERS OF TECHNOLOGY AND
FEATURES AND SYSTEMS DEVELOPERS AND SUCH RELIANCE MAKES US VULNERABLE TO
BUSINESS DISRUPTIONS THAT COULD ADVERSELY AFFECT OUR OPERATIONS
We rely on-certain third-party computer systems and third-party service
providers to operate our MoveIdiot.com Website and related computer systems,
including data base and memory storage. Any interruption in these third-party
services, or a deterioration in their performance, could be disruptive to our
business. Our agreements with third-party service providers are terminable upon
short notice without incurring any penalties from those service providers. In
the event our arrangement with any of such third parties is terminated, we may
not be able to find an alternative source of systems support on a timely basis
or on commercially reasonable terms.
ALTHOUGH WE INTEND TO EXPEND SUBSTANTIAL RESOURCES TO ESTABLISH OUR
MOVEIDIOT.COM BRAND, WE MAY FAIL TO ESTABLISH A BRAND IDENTITY.
We believe that establishing and maintaining our MoveIdiot.com brand will
be critical to attracting and expanding our user base and Web traffic as well as
our commercial relationships. We also believe that the importance of brand
recognition on the Internet will increase due to the growing number of Internet
sites and the extremely low barriers to entry. If our users do not perceive our
12
services to be of high quality, or if we alter or modify our brand image,
introduce new services or enter into new business ventures that are not
favorably received by our users, the value of our brand could be diluted and the
attractiveness of our Website to our users could be decreased.
THE COMPANY DOES NOT ANTICIPATE PAYING DIVIDENDS ON ITS COMMON STOCK.
The Company has not paid any dividends on its Common Stock nor, by reason
of its contemplated financial requirements, does it anticipate paying any
dividends upon its Common Stock in the foreseeable future.
A LOW MARKET PRICE MAY SEVERELY LIMIT THE POTENTIAL MARKET FOR OUR COMMON STOCK.
Our Common Stock is currently trading at a price substantially below $5.00
per share, subjecting trading in the stock to certain SEC rules requiring
additional disclosures by broker-dealers. These rules generally apply to any
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions (a "penny stock"). Such rules require the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and institutional or wealthy investors. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. The broker-dealer also must disclose the
commissions payable to the broker-dealer, current bid and offer quotations for
the penny stock and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Such information must be provided to the customer orally or in
writing before or with the written confirmation of trade sent to the customer.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stock. The additional burdens imposed upon broker-dealers by such requirements
could discourage broker-dealers from effecting transactions in our Common Stock.
THE MARKET PRICE OF YOUR SHARES WILL BE VOLATILE.
The stock market price of technology companies like the Company has been
volatile. Securities markets may experience price and volume volatility. The
market price of our stock may experience wide fluctuations that could be
unrelated to our financial and operating results. Such volatility or
fluctuations could adversely affect your ability to sell your shares and the
value you might receive for those shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
13
ITEM 2. DESCRIPTION OF PROPERTY
Since August 2008, the Company's office has been located at 331 Newman
Springs Road, Suite 143, Red Bank, NJ, and its telephone number is 732-784-2801.
The Company occupies these premises that consist of shared office suites on a
month to month basis at a cost of approximately $1,000 (depending upon our level
of usage of the services provided by the facility operator).
ITEM 3. LEGAL PROCEEDINGS
SEC INVESTIGATION
In April 2009, the Company received notice of an investigation of the
Company being conducted by the staff of the Securities and Exchange Commission
related to possible violations of certain provisions of the Securities Act of
1933 and the Securities Exchange Act of 1934. We are cooperating with the
investigation.
There are no pending legal proceedings to which the Company is a party, or
to which any of its property is the subject, which the Company considers
material.
14
PART II
ITEM 4. RESERVED
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded in the over-the-counter market and quoted on the
OTC-Bulletin Board under the symbol "AVGG." The trading for the Common Stock has
been sporadic and the market for the Common Stock cannot be classified as an
established trading market.
The following table sets out the high and low bid information for the
Common Stock as reported by the OTC Bulletin Board for each period/quarter
indicated in US$:
Calendar Period High Bid (1) Low Bid (1)
--------------- ------------ -----------
2008
First Quarter 0.12 0.06
Second Quarter 0.13 0.09
Third Quarter 0.13 0.10
Fourth Quarter 0.10 0.01
2009
First Quarter 0.13 0.02
Second Quarter 0.30 0.03
Third Quarter 0.20 0.03
Fourth Quarter 0.16 0.10
- ----------
(1) The quotations set out herein reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
(b) As of January 31, 2010, there were 425 holders of record of the Common
Stock.
(c) There have been no cash dividends declared to date on the Common Stock
and there are no plans to do so. There are no restrictions that limit the
ability to pay dividends on common equity other than the dependency on the
Company's revenues, earnings and financial condition.
2010 EQUITY INCENTIVE PLAN
On March 5, 2010, the Board of Directors adopted the Company's 2010 Equity
Incentive Plan (the "Plan").
SHARES RESERVED FOR ISSUANCE. The Plan includes an initial reserve of
3,000,000 shares of our common stock that will be available for issuance under
the Plan, subject to adjustment to reflect stock splits and similar events.
