Registration of Securities by a Small-Business Issuer — Form SB-2 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: SB-2 Registration of Securities by a Small-Business HTML 905K Issuer
2: EX-5.1 Opinion re: Legality HTML 10K
3: EX-21.1 Subsidiaries of the Registrant HTML 6K
4: EX-23.1 Consent of Experts or Counsel HTML 7K
SB-2 — Registration of Securities by a Small-Business Issuer
From
time to time after this Registration Statement is declared
effective
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act, check the
following box. x
If
this
Form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act, please check the following box and list
the
Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under
the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration
statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under
the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration
statement for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
check
the following box. o
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities
to
be registered
Amount
to
be
registered
Proposed
maximum
offering
price
per
share
Proposed
maximum
aggregate
offering
price
Amount
of registration
fee
Common
Stock, par value
$0.0004
per share
Approx.
4,423,660
$0.80(1)
$3,538,28
$108.65
(1)
Pursuant
to Rule 457(c), the proposed maximum offering price per share is
estimated
for the purpose of calculating the amount of the registration fee
and is
based on the last reported sale price of our Common Stock on September12,2007, as quoted on the NASD Over-The-Counter Bulletin Board.
The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act, as amended,
of
1933 or until the Registration Statement shall become effective on such date
as
the Commission, acting pursuant to said Section 8(a), may
determine.
INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE RESOLD NOR MAY OFFERS BE ACCEPTED
PRIOR
TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
This
is
an offering of shares of our common stock by persons and companies that were
issued shares of common stock, par value $0.0004 (the “Common
Stock”),
of
Atlas Technology Group, Inc. (the “Company”
or
the
“Registrant”)
in
various private offerings. We will not receive any proceeds from the sale
of the shares of Common Stock offered by the selling stockholders.
We
are
currently a reporting company under Section 12(g) of the Securities Exchange
Act
of 1934, as amended (the “Exchange
Act”).
Our
Common Stock is traded on the NASD Over-The-Counter Bulletin Board (the
“OTC
Bulletin Board”)
under
the symbol “ATYG.OB”.
Registration
of the shares of Common Stock contemplated herein, will allow certain
stockholders to sell all or part of their equity interests in the Company.
The
stockholders whose shares will become freely tradable shares under the
Registration Statement are identified herein. See
Selling Stockholders.
The
Company shall bear all of the cost of preparing and printing the Registration
Statement, Prospectus and any Prospectus Supplements and all filing fees
and
legal and accounting expenses associated with registration under federal
and
state securities laws, which are estimated at $143,000.
-
- - - -
- - - - - - - - - - - - - - -
THE
PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
YOU
SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING “RISK FACTORS”
BEGINNING ON PAGE 6.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
On
September 12, 2007, the closing price of our Common Stock as quoted on the
OTC
Bulletin Board was $0.80. The
terms
“we,”“our” and “us,” refer to the Company.
The
following table of contents has been designed to help you find important
information contained in this prospectus. We encourage you to read the entire
prospectus.
Page
Prospectus
Summary
1
Risk
Factors
6
Special
Note Regarding Forward Looking Statements
12
Use
Of Proceeds
13
Management’s
Discussion and Analysis of Financial Conditions and Results of
Operations
14
Business
21
Description
of Property
28
Directors,
Executive Officers, Promoters and Control Persons
29
Corporate
Governance
31
Executive
Compensation
33
Security
Ownership of Certain Beneficial Owners and Management
35
Dividend
Policy
37
Market
for Common Equity and Related Stockholder Matters
38
Selling
Stockholders
39
Certain
Relationships and Transactions and Related Party
Transactions
40
Description
of Securities
41
Plan
of Distribution
43
Legal
Proceedings
45
Interest
of Named Experts and Counsel
45
Disclosure
of Commission Position of Indemnification For Securities Act
Liabilities
45
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
46
Legal
Matters
46
Experts
46
Where
You Can Find More Information
46
Financial
Statements
47
Information
Not Required In The Prospectus
74
Signatures
79
You
should rely only upon the information contained in this prospectus and the
registration statement of which this prospectus is a part. We have not
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should
not
rely on it. The selling stockholders will only sell shares of our Common
Stock
and seek offers to buy shares of our Common Stock in jurisdictions where
offers
and sales are permitted. The information contained in this prospectus is
accurate as of September 13, 2007.
We
obtained statistical data, market data and other industry data and forecasts
used throughout this prospectus from market research, publicly available
information and industry publications. Industry publications generally state
that they obtain their information from sources that they believe to be
reliable, but they do not guarantee the accuracy and completeness of the
information. We have not sought the consent of the sources to refer to their
reports in this prospectus.
PROSPECTUS
SUMMARY
Our
Business
We
are
leveraging the recent advances in software, monitoring systems, and
communications, to build a new, cutting edge, global support infrastructure,
providing 24x7 software support to large and medium sized companies. Our
new
application on-boarding and monitoring processes allow for dramatic cost
savings
over existing Information Technology (“IT”)
service providers. With more than thirty years of combined experience in
IT
support, our management team brings a significant level of knowledge and
experience in outsourced application support. Our management team’s experience
includes worldwide application support for companies such as JP Morgan,
Microsoft, and Avanade.
We
intend
to offer our services worldwide, with the majority of our targeted customers
having multi-national operations. Our operations are designed to be a highly
distributable venture, with the ability to place people in the best possible
locations so that we can provide a seamless service offering across the world.
The worldwide IT market is approximately one trillion US dollars in size
including hardware, software and communications. (Source: Gartner Group,
Inc.
(“Gartner”)
available at http://www.gartner.com/Init.)
The
latest trend in outsourcing toward outsourcing application support is dramatic.
According to Forrester Research Inc. (“Forrester”),
Tier
2 application support and business outsourcing grew to represent a $220 billion
market by 2006 with additional growth averaging 10% annually. According to
Forrester the percentage of IT budgets spent on maintaining existing
applications was 73% in 2004 and 76% in 2005. (Source: Forrester Research,
Inc.
“2005 Enterprise IT Outlook: Business Technographics North
America”.)
To
many
industry leaders, managed services represent an important change to how
technology is delivered and consumed. The managed services market has expanded
rapidly over the past several years, particularly in the under-served small-
and
medium-sized business (“S-MMB”)
market. The S-MMB IT services market estimated to be worth $220 is expected
to
grow at a compound annual growth rate (“CAGR”)
of
7.6% from 2004 to 2008. Remote monitoring and management (“RMM”)
is the
hottest growing segment expected to grow at 36% CAGR though 2008 in North
America. A recent study by Forrester cited the S-MMB market at 48% of overall
U.S. IT spending, stating that it will surpass enterprise IT spending by
2007.
(Source: Gartner - Forecast IT Service, Worldwide, November 2005.)
Products
and Services
We
are in
the business of providing custom, outsourced, application software support
services to our customers. These services range from supporting specialized
networks and single applications to providing the entire IT infrastructure
management for customers who want to outsource IT application support and
focus
on their core business competencies. Through partnerships with other IT
development consultants, fully outsourced IT services can be provided, with
hard
performance metrics and predictable costs.
With
more
than thirty years of combined experience in IT support, our management team
brings a significant level of knowledge and experience in outsourced application
support. Our management team’s experience includes worldwide application support
for companies such as JP Morgan, Microsoft, and Avanade.
We
have
spent two years developing our own proprietary software tools and processes.
We
are currently leveraging the recent advances in software, monitoring
systems, and communications, to build a new, leading edge, global support
infrastructure that provides 24x7 software support to large and medium sized
companies. These new application on-boarding and monitoring processes should
allow for dramatic cost savings over existing legacy IT service providers.
Through
our BLive Networks, Inc. subsidiary we also provide our proprietary interactive
support tools for both smaller and larger companies via systems that can
be used by companies for remote technical support and sales, both
externally, and for internal corporate “Helpdesk” support departments. This
technology enables our service providers to deliver faster response times
and a
personal connection with users.
1
We
provide both technical support and training to our customers as well as in-house
and external training to our staff. Successful training of our technical
support
staff is key to our success. During 2006, all of our technical staffreceived
training for various Microsoft technical qualifications. During 2007, we
anticipate becoming a Microsoft “Gold Partner” with advanced infrastructure and
learning solutions specializations. We believe that by becoming a Microsoft
“Gold Partner” this will provide us with additional recognition and therefore
revenue opportunities.
Our
History and Recent Developments
We
were
incorporated in August 1998 as Tribeworks, Inc., a California corporation
(“California
Tribeworks”).
On
November 2, 1999, we entered into a transaction with Pan World Corporation,
a
publicly-traded Nevada corporation (“Pan
World”),
whereby Pan World agreed to provide financing in connection with the merger
of a
newly formed subsidiary of Pan World into California Tribeworks (the
“Recapitalization”).
Prior
to the Recapitalization, Pan World never had any material operations. As
a
result of the Recapitalization, shareholders of California Tribeworks exchanged
all of their shares of California Tribeworks for shares of Pan World common
stock. Subsequent to the Recapitalization, we were reincorporated in Delaware
as
Tribeworks, Inc. We opened a wholly-owned subsidiary in Japan (“Tribeworks
Japan”)
in
August 2000, which engaged in sales and professional services activities
primarily in our Enterprise application development business, until it was
closed during the third quarter of 2004.
Beginning
in 2003, we partnered with Kinoma, Inc. (“Kinoma”)
to
create new products for the mobile software market, specifically targeting
Palm
OS devices. Kinoma makes Kinoma Player, which is a high-resolution, interactive
movie player for handhelds running the Palm OS. We developed two products
in
partnership with Kinoma that create Kinoma Player content, iShell Mobile,
an
iShell-based application development tool, launched in October 2003, and
Kinoma
Media Album, a consumer multimedia management tool, launched in May of 2004.
During
2005, the previous business lines of Tribeworks were separated into a wholly
owned subsidiary named Tribeworks Development Corporation (“TDC”).
The
TDC business was primarily built around the sale of software through two
main
distribution channels: the graphics software tools business and proprietary
products called iShell or iShell Mobile and an enterprise application
development business. TDC was sold to its former management on September14,2006. Until approximately the middle part of 2006, the iShell line of products
and an enterprise application development business were our primary product
offering and business. The former assets, liabilities and business operations
of
TDC have been reclassified as discontinued operations beginning with the
financial statements for the year ended December 31, 2006 on Form 10-KSB
(the
“Annual
Report”).
On
January 20, 2006 we acquired TakeCareofIT Holdings Ltd., doing business as
Atlas
Technology Group,
a Malta
Corporation that was established in September 2004 to provide external IT
application support services for organizations with large IT
functions. This IT support business is our primary business focus going
forward. We plan to become a leading IT outsourcing support company for custom
software applications worldwide. After extensive beta testing, the AtlasTG
business line is now at the revenue launch stage with the first support
customers being signed on in February 2007. Our in-house developed tools
and
processes needed to onboard IT applications and provide remote IT application
support are now ready to meet the needs of our customers.
In
January of 2007, we acquired all of the assets and approximately 700 customers
of BLive Networks, Inc. This acquisition further strengthens our capability
of
delivering high quality outsourced support into the US$220 billion worldwide
IT
Support market. The BLive Networks, Inc. acquisition strengthens our proprietary
interactive support tools for companies providing IT support worldwide. The
BLive Networks, Inc. systems can be used by companies for remote technical
support and sales, both externally, and for internal corporate “Helpdesk”
support departments. This technology enables our service providers to deliver
faster response times and a personal connection with users.
