SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Period ended October 31, 2010
Commission File Number 0-30987
ADVANCED TECHNOLOGIES GROUP, LTD.
(Exact name of Registrant as specified in its Charter)
Nevada 80-0987213
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
331 Newman Springs Rd., Bld. 1, 4Fl. Suite 143,
Red Bank, NJ 07701
732-784-2801
(Address and telephone number of principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).* YES [ ] NO [ ]
- ----------
* The registrant has not yet been phased into the interactive data requirements.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer [ ] Accelerated Filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do Not Check if a Smaller Reporting Company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 31, 2010, the registrant had 18,486,535 shares of common stock
$0.0001 par value, issued and outstanding.
TABLE OF CONTENTS
Item Page
- ---- ----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements: 3
Balance sheet as of October 31, 2010 and January 31, 2010 4
Statement of income (loss) for nine months ended October 31, 2010
and 2009 5
Statement of cash flows for nine months ended October 31, 2010
and 2009 6
Statement of changes in shareholders equity for the nine months ended
October 31, 2010 7
Notes to condensed consolidated financial statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Reserved 21
Item 5. Other Information 21
Item 6. Exhibits 21
Signatures 22
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements have been prepared by
Advanced Technologies Group, Ltd. (the "Company" or "ATG") pursuant to the rules
and regulations of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934 as amended. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principals have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the consolidated financial statements include all adjustments
(consisting only of adjustments of a normal, recurring nature) necessary to
present fairly the financial information set forth herein.
3
Advanced Technologies Group, Ltd.
Consolidated Balance Sheets
As of October 31, 2010 and January 31, 2009
Unaudited
31-Oct-10 31-Jan-10
------------ ------------
ASSETS
Current assets:
Cash & cash equivalents $ 0 $ 2,747,762
Short term investments 0 6,220,498
Subordinated note receivable 0 5,666,667
Deferred tax asset 71,938 471,742
------------ ------------
Total current assets 71,938 15,106,669
Other assets:
Restricted assets 21,272,380 0
Subordinated note receivable- non current portion 0 6,611,111
Investment in FX Direct Dealer 5,000 5,000
Trademark- net 6,207 6,660
Fixed assets- net 1,986 2,420
------------ ------------
Total assets $ 21,357,511 $ 21,731,860
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable & accrued expenses $ 342,740 $ 88,081
Income taxes payable 1,418,200 156,576
------------ ------------
Total current liabilities 1,760,940 244,657
Deferred income taxes payable 3,518,086 5,346,422
Shareholder advance payable 9,872 9,872
------------ ------------
Total liabilities 5,288,898 5,600,951
Shareholders' equity:
Series A preferred stock, one share convertible to one share of common;
non-participating, authorized 1,000,000 shares at
stated value of $3 per share, issued and outstanding 762,081 shares 1,712,601 1,712,601
Series B preferred stock, one share convertible to one share of common;
non-participating, authorized 7,000,000 shares at
stated value of $3 per share, issued and outstanding 1,609,955 shares 4,384,754 4,384,754
Common stock- $.0001 par value, authorized 100,000,000 shares,
issued and outstanding, 18,486,535 shares at January 31, 2010 and
18,486,535 at October 31, 2010 1,849 1,849
Additional paid in capital 32,715,950 32,715,950
Accumulated deficit (22,746,541) (22,684,245)
------------ ------------
Total shareholders' equity 16,068,613 16,130,909
------------ ------------
Total Liabilities & Shareholders' Equity $ 21,357,511 $ 21,731,860
============ ============
See the notes to the financial statements.
4
Advanced Technologies Group, Ltd.