Shares that are subject to issuance upon exercise of an option but cease to be
15
subject to such option for any reason (other than exercise of such option), and
shares that are subject to an award that is granted but is subsequently
forfeited, or that are subject to an award that terminates without shares being
issued, will again be available for grant and issuance under the Plan. The Plan
provides for the grant of stock options, stock appreciation rights and
restricted stock grants.
ADMINISTRATION. The Plan is administered by our Board of Directors or a
Committee of directors selected by the Board (the "Committee"). The Plan
authorizes the Committee to select those participants to whom awards may be
granted, to determine whether and to what extent awards are granted, to
determine the number of shares of common stock or other considerations to be
covered by each award, to determine the terms and conditions of awards, to amend
the terms of outstanding awards, and to take any other action consistent with
the terms of the Plan as the Committee deems appropriate. Generally, awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or its subsidiaries and the Committee
may designate, subject to the parameters of the Plan, whether an award may be
designated as an incentive award (subject to the requirement of stockholder
approval of the Plan). The Committee also has the authority to interpret the
provisions of the Plan.
TERMS OF OPTIONS. As discussed above, the Committee determines many of the
terms and conditions of awards granted under the Plan, including whether an
option will be an "incentive stock option" or a non-qualified stock option
(subject to the requirement that we obtain stockholder approval of the Plan
within the next 12 months if we intend to issue incentive stock options). An
option designated as an incentive stock option is intended to qualify as such
under Section 422 of the Code. Thus, the aggregate fair market value, determined
at the time of grant, of the shares with respect to which incentive options are
exercisable for the first time by an individual during any calendar year may not
exceed $100,000. Non-qualified options are not subject to this requirement. Each
option is evidenced by an agreement in such form as the Committee approves and
is subject to the following conditions (as described in further detail in the
Plan):
* VESTING AND EXERCISABILITY: Options become vested and exercisable, as
applicable, within such periods, or upon such events, as determined by
the Committee and as set forth in the related stock option agreement.
The maximum term of each option is ten years from the date of grant.
* EXERCISE PRICE: Each stock option agreement states the exercise price,
which may not be less than 100% of the fair market value of one share
of our common stock on the date of the grant (and not less than 110%
with respect to an incentive stock option granted to a 10% or greater
stockholder).
* METHOD OF EXERCISE: The exercise price is typically payable in cash or
by check, but may also be payable, at the discretion of the Committee,
in other forms of legal consideration.
* TERMINATION OF EMPLOYMENT: Options cease vesting on the date of
termination of service or the death or disability of the participant.
Options granted under the Plan generally expire three months after the
termination of the participant's service to us, except in the case of
16
death or disability, in which case the awards generally may be
exercised up to 12 months following the date of death or termination
of service. However, if the participant is terminated for cause, the
participant's options will expire upon termination.
* CHANGE OF CONTROL: In the event of a change of control (as defined in
the plan), the buyer may either assume the outstanding awards or
substitute equivalent awards. Alternatively, our Board may determine
to permit all unvested options to immediately vest upon the change of
control. If our Board does not make such a determination, all awards
will expire upon the closing of the transaction unless the stock
option agreement issued to the particular participant provides
otherwise.
TERMS OF RESTRICTED STOCK AWARDS. Each restricted stock award is evidenced
by a restricted stock purchase agreement in such form as the Committee approves
and is subject to the following conditions (as described in further detail in
the Plan):
* VESTING: Shares subject to a restricted stock award may become vested
over time or upon completion of performance goals set out in advance,
which may include the following types of criteria: (a) net revenue
and/or net revenue growth; (b) earnings before income taxes and
amortization and/or earnings before income taxes and amortization
growth; (c) operating income and/or operating income growth; (d) net
income and/or net income growth; (e) earnings per share and/or
earnings per share growth; (f) total stockholder return and/or total
stockholder return growth; and (g) individual business objectives.
* TERMINATION OF EMPLOYMENT. Restricted stock awards shall cease to vest
immediately if a participant is terminated for any reason, unless
provided otherwise in the applicable restricted stock purchase
agreement or unless otherwise determined by the Committee.
* CHANGE OF CONTROL: Restricted stock awards shall be treated in the
same manner as described under "Terms of Stock Options" above.
STOCK APPRECIATION RIGHTS. Stock appreciation rights, or SARs, are awards
in which the participant is deemed granted a number of shares subject to
vesting. When the SARs vest, then the participant can exercise the SARs.
Exercise, however, does not mean the number of shares deemed granted are issued.
Rather, the participant will receive cash (or shares, if so determined by the
Committee) having a value at the time of exercise equal to (1) the number of
shares deemed exercised, times (2) the amount by which our stock price on the
date of exercise exceeds our stock price on the date of grant. SARs expire under
the same rules that apply to options.
MODIFICATION AND TERMINATION OF THE PLAN. The Committee may from time to
time, in its discretion, amend the Plan without the approval of shareholders,
except (a) as such shareholder approval may be required under the listing
requirements of any securities exchange or national market system on which our
equity securities are listed and (b) that if the Plan has been approved by
stockholders, the Committee may not without the approval of the Company's
shareholders amend the Plan to increase the total number of shares reserved for
the purposes of the Plan. The Plan shall continue in effect until the earlier of
17
its termination by the Committee or the date on which all of the shares of
common stock available for issuance thereunder have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing options granted under the Plan have lapsed.