We
are
currently a reporting company under Section 12(g) of the Exchange Act and
our
Common Stock is quoted on the OTC Bulletin Board under the symbol
ATYG.OB.
2
Corporate
Information
Our
head
operating office is located in Malta. We also have subsidiary offices in
Wellington, New Zealand and Redmond, Washington and a data center in Seattle,
Washington. We currently have 28 employees and 3 working executive directors.
Our
US
headquarters are located at 2001 152nd
Ave NE,
Redmond, Washington98052 and our telephone number there is (425) 458-2360.
We
also maintain a website at www.atlastg.com.
Information included on our website is not a part of this
prospectus.
3
About
The Offering
Common
Stock Offered by the Selling Stockholders
Up
to 4,423,660 shares of Common Stock
Common
Stock Currently Outstanding
(1)
33,856,805
shares
Use
of Proceeds
The
selling stockholders will receive the proceeds from the sale
of shares of
Common Stock. We will not receive any of the proceeds from the
sale of
shares of Common Stock offered by this prospectus.
Risk
Factors
See
“Risk Factors” for a discussion of factors you should carefully consider
before deciding to invest in shares of our Common
Stock.
OTCBB
Trading Symbol
ATYG.OB
(1)
The
number of shares of our Common Stock outstanding is based on the number of
shares outstanding as of September 12, 2007 and excludes:
o
8,660,019
shares of Common Stock issuable upon exercise of outstanding warrants
with
exercise prices ranging from $1.00 to
$2.60;
o
134,084
shares of Common Stock issuable upon exercise of outstanding options
with
exercise prices ranging from $0.42 to $37.08;
and
o
8,374,201
shares of Common Stock reserved for issuance under our 2004 Employee
Stock
Incentive Plan.
4
Summary
Financial Information
You
should read the following summary consolidated financial data together with
our
consolidated financial statements and related notes appearing at the end
of this
prospectus and our “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Risk Factors” sections included elsewhere in
this prospectus. The consolidated summary financial data as of and for the
years ended December 31, 2006 and 2005 are derived from our audited financial
statements and are included elsewhere in this prospectus. Our summary
consolidated financial information for the six months ended June 30, 2007
and
2006 are derived from our unaudited consolidated financial statements which
are
included elsewhere in this prospectus. Historical results are not
necessarily indicative of future results.
Statements of Operations Data:
6 Months Ended
June 30,
(Unaudited)
Year Ended
December 31,
(Audited)
2007
2006
2006
2005
Revenue
$
281,716
$
—
$
39,706
$
—
Cost
of sales
(193,691
)
—
(68,000
)
—
Gross
Profit (Loss)
88,025
—
(28,294
)
—
Operating
expenses
(1,486,601
)
(794,991
)
(
1,926,455
)
(218,626
)
Operating
loss
(1,398,576
)
(794,991
)
(1,954,749
)
(218,626
)
Net
interest/other income(expense)
(28,796
)
1,532
(35,741
)
22,987
Other
financing charges
(1,415,181
)
—
—
—
Loss
before discontinued operations
(2,842,553
)
(793,459
)
(1,990,490
)
(195,639
)
Discontinued
operations
—
(42,752
)
173,853
23,730
Net
loss from operations
(2,842,553
)
(836,236
)
(1,816,637
)
(171,909
)
Comprehensive
Loss attributable to common shareholders
(2,988,652
)
(836,236
)
(1,817,767
)
(175,791
)
Basic
and diluted loss per share before discontinued operations
$
(0.11
)
$
(0.03
)
$
(0.09
)
$
(0.02
)
Basic
and diluted loss per share
$
(0.11
)
$
(0.03
)
$
(0.08
)
$
(0.02
)
Balance Sheet Data:
At June 30
(Unaudited)
At December 31
(Audited)
2007
2006
2006
2005
Working
capital
$
999,916
$
205,222
$
(694,336
)
$
(365,431
)
Total
assets
4,895,835
2,531,130
1,672,429
1,200,026
Long
term obligations (net of discount of $2,429,775)
70,225
—
—
—
Stockholders’
equity
3,593,696
1,295,820
772,437
415,583
5
RISK
FACTORS
An
investment in our Common Stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus before investing in our Common Stock. If any of the following risks
occur, our business, operating results and financial condition could be
seriously harmed. Additional risk and uncertainties not currently known to
us,
or that we currently believe are not material, could also materially adversely
affect our business, financial condition or operating results.
The
following risk factors apply to our business:
We
have a limited operating history and there is a great degree of uncertainty
as
to our future results. We have experienced losses recently and may never achieve
sustained profitability.
We
have a
limited operating history upon which an evaluation of our business and prospects
can be based. Our prospects must be evaluated with a view to the risks
encountered by a company in an early stage of development, particularly in
light
of the uncertainties relating to the new and evolving markets in which we intend
to operate and in light of the uncertainty as to market acceptance of our
business model.
We
will
be incurring costs in marketing our products and services to customers and
in
building and developing an administrative organization. To the extent that
revenues do not match these expenses, our business, results of operations,
and
financial conditions will be materially adversely affected. There can be no
assurance that we will be able to generate sufficient revenues from the new
IT
support business to maintain profitability on a quarterly or annual basis in
the
future. We may not be able to sustain or increase profitability on a quarterly
basis or achieve profitability on an annual basis.
We
face substantial competition in our industry.
While
we
are seeking to position ourselves in a new and unique space, there are also
a
large number of traditional consultancy competitors competing in this space,
including IBM Global Services (“IBM”),
Hewlett-Packard (“HP”),
Electronic Data Systems Corporation (“EDS”),
and
Accenture Ltd. (“Accenture”)
as
well as a number of smaller independent service providers. The industry is
broken down into three segments; first are the hardware manufacturers that
provide additional IT services; second, are the large pure-play IT service
providers targeting fortune 500 companies, and third are smaller independent
companies that generally specialize in specific local markets.
The
improvement of infrastructure has meant the introduction of additional
competitors to the competitive picture, notably in India, where Wipro Limited
(“Wipro”)
and
Infosys Technologies Limited (“Infosys”)
provide support services and call centers. Many hosting providers are also
trying to offer Application Service Provider (“ASP”)
services as an add-on. There are other smaller regional players, such as Wavex
and Motive that are also targeting the S-MMB market.
In
addition, we believe that the single biggest competitive factor is existing
in-house support groups. We believe that we will be competing with in-house
support groups rather than external competitors in over 90% of competitive
cases. Having stated all of the above, we believe that there is a market for
our
IT support services and that we are well positioned to take advantage of large
customers deciding to outsource the final element of their IT business,
specifically their IT application support.
Our
success depends on our ability to address potential market opportunities while
managing our expenses. If we are unable to manage our expenses, our business
and
financial conditions will be materially adversely
affected.
Our
future success depends upon our ability to successfully balance maximizing
market opportunities and managing our expenses. Our need to manage expenses
will
place a strain on our management and operational resources. If we are unable
to
manage our expenses effectively, our business, financial condition, and
operating results will be materially adversely affected. We have experienced
an
unprofitable year during 2006 and for the six months ended June 30, 2007 and
we
expect increased expenses in the near future as we increase the size of our
operations and continue to comply with the requirements of the Sarbanes-Oxley
Act of 2002.
6
Our
future success depends on our ability to attract customers from both within
and
outside the United States. Jurisdictions outside the United States may impose
tax and regulatory burdens on our business, which could have a material adverse
affect on our business, financial condition, and results of
operations.
Our
future success will be affected by our ability to attract customers from
countries outside the United States. Foreign countries could impose withholding
taxes or otherwise tax our foreign income, impose tariffs, embargoes or exchange
controls, or adopt other restrictions on foreign trade or restrictions relating
to use or access of or distribution of software through electronic means.
The
laws
of certain countries also do not protect our intellectual property rights to
the
same extent as the laws of the United States. In addition, we are subject to
the
United States export control regulations that may restrict our ability to market
and sell our products to certain countries outside of the United States. Failure
in successfully marketing our products in international markets could have
a
material adverse effect on our business, operating results and financial
conditions.
Our
success depends on our key personnel and attracting suitably skilled staff.
We
may be unable to attract and retain qualified
employees
Our
performance and success of the existing business is dependent substantially
on
the services of our existing small group of experienced senior staff as well
as
on our ability to recruit, retain and motivate our key employees. We will
require a much larger staff as our business grows.
We
do not
have employment contracts with our key officers. Their relationships with us
are
terminable at-will. We intend to address the issue of employment contracts
with
our key officers in 2007. Support and general staff have employment contracts
appropriate to their particular locale and the type of services they provide.
Our success also depends on our ability to attract and retain additional
qualified employees. Competition for qualified personnel in all of our locations
is intense and there are a limited number of persons with the knowledge and
experience in our industry. There can be no assurance that we will be able
to
attract and retain key personnel in our key initial recruitment areas of Malta
and Wellington, New Zealand.
We
expect high variability and uncertainty as to our future operations and
financial results.
We
expect
high variability and uncertainty as to our future operations and financial
results. As we continue to develop and market our business, our quarterly
operating results may fluctuate as a result of a variety of factors. Many of
these factors are outside our control, including demand for the development
and
introduction of new products and services by our competitors, price competition
or pricing changes in the industry, technical difficulties or system downtime,
general economic conditions, and economic conditions specific to the Internet
and related media. Due to these factors, among others, our operating results
may
fall below our expectations and the expectations of investors.
Our
IT support services may not be accepted by the industries that require IT
support.
Our
future success depends on our ability to create and deliver sophisticated tools
to support our new IT support business in order to be attractive to a sufficient
number of users to generate significant revenues. We need to develop, attract,
retain, and expand a loyal customer base for our new services, so that the
results of our operations and financial condition will materially improve over
the next twelve months.
Our
success depends on our ability to develop services that meet our customers’
requirements and to keep pace with technology trends in an ever evolving IT
sectors.
Our
success depends on our ability to develop and provide new services that meet
our
customers’ changing requirements. The IT sector and the Internet are
characterized by rapidly changing technology, evolving industry standards,
changes in customer needs and frequent new service and product innovations.
Our
success will depend, in part, on our ability to assess and effectively use
unproven technologies and unproven standards. We must evaluate and utilize
technical standards developed by industry committees and continue to develop
our
technological expertise, enhance our current services, develop new services
that
meet changing customer needs, and influence and respond to emerging industry
standards and other technological changes on a timely and cost-effective basis.
If we fail to adequately assess or utilize these standards or proprietary
technologies at the appropriate time in the marketplace, the competitive
advantages of our products and services and our business, financial condition,
and operating results could be materially adversely affected.
7
Increasing
governmental regulation on electronic commerce and legal uncertainties could
limit our growth.
The
adoption of new laws or the adaptation of existing laws to the Internet may
limit use of the Internet, which could in turn limit or decrease the demand
for
our services, increase our cost of doing business or otherwise harm our
business. Federal, state, local and foreign governments are considering a number
of legislative and regulatory proposals related to Internet commerce.
A
number
of laws and regulations may be adopted related to Internet user privacy,
Internet security, taxation, pricing, quality of products and services on the
Internet, and intellectual property ownership. The application of existing
laws
to the Internet, in areas such as property ownership, copyrights, trademarks
and
trade secrets could have an effect on our business.
Capacity
constraints and system disruptions could substantially reduce the products
we
sell and undermine our reputation for reliability among our customers and
potential customers.