Unaudited Consolidated Statements of Operations
For the Nine Months Ended October 31, 2010 and October 31, 2009
And the Quarters Ended October 31, 2010 and October 31, 2009
9 Months 9 Months 3 Months 3 Months
31-Oct-10 31-Oct-09 31-Oct-10 31-Oct-09
------------ ------------ ------------ ------------
General and administrative expenses:
Salaries and benefits $ 675,205 $ 431,659 $ 167,000 $ 178,277
Consulting 85,600 57,000 0 8,000
General administration 511,810 728,723 243,271 160,316
------------ ------------ ------------ ------------
Total general & administrative expenses 1,272,615 1,217,382 410,271 346,593
------------ ------------ ------------ ------------
Net loss from operations (1,272,615) (1,217,382) (410,271) (346,593)
Other revenues and expenses:
Interest income 716,299 949,202 158,220 343,298
Gain on sale of FXDD interest 0 23,597,942 0 0
Gain on short term investments 422,082 136,130 50,723 136,130
------------ ------------ ------------ ------------
Net income (loss) before provision for income taxes (134,234) 23,465,892 (201,328) 132,835
Income tax expense (benefit) (71,938) 6,442,239 (91,900) 0
------------ ------------ ------------ ------------
Net income (loss) $ (62,296) $ 17,023,653 $ (109,428) $ 132,835
============ ============ ============ ============
Basic & fully diluted net income (loss) per common share:
Basic income (loss) per share $ (0.00) $ 0.94 $ (0.01) $ 0.00
Fully diluted income (loss) per share $ (0.00) $ 0.82 $ (0.01) $ 0.00
Weighted average of common shares outstanding:
Basic 18,486,535 18,293,104 18,486,535 18,293,104
Fully diluted 20,858,571 20,650,250 20,858,571 20,665,140
See the notes to the financial statements.
5
Advanced Technologies Group, Ltd.
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended October 31, 2010 and October 31, 2009
31-Oct-10 31-Oct-09
------------ ------------
Operating Activities:
Net income (loss) $ (62,296) $ 17,023,653
Adjustments to reconcile net income (loss) items
not requiring the use of cash:
Amortization 453 605
Depreciation 434 339
Impairment expense 0 3,250
Gain on sale of FXDD interest 0 (17,155,703)
Changes in other operating assets and liabilities:
Restricted assets (2,774,104) 0
Accounts payable & accrued expenses 254,659 (3,328,562)
Deferred tax asset 399,804 0
Income taxes payable 1,261,624 414,826
Deferred income taxes payable (1,828,336) 5,063,135
------------ ------------
Net cash provided by operations (2,747,762) 2,021,543
Investing activities:
Purchase of office equipment 0 (2,906)
Investment in short term marketable securities 0 (5,134,930)
Proceeds from note receivable 0 3,461,258
Proceeds from sale of FXDD investment 0 2,402,058
------------ ------------
Net cash used by investing activities 0 725,480
Financing Activities:
Advances received (paid) shareholders 0 (38,551)
------------ ------------
Net cash provided (used) by financing activities 0 (38,551)
------------ ------------
Net increase in cash during the year (2,747,762) 2,708,472
Cash balance at January 31st 2,747,762 134,918
------------ ------------
Cash balance at October 31st $ 0 $ 2,843,390
============ ============
Supplemental disclosures of cash flow information:
Interest paid during the period $ 0 $ 0
Income taxes paid during the period $ 0 $ 967,278
See the notes to the financial statements.
6
Advanced Technologies Group, Ltd.
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
For the Nine Months Ended October 31, 2010 and October 31, 2009
Common Common Preferred Preferred Paid in Accumulated
Shares Par Value Shares Value Capital Deficit Total
------ --------- ------ ----- ------- ------- -----
Balance at January 31, 2010 18,486,535 $1,849 2,372,036 $6,097,355 $32,715,950 $(22,684,245) $16,130,909
Net income for the period (62,296) (62,296)
---------- ------ --------- ---------- ----------- ------------ -----------
Balance at October 31, 2010 18,486,535 $1,849 2,372,036 $6,097,355 $32,715,950 $(22,746,541) $16,068,613
========== ====== ========= ========== =========== ============ ===========
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 Movie Idiot 25,000 3 3,247 3,250
Net income for the period 22,424,109 22,424,109
---------- ------ --------- ---------- ----------- ------------ -----------
Balance at October 31, 2009 18,293,104 $1,830 2,372,036 $6,097,355 $32,667,611 $(17,289,013) $21,477,783
========== ====== ========= ========== =========== ============ ===========
See the notes to the financial statements.
7
Advanced Technologies Group, Ltd.
Notes to the Consolidated Financial Statements
For the Nine Months Ended October 31, 2010 and October 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.