ADJUSTMENTS. In the event any change is made to the common stock issuable
under the Plan by reason of any stock split, stock dividend, combination of
shares or recapitalization, appropriate adjustment will be made to the share
reserve of the Plan and to the number of shares and the exercise price of the
Common Stock subject to outstanding options.
18
ITEM 6. SELECTED FINANCIAL DATA
Our selected consolidated financial data presented below for each of the
fiscal years in the two-year period ended January 31, 2010, and the balance
sheet data at January 31, 2010 and 2009 have been derived from consolidated
financial statements, which have been audited by Donahue Associates, L.L.C. The
selected financial data should be read in conjunction with our consolidated
financial statements for each of the years in the two-year period ended January
31, 2010, and Notes thereto, which are included elsewhere in this Annual Report.
STATEMENT OF OPERATIONS DATA:
31 Jan-10 31-Jan-09
------------ ------------
General and administrative expenses:
Salaries and benefits $ 569,886 $ 515,398
Consulting 136,200 30,513
General administration 1,046,673 277,577
------------ ------------
Total general and administrative expenses 1,752,759 823,488
------------ ------------
Net loss from operations $ (1,752,759) $ (823,488)
------------ ------------
Other revenues and expenses:
Interest income 1,291,979 71
Gain on sale FX Direct Direct 23,597,942 0
Gain on short term investments 220,498 0
Consulting fees 0 254,451
Sub-lease income 0 30,892
------------ ------------
Net income (loss) before provision for income taxes $ 23,357,660 $ (538,074)
Provision for income taxes (6,280,425) 0
------------ ------------
Net income (loss) $ 17,077,235 $ (538,074)
============ ============
Basic & fully diluted net income (loss) per common share:
Basic income (loss) per share $ 0.93 $ (0.03)
Fully diluted income (loss) per share $ 0.83 $ (0.03)
Weighted average of common shares outstanding:
Basic 18,285,166 18,268,104
Fully diluted 20,657,202 18,268,104
BALANCE SHEET DATA
As at January 31,
2010 2009
------------ ------------
Total assets $ 21,731,860 $ 2,549,394
Total liabilities $ 5,600,951 $ 3,498,970
------------ ------------
Stockholders' equity (deficit) $ 16,130,909 $ (949,576)
============ ============
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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
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 $4.7 million had been paid as
of January 31, 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
fiscal year ended January 31, 2010 ("Fiscal 2010") or the fiscal year ended
January 31, 2009 ("Fiscal 2009"), 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.
20
General and administrative expenses in Fiscal 2010 increased to $1,752,759,
as compared to $823,488, in Fiscal 2009, primarily as a result of an increase in
professional fees in connection with closing the sale of its interest in FX
Direct and in responding to a previously disclosed SEC investigation, increased
consulting expenses in connection with a review of the Company's existing
PromotionStat and Cyberfence products and services as well as in connection with
management's evaluation of potential new investments and increased compensation
expenses.
Other revenues and expenses in Fiscal 2010, included a gain on the sale of
the Company's interest in FX Direct of $23,597,942, interest income of
$1,291,979 related to its cash balances and note receivable from FX Direct and a
gain of $220,498 on short term investments. Other revenues and expenses in
fiscal 2009 included consulting fees of $254,451 and sublease income of $30,892.
The Company had a provision for income taxes of $6,280,425 in Fiscal 2010
primarily related to the gain on the sale of its interest in FX Direct and no
similar provision in Fiscal 2009.
As a result of the foregoing, the Company had net income of $17,077,235 in
Fiscal 2010 as compared to a net loss of ($538,074) in Fiscal 2009.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2010, the Company had cash and short term investments on
hand of $8,968,260 as compared with cash of $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 (of which approximately $4.7
million had been paid as of January 31, 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 Fiscal 2010, net cash used in operating activities was $4,790,569 as
compared to net cash provided by operating activities of $23,808 in Fiscal 2009.
The substantial decrease in cash provided by operating activities in the 2010
period resulted from an increase in the loss from operations and a reduction of
accounts payable of $3,362,466 primarily in connection with the payment of
accrued compensation expenses.
21
For Fiscal 2010, net cash provided by investing activities was $7,441,964,
representing proceeds from the sale of the Company's interest in FX Direct and
collections on the related note receivable, offset by the purchase of short-term
investments, as compared to no net cash used in investing activities in Fiscal
2009.
For Fiscal 2010, net cash used in financing activities was ($38,551),
representing repayment of shareholder advances as compared to net cash provided
by financing activities of $43,823 in Fiscal 2009, representing shareholder
advances.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At January 31, 2010, the Company had no outstanding borrowings under loan
facilities.
ITEM 8. FINANCIAL STATEMENTS
See F Pages
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or any disagreements with
accountants on any matter of accounting principles or practices or financial
statement disclosures during the two years ended January 31, 2010.
ITEM 9A. 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.
(b) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in
Exchange act Rules 13a-15(f) under the Securities Exchange Act of 1934, as
amended. Under the supervision of management and with the participation of
our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
22
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 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.