The
satisfactory performance, reliability and availability of our data centers
and
our network infrastructure are critical to attracting and maintaining
relationships with customers. While the primary data center has back-up measures
built into it, and we have some duplication and back-up in our Malta and
Wellington offices, any system interruptions that result in the unavailability
of our data center and slower response times over the Internet for users could
reduce the attractiveness of our services to our customers. Any disruption
of
our services would materially adversely affect our business, financial condition
and results of operations.
Our
primary data center is now located in Seattle, Washington. While this area
is
not seismically active, with our operations centralized in a single facility,
a
natural disaster, such as an earthquake, fire, or flood, could substantially
disrupt our operations or destroy our facilities. This could cause delays and
cause us to incur additional expenses and adversely affect our reputation with
our customers if we suffer a catastrophic loss from a natural
disaster.
As
resources allow and growth develops, it is intended that a second data center
will be established so that we can continue operating following a natural or
other disaster in one of our locations. Until this second data center is
established some duplicate files are being kept on the local systems in Malta
and New Zealand.
We
do
have an insurance policy that partially alleviates some of the financial losses
that could be incurred, but this does not compensate for reputation
loss.
There
may be conflicts of interest among our officers, directors and
stockholders.
Our
executive officers and directors and their affiliates may engage in other
activities and have interests in other entities on their own behalf or on behalf
of other persons. Neither we nor any of our stockholders will have any rights
in
these ventures or their income or profits. In particular:
o
Our
executive officers or directors or their affiliates may have an economic
interest in, or other business relationship with, partner companies
that
invest in us; and
o
Our
executive officers or directors or their affiliates may have interests
in
entities that provide products or services to
us.
In
any of
these cases:
o
Our
executive officers or directors may have a conflict between our current
interests and their personal financial and other interests in another
business venture;
o
Our
executive officers or directors may have conflicting fiduciary duties
to
us and the other entity; and
o
The
terms of transactions with the other entity may not be subject to
arm’s
length negotiations and therefore may be on terms less favorable
to us
than those that could be procured through arm’s length
negotiations.
8
We
may be unable to protect our intellectual property rights, or we may infringe
the intellectual property rights of others, which may result in lawsuits and
prevent us from selling our products.
We
rely
on copyright, patent, and trade secret laws to protect our trademarks, content,
and proprietary technologies and information. There can be no assurance that
such laws will provide sufficient protection to us, other parties will not
develop technologies that are similar or superior to ours, or, given the
availability of our products’ source-code, other parties will not copy or
otherwise obtain and use our content or technologies without authorization.
Effective
trademark, copyright, and other intellectual property protection may not be
available in every country in which our technology is distributed or made
available through the Internet. There can be no assurance that our means of
protecting our proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar
technology.
There
are
no pending lawsuits against us regarding infringement of any existing patents
or
other intellectual property rights or any material notices that we are
infringing the intellectual property rights of others. However, there can be
no
assurance that third parties will not assert infringement claims in the future.
If any claims are asserted and determined to be valid, there can be no assurance
that we will be able to obtain licenses of the intellectual property rights
in
question or obtain licenses on commercially reasonable terms.
Our
involvement in any patent dispute or other intellectual property dispute or
action to protect proprietary rights may have a material adverse effect on
our
business, operating results, and financial condition. Adverse determinations
in
any litigation may subject us to liabilities, require us to seek licenses from
third parties, and prevent us from marketing and selling our products. Any
of
these situations can have a material adverse effect on our business, operating
results, and financial condition.
We
might require additional capital to support business growth, and this capital
might not be available.
We
intend
to continue to make investments to support our business growth and may require
additional funds to respond to business challenges or opportunities, including
the need to develop new services or enhance our existing service, enhance our
operating infrastructure, or acquire complementary businesses and technologies.
Accordingly, we may need to engage in equity or debt financings to secure
additional funds. In addition, if we raise additional funds through further
issuances of equity or securities, our existing stockholders would suffer
dilution.
We
are susceptible to parties who may compromise our security measures, which
could
cause us to expend capital and materially adversely affect our financial
condition and results of operations.
Hackers
may be able to circumvent our security measures and could misappropriate
proprietary information or cause interruptions in our Internet operations.
In
the past, computer viruses or software programs that disable or impair computers
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our users, which could
disrupt our network or make our systems inaccessible to users. Any of these
events could damage our reputation among our customers and potential customers
and substantially harm our business. We may be required to expend capital and
resources to protect against the threat of security breaches or to alleviate
problems caused by these breaches. Consumer concern over Internet security
has
been, and could continue to be, a barrier to commercial activities requiring
consumers to send their credit card information over the Internet. Computer
viruses, break-ins, or other security problems could lead to misappropriation
of
proprietary information and interruptions, delays or cessation in service to
our
customers. Moreover, until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet as a merchandising medium. Further,
our
business is subject to the effects of war and acts of terrorism.
9
The
following risk factors apply to the securities markets and investments in our
Common Stock:
Our
stock price is volatile and a stockholder’s investment in our common stock could
suffer a decline in value.
The
trading price of our Common Stock has fluctuated significantly in the past.
The
future trading price of our common stock may continue experiencing wide price
fluctuations in response to a number of factors, some of which are beyond our
control, such as:
o
actual
or anticipated fluctuations in revenue or operating
results;
o
changes
in market valuation of companies in our industry
generally;
o
announcements
of research activities and technology innovations or new products
or
services by us or our competitors;
o
failure
to meet expectations of
performance;
o
developments
in or disputes regarding copyrights, trademarks, patents and other
proprietary rights; and
o
general
economic conditions.
As
a
result of the registration statement of which this prospectus is a part, a
significant number of restricted shares will have been registered and made
available for sale. Sales of a substantial number of shares of our Common Stock
in the public market (including the shares offered under this prospectus, under
other registration statements and shares available for resale under Rule 144
under the Securities Act) or the perception that such sales could occur, could
significantly depress the prevailing market price of our Common Stock.
We
expect quarterly revenue and operating results to vary in future periods, which
could cause our stock price to fluctuate.
Our
limited operating results have varied widely in the past, and we expect they
will continue to vary from quarter to quarter as we attempt to commercialize
our
product and develop the new IT support business. Our quarterly results may
fluctuate for many reasons, including a limited operating history and dependence
on a limited number of customers for a significant portion of our
revenue.
As
a
result of these fluctuations and uncertainties in our operating results, we
believe quarter-to-quarter or annual comparisons of our operating results are
not a good indication of our future performance. In addition, at some point
in
the future, these fluctuations may likely cause us to perform below the
expectations of public market analysts or investors. If our results fall below
market expectations, the price of our Common Stock will be adversely affected.
In
addition we believe that various other factors may cause the market price of
our
Common Stock to fluctuate, including announcements of:
o
New
services being offered by our
competitors;
o
Developments
or disputes concerning intellectual property proprietary
rights;
o
Our
failing to achieve our operational milestones;
and
o
Changes
in our financial conditions or securities or analysts’
recommendations.
The
stock
markets, in general, and the shares of IT companies, in particular, have
experienced extreme price fluctuations. These broad market and industry
fluctuations may cause the market price of our Common Stock to decline. In
addition, the low trading volume of our stock will accentuate price swings
of
our stock.
10
The
market for our stock has not been liquid.
Our
Common Stock is currently quoted for trading on the OTC Bulletin Board. As
a
result, the liquidity of our common stock is limited, not only in the number
of
shares that are bought and sold, but also through delays in the timing of
transactions, and the lack of coverage by security analysts and the news media
of the Company. The average daily trading volume for our Common Stock during
the
three months prior to the date of this prospectus was approximately 2,000 shares
per day. Therefore, holders of our Common Stock may have difficulty selling
their shares in the public markets.
Future
sales of shares by existing stockholders, or perceptions of these sales, could
cause the stock price to decline.
If existing
stockholders sell, or indicate an intention to sell, substantial amounts
of the Common Stock in the public market, the trading price of the
Common Stock could decline. Following effectiveness of the initial resale
registration statement related to this offering, or if necessary a secondary
or
tertiary resale registration statement, approximately 8,214,000 shares of Common
Stock, and up to 6,842,000 additional shares of Common Stock issuable upon
exercise of the warrants, will be eligible for sale in the public market. If
any
of these additional shares are sold, or if it is perceived that they will be
sold, in the public market, the trading price of the Common Stock could
decline.
Our
ability to issue additional securities without stockholder approval could have
substantial dilutive and other adverse effects on existing stockholders and
investors in this offering.
We
have
the authority to issue additional shares of Common Stock and to issue options
and warrants to purchase shares of our Common Stock without stockholder
approval. Future issuance of Common Stock could be at values substantially
below the offered price of the Common Stock, and therefore could represent
further substantial dilution. As of September 12, 2007, we had outstanding
options exercisable to purchase up to 134,084 shares of Common Stock and
outstanding warrants exercisable to purchase up to 9,118,019 shares of Common
Stock. Exercise of these warrants and options could have a further
dilutive effect on existing stockholders and you as an investor.
Issuances
of additional equity securities in the future, including through the exercise
of
any of our outstanding warrants or options could significantly dilute the
holdings of our stockholders.
In
connection with our equity and debt financing with West Coast Opportunity Fund,
LLC (“WCOF”),
we
issued warrants to purchase 6,500,000 shares of Common Stock exercisable for
5
years at an exercise price of $2.60 per share with expiration dates of June15,2012 and July 11, 2012, and in addition we have further issued additional
warrants to other investors purchase up to 2,618,019 shares of Common Stock
with
varying expiration dates from December 29, 2007 to June 15, 2012 and exercise
prices from $1.00 to $2.60.
As
we
issue stock or convertible securities in the future, including for any future
equity financing or upon exercise of any of the outstanding stock purchase
warrants and stock options, those issuances would dilute our stockholders.
If
any of these additional shares are issued and are sold into the market, it
could
decrease the market price of our Common Stock and could also encourage short
sales. Short sales and other hedging transactions could place further downward
pressure on the price of our Common Stock.
11
SPECIAL
NOTE REGARDING FORWARD
LOOKING STATEMENTS
In
addition to historical information, the following discussion contains statements
that plan for or anticipate the future;“forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities
Act”),
and
Section 21E of the Exchange Act, that are subject to risks and uncertainties.
These
forward-looking statements include statements about our future business plans
and strategies, future actions, future performance, costs and expenses, interest
rates, outcome of contingencies, financial condition, results of operations,
liquidity, objectives of management, and other such matters, as well as certain
projections and business trends, and most other statements that are not
historical in nature, that are "forward-looking" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking information to encourage companies to provide prospective
information about themselves without fear of litigation so long as that
information is identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information.
Forward-looking information may be included in this Registration Statement
or
may be incorporated by reference from other documents we have filed with the
Securities and Exchange Commission (the “SEC”).
You
can identify these forward-looking statements by the use of words like “may,”“will,”“could,”“should,”“project,”“believe,”“anticipate,”“expect,”“plan,”“estimate,”“forecast,”“potential,”“intend,”“continue” and variations of
these words or comparable words. Forward-looking statements do not guarantee
future performance, and because forward-looking statements involve future risks
and uncertainties, there are factors that could cause actual results to differ
materially from those expressed or implied. These risks and uncertainties
include, without limitation, those detailed from time to time in our filings
with the SEC.
We
have
based the forward-looking statements relating to our operations on management's
current beliefs expectations, estimates, and projections about us and the
industry in which we operate, as well as assumptions and information currently
available to us. These statements are not guarantees of future performance
and
involve risks, uncertainties and assumptions that we cannot predict. In
particular, we have based many of these forward-looking statements on
assumptions about future events that may prove to be inaccurate. Because
forward-looking statements involve future risks and uncertainties, there are
several important factors that could cause actual results to differ materially
from historical results and percentages and from the results anticipated by
these forward-looking statements.