The Company's principal current business activity is the development of the
MoveIdiot.com website, which the Company acquired in July 2009. In addition, the
Company has been seeking to acquire and/or develop other new technologies and
business opportunities and will also consider investing in commercial real
estate opportunities.
On June 23, 2010, the Securities and Exchange Commission filed a civil
enforcement action (the "Civil Action") against Advanced Technologies Group,
Ltd. ("ATG"), and its officers. The Commission's Complaint alleges that between
1997 and 2006 the defendants raised $14,741,760.76 from investors through a
series of illegal unregistered offerings of the securities of ATG and its
predecessor companies, Oxford Global Network, Ltd., and Luxury Lounge, Inc. The
Commission alleges that, in connection with these offerings, the defendants
violated the securities registration requirements of Sections 5(a) and 5(c) of
the Securities Act of 1933 ("Securities Act"). The Commission seeks disgorgement
of all alleged ill-gotten gains, plus prejudgment interest thereon, for a total
of $24,990,124. The Commission secured provisional relief in the form of an
order (the "Asset Freeze Order") freezing the defendants' assets and prohibiting
destruction, concealment or alteration of records pending final disposition of
the action, to which the defendants consented, with certain carve outs for
payments of necessary corporate and personal expenses. Those assets frozen by
the order at October 31, 2010 are detailed as follows:
Cash & cash equivalents $ 3,630,392
Short term investments 9,141,988
Subordinated note receivable 8,500,000
-----------
Total assets restricted $21,272,380
===========
8
In August 2010, the Asset Freeze Order was amended to permit the Company to
deposit $370,000 in escrow with the Company's attorneys. The Company is
permitted to withdraw from escrow $130,000 at any time after the amendment,
$40,000 per month in August, September and October 2010 and $120,000 in November
2010. See Part II Item 1-"Legal Proceedings" for a description of a proposed
settlement of the Civil Action.
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.
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 in 2009. The
estimated fair value of the subordinated loan receivable from FXDD is based upon
the discounting of the future cash flows from the asset using a risk adjusted
lending rate form loans of similar in risk and duration.
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
9
or other valuation methodologies. Investments which are generally
included in this category include corporate bonds and loans, less
liquid and restricted equity securities and certain over-the-counter
derivatives.
* Level III--Pricing inputs are unobservable for the investment and
includes situations where there is little, if any, market activity for
the investment. The inputs into the determination of fair value
require significant management judgment or estimation. Investments
that are included in this category generally include general and
limited partnership interests in corporate private equity and real
estate funds, funds of hedge funds, distressed debt and non-investment
grade residual interests in securitizations and collateralized debt
obligations.
FIXED ASSETS- Office and computer equipment are stated at cost. Depreciation
expense is computed using the straight-line method over the estimated useful
life of the asset. The following is a summary of the estimated useful lives used
in computing depreciation expense:
Furniture & lease improvements 7 years
Office equipment 3 years
Computer hardware 3 years
Software 3 years
Expenditures for major repairs and renewals that extend the useful life of the
asset are capitalized. Minor repair expenditures are charged to expense as
incurred.
LONG LIVED ASSETS- The Company reviews for the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount.
INCOME TAXES- The Company accounts for income taxes in accordance with 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,
10
accounting in interim periods, disclosure and transition. As of October 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.
2. NET INCOME (LOSS) PER SHARE
Basic net loss per share has been computed based on the weighted average of
common shares outstanding during the years. Diluted net loss per share gives the
effect of outstanding preferred stock which is convertible into common stock.
The calculation for net income (loss) per share is as follows.
31-Oct-10 31-Oct-09
----------- -----------
Net income (loss) $ (62,296) $17,023,653
=========== ===========
Basic shares outstanding (weighted average) 18,486,535 18,293,104
Preferred stock convertible into common shares 2,372,036 2,357,146
----------- -----------
Fully diluted shares outstanding (weighted average) 20,858,571 20,650,250
=========== ===========
Basic income (loss) per share $ (0.00) $ 0.94
Fully diluted income (loss) per share $ (0.00) $ 0.82
3. PREFERRED STOCK
CLASS A PREFERRED STOCK: Class A preferred stock has a stated value of $3 per
share. Holders of the Class A preferred stock are entitled to receive a common
stock dividend of 13% of the outstanding Class A shares on an annual basis based
on a value of $3 per share. The Class A preferred stock is convertible into
common stock at a conversion ratio of one preferred share for one common share.