Based on our evaluation of internal control over financial reporting, our
management concluded that our internal control over financial reporting was
not effective as of January 31, 2010.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide
only management's report in this annual report.
23
(c) 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.
(d) 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 January 31, 2010, that our disclosure controls and
procedures were not effective.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth as of the date hereof, with respect to each
of the Company's directors and executive officers their position and their ages:
Name Age Position
---- --- --------
Alex Stelmak 61 Chief Executive Officer, Chairman of the Board and
Chief Financial Officer
Stan Mashov 41 Vice President, Chief Technology Officer and
Director
Dr. Abel Raskas 69 President, Senior Marketing Director and Director
The following is a brief summary of the Directors and Officers including
their business experiences for the past five years.
24
ALEX J. STELMAK, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Stelmak has been Chief Executive Officer, Chairman of the Board and
Chief Financial Officer of the Company since 2001 and was a founder of the
Company's subsidiary FX3000, Inc. He has over twenty years of experience in
operation and management, building highly successful financial services firms.
Mr. Stelmak has served as President of Commonwealth Capital Group, Ltd., a
financial advisory and investment-banking firm that has been engaged as a
consultant to the Company. From 1996 to 1998, he served as the President of
Oxford Holdings - a Registered Commodities Broker/Dealer principally engaged in
providing managed currency-trading programs for Institutional and private
clients. Prior to 1996 Mr. Stelmak also served as a stockbroker with BDS
Securities, Greenway Capital and US Securities, Inc. He holds a Series 7 and 63
licenses from the National Association of Securities Dealers. Mr. Stelmak holds
a BS degree in Business Administration with a major in accounting. He also holds
the U.S. Equivalent of Master Degree in Economics.
STAN MASHOV, VICE PRESIDENT AND CHIEF TECHNOLOGY OFFICER
Mr. Mashov has been Vice President, Chief Technology Officer and a Director
of the Company since 2001 and was a founder of the Company's subsidiary FX3000,
Inc. He has also served in the same capacity for Oxford since its formation in
September 1997. Mr. Mashov has been mainly responsible for the design,
development and implementation of the FX3000 on-line currency trading software
platform. Mr. Mashov has been employed by FX Direct since 2006. Prior to joining
the Company, Mr. Mashov served as Chief Analyst and Currency Trader for Oxford
Holdings, a company principally engaged in providing managed currency trading
programs for individual investors. Mr. Mashov received his Degree in Accounting
from Berkeley College.
DR. ABEL RASKAS, PRESIDENT/SENIOR MARKETING DIRECTOR
Dr. Raskas has been President, Senior Marketing Director and a Director of
the Company since 2001. He is also Founder and President of Luxury Lounge, Inc.
- - an Internet wholesaler and retailer of luxury and premium quality goods and
services which is a subsidiary of the Company. Prior to establishing Luxury
Lounge, Inc. Dr Raskas served as Vice President of Trimol Group, Ltd., a
Publicly Held company engaged in the business of producing specialized documents
through patented software. As a Principal of Trimol Group, Ltd, Dr. Raskas was
instrumental in bringing the Company to the Public Market. Prior to joining
Trimol, from 1991 to 1998, he was a Principal and Vice President of Ocean Bridge
International, Ltd., a company principally engaged in commercial finance and
International trade with Eastern European countries. From 1980 to 1986 Dr.
Raskas was the Founder and Principal of ABDATA Independence, Inc., a computer
service bureau that was acquired in 1986 by Sandata Corp. Following the sale of
ABDATA, Dr. Raskas remained a director of Marketing for Sandata Corp. until
1991. During this same period Dr. Raskas managed a data processing school and
was one of the founders of CAIS Systems, a computer advertising information
system. From 1966 through 1979 Dr. Raskas was an independent consultant in the
design and implementation of management information systems ("MIS") to different
industries. Dr. Raskas holds the equivalent of a Doctorate Degree in business
25
management and computer science from St. Petersburg University (received in
1973). He has authored 20 articles and one book all in the field of business
management and computer science.
BOARD OF DIRECTORS
Our Board of Directors consists of three members. Directors serve until the
next annual meeting of stockholders and until their successors are qualified and
elected. The officers serve at the will of the Board of Directors. There are no
family relationships among the officers and directors of the Company. There are
at present no committees of the Board of Directors.
There are no agreements that a director will resign at the request of
another person and the above named Directors are not acting on behalf of nor
will act on behalf of another person.
CODE OF ETHICS
Due to the limited nature of the company's operations and the limited
number of employees, the Company has not adopted a Code of Ethics.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, our
Directors, executive officers and beneficial owners of more than 10% of the
outstanding Common Stock are required to file reports with the Securities and
Exchange Commission concerning their ownership of and transactions in our Common
Stock and are also required to provide to us copies of such reports. Based
solely on such reports and related information furnished to us, we believe that
in fiscal 2010 all such filing requirements were complied with in a timely
manner by all Directors and executive officers
BOARD OF ADVISORS
During fiscal 2010, the Company discontinued its Board of Advisors. The
Company will continue to seek the advice of outside consultants and scientific
and business advisors where appropriate to provide assistance to the Board and
management.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the annual salary, bonuses and all other
compensation awards and pay outs on account of our Chief Executive Officer and
our one other officer who earned in excess of $100,000 per annum for services
rendered to us during the fiscal years ended January 31, 2010 and 2009.