For
example, a few of the uncertainties that could affect the accuracy of
forward-looking statements include, without limitation:
o
Whether
or not our products are accepted by the marketplace and the pace
of any
such acceptance;
o
Our
ability to continue to grow our Tools and Enterprise
businesses;
o
Improvements
in the technologies of our
competitors;
o
Changing
economic conditions; and
o
Other
factors, some of which will be outside of our
control.
Our
business model is primarily focused on delivering IT support services. We are
leveraging the recent advances in software, IT monitoring systems, and
communications, to build a new, leading edge, global support infrastructure,
providing 24x7 software support to large and medium sized companies. The new
application onboarding and monitoring processes that we have developed should
allow for cost savings over existing IT service providers. We believe the IT
support offerings offered using our software, systems and processes will provide
a quality product to a wide range of business enterprises and provide a maximum
return on our investment.
12
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of shares by the selling stockholders.
We
experienced a net operating loss (EBIT) of $1,398,576 for the six months ended
June 30, 2007 compared to a net operating loss of $794,991 for the same six
months in 2006.
2006
was
a transitional year for us with the acquisition of AtlasTG on January 20, 2006
and the sale of our previous business, operated from within TDC, on September14, 2006. We incurred an overall net operating loss from continuing operations
of $1,780,896 for the year ended December 31, 2006 compared to a net operating
loss for continuing operations for the year ended December 31, 2005 of $194,896.
This change is attributed to the sale of certain of our TDC product lines that
generated revenue in 2005.
On
January 26, 2007the Company acquired all of the assets (but not the
liabilities) and 700 customers of BLive Networks, Inc., for a consideration
of
1,150,000 shares of common stock of the Company. Included with these assets
was
49% of a Canadian company called InfoBuild Networks (Canada) Inc. (since
increased to 100% by way of the exercise of an option over the over 51%) and
the
assets acquired have been injected into this company and the name of it has
been
changed to BLive Networks Inc. and the business has continued to trade through
this company. The assets acquired have been consolidated into these financial
statements and the results of BLive from January 26, 2007 have been included
after making adjustments for certain pre-acquisition and post-acquisition
events. For the period to June 30, 2007, BLive traded at a small loss before
amortization and is expected to make a profit for the 2008 year, before
amortization, as it is integrated into the overall business.
Revenues
Because
2006 was a transitional and development year, revenue was limited to $39,706
from consulting activities performed during the third and four quarters of
fiscal year 2006. Our revenue for the year ended December 31, 2006 came from
these consulting services, which were an adjunct to our new main business focus.
This
figure is substantially lower than our December 31, 2005 revenue of
$593,595 when we had the TDC product lines. The TDC business was sold to the
former management on September 14, 2006 and the TDC revenue and expenses have
been treated as discontinued operations in the attached financial statements
for
the year ended December 31, 2006. TDC
earned 73% of total revenues in 2005 from developing customized multimedia
authoring tools or multimedia applications or presentations for three large
multi-national corporations and the balance of its revenue came from sales
of
its proprietary iShell® or iShell Mobile products.
Total
revenues for the first six months ended June 30, 2007 were $281,716, split
as to
$175,903 for the three months ended June 30, 2007 and $105,813 for the three
months ended March 31, 2007. There are no relevant comparative revenues for
the
six months ended June 30, 2007.
The
revenue of $281,716 can be split into three categories: a) revenue from
consulting services and placing consultants with third parties of $143,553;
b)
sales support services software through our BLive operations of $59,924 for
the
five months following the acquisition of BLive; and c) $78,239 of onboarding
and
support sales, which is the first revenue generated by our new mainstream
business. The consulting services are being provided to potential software
support customers from our Redmond office and the provision of consultants
is
through a joint venture with Breard LLC where we are operating a staff
augmentation consulting service for potential support customers as a first
step
in developing a relationship with these potential customers.
While
the
revenue in the first quarter came from the provision of consulting services
and
from our new BLive operation, the bulk of the increase in our revenue for the
second quarter came primarily from our first IT support customers that we began
providing services to in March 2007. We completed the onboarding to our first
customer, Mobile Content Networks, Inc. (“MCN”),
in
Palo Alto, California in March 2007. MCN provides real-time mobile search
solutions to 3GSM mobile telephone networks such as D2 of Japan and Total Access
Communications Plc (“DTAC”)
of
Thailand. At the end of 2006, D2 Communications, the largest mobile advertising
agency in the world, released its FM Radio Search service to DoCoMo handset
users providing listeners of FM radio with one click access to ringtones, music
downloads, CDs and DVDs through MCN’s MobileSearch.net platform. MCN is
currently working with over twenty partners in ten countries who are developing
solutions based on its platform.
14
We
are
currently onboarding our second IT application support customer, Viewpath.com
(“Viewpath”)
and we
expected to start generating revenue from this customer before the end of the
third quarter. We have entered into an agreement with Viewpath that calls for
us
to provide 24x7 support to Viewpath's customers and to monitor its highly
sophisticated .NET application.
We
are
also in discussions with a major international IT company to provide our
application support services and will hopefully enter into a preliminary
agreement with this company by the end of the third quarter and it is this
contract that unlocks the WCOF escrow deposit.
We
anticipate that revenue from our new IT support services will increase during
the year as new customers are recruited and onboarded by our newly appointed
sales and onboarding partners. To date, we have appointed Universal Information
Technology Group, Ltd. (“UniTech”)
and PA
Consulting from the UK and the Italian IT consulting company Bizmatica Sistemi
s.r.l., as onboarding partners for our software services and IT support. We
are
currently negotiating with another party in Europe and are close to finalizing
an agreement with a large international consulting firm to also become our
onboarding partner in the United States.
With
the
acquisition of the business of BLive in January 2007, we acquired 700 customers
and an established annual revenue base of approximately $250,000. We are
planning to integrate the BLive business and proprietary support tools to
strengthen our remote technical support and sales, both externally, and for
our
internal corporate Helpdesk support departments. BLive targets users within
the
worldwide Helpdesk support market, which diversifies our revenue base.
Cost
of Sales
Our
cost
of sales for the year ended December 31, 2006 was $68,000, which includes an
allocation of salary costs related to the consulting work performed and
engagement fees. Some of these costs are expected to be recovered from revenue
expected to be generated in 2007. For
the
year ended December 31, 2005, the cost of sales, from the now discontinued
TDC
business, included royalties paid to third parties for licensed technology,
costs associated with order fulfillment, credit card fees, web hosting fees,
and
costs associated with consulting services, including salaries, subcontractor
fees, and out-of-pocket expenses. Our cost of sales were $214,606 for the year
ended December 31, 2005. Because these operations were discontinued, our cost
of
sales were significantly decreased in 2006.
Our
cost
of sales for the first half of 2007 was $193,691 compared to $83,711 in the
first three months to March 31, 2007. This includes an allocation of salary
costs related to the consulting work performed and BLive support services
provided, as well as the salaries and engagement fees for the consultants
provided and the share of income for our joint venture partner. The salary
costs
for our mainstream support services are included under operating expenses with
the IT software development and support line. There are no comparable cost
of
sales for the first half of 2006 as AtlasTG was still developing its software
tools and BLive was acquired in January 2007.
Operating
Expenses
During
2006, we have been developing our new software tools for onboarding and
monitoring of our customer’s software applications. In the past we have expensed
all of our software development costs in the period the costs were incurred.
With the new software purchased and developed through our AtlasTG line of
business reaching the live beta and production testing stages, and by year
end
the production implementation stage, our board of directors adopted Statement
of
Financial Accounting Standards No. 86, “Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS
86”)
and
capitalized certain software development costs that meet the requirements of
SFAS No. 86. There are no 2005 comparative figures as AtlasTG was acquired
on
January 20, 2006 and the expenses from the TDC line of business have been
treated as discontinued operations.
15
As
a
result of the adoption of SFAS No. 86, $454,942 of software development costs
were capitalized during the year ended December 31, 2006, which were in
addition to the $835,192 of IT software costs we acquired with AtlasTG on
January 20, 2006. These capitalized costs will be amortized over three years
from the date on which the new AtlasTG business goes into full
commercialization. However, not all of the software development costs for the
year met the requirements of SFAS No. 86, and $859,780 of software development
costs have been expensed in the year ended December 31, 2006.
In
the
first half of 2007, $193,676 was capitalized (compared to $407,572 in the first
half of 2006) with $642,377 of IT development and support costs being expensed
compared to $374,096 in the first half of 2006. In the second quarter of 2007
a
net $406,959 was expensed compared to $270,117 in the second quarter of 2006.
With
our
software now going into production with real-time customers the amount being
capitalized in future periods will substantially reduce and in future periods
more or our costs will be directed at our support functions rather than
development functions.
Also
during 2007 and more particularly in the second quarter of 2007 as the value
of
the US dollar has fallen against both the Euro and the New Zealand dollar,
the
cost of our operations in both Malta and New Zealand have increased in US dollar
terms even though the local costs have not increased substantially.
Sales
and
marketing expenses for the period ended December 31, 2006 were $136,260 and
consist primarily of compensation and benefits, plus advertising expenses which
are primarily the costs incurred in the design, development, and printing of
our
literature and marketing materials including website design. We expense all
advertising expenditures as incurred. Sales
and
marketing expenses for the previous business for the year ended December 31,2005, were $132,262. These expenses have been reclassified as discontinued
operations.
Sales
and
marketing expenses for the six months ended June 30, 2007 were $131,931 (which
is in line with the level of expenditure in the first quarter of 2007) compared
to $44,524 for the six months ended June 30, 2006. Sales and marketing expenses
for the quarter ended June 30, 2007 were $65,616 compared to $32,292 for the
quarter ended June 30, 2006. Sales and marketing expense consists primarily
of
compensation and benefits for our sales and marketing team, plus advertising
expenses which are primarily the costs incurred in the design, development,
and
printing of our literature and marketing materials. Sales and marketing expenses
will continue to grow as we move into the growth stage and as we continue to
expand our market presence in 2007.
With
the
acquisition of AtlasTG we acquired a substantial amount of computer equipment,
as well as office furniture and fittings in the various offices. As a result
we
incurred depreciation expense for the year ended December 31, 2006 of
$106,326.
Depreciation
and amortization expense increased substantially in the second quarter ended
June 30, 2007 to $111,956. $88,137 of this was amortization of the IT technology
and customer lists that we purchased as part of the BLive assets, which are
being amortized over the next three years. When this is deducted the
remaining depreciation charge for the six months ended June 30, 2007 at $23,819
is in line with the depreciation charge of $22,522 incurred in the first quarter
of 2007. There are no relevant comparables for 2006 as the business and software
were in the development phase. As we move into the full support phase in the
coming months, the amortization of the capitalized software over three years
will begin and this will also become a significant expense in future periods,
which will offset the increase in revenue from our application support
operations.
General
and administrative expenses consist primarily of compensation and benefits,
fees
for professional services, and overhead. General and administrative expenses
were $650,236 for the year ended December 31, 2006, while the general and
administrative expenses for the year ended December 31, 2005 were $359,050.
$194,896 of this figure for 2005 is attributed to the ongoing business with
the
rest reclassified as part of discontinued operations. The difference between
2005 and 2006 is attributed to the increase in employees and additional
operating locations in 2006. With the acquisition of AtlasTG, we also incurred
additional overhead expenses with the addition of a new group operating head
office in Malta, the addition of a subsidiary office in New Zealand and a
subsidiary office in Redmond, Washington. Following the sale of TDC we closed
the previous operating head office in San Francisco.