CLASS B PREFERRED STOCK: Class B preferred stock has a stated value of $3 per
share. Holders of the Class B preferred stock are entitled to receive a common
stock dividend of 6% of the outstanding Class B shares on an annual basis based
on a value of $3 per share. The Class B preferred stock is convertible into
common stock at a conversion ratio of one preferred share for one common share.
11
4. INCOME TAXES
Provision for income taxes is comprised of the following:
31-Oct-10 31-Oct-09
----------- -----------
Net income (loss) before provision for income taxes $ (134,234) $23,465,892
=========== ===========
Current tax expense:
Federal $ (82,010) $ 1,012,004
State (27,337) 367,100
----------- -----------
Total $ (109,346) $ 1,379,104
Add deferred tax payable (benefit):
Long term capital gain (installment payable over 3 years) 0 5,063,135
----------- -----------
Provision for income taxes $ (109,346) $ 6,442,239
=========== ===========
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 15%
Statutory state and local income tax 13% 13%
----------- -----------
Effective rate 13% 28%
=========== ===========
Deferred tax assets:
Loss carry forward $ 109,346 $ 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.
5. COMMITMENTS AND CONTINGENCIES
The Company has executed employment contracts with the chief executive officer
and the president of the Company in April 2002. Under the terms of the
contracts, the two officers are to be paid $250,000 per year each through April
2011.
In purchasing MoveIdiot.com, as discussed more fully in Note 7, the Company has
agreed to issue an additional 50,000 restricted shares of its common stock to
MoveIdiot.com in the event certain revenue targets are met.
12
6. CONCENTRATION OF CREDIT RISK
The Company has substantially all of its assets in cash and the subordinated
note receivable from FXDD. These assets are currently frozen as per the court
order discussed in Note 1.
In the event the court decides that the Company disgorge all of its profits
accrued to it since fiscal year 2001, the Company's financial solvency would be
adversely affected impairing the Company's ability to continue as a going
concern.
7. 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.
8. SALE OF THE INVESTMENT IN FX DIRECT DEALER
In March 2009, the Company sold its 25% interest in the joint venture to FXDD
for $26 million. The Company received a subordinated note from FXDD for $17
million and $9 million in cash. The subordinated note receivable is unsecured
and subordinated to the claims of the general creditors of FXDD. The note
carries an interest rate of 10% and the principal is payable in 36 equal monthly
installments for the next three years, with interest. The subordinated loan
agreement provides the Company with an increased interest rate in the event of
late payments by the Purchaser and with the remedy of liquidation in the event
of a default. The initial payment of the $9 million was received in March 2009
and the monthly payments on the subordinated note began in April 2009. As a
result of the sale, the Company realized a gain of $23,597,942.
9. COMPANY INVESTMENTS
The following table summarizes the valuation of the Company's investments, which
are currently restricted by the court order discussed in Note 1, by the above
FASB ASC 820 fair value hierarchy levels as of October 31, 2010.
13
INVESTMENTS: LEVEL I LEVEL II LEVEL III
---------- ---------- ----------
Investment in municipal bond fund $ 0 $9,141,988 $ 0
---------- ---------- ----------
Totals $ 0 $9,141,988 $ 0
========== ========== ==========
10. SUBSEQUENT EVENTS
The Company has made a review of material subsequent events from October 31,
2010 through the date of this report and found no material subsequent events
reportable during this period, except as follows:
In November 2010, ATG, and the officer defendants reached an agreement in
principle with the Commission to settle the Civil Action in its entirety. Such
settlement (the "Settlement") has been approved by the ATG Board of Directors
and the individual defendants, and the parties are waiting for final approval
from the Commission. Under the proposed Settlement, defendants consent to
judgment in the total amount of $19,186,536.32, with such funds being
distributed to investors who participated in the unregistered offerings at
issue. The Commission has agreed that all settlement funds (except the civil
penalty for the Chief Executive Officer ) will be paid by ATG, with the other
defendants responsible for any shortfall, subject to certain limitations. ATG
has requested that the plan of distribution for the funds provide that any
current or former shareholders in ATG claiming any portion of that fund will
surrender the shares owned by that shareholder to ATG, and that ATG will retire
those shares. The Settlement still requires final approval by the Commission,
and will then require court approval before becoming final. See Part II Item
1-"Legal Proceedings" for additional information concerning the Settlement.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Some of the information contained in this Quarterly Report may constitute
forward-looking statements or statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on current expectations and projections about future events. The words
"estimate", "plan", "intend", "expect", "anticipate" and similar expressions are
intended to identify forward-looking statements which involve, and are subject
to, known and unknown risks, uncertainties and other factors which could cause
the Company's actual results, financial or operating performance, or
achievements to differ from future results, financial or operating performance,
or achievements expressed or implied by such forward-looking statements.