26
SUMMARY COMPENSATION TABLE
Change in
Pension
Value and
Non-Equity Nonqualified
Incentive Deferred All
Name and Plan Compen- Other
Principal Stock Option Compen- sation Compen-
Position Year Salary Bonus Awards Awards sation Earnings sation(2) Total
- ------------ ---- ------ ----- ------ ------ ------ -------- ------ -----
Alex 2010 $ 250,000 -- -- -- -- -- $22,829 $ 272,829
Stelmak, CEO(1) 2009 $ 250,000 $75,000 -- -- -- -- $60,000 $ 385,000
Dr. Abel
Raskas, 2010 $ 250,000 -- -- -- -- -- $22,829 $ 272,829
President(1) 2009 $ 250,000 $75,000 -- -- -- -- $60,000 $ 385,000
- ----------
(1) Does not include 90,000 restricted shares of common stock that was granted
to each of Messrs. Stelmak and Raskas on March 5, 2010 pursuant to the
Company's 2010 Equity Incentive Plan. The shares vest in three equal
installments on the first, second and third anniversaries of the grant
date.
(2) Includes amounts payable for health insurance, home office expenses and
transportation costs.
COMPENSATION PURSUANT TO PLANS
The Company does not have any pension or profit sharing plans.
COMPENSATION TO DIRECTORS
All of our directors are also officers who do not receive separate
compensation for serving as directors.
EMPLOYMENT CONTRACTS
The Company has three-year employment contracts with Mr. Stelmak and Dr.
Raskas that were renewed in April 2008. Terms of the employment contracts were
proposed by Messrs Stelmak and Raskas and were approved on behalf of the Company
by Mr. Stan Mashov, the sole disinterested director on the Board of Directors.
The employment contracts provide that Messrs. Stelmak and Raskas shall be
paid a base salary of $250,000 per annum (calculated retroactively from April 13
2002) only after the Company has begun receiving profit distributions from its
investment in FX Direct. The Company received an allocation of income for
federal income tax purposes on account of its investment in FX Direct for the
2007 tax year pursuant to a Schedule K-1 that was issued by FX Direct to the
Company on or about June 2008, thereby triggering the accrual of the salary
payments. As a result, the Company changed the accounting treatment of the
amounts payable pursuant to the Employment Agreements from a contingent
obligation in fiscal 2008 to accrued expenses in fiscal 2009. A portion of the
27
funds received by the Company from the sale of its Membership Interest in FX
Direct in March 2009 was used to pay the accrued salary expenses.
The officers may also receive a discretionary bonus of up to 30% of their
base salary per year based upon the Company's assessment of the Employee's
performance over the previous year and available funds. In the event the
agreements are terminated other than for cause, the officers are entitled to
receive a payment equal to three times their base salary.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 31, 2010 the Common Stock
ownership of each person and /or group known by the Company to be the beneficial
owner of five percent or more of the Company's Common Stock, each director
individually, and all officers and directors as a group. Each person has sole
voting and investment with respect to the shares of Common Stock shown, and all
ownership is of record and beneficial.
Number of
Name Shares Owned (1) Percent Owned
---- ---------------- -------------
Alex Stelmak 4,389,476 (2) 23.7%
331 Newman Springs Road, Suite 143,
Red Bank, NJ 07701
Stan Mashov 827,778 (2) 4.5%
331 Newman Springs Road, Suite 143,
Red Bank, NJ 07701
Dr. Abel Raskas 4,389,476 (2) 23.7%
331 Newman Springs Road, Suite 143,
Red Bank, NJ 07701
Officers & Directors
as a Group (3 Persons) 9,606,730 (2) 52.0%
- ----------
(1) Based upon 18,485,535 issued and outstanding shares of Common Stock on
January 31, 2010.
(2) Does not include 90,000 shares of restricted common stock granted to each
of Messrs. Stelmak, Raskas and Mashov on March 5, 2010. The shares vest in
three equal installments on the first, second and third anniversaries of
the grant date.
28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year 2010 and 2009 the Company has been leasing shared office
space in New Jersey for $1,000 per month on a year-to-year lease. In the lease
the services of an administrative assistant and communication services are
included.
The spouses of Messrs. Stelmak and Raskas provided clerical and
administrative services to the Company during fiscal 2010 for which they
received compensation of $62,350 and $58,000, respectively.
On March 5, 2010, the Board granted 90,000 restricted shares of Common
Stock (the "Restricted Stock") to each officer and director (Messrs. Stelmak,
Raskas and Mashov). The Restricted Stock vests in three equal annual
installments on the first, second and third anniversaries of the grant date.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table shows the audit fees we were billed by Donohue
Associates, L.L.C. for fiscal 2010 and 2009:
2010 2009
------ ------
Audit fees $7,000 $4,750
Audit fees were for the audit of our annual financial statements, review of
financial statements included in our 10-Q quarterly reports, and services that
are normally provided by independent auditors in connection with our other
filings with the SEC. This category also includes advice on accounting matters
that arose during, or as a result of, the audit or review of our interim
financial statements.