16
General
and administrative expenses were $577,856 for the six months ended June 30,2007
compared to $376,371 for the six months ended June 30, 2006. General and
administrative expenses were $266,877 for the quarter ended June 30, 2007
compared to $227,297 for the quarter ended June 30, 2006. The differences
between the two years is attributed to an increase in administrative costs
associated with an increasing number of executives; additional costs that are
attributed to and increase in employees and rental expenses associated with
our
additional operating location we added in Redmond, Washington in the middle
of
2006. In addition, three members of the executive team worked without
compensation in the first quarter of 2006. It is expected that general and
administrative costs will be maintained at the present level during the
remainder of 2007.
Interest
Income, Expense and Other Financing Charges
Interest
expense and financing charges for the year ended December 31, 2006 were $36,209
and arose primarily from an advance received from a third party during the
year
which is repayable on March 30, 2007 (subsequently extended to September 30,2007) and evidenced by a Note Payable.
There
was
also interest earned of $468 on credit bank balances during the year ended
December 31, 2006. In the year ended December 31, 2005 we accrued $22,667 of
interest income on the advances made to AtlasTG in the 2nd
half of
2005. With the acquisition of AtlasTG in January 2006, this interest income
was
eliminated as a consolidation entry.
Interest
expense was $30,862 for the six months ended June 30, 2007 and $19,569 for
the
quarter ended June 30, 2007. For the six months ended June 30, 2006 interest
was
a net income of $2,288. The increase in the second quarter of 2007 is
attributable to the accrual of interest on the $2,500,000 borrowed from WCOF
as
detailed in Note 5 to the financial statements. Interest expense will be an
increasing cost for the remainder of 2007 and through 2008 as interest expense
is accrued and paid on the full WCOF facility of $5 million at an interest
rate
of 5%. Some of this expense will be offset by interest income on the escrow
deposit which accounted for the bulk of the interest income in the
period.
Following
the issuance to WCOF of 3,250,000 shares of Common Stock in the form of “yield
enhancement shares” and a warrant exercisable for five years to purchase
3,250,000 shares of Common Stock at an exercise price of $2.60 per share (see
Note 5 to the financial statements) and other associated transactions, we have
been required to carry out a series of Black-Scholes valuations to fair value
the various securities that have been issued and then to account for them as
additional paid in capital that has then been either expensed as the $1,415,181
of other financing charges in the quarter ended June 30, 2007, or accounted
for
as unamortized debt discounts of $2,429,775. These debt discounts will be then
be amortized over the 17 months to the repayment date of the debt on November30, 2008 along with a similar level of financing charges from the second tranche
of $2,500,000 drawn down on July 11, 2007 and placed in escrow until the terms
of release are met.
The
offering of these unregistered securities were exempt from registration pursuant
to Rule 506 promulgated under the Securities Act of 1933. WCOF represented
to
us, in writing, that it was an “accredited investor” as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act of 1933. The
proceeds from these sales of unregistered securities are being used for general
working capital purposes.
Discontinued
Operations
The
sale
of our TDC line of business, in early 2006, resulted in income of $173,853
(after taxes) from discontinued operations compared with income of $23,730
for
the year ended December 31, 2005. This sale of assets offsets some of the losses
we experienced in 2006 and 2005 from the TDC business.
Provision
for Income Taxes
$1,914
of
income tax provision was recorded for the year ended December 31, 2006, which
related to the taxes due for the 2005 year. Income taxes in the amount of $3,882
were reported in the year ended December 31, 2005, which related to taxes for
the years 2003 and 2004. The 2003 tax return had not been prepared when the
2004
financial statements were completed and therefore there was no tax provided
in
the 2004 financial statements.
17
Income
taxes for the six months ended June 30, 2007 were $25 (being withholding taxes
deducted from interest income) which is the same as in the six months ended
June30, 2006.
Foreign
Exchange Translation
There
was
also $784 of foreign exchange gains for the year ended December 31, 2006. We
had
no loss or gain for the year ended December 31, 2005. This contrasted with
$146,074 of unrealized exchange losses for the first six months end June 30,2007, when there were a number of countervailing movements in both the US
Dollar, the Euro and the New Zealand Dollar.
The
Company reports in United States Dollars (“USD”)
but
through its subsidiaries does business in the United States, Malta, and New
Zealand. BLive does business both in US and Canadian dollars, but primarily
in
USD. The Company seeks to borrow in USD to match with the reporting currency,
but business units outside of the US receive some revenue and incur expenses
and
credit in foreign currencies.
Transactions
denominated in foreign currencies are translated at the rates of exchange ruling
on the dates of the transactions. Monetary assets and liabilities expressed
in
foreign currencies are translated at the rates of exchange prevailing at the
end-of-period exchange rates and the translation differences are reported as
other comprehensive income.
Comprehensive
Net Income (Loss)
The
comprehensive net loss for the year ended December 31, 2006 was $1,817,767.
We
incurred an operating loss of $1,991,620 from continuing operations which was
offset by the recovery of $173,853 (after taxes) on the sale of the assets
associated with the TDC business. The net loss for the year ended December31,2005 was $175,791. The 2005 net loss consists of a loss of $199,521 for the
parent company, and a profit of $23,730 from discontinued TDC operations sold
in
September 2006.
We
experienced a net operating loss (EBIT) of $1,398,576 for the six months ended
June 30, 2007 compared to a net operating loss of $794,991 for the first six
months of 2006. The net operating loss for the quarter ended June 30, 2007
was
$785,485 compared with a net loss of $529,706 for the quarter ended June 30,2006.
When
our
net operating loss of $1,398,576 is added to our net interest and other
financing charges of $1,443,977, taxes of $25 and foreign exchange translation
losses of $146,074, our comprehensive loss for the six months ended June 30,2007 is $2,988,652 compared to a comprehensive loss of $836,236 for the six
months ended June 30, 2006. The comprehensive net loss for the quarter ended
June 30, 2007 was $2,205,846 compared with a comprehensive loss of $543,221
for
the quarter ended June 30, 2006.
We
do not
expect to be profitable during 2007, but we expect our level of operating losses
to reduce as we gain new application support customers and increase our revenue
throughout the year.
Liquidity
and Capital Resources
On
December 31, 2006, we had cash on hand of $130,991 compared to $52,344 at
December 31, 2005. During the year ended December 31, 2006 we raised $2,439,753
through the sale of new equity securities (before costs) to finance the
development of the new AtlasTG business compared to $1,069,755 raised in the
year ended December 31, 2005. Sales of equity have historically been our primary
source of funding. We will need to continue to successfully raise additional
capital through the sale of our equity securities throughout 2007 to finish
the
development phase of our software, hire and train staff and successfully bring
in new customers to achieve our revenue targets.
The
capital raised during both 2006 and 2005 has been used to develop the IT support
tools and platform for our new business line. The net loss for 2006
was funded out of our new equity issuances.
During
the second quarter we arranged a further $475,000 of short-term loans from
a
stockholder in the early part of the quarter, which were subsequently converted
to equity following the completion of the closing of the first tranche of the
Securities Purchase Agreement with WCOF. The WCOF facility yielded us a medium
term loan in the amount of $5,000,000 ($2,500,000 made on June 15, 2007 and
$2,500,000 made on July 11, 2007), which is repayable on November 30, 2008.
$1,500,000 of the first tranche of the loan was placed into an escrow account
with Wells Fargo Bank, N.A. (“Wells
Fargo”)
as
shown in the consolidated balance sheet. Pursuant to the terms of an Escrow
Agreement, dated June 15, 2007, between the Company, WCOF and Wells Fargo,
the
amount of $1,500,000 will not be released from escrow, unless one of our
subsidiaries enters into contracts with certain customer entities, totaling
$1,000,000 in annual, non-contingent future revenues prior to 5:00 p.m. on
December 31, 2007.
The
escrow account for the second tranche of $2,500,000 made on July 11, 2007 will
not be released from escrow, unless Atlas US, the Company or any of its
subsidiaries enters into contracts with certain customer entities, totaling
$5,000,000 in non-contingent future revenues prior to 5:00 p.m. on December31,2007.
Critical
Accounting Policies
Our
critical accounting policies are described in Note 2 to the accompanying
financial statements - Basis of Presentation and Summary of Significant
Accounting Policies of the Notes to our financial
statements.
Our
discussion and analysis of financial conditions and results of operations are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States.
The preparation of the financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues,
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate the estimates that we have made. These estimates
have been based upon historical experience and on various other assumptions
that
we believe to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. We believe
the
following critical accounting policies affect our more significant judgments
and
estimates used in the preparation of our consolidated financial
statements.
Allowance
for Doubtful Accounts.
We
regularly review our accounts receivable and where necessary, set up and
maintain an allowance for doubtful accounts for estimated losses resulting
from
the inability of our customers to make required payments, which is included
in
our bad debt expense. Management determines the adequacy of this allowance
by
regularly reviewing our accounts receivable aging and evaluating individual
customer receivables, considering customers’ financial condition, credit history
and current economic conditions. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Revenue
Recognition.
Revenue
is generally recognized when all the following criteria are met: (a) persuasive
evidence that contractual agreement exists, (b) delivery has occurred and (c)
the fee is fixed or determinable and collection is probable. If all aspects
but
the last have been met or if post contract customer support could be material,
revenue is recognized with payments from customers are received. Any losses
on
contracts are recognized immediately.
Income
Taxes.
We
account for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes.” Significant judgment is required in determining our provision for income
taxes. We assess the likelihood that our deferred tax asset will be recovered
from future taxable income, and to the extent we believe that recovery is not
likely, we establish a valuation allowance. We consider future taxable income
projections, historical results and ongoing tax planning strategies in assessing
the recoverability of deferred tax assets. However, adjustments could be
required in the future if we determine that the amount to be realized is less
or
greater than the amount that we recorded. Such adjustments, if any, could have
a
material impact on our results of our operations.
19
Off-Balance
Sheet Arrangements
We
have
no off-balance sheet arrangements.
20
BUSINESS
Overview
We
are
currently a reporting company under Section 12(g) of the Exchange Act and our
Common Stock is quoted on the OTC Bulletin Board. At
the
annual general meeting of the Company on July 12, 2007, the Certificate of
Incorporation of the Company was amended to change the name of the Company
from
Tribeworks, Inc. to Atlas Technology Group, Inc. As of August 16, 2007, the
Company’s Common Stock now trades under the ticker symbol ATYG.OB with the
new CUSIP number of 049432 107 and new ISIN number of US0494321070.
We
were
incorporated in August 1998 as Tribeworks, Inc., a California corporation
(previously defined as “California
Tribeworks”).
On
November 2, 1999, we entered into a transaction with Pan World, whereby Pan
World agreed to provide financing in connection with the merger of a newly
formed subsidiary of Pan World into California Tribeworks (the “Recapitalization”).
Prior
to the Recapitalization, Pan World never had any material operations. As a
result of the Recapitalization, shareholders of California Tribeworks exchanged
all of their shares of California Tribeworks for Pan World common stock.
Subsequent to the Recapitalization, we were reincorporated in Delaware as
Tribeworks, Inc. We opened a wholly-owned subsidiary in Japan, Tribeworks Japan,
in August 2000, which engaged in sales and professional services activities
primarily in our Enterprise application development business, until it was
closed during the third quarter of 2004.