Projections and assumptions contained and expressed herein were reasonably based
on information available to the Company at the time so furnished and as of the
date of this filing. All such projections and assumptions are subject to
significant uncertainties and contingencies, many of which are beyond the
Company's control, and no assurance can be given that the projections will be
realized. Potential investors are cautioned not to place undue reliance on any
such forward-looking statements, which speak only as of the date hereof. Unless
otherwise required by law, the Company undertakes no obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. Important factors that could cause actual results to
differ materially from our expectations ("Cautionary Statements") include, but
are not limited to, those set forth under the heading "Risk Factors" in this
Quarterly Report as well as in Item 1A of the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 2010.
BACKGROUND
The Company was incorporated in the State of Nevada in February 2000. In
January 2001, the Company purchased 100% of the issued and outstanding shares of
FX3000, Inc. (formerly Oxford Global Network, Ltd.), a Delaware corporation that
was 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 "FX Direct 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 FX Direct Sale.
15
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 $8,972,222 had been paid as of October 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").
Since the completion of the FX Direct Sale, the Company has been seeking to
acquire and/or develop new technologies and other business opportunities.
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.
On June 23, 2010, the Securities and Exchange Commission filed a civil
enforcement action (the "Civil Action") against Advanced Technologies Group,
Ltd. ("ATG"), and its officers. The Commission's Complaint alleges that between
1997 and 2006 the defendants raised $14,741,760.76 from investors through a
series of illegal unregistered offerings of the securities of ATG and its
predecessor companies, Oxford Global Network, Ltd., and Luxury Lounge, Inc. The
Commission alleges that, in connection with these offerings, the defendants
violated the securities registration requirements of Sections 5(a) and 5(c) of
the Securities Act of 1933 ("Securities Act"). The Commission seeks disgorgement
of all alleged ill-gotten gains, plus prejudgment interest thereon, for a total
of $24,990,124. The Commission secured provisional relief in the form of an
order (the "Asset Freeze Order") freezing the defendants' assets and prohibiting
destruction, concealment or alteration of records pending final disposition of
the action, to which the defendants consented, with certain carve outs for
payments of necessary corporate and personal expenses. See Part II Item 1-"Legal
Proceedings" for a description of a proposed settlement of the Civil Action.
RESULTS OF OPERATIONS
The Company did not generate any revenues in the three months and nine
months ended October 31, 2010 or the three and nine months ended October 31,
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 the
Company's Moveidiot.com website commenced operations in January 2010 and did not
generate any revenues in the nine months ended October 31, 2010.
General and administrative expenses in the three and nine months ended
October 31, 2010 were $410,271 and 1,272,615, respectively, as compared to
$346,593 and $1,217,382, respectively, in the three and six months ended July
31, 2009. The increase in general and administrative expenses was primarily due
in the three month period to an increase in general administrative costs and in
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the nine month period to an increase in salary and benefits and consulting fees
that was partially offset by a decrease in professional fees.
Other revenues and expenses in the three and nine month periods ended
October 31, 2010 included interest income of $158,220 and $716,299,
respectively, related to the Company's cash balances and note receivable from FX
Direct and a gain of $50,723 and $422,082, respectively, on short term
investments. Other revenues and expenses in the three and nine months ended
October 31, 2009 included a gain on the sale of the Company's interest in FX
Direct of $0 and $23,465,892, respectively and interest income of $343,298 and
$948,202, respectively.