As part of its duties, our Board pre-approves audit and non-audit services
performed by our independent auditors in order to assure that the provision of
such services does not impair the auditors' independence. Our Board does not
delegate to management its responsibilities to pre-approve services performed by
our independent auditors.
29
PART IV
ITEM 15. EXHIBITS
(a) Financial Statements
See "Index to Consolidated Financial Statements" set forth on page 31.
(b) Exhibits
Incorp by
Exhibit Ref. to
Number Exh. Description
- ------ ---- -----------
3.1 3.1(1) Articles of Incorporation of the Registrant, as amended
3.2 3.2(1) By-laws of the Registrant
10.1 3.3(2) Amendment to and Plan of Reorganization
10.2 10.1(3) FX Direct Purchase and Sale Agreement
10.3 (4) Cash Subordinated Loan Agreement
10.4 (5) Employment Agreement for Alex Stelmak+
10.5 (5) Employment Agreement for Dr. Abel Raskas+
10.6 99.1(6) MoveIdiot.com Asset Purchase Agreement
10.7 10.1(7) Equity Incentive Plan
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
+ Employee Compensation Agreement
(1) Registrant's Registration Statement on Form 10-KSB File No. 000-30987.
(2) Registrant's Current Report on Form 8-K filed on January 22, 2001.
(3) Registrant's Current Report on Form 8-K filed on January 30, 2009.
(4) Included as Exhibit C to Exhibit 10.2.
(5) Registrant's Annual Report on Form 10-K/A for the fiscal year ended January
31, 2009.
(6) Registrant's Current Report on Form 8-K filed on July 22, 2009.
(7) Registrant's Current Report on Form 8-K filed on March 8, 2010.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment to the Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ADVANCED TECHNOLOGIES GROUP, LTD.
Dated: April 29, 2010 By: /s/ Alex Stelmak
-------------------------------------------------
Alex Stelmak
Chief Executive Officer and Director
(Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
Dated: April 29, 2010 By: /s/ Abel Raskas
-------------------------------------------------
Abel Raskas
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment to the Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Dated: April 29, 2010 By: /s/ Alex Stelmak
-------------------------------------------------
Alex Stelmak
Director
Dated: April 29, 2010 By: /s/ Abel Raskas
-------------------------------------------------
Abel Raskas
Director
Dated: April 29, 2010 By: /s/ Stan Mashov
-------------------------------------------------
Stan Mashov
Director
31
ADVANCED TECHNOLOGIES GROUP, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of January 31, 2010 and January 31, 2009 F-2
Consolidated Statements of Operations for the years ended January 31,
2010 and January 31, 2009 F-4
Consolidated Statements of Cash Flows for the years ended
January 31, 2010 and January 31, 2009 F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the years ended January 31, 2010 and January 31, 2009 F-6
Notes to Consolidated Financial Statements F-7
31
DONAHUE ASSOCIATES, LLC
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors
Advanced Technologies Group, Ltd
We have audited the accompanying consolidated balance sheets of Advanced
Technologies Group, Ltd as of January 31, 2010 and January 31, 2009, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Technologies Group,
Ltd as of January 31, 2010 and January 31, 2009, and the related consolidated
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Donahue Associates LLC
- ------------------------------------
Donahue Associates LLC
Monmouth Beach, New Jersey
April 13, 2010
F-1
Advanced Technologies Group, Ltd.
Consolidated Balance Sheets
As of January 31, 2010 and January 31, 2009
31-Jan-10 31-Jan-09
------------ ------------
ASSETS
Current assets:
Cash & cash equivalents $ 2,747,762 $ 134,918
Short term investments 6,220,498 0
Subordinated note receivable 5,666,667 0
Prepaid income tax 471,742 0
------------ ------------
Total current assets $ 15,106,669 $ 134,918
Other assets:
Subordinated note receivable- non current portion 6,611,111 0
Investment in FX Direct Dealer 5,000 2,407,058
Trademark- net 6,660 7,418
Fixed assets- net 2,420 0
------------ ------------
Total assets $ 21,731,860 $ 2,549,394
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable & accrued expenses $ 88,081 $ 3,450,547
Income taxes payable 156,576 0
------------ ------------
Total current liabilities 244,657 3,450,547
Deferred income taxes payable 5,346,422 0
Shareholder advance payable 9,872 48,423
------------ ------------
Total liabilities 5,600,951 3,498,970
Shareholders' equity (deficit):
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, 18,268,104 shares at
January 31, 2009 and 18,486,535 at January 31, 2010 1,849 1,827
Additional paid in capital 32,715,950 32,664,364
Accumulated deficit (22,684,245) (39,713,122)
------------ ------------
Total shareholders' equity (deficit) 16,130,909 (949,576)
------------ ------------
Total Liabilities & Shareholders' Equity (Deficit) $ 21,731,860 $ 2,549,394
============ ============
See the notes to the financial statements.
F-2
Advanced Technologies Group, Ltd.