Beginning
in 2003, we partnered with Kinoma to create new products for the mobile software
market, specifically targeting Palm OS devices. Kinoma makes Kinoma Player,
which is a high-resolution, interactive movie player for handhelds running
the
Palm OS. We developed two products in partnership with Kinoma that create Kinoma
Player content, iShell Mobile, an iShell-based application development tool,
launched in October 2003, and Kinoma Media Album, a consumer multimedia
management tool, launched in May of 2004.
During
2005, the previous business lines of Tribeworks were separated into a wholly
owned subsidiary named Tribeworks Development Corporation (previously defined
as
“TDC”).
The
TDC business was primarily built around the sale of software through two main
distribution channels: the graphics software tools business and proprietary
products called iShell® or iShell Mobile and an enterprise application
development business. TDC was sold to its former management on September 14,2006. Until approximately the middle part of 2006, the iShell line of products
and an enterprise application development business were our primary product
offering and business. The former assets, liabilities and business operations
of
TDC were reclassified as discontinued operations in the financial statements
in
annual report for the year ended December 31, 2006 on Form 10-KSB.
On
January 20, 2006, the Company acquired 100 percent of the issued capital of
TakeCareofIT Holdings Limited (now renamed Atlas Technology Group Holdings
Limited), a Malta corporation, and its subsidiaries, who have been collectively
doing business as Atlas Technology Group for $37,235 in cash and assumed
$1,143,780 of current liabilities (of which $1,073,744 plus interest was due
to
Tribeworks). Atlas Technology Group Holdings Limited was established in
September 2004 to provide external IT application support services for
organizations with large IT functions. The new Atlas Technology Group line
of
business acquired, together with all related developments in this regard since
the acquisition are hereinafter collectively described as “AtlasTG”.
The
results of the AtlasTG operations, from the date of acquisition, January 20,2006, are included in the December 31, 2006 financial statements as presented
in
this document.
TakeCareofIT
Holdings Ltd., was established in September 2004 to provide external IT
application support services for organizations with large IT functions. The
AtlasTG IT support business will be our primary business focus going forward.
We
plan to become a leading IT outsourcing support company for custom software
applications worldwide. After extensive beta testing, the AtlasTG business
line
is now at the revenue launch stage with the first support customers being signed
on in February 2007. Our in-house developed tools and processes needed to
onboard IT applications and provide remote IT application support are now ready
to meet the needs of our customers.
On
January 26, 2007the Company acquired all of the assets (but not the
liabilities) including its IT technology, trademarks and 700 customers of BLive
Networks Inc., in exchange for the issuance of 1,150,000 shares of restricted
Common Stock of the Company. 150,000 of these shares of Common Stock were for
an
M&A Advisory Fee. Additionally, in consideration of the payment by Petroleum
Corporation of Canada Limited (“Petroleum
Corp.”)
of
$100,010, the Company agreed to issue to Petroleum Corp. 100,000 fully paid
shares of Common Stock and a warrant to purchase 300,000 shares of Common Stock
exercisable for a period of two years at a strike price of $1.25 per share.
21
Included
in the assets was 49% of a Canadian company called InfoBuild Networks (Canada)
Inc., and subsequent to the initial acquisition an option to purchase the
remaining 51% of InfoBuild Networks (Canada) Inc was exercised. The assets
acquired have been transferred into InfoBuild Networks (Canada) Inc. and the
name of that company has been changed to BLive Networks Inc. and hereon this
business if referred to as (“BLive”).
The
assets acquired have been consolidated into the financial statements presented
herein along with the results of BLive from January 26, 2007.
Operation
of Business
Our
primary service is remotely supporting custom and complex software
applications for customers who want to outsource non-core business
processes and focus on their core competencies, through the use of
proprietary processes and monitoring systems.
Our
initial support centers are based in Malta and Wellington, New Zealand, with
technical support from a small staff in Redmond, Washington, creating
“follow-the-sun” 24 hour coverage. As business grows, additional locations will
be added to increase capacity, as needed.
The
Company continues to test and harden its new software tools and is now beginning
to implement its plan of selling software support services, and is pursuing
sales in the western United States (“US”),
the
European Union (“EU”),
specifically the United Kingdom and Italy. The Company now has support contracts
with three customers in the US. The Company will continue to target customers
in
Italy, the UK and the west coast of the US before it later expands its sales
efforts worldwide.
The
Company is initially marketing to four targeted groups of potential
clients:
1)
Directly
to initial pilot customers, who will serve as final beta test
opportunities for the Company’s systems, software monitoring and incident
management systems;
2)
Agent
companies, who are strategic partners and will represent the Company
in
specific regions in defining strategic reseller and onboarding
partners;
3)
Onboarding
partners who have the internal capabilities to select and technically
audit, harden, stress-test, and document complex software systems;
and
4)
Reseller
channel partners who will be the backbone of the Company’s sales strategy.
With existing large customer bases of large and complex software
systems,
resellers will be provided the advanced AtlasTG tools and systems
to
monitor and support highly complex software systems on an ongoing
basis.
The
acquisition of BLive has further expanded the Company’s capability of delivering
high quality outsourced support into the IT Support market. Prior to our
acquisition of BLive, BLive developed and operated interactive support tools
for
companies providing IT support worldwide. Utilizing proprietary technology,
BLive’s systems are used by companies for remote technical support and sales,
both externally, and for internal corporate ‘Helpdesk’ support departments. This
technology enables service providers to deliver faster response times and a
personal connection with users and is complimentary to the tools developed
by
AtlasTG .
We
currently have 28 employees and 3 working executive directors. Our primary
service of remotely supporting custom and complex software applications for
customers who want to outsource non-core business processes and focus on
their core competencies, through the use of proprietary processes and monitoring
systems, is maintained by our state-of-the-art data centers in Seattle and
Malta, and 24x7 “follow the sun” support centers in Malta, Redmond/Seattle, and
Wellington.
22
Products
and Services
We
are in
the business of providing custom, outsourced, application software support
services to our customers. These services range from supporting specialized
networks and single applications to providing the entire IT infrastructure
management for customers who want to outsource IT application support and focus
on their core business competencies. Through partnerships with other IT
development consultants, fully outsourced IT services can be provided, with
hard
performance metrics and predictable costs.
With
more
than thirty years of combined experience in IT support, our management team
brings a significant level of knowledge and experience in outsourced application
support. Our management team’s experience includes worldwide application support
for companies such as JP Morgan, Microsoft, and Avanade.
We
have
spent two years developing our own proprietary software tools and processes.
We
are currently leveraging the recent advances in software, monitoring
systems, and communications, to build a new, leading edge, global support
infrastructure that provides 24x7 software support to large and medium sized
companies. These new application on-boarding and monitoring processes should
allow for dramatic cost savings over existing legacy IT service providers.
We
intend
to offer our services worldwide, with the majority of our targeted customers
having multi-national operations. Our operations are designed to be a highly
distributable venture, with the ability to place people in the best possible
locations so that we canprovide
a
seamless service offering across the world. The worldwide IT market is
approximately one trillion dollars in size including hardware, software and
communications. (Source: Gartner available at
http://www3.gartner.com/Init)
The
latest trend in outsourcing toward outsourcing application support is dramatic.
According to Forrester, Tier 2 application support and business outsourcing
is
forecast to represent a $220 billion market by 2006 with additional growth
averaging 10% annually. According to Forrester the percentage of IT budgets
spent on maintaining existing applications was 73% in 2004 and 76% in 2005,
and
the trend is expected to continue. (Source: Forrester Research, Inc. “2005
Enterprise IT Outlook: Business Technographics North America”).
To
many
industry leaders, managed services represent an important change to how
technology is delivered and consumed. The managed services market has expanded
rapidly over the past several years, particularly in the under-served S-MMB
market. The S-MMB IT services market estimated to be worth $220 is expected
to
grow at a CAGR of 7.6% from 2004 to 2008. RMM is the hottest growing segment
expected to grow at 36% CAGR though 2008 in North America. A recent study by
Forrester cited the S-MMB market at 48% of overall U.S. IT spending, stating
that it will surpass enterprise IT spending by 2007. (Source: Gartner - Forecast
IT Service, Worldwide, November 2005).
Through
our BLive Networks, Inc. subsidiary we also provide our proprietary interactive
support tools for both smaller and S-MMB companies via systems that can
be used by companies for remote technical support and sales, both
externally, and for internal corporate “Helpdesk” support departments. This
technology enables our service providers to deliver faster response times and
a
personal connection with users.
Technical
Support and Education
We
provide both technical support and training to our customers as well as in-house
and external training to our staff. Successful training of our technical support
staff is key to our success. During 2006, all of our technical staffreceived
training for various Microsoft technical qualifications. During 2007, we
anticipate becoming a Microsoft “Gold Partner” with advanced infrastructure and
learning solutions specializations. We believe that by becoming a Microsoft
“Gold Partner” this will provide us with additional recognition and therefore
revenue opportunities.
23
Competition
IT
software application support is one of the last available outsourcing
opportunities in the IT field. While many other IT functions have been
outsourced, software application support has traditionally been kept in-house
so
that management is able to maintain control of this function. In recent years,
a
number of companies have outsourced all of their IT needs to large IT
companies.
There
are
a large number of traditional consultant competitors competing in the same
businesses as us, including IBM, HP, EDS, and Accenture as well as a number
of
smaller companies. The industry is broken down into three segments: (i) the
hardware manufacturers that provide additional IT services; (ii) the large
pure-play IT service providers targeting Fortune 500 companies, and (iii)
smaller independent companies that generally specialize in specific local
markets.
The
largest firms that we compete with in terms of 2006 revenue are HP with total
revenue of $91.7 billion, of which approximately $15.6 billion is services
including IT outsourcing. Source: HP.com.
IBM
with
total sales of $91.4 billion, of which approximately half, or $49 billion,
represents services, and of this amount approximately $17.0 billion is strategic
outsourcing services. Strategic outsourcing services is one of IBM’s fastest
growing business segments and is growing at 3.2% annually, almost twice as
fast as IMB Global Services total revenue. Source: IBM.com.
The
pure-play IT service providers, with the majority of their fiscal year ended
2006 revenues coming from IT support services include EDS, with $21.3 billion
in
revenue (Source: EDS.com), Computer Sciences Corporation with $14.6 billion
(Source: CSC.com), Accenture with $18.2 billion (Source: Accenture.com), and
BearingPoint Inc. with $3.4 billion in 2006 revenue. (Source: Bearingpoint.com)
Our advantage over our larger competitors is that IT support is our main
business focus and is not an ancillary service.
Other
competitors of ours that provide support services and call centers, especially
in India, include Wipro and Infosys. TCS is another of our primary competitors
that competes with us globally. Many hosting providers are also attempting
to offer ASP services as an add-on. There are other regional players, such
as
Wavex and Motive that are also targeting the S-MMB market.
The
principal advantage of what we offer is the ability to access the computers
of
our customers remotely. This allows our customers to maintain physical
possession of their computers and continue their daily operations. We also
compete against our competitors by establishing ourselves as a service provider
with deep industry expertise in our sector, which enables us to respond rapidly
to market trends and the evolving needs of our clients in our
sector. IT support is our sole business focus, unlike many of our
competitors who offer IT support as an adjunct to there existing hardware or
software sales.
In
addition to the small and large competitors described above, we believe that
our
single biggest competitive factor is existing in-house support groups. We
believe that in-house support groups are currently providing over 90% of IT
support services.
Proprietary
Rights
We
rely
on a combination of copyright laws, trademark laws, contract laws, and other
intellectual property protection methods (such as signing confidentiality and
non-disclosure agreements with potential clients) to protect our technology,
names and logos in the United States and other countries. Tribeworks’ patented
and trademarked “iShell” product and logo, which until mid 2006 was our lead
product, were sold during 2006 to a former staff member of ours.