The Company had an for income tax benefit of ($91,900) and
($71,938),respectively, in three and nine months ended October 31, 2010 as
compared to a provision for tax income taxes of $0 and $6,442,239, respectively,
in the three and nine months ended October 31, 2009.
As a result of the foregoing, the Company had a net loss of ($109,428) and
($62,296), respectively, in the three and nine months ended October 31, 2010 as
compared to net income of $0 and $17,023,653, respectively, in the three and
nine months ended October 31, 2009.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2010, all of the Company's cash and investments were subject
to the Asset Freeze Order. In August 2010, the Asset Freeze Order was amended to
permit the Company to deposit $370,000 in escrow with the Company's attorneys.
The Company was permitted to withdraw from escrow $130,000 at any time after the
amendment, $40,000 per month in August, September and October 2010 and $120,000
in November 2010.
On March 17, 2009, the Company completed the Sale of its Membership
Interest to FX Direct. The aggregate purchase price of the Membership Interest
was approximately $26,000,000, of which $9,000,000 was paid in cash at the
closing of the Sale and the remaining $17,000,000 (of which $8,972,222 had been
paid as of October 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's use of the proceeds of the Sale is subject to the resolution
of the Civil Action. Under a proposed settlement of the Civil Action,
$19,186,536.32, of such funds would be distributed to investors who participated
in the unregistered offerings at issue in the Civil Action. Pending such
distribution, the Company's use of the remaining proceeds would be restricted.
See Part II Item 1-"Legal Proceedings" for a description of the proposed
settlement of the Civil Action.
As a result of the limitations imposed on the Company by the Asset Freeze
Order and under the terms of the proposed settlement there can be no assurance
that the Company will have access to sufficient funds to finance its ongoing
17
operations without being required to seek additional sources of financing, of
which there can be no assurance.
CASH FLOWS
For the nine months ended October 31, 2010, net cash used in operating
activities was ($2,747,762) as compared to net cash provided by operating
activities of $2,021,543 in the nine months ended October 31, 2009. The
substantial decrease in net cash provided by operating activities in the six
months ended October 31, 2010 resulted from the decrease in net income and the
use of cash to satisfy the Asset Freeze Order.
For the nine months ended October 31, 2010, net cash used in investing
activities was $0, as compared to cash provided by investing activities of
$725,480 in the nine months ended October 31, 2009, which consisted of the
initial proceeds of the FX Direct Sale and collections on the subordinated note
receivable that was offset by investments in short term marketable securities.
For the nine months ended October 31, 2010, there was $0 net cash used in
financing activities as compared to net cash used in financing activities of
($38,551) in the Fiscal 2009 period, representing repayment of shareholder
advances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At October 31, 2010, the Company had no outstanding loan facilities.
ITEM 4. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Our principal executive officer and our principal financial officer
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
as amended) as of the end of the period covered by this report. Based on that
evaluation, such principal executive officer and principal financial officer
concluded that, the Company's disclosure control and procedures were not
effective as of the end of the period covered by this report because of the
material weakness described below.
As indicated in the Company's Form 8-K filed with the SEC on November 17,
2009, the Chief Financial Officer of the Company in consultation with the Board
of Directors and Donohue Associates, L.L.C., its independent registered public
accounting firm determined that it was necessary to amend and restate the
Company's financial statements for the fiscal year ended January 31, 2009
included in the Form 10-K as well as the Company's quarterly reports for the
periods ended April 30, 2009 and July 31, 2009 with respect to the timing of the
sale of the Company's approximately 25% joint venture interest (the "Membership
Interest") in FX Direct.
18
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.
(b) CHANGE IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
No change in our internal control over financial reporting occurred during
our most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect our internal control over financial reporting.
(c) OTHER.