Consolidated Statements of Operations
For the Years Ended January 31, 2010 and January 31, 2009
31-Jan-10 31-Jan-09
------------ ------------
General and administrative expenses:
Salaries and benefits $ 569,886 $ 515,398
Consulting 136,200 30,513
General administration 1,046,673 277,577
------------ ------------
Total general & administrative expenses 1,752,759 823,488
------------ ------------
Net loss from operations (1,752,759) (823,488)
Other revenues and expenses:
Interest income 1,291,979 71
Gain on sale of FXDD interest 23,597,942 0
Gain on short term investments 220,498 0
Consulting fees 0 254,451
Sub-lease income 0 30,892
------------ ------------
Net income (loss) before provision for income taxes 23,357,660 (538,074)
Provision for income taxes (6,280,425) 0
------------ ------------
Net income (loss) $ 17,077,235 $ (538,074)
============ ============
Basic & fully diluted net income (loss) per common share:
Basic income (loss) per share $ 0.93 $ (0.03)
Fully diluted income (loss) per share $ 0.83 $ (0.03)
Weighted average of common shares outstanding:
Basic 18,285,166 18,268,104
Fully diluted 20,657,202 18,268,104
See the notes to the financial statements.
F-3
Advanced Technologies Group, Ltd.
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2010 and January 31, 2009
31-Jan-10 31-Jan-09
------------ ------------
Operating Activities:
Net income (loss) $ 17,077,235 $ (538,074)
Adjustments to reconcile net income (loss) items
not requiring the use of cash:
Amortization 758 455
Depreciation 340 0
Salary expense 0 515,398
Rent expense 0 45,000
Impairment expense 60,250 0
Gain on sale of FXDD interest (23,597,942) 0
Changes in other operating assets and liabilities:
Accounts payable & accrued expenses (3,362,466) 1,029
Prepaid income tax (471,742) 0
Income taxes payable 156,576 0
Deferred income taxes payable 5,346,422 0
------------ ------------
Net cash provided by operations (4,790,569) 23,808
Investing activities:
Purchase of office equipment (2,760) 0
Purchase of MoveIdiot.com (57,000) 0
Investment in short term marketable securities (6,220,498) 0
Proceeds from note receivable 4,722,222
Proceeds from sale of FXDD investment 9,000,000 0
------------ ------------
Net cash used by investing activities 7,441,964 0
Financing Activities:
Advances received (paid) shareholders (38,551) 43,823
------------ ------------
Net cash provided (used) by financing activities (38,551) 43,823
------------ ------------
Net increase in cash during the year 2,612,844 67,631
Cash balance at February 1st 134,918 67,287
------------ ------------
Cash balance at January 31st $ 2,747,762 $ 134,918
============ ============
Supplemental disclosures of cash flow information:
Interest paid during the year $ 0 $ 0
Income taxes paid during the year $ 1,249,169 $ 0
Non-cash investing activities:
Note receivable $ 17,000,000 $ 0
Stock issued for purchase of MoveIdiot.com $ 3,250 $ 0
See the notes to the financial statements.
F-4
ADVANCED TECHNOLOGIES GROUP, LTD.
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
For the Years Ended January 31, 2010 and January 31, 2009
Common Common Preferred Preferred Paid in Accumulated
Shares Par Value Shares Value Capital Deficit Total
------ --------- ------ ----- ------- ------- -----
Balance at January 31, 2008 18,268,104 $ 1,827 2,372,036 $6,097,355 $32,664,364 $(39,175,048) $ (411,502)
Net loss for the fiscal year (538,074) (538,074)
---------- ------- --------- ---------- ----------- ------------ -----------
Balance at January 31, 2009 18,268,104 $ 1,827 2,372,036 $6,097,355 $32,664,364 $(39,713,122) $ (949,576)
Purchase of MovieIdiot.com 25,000 3 3,247 3,250
Stock dividends paid preferred
holders 193,431 19 48,339 (48,358) 0
Net income for the fiscal year 17,077,235 17,077,235
---------- ------- --------- ---------- ----------- ------------ -----------
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
========== ======= ========= ========== =========== ============ ===========
See the notes to the financial statements.
F-5
Advanced Technologies Group, Ltd.
Notes to the Consolidated Financial Statements
For the Years Ended January 31, 2010 and January 31, 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. See Note 9.
The Company's principal business activity at January 31, 2010 was the
development of the MoveIdiot.com website, which the Company acquired in July
2009 (see note 8 below). 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.
CONSOLIDATION- The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. 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.
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 January
31, 2010.
F-6
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 (see note 9). 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 from loans of similar in risk and duration. At January 31, 2010,
the fair value of the subordinated loan receivable was $13,079,000.
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 tnd 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.
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:
F-7
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 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 January 31,
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.
RECENT ACCOUNTING PRONOUNCEMENTS-
Financial Accounting Standards Board ("FASB") Accounting Standard Codification
("ASC") 820, FAIR VALUE MEASUREMENTS AND Disclosures ("ASC 820" and formerly
referred to as FAS-157), establishes a framework for measuring fair value in
GAAP, clarifies the definition of fair value within that framework, and expands
disclosures about the use of fair value measurements. ASC 820 is effective for
fiscal years beginning after November 15, 2007. ASC 820-10-65, TRANSITION AND
OPEN EFFECTIVE DATE INFORMATION, deferred the effective date of ASC 820, for
non-financial assets and liabilities that are not on a recurring basis
recognized or disclosed at fair value in the financial statements, to fiscal
years, and interim periods, beginning after November 15, 2008. The Company has
adopted the guidance within ASC 820 for non-financial assets and liabilities
measured at fair value on a nonrecurring basis at January 1, 2009 and will
continue to apply its provisions prospectively from January 1, 2009. The
F-8
application of ASC 820 for non-financial assets and liabilities did not have a
significant impact on earnings nor the financial position of the Company.