The
acquisition of AtlasTG resulted in additional proprietary rights such as
AtlasTG’s unique OnBoarding processes as well as a range of trade secrets
relating to its IT support technologies. We are now in the process of applying
for a number of patents and trademarks for these systems, processes and their
unique names as part of securing our proprietary products and establishing
our
marketing and branding.
24
Service
Deployment Schedule and Capital Requirements
We
have
spent the past two years developing our own proprietary software tools and
processes and are now beginning to
implement our plan of selling IT software support services, and is pursuing
sales in the western US and the European Union, specifically the United Kingdom
and Italy.
With
initial support centers are based in Malta and Wellington, New Zealand, and
with
technical support from a small staff in Redmond, Washington, we have created
“follow-the-sun” 24 hour coverage to offer to our software application support
customers. As business grows, additional locations will be added to increase
capacity, as needed.
We
recently raised $5 million of medium term funds from WCOF, who are now our
largest stockholder, and these funds will be used to implement our sales and
marketing program and finance our operations as we develop revenue to a
breakeven point over the next 12-18 months.
We
will
need to raise additional equity in mid 2008 to repay the $5 million of medium
term debt we have raised from WCOF. The ability to raise this new equity will
depend upon our sales and marketing performance over the forthcoming twelve
months.
The
Company now has support contracts with three customers in the US and is
currently negotiating with two more potential US customers, with the aim of
concluding at least one of these contracts by the end of the third quarter
of
2007 and the other by year, with the target if two more contracts in the forth
quarter.
In
March
2007 we completed the onboarding of our first IT application support customer,
Mobile Content Networks, Inc. (“MCN”),
in
Palo Alto, California. MCN provides real-time mobile search solutions to 3GSM
mobile telephone networks such as D2 of Japan and Total Access Communications
Plc (“DTAC”)
of
Thailand. At the end of 2006, D2 Communications, the largest mobile advertising
agency in the world, released its FM Radio Search service to DoCoMo handset
users providing listeners of FM radio with one click access to ringtones, music
downloads, CDs and DVDs through MCN’s MobileSearch.net platform. MCN is
currently working with over twenty partners in ten countries who are developing
solutions based on its platform and we aim to support all of their software
applications as they grow their business.
We
are
currently onboarding our second IT application support customer, Viewpath.com
(“Viewpath”)
and we
expected to start generating revenue from this customer before the end of the
third quarter. We have entered into an agreement with Viewpath that calls for
us
to provide 24x7 support to Viewpath's customers and to monitor its highly
sophisticated .NET application.
We
are
about to execute a third IT application support contract with and
this
customer will be onboarded during September/October 2007 with full support
services commencing during the fourth quarter of 2007.
We
are
also in discussions with a major international IT company to provide our IT
application support services and we will hopefully enter into a preliminary
agreement with this company by the end of the third quarter of 2007 and it
is
this contract that unlocks the WCOF escrow deposit described in more detail
elsewhere in this document.
The
aim
is close one new IT application support contract per month over the next twelve
months.
Our
BLive
business which sells its support service software over the internet, has
recently increased its marketing spend and is planning to shortly release an
upgraded version of its software. The plan is to further revise the BLive
software and to develop and enterprise version that will achieve some degree
of
crossover between the two arms of our IT application support
businesses.
While
our
primary focus is IT application support we also have a joint venture with Breard
LLC in Redmond, where we are operating a staff augmentation consulting service
for potential IT support customers as a first step in developing a relationship
with these potential customers with a view to them becoming an IT support
customer over time. It is also a profitable supplement to our mainstream
business.
25
Strategic
Partnerships
The
marketing plan is to start by targeting customers on the west coast of the
US as
well as in Italy and the UK, before it later expands its sales efforts
worldwide.
The
Company is initially marketing to four targeted groups of potential
clients:
1)
Directly
to initial pilot customers, who will serve as final beta test
opportunities for the Company’s systems, software monitoring and incident
management systems;
2)
Agent
companies, who are strategic partners and will represent the Company
in
specific regions in defining strategic reseller and onboarding
partners;
3)
Onboarding
partners who have the internal capabilities to select and technically
audit, harden, stress-test, and document complex software systems;
and
4)
Reseller
channel partners who will be the backbone of the Company’s sales strategy.
With existing large customer bases of large and complex software
systems,
resellers will be provided the advanced AtlasTG tools and systems
to
monitor and support highly complex software systems on an ongoing
basis.
While
our
initial sales have been made by our internal marketing team, we anticipate
that
revenue from our new IT support services will increase during the 2008 year
as
new customers are recruited and onboarded by our newly appointed sales and
onboarding partners.
To
date,
we have appointed UniTech and PA Consulting from the UK and the Italian IT
consulting company Bizmatica Sistemi s.r.l., as onboarding partners for our
software services and IT support. We are currently negotiating with another
party in Europe and are close to finalizing an agreement with a large
international consulting firm to also become our onboarding partner in the
United States.
Staff
and Staff Development
We
currently have 28 employees and 3 working executive directors operating from
our
initial
support centers based in Malta and Wellington, New Zealand, and with technical
support from a small staff in Redmond, Washington. Through these three locations
we have created “follow-the-sun” 24 hour coverage to offer to our IT application
support customers.
We
actively recruit staff with the appropriate technical qualifications and then
train them in the operation of our proprietary software and tools. Over
the
past twelve months we have provided technical training to our staff through
both
in-house and external training. Successful training of our technical support
staff is key to our success. During 2006, all of our technical staff received
training for various Microsoft technical qualifications. During 2007, we
anticipate becoming a Microsoft “Gold Partner” with advanced infrastructure and
learning solutions specializations. We believe that by becoming a Microsoft
“Gold Partner” this will provide us with additional recognition and therefore
revenue opportunities.
We
pay
competitive salaries in relative local market and also operate a performance
related bonus and incentive program which is payable both in cash and staff
options and stock, so as to retain those individuals capable of achieving
challenging our performance standards
Litigation
We
are
currently unaware of any currently pending or threatened material litigation
against us.
26
Independent
Accountants
Our
annual financial statements are audited by Williams & Webster, P.S., an
independent registered public accounting firm located in Spokane,
Washington.
27
DESCRIPTION
OF PROPERTY
Our
subsidiary in Malta, has a six (6) year office lease covering approximately
471
square meters located at Level 3, 9 Empire Stadium Street, Gzira GZR04, Malta,
expiring on August 14, 2010 at a base annual rent of MTL16,000 (approx
US$51,000), which escalates by MTL2,000 per annum (approx US$6,000) until the
final year.
Our
New
Zealand subsidiary, has a four year office lease of the second floor of 139-141
Featherston Street in Wellington, New Zealand expiring on July 31, 2009. The
office comprises approximately 300 sq meters with a base annual rental of
NZ$55,500 per annum (approx US$38,500) plus 12.5% Goods and Services Tax
(“GST”)
which
is claimable against GST revenue tax payable or is refundable, with two year
rent reviews. The annual rental on this lease has just been reviewed to
NZ$66,000 (approx. US$46,200).
Our
US
subsidiary, has a three year office lease of Suite 2001 at the Limited Edition
Office Park, 2001 152nd
Avenue
NE, Redmond, Washington, expiring on July 31, 2009. The office comprises 3,825
rentable square feet at a base annual rental of US$61,200 in the first year,
escalating to $68,850 in the 2nd
year and
$76,500 in the 3rd
year.
All
of
the aforementioned leased facilities are adequate for our current
needs.
28
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Set
forth
below is the name, age, years of service and positions of our executive officers
and directors of the Company as of September 13, 2007.
Name
Age
Position
Officer/Director
Since
Robert
E. Altinger
45
Director
and Chairman of the Board
August,
2005
Andrew
J E Berger
46
Director
June
2006
W.
Gordon Blankstein
57
Director
August,
2005
Robert
C. Gardner
66
Director
August,
2005
Peter
B. Jacobson
46
Director
and CEO
June,
2005
CEO
since August 2005
B.S.P.
(Paddy) Marra
61
Director
and CFO
December
2005
CFO
since Sept. 2005
Michael
T. Murphy
39
Chief
Operating Officer
July
2006
The
directors serve until their successors are elected by the stockholders.
Vacancies on the Board of Directors may be filled by appointment of the majority
of the continuing directors. The executive officers serve at the discretion
of
the Board of Directors. The directors named above will serve until our next
annual general meeting of stockholders in 2008. Directors will be elected for
one-year terms at the annual general meeting. All officers and directors listed
above will remain in office until the next annual general meeting of our
stockholders, and until their successors have been duly elected and
qualified.
There
are
no agreements with respect to the election of directors. During 2007, we have
not compensated our directors for service on our Board of Directors, any
committee thereof, but they have been reimbursed for expenses incurred for
attendance at meetings of our Board of Directors and/or any committee of our
Board of Directors. Officers are appointed annually by our Board of Directors
and each executive officer serves at the discretion of our Board of Directors.
We do not have any standing committees. Our Board of Directors may in the future
determine to pay directors’ fees.
None
of
our officers and/or directors have ever filed any bankruptcy petition, been
convicted of or been the subject of any criminal proceedings or the subject
of
any order, judgment or decree involving the violation of any state or federal
securities laws.
Biographical
Information of Executive Officers and Directors
Robert
Altinger, 45 - Director
Prior
to
founding Atlas Technology Group, a Malta company (“Atlas
Malta”),
Robert Altinger was Principal Consultant of WebConsult, Inc, a Microsoft-
approved vendor of IT consulting services since September 2001. Prior to joining
WebConsult, Inc., Mr. Altinger had over 20 years of IT experience, including
serving as Director of Worldwide IT Operations for Avanade Corp, in various
capacities at Microsoft, including Director of Product Group IT Services, and
prior to that at JP Morgan. Mr Altinger obtained a B.Sc. (Eng.) from Exeter
University in the United Kingdom in 1986.
29
Andrew
Berger, 46 - Director
Andrew
Berger recently retired from the position of Vice President of Alien Technology
Europe, a world leader in RFID technologies. Mr. Berger was responsible for
all
European activity. Prior to joining Alien Technology, Mr. Berger was an equity
partner and founding member of Accenture's strategy practice. He also led
Accenture's Northern European supply chain practice and global Supply Chain
Innovation team. Prior to joining Accenture, he served as an operational
Intelligence Officer with the Airborne and Special Forces divisions of the
British Army. He has a Bachelor's of Science from Bristol University and an
MBA
with Distinction from London Business School.
W.
Gordon Blankstein, 57 - Director
Gordon
Blankstein is currently a member of the board of directors of Genco Resources,
Ltd., a publicly-traded mining company and has been since 2002. He is also
a
director of Digifonica (International) Limited. From 1997 through 2002, Mr.
Blankstein was Chairman and Chief Executive Officer of Global Light
Telecommunications, Inc., an American Stock Exchange-listed company. Mr.
Blankstein obtained a B.Sc. (Agri.) from the University of British Columbia
in
1973 and an MBA from the University of British Columbia in 1976.
Robert
C. Gardner, 66 - Director
Robert
Gardner is currently Chairman of the Board of Genco Resources Ltd. and a partner
in the law firm of Gardner & Associates in Vancouver, BC, Canada. He is also
a Director of Kootenay Gold Inc. and United Bolero. Mr. Gardner is a corporate
lawyer and has practiced law there since 1989. Mr. Gardner and obtained a M.A.
from Cambridge University in Cambridge, United Kingdom in 1961 and a L.L.M.
degree from Cambridge University in 1962.
Peter
B. Jacobson, 46 - Director and CEO
Prior
to
joining Atlas and Tribeworks, Peter Jacobson was founder and President of
Monitor Technologies, Inc., an IT network and support company to Fortune 1000
firms from 1985 to 1995, a partner and Marketing Director of OceanPC, Inc.,
a
leader in computer-based marine GPS navigation systems from 1995 to 2002, and
subsequently, was President of First Call Wireless, LLC., a worldwide cellular
distribution company, from 2002 until 2005. Peter Jacobson has served on
numerous boards of directors, including The Seattle Center, Northwest Children’s
Fund, Lakeside Technology Foundation and Creditnet.com. He is a past President
of the Washington Young Entrepreneurs Organization. Mr. Jacobson obtained a
B.A.
from the University of Washington in 1985.
Byran
S.P. (Paddy) Marra, 61 - Director and CFO
Paddy
Marra has over 30 years of corporate finance experience, including, recently
with FreshXtend Technologies Corp. (Canada) (CEO and now Deputy Chairman) a
TSX-V listed company, CFO of the Brierley Investments Limited group (New
Zealand), and Chairman and CEO of Chamundi Power Corporation Ltd. (India).
Paddy
Marra has degrees in both Accounting and Finance (BCA) and in Economics and
Economic History (BA) from Victoria University of Wellington, New Zealand.
He is
also a Fellow (FCA) of the Institute of Chartered Accountants of New Zealand
and
is a former member of the Financial Reporting Standards Board in New Zealand
and
numerous other Boards and Directorships of publicly traded companies. Mr. Marra
also acts as Corporate Secretary to the Board of Directors.
Michael
Murphy, 39 - Chief Operating Officer
Mike
Murphy joined us after a 15 year career at Microsoft Corporation where he was
most recently the Senior Director leading the Business Group IT organization.
At
Microsoft, Mr. Murphy was responsible for critical aspects of Microsoft’s
business, including source code management and product localization. His
experience includes leading teams throughout the US, Europe, Eastern Asia,
and
India. Mr. Murphy holds a B.A. in Information Systems from Washington State
University.
As
of the
date of this prospectus, the Board of Directors has not appointed members to
a
Nominating Committee and is therefore responsible for those matters that a
Nominating Committee might otherwise assume. Currently, the Board of Directors
has no formal procedures in place for assessing the composition of the Board
of
Directors or the qualifications of the directors. However, we believe that
the
individuals currently serving on our Board of Directors are a qualified and
diverse group of individuals that possess broad experience at the policy-making
level, are committed to enhancing stockholder value and have sufficient time
to
carry out their duties and to provide insight and practical wisdom based on
their experience.
The
Board
of Directors has not established a formal process for consideration of director
recommendations from stockholders. The Board of Directors will, however,
consider recommendations, if received, in ample time before the preparation
and
release of the Company’s annual proxy materials. For consideration, a
recommendation would typically be submitted to our corporate secretary by the
January 1st
immediately preceding the annual meeting.
Stockholders
may communicate with the Board of Directors, non-management directors as a
group, and individual directors by submitting their communications in writing
to
the Company’s Chief Executive Officer. All communications must identify the
author, state that the author is a stockholder of the Company, and be forwarded
by certified mail to the following address:
No
director, nominee for director, or executive officer of ours has appeared as
a
party in any legal proceeding that would be indicative of his ability or
integrity during the past five years.
Board
of Directors Committees
As
of the
date of this prospectus, the Board of Directors has not formed any committees,
but has plans to form committees of the Board of Directors. Therefore, the
roles
of an Audit, Compensation and Nominating Committee have been conducted by the
entire Board of Directors.
31
Audit
Committee
As
stated
above we do not have an Audit Committee. When choosing the board’s Audit
Committee members, the Board of Directors will consider a number of factors,
including the business experience and financial expertise of proposed Audit
Committee members such that each satisfies the Securities and Exchange
Commission’s definition of “audit committee financial expert”.
We
do not
have an Audit Committee or an “audit committee financial expert” within the
meaning of such phrase under applicable regulations of the SEC. Our Board of
Directors believes that each of its directors is financially literate and
experienced in business matters, and that one or more directors are capable
of:
o
Understanding
generally accepted accounting principles, or GAAP, and financial
statements;
o
Assessing
the general application of GAAP principles in connection with our
accounting for estimates, accruals and
reserves;
o
Analyzing
and evaluating our financial statements;
and
o
Understanding
our internal controls and procedures for financial
reporting;
all
of
which are attributes of an audit committee financial expert. However, the Board
of Directors believes that our directors have not obtained these attributes
through the experience specified in the SEC’s definition of “audit committee
financial expert.”
We
do not
currently have a Compensation Committee. Compensation decisions are made by
our
Board of Directors. Our Boardof
Directors places
high value on attracting and retaining our executives since it is their talent
and performance that is responsible for our success. Therefore, our compensation
philosophy is to create a performance-based culture that attracts and retains
a
superior team. We aim to achieve this goal by designing a competitive and
fiscally responsible compensation program to:
o
Attract
the highest caliber of talent required for the success of our
business;
o
Retain
those individuals capable of achieving challenging performance
standards;
o
Incent
our executives to strive for superior company wide and individual
performance; and
o
Align
management and stockholder interests over both the short and
long-term.
32
EXECUTIVE
COMPENSATION
The
following table provides certain summary information concerning compensation
of
our executives for the year ended December 31, 2006. No executive officer,
other
than as listed below, received total compensation from us in excess of $100,000
during 2005.
Summary
Compensation Table
Name
and
Principal
Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-
Equity
Incentive
Plan
Compen-
sation
($)
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
All
other
Compen-
sation
($)
Total
($)
Peter
B. Jacobson,
Chief
Executive Officer, President and Director
2006
$100,000(1)
-0-
-0-
-0-
-0-
-0-
-0-
$100,000
Robert
Altinger, Executive Chairman
2006
$145,000(1)
-0-
-0-
-0-
-0-
-0-
-0-
$145,000
B.S.P.
(Paddy) Marra, Chief Financial Officer and Director
2006
$100,000(1)
-0-
-0-
-0-
-0-
-0-
-0-
$100,000
_________________
(1)
Messrs. Altinger and Marra are not direct employees, but are engaged through
consulting companies who are responsible for paying their salaries, taxes and
benefits. Mr. Jacobson receives his salary on an independent contractor
basis.
Outstanding
Equity Awards at Fiscal Year-End Table
No
options or stock awards have been granted to any of our executive officers
or
directors in the form of equity awards. Pursuant to Item 402(a)(4) of Regulation
S-B, the Outstanding Equity Awards at Fiscal Year-End Table is omitted because
there has been no compensation awarded to, earned by, or paid to any of the
named executive officers or directors required to be reported in that table.
Employment
Agreements and Change of Control Agreements
We
have
not entered into written employment agreements with any of our executive
officers named in the Summary Compensation Table above. There are no
compensatory plans or arrangements, including payments to be received from
us,
with respect to a named executive officer, if such plan or arrangement would
result from the resignation, retirement or any other termination of such
executive officer's employment with us or form a change-in-control of us or
a
change in the named executive officer's responsibilities following a
change-in-control. We may enter into written employment agreements in 2007
with
Messrs. Jacobson, Altinger, Marra and our other executive officers.
33
Option
Grants in Last Fiscal Year
We
do not
currently have any outstanding stock appreciation rights (SARs). No options
or
warrants were granted in 2006 to any executive officers.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
No
options were exercised in 2006 by any executive officers.
Director
Compensation
Directors
do not receive any compensation for their services as members of the Board
of
Directors during 2006, although this could be subject to change during
2007. Directors are reimbursed for expenses in connection with attendance at
Board of Directors and committee meetings. Directors are eligible to participate
as optionees under our compensatory equity plans.
34
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of September 12, 2007, certain information
regarding the beneficial ownership of our Common Stock by (i) all person known
to the Company who own more than 5% of the outstanding Common Stock, (ii) each
director, (iii) each of our executive officers, and (iv) all executive officers
and directors as a group. Unless otherwise indicated, the persons named in
the
table below have sole voting and investment power with respect to all shares
of
Common Stock shown as beneficially owned by them.
(1)
Includes all shares of our Common Stock with respect to which each holder
directly, through any contract, arrangement, understanding, relationship or
otherwise has or shares the power to vote or direct voting of such shares or
to
dispose or direct the disposition of such shares.
(2)
Based
upon 33,856,805 shares of our Common Stock issued and outstanding as of
September 12, 2007.
(3)
Includes 975,000 shares held by AMJ Holdings. We anticipate that the shares
held
by AMJ Holdings will be granted in the form of stock options to our employees
in
the future. Mr. Murphy, Mr. Altinger and Mr. Jacobson serve as co-trustees
of
shares held by AMJ Holdings.
(4)
Includes 975,000 shares held by AMJ Holdings. We anticipate that the shares
held
by AMJ Holdings will be granted in the form of stock options to our employees
in
the future. Mr. Murphy, Mr. Altinger and Mr. Jacobson serve as co-trustees
of
shares held by AMJ Holdings.
(5)
Mr.
Jacobson personally owns 600,000 shares of our Common Stock. Includes 975,000
shares held by AMJ Holdings. We anticipate that the shares held by AMJ Holdings
will be granted in the form of stock options to our employees in the future.
Mr.
Murphy, Mr. Altinger and Mr. Jacobson serve as co-trustees of shares held by
AMJ
Holdings. Mr. Jacobson’s wife, Georgina Jacobson, owns 40,000 shares of our
Common Stock and a warrant to purchase 20,000 shares of our Common Stock. Mr.
Jacobson expressly disclaims beneficial ownership of shares owned by his
wife.
(6)
Mr.
Blankstein personally owns 600,000 shares of our Common Stock. Yvonne
Blankstein, the wife of Gordon Blankstein, owns 530,083 shares of our Common
Stock and holds 500,000 shares of Common Stock in trust for Shelby Blankstein.
Mr. Blankstein expressly disclaims beneficial ownership of shares owned by
his
wife and shares that his wife holds in trust for Shelby Blankstein.
(7)
This
group includes 7 people, 5 of whom are listed on the accompanying table. Paddy
Marra, an officer and director, and Andrew Berger, a director, are not listed
on
the accompanying table and do not currently own any of our Common Stock. To
avoid double-counting: the 975,000 shares of Common Stock held by AMJ
Holdings and deemed to be beneficially owned by Robert Altinger, Peter Jacobson
and Michael Murphy as a result of their position as co-trustees of AMJ Holdings
have only been included once in the total (see Note (3), (4) and (5)
above).
(8)
Includes
6,500,000 shares of Common Stock and warrants to purchase up to 6,500,000 shares
of Common Stock. The shares of Common Stock and warrants are owned directly
by
West Coast Opportunity Fund, LLC. West Coast Asset Management, Inc. is the
managing member of West Coast Opportunity Fund, LLC. Paul J. Orfalea, Lance
W.
Helfert and R. Atticus Lowe, the members of the Investment Committee of West
Coast Asset Management, Inc. exercise shared voting and investment power over
the shares of Common Stock and warrants. Each of West Coast Asset Management,
Inc. and Messrs. Orfalea, Helfert and Lowe disclaims beneficial ownership of
the
shares and warrants except to the extent of his or its pecuniary interest
therein.
(9) Mr.
Blankstein personally owns 2,581,500 shares of Common Stock and indirectly
owns
575,000 shares of Common Stock as trustee for Charles Blankstein, the Mr.
Blankstein