We believe that a controls system, no matter how well designed and
operated, can not provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. Therefore, a control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Our disclosure controls and procedures
are designed to provide such reasonable assurances of achieving our desired
control objectives, and, for the reasons described above, our principal
executive officer and principal financial officer have concluded, as of October
31, 2010, that our disclosure controls and procedures were not effective.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 23, 2010, the Securities and Exchange Commission filed a civil
enforcement action against Advanced Technologies Group, Ltd. ("ATG"), and its
officers Alexander Stelmak and Abelis Raskas. The Commission's Complaint alleges
that between 1997 and 2006 the defendants raised $14,741,760.76 from investors
through a series of illegal unregistered offerings of the securities of ATG and
its predecessor companies, Oxford Global Network, Ltd., and Luxury Lounge, Inc.
The Commission alleges that, in connection with these offerings, the defendants
violated the securities registration requirements of Sections 5(a) and 5(c) of
the Securities Act of 1933 ("Securities Act"). The case is titled SEC v.
Advanced Technologies Group, Ltd., Alexander Stelmak and Abelis Raskas, Civil
Action No. 10-CV-4868 (SDNY)
The Commission seeks disgorgement of all alleged ill-gotten gains, plus
prejudgment interest thereon, for a total of $24,990,124. In addition, against
ATG and Stelmak, the Commission seeks civil money penalties, as well as
permanent injunctions against future violations of Sections 5(a) and 5(c) of the
Securities Act and against future participation in any unregistered securities
offerings. Against Stelmak, the Commission also seeks a permanent penny stock
bar. The Commission secured provisional relief in the form of an order freezing
the defendants' assets and prohibiting destruction, concealment or alteration of
records pending final disposition of the action, to which the defendants
consented, with certain carve outs for payments of necessary corporate and
personal expenses, as reflected in a Stipulated Order dated August 17, 2010.
ATG, Stelmak and Raskas each served Answers to the Complaint in which they
denied liability and asserted affirmative defenses.
ATG, Stelmak and Raskas have now reached an agreement in principle with the
Commission to settle the action in its entirety. Such settlement (the
"Settlement") has been approved by the ATG Board of Directors and the individual
defendants, and the parties are waiting for final approval from the Commission.
Under the proposed Settlement, defendants consent to judgment in the total
amount of $19,186,536.32, with such funds being distributed to investors who
participated in the unregistered offerings at issue. ATG and Stelmak consent to
judgment against them in the full amount of $19,186,536.32, and have agreed to
certain prohibitions, including for Stelmak and ATG, a permanent injunction
against future violations of Section 5(a) and 5(c) of the Securities Act, and
for Stelmak a five year ban from participating in any offering of penny stock.
Stelmak and ATG also have accepted civil penalties of $6,500 and $65,000,
respectively. Raskas, for his part, consents to judgment of $4,749,948.03 of the
total $19,186,536.32 judgment at issue. As no penalties or restrictions were
sought against Raskas, none are contained in his proposed judgment.
The Commission has agreed that all settlement funds (except the civil
penalty for Stelmak) will be paid by ATG, with Raskas (only to the limited
extent of his liability) and Stelmak responsible for any shortfall. ATG has
requested that the plan of distribution for the funds provide that any current
or former shareholders in ATG claiming any portion of that fund will surrender
the shares owned by that shareholder to ATG, and that ATG will retire those
20
shares. The Settlement still requires final approval by the Commission, and will
then require court approval before becoming final.
ITEM 1A. RISK FACTORS
An investment in the Company involves a high degree of risk. In addition to
the other information set forth in this Report, you should carefully consider
the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on
Form 10-K for the fiscal year ended January 31, 2010, which could materially
affect our business, financial condition or future results. The risks described
in our Annual Report on Form 10-K are not the only risks facing the Company.
Other unknown or unpredictable factors could also have material adverse effects
on future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. RESERVED
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS
(a) Exhibits
Incorp by
Exhibit Ref. to
Number Exh. Description
- ------ ---- -----------
31.1 * Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Alex Stelmak, as Chief Executive Officer
31.2 * Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Alex Stelmak, as Chief Financial Officer
32.1 * Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
by Alex Stelmak, as Chief Executive Officer and Chief
Financial Officer
- ----------
* Filed herewith
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SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed in its behalf by the undersigned, thereunto duly authorized.
Date: December 15, 2010 By: /s/ Abel Raskas
---------------------------------------
Abel Raskas
President
Date: December 15, 2010 By: /s/ Alex Stelmak
---------------------------------------
Alex Stelmak
Chairman of the Board of Directors and
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
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