FASB ASC 810, CONSOLIDATION ("ASC 810"), ASC 810-10-65, TRANSITION AND OPEN
EFFECTIVE DATE INFORMATION ("ASC 810-10-65" and formerly referred to as FAS-160)
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership interest in the
consolidated financial statements. ASC 810-10-65 is effective for fiscal years
beginning after December 15, 2008. The application of ASC 810-10-65 did not have
a significant impact on earnings nor the financial position of the Company.
FASB ASC 855, SUBSEQUENT EVENTS ("ASC 855" and formerly referred to as FAS-165),
modified the subsequent event guidance. The three modifications to the
subsequent events guidance are: 1) To name the two types of subsequent events
either as recognized or non-recognized subsequent events, 2) To modify the
definition of subsequent events to refer to events or transactions that occur
after the balance sheet date, but before the financial statement are issued or
available to be issued and 3) To require entities to disclose the date through
which an entity has evaluated subsequent events and the basis for that date,
i.e. whether that date represents the date the financial statements were issued
or were available to be issued. The adoption of FASB ASC 855, did not have a
material affect on the Company's financial position.
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 are convertible into common stock.
The calculation for net income (loss) per share is as follows.
31-Jan-10 31-Jan-09
----------- -----------
Net income (loss) $17,077,235 $ (538,074)
=========== ===========
Basic shares outstanding (weighted average) 18,285,166 18,268,104
Preferred stock convertible into common shares 2,372,036 0
----------- -----------
Fully diluted shares outstanding (weighted average) 20,657,202 18,268,104
=========== ===========
Basic income (loss) per share $ 0.93 $ (0.03)
Fully diluted income (loss) per share $ 0.83 $ (0.03)
The effects of the convertible preferred stock in fiscal year 2009 was excluded
from the fully diluted loss per share calculation because their inclusion would
be anti-dilutive.
F-9
3. OPTIONS
All options granted are recorded at fair value using a generally accepted option
pricing model at the date of the grant. All options granted by the Company have
expired in fiscal year 2010.
Wgtd Avg
Wgtd Avg Years to
Amount Exercise Price Maturity
------ -------------- --------
Outstanding at January 31, 2008 3,835,690 $5 1.52
Issued 0
Expired 0
Exercised 0
-----------
Outstanding at January 31, 2009 3,835,690 $5 0.51
Issued 0
Expired (3,835,690)
Exercised 0
-----------
Outstanding at January 31, 2010 0
===========
4. 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.
F-10
5. INCOME TAXES
Provision for income taxes is comprised of the following:
31-Jan-10 31-Jan-09
----------- -----------
Net income (loss) before provision for
income taxes $23,357,660 $ (538,074)
=========== ===========
Current tax expense:
Federal $ 676,298 $ 0
State 257,705 0
----------- -----------
Total $ 934,003 $ 0
Add deferred tax payable (benefit):
Long term capital gain (installment payable
over 3 years) 5,346,422 0
Tax loss carryforward 0 4,466,066
Allowance for recoverability 0 (4,466,066)
----------- -----------
Provision for income taxes $ 6,280,425 $ 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% 13%
Timing differences 0% -47%
----------- -----------
Effective rate 47% 0%
=========== ===========
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.
6. 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 8, 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.
F-11
7. 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.
8. PURCHASE OF MOVEIDIOT.COM
In July 2009, the Company purchased the intellectual 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.
9. 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
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.
F-12
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short term investments,
shareholder advances, income tax payable, and accounts payable and accrued
expenses reported in the consolidated balance sheets are estimated by management
to approximate fair value at January 31, 2010.
11. 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 January 31, 2010.
Level I Level II Level III
---------- ---------- ----------
Investments:
Investment in municipal bond fund $ 0 $6,220,498 $ 0
---------- ---------- ----------
Totals $ 0 $6,220,498 $ 0
========== ========== ==========
12. SUBSEQUENT EVENTS
Management has evaluated subsequent events since January 31, 2010 and determined
the following requires disclosure:
In March 2010, the Board of directors approved the Equity Incentive Plan (EIP)
for the Company. Under the EIP, the Company has set aside 3 million shares of
common stock for issuance pursuant to awards granted under the EIP. The Board of
Directors or a Committee appointed by the Board is authorized to administer the
EIP.
The EIP will be used to recognize the superior performance of the Company's
officers, employees, consultants, and other key persons in furthering the
Company's business interests. Under the EIP, the Company issued 90,000
restricted shares of common stock to each officer and director (for an aggregate
of 270,000 shares) on March 5, 2010. The shares vest in three equal installments
on the first, second and third anniversaries of the date of grant.
F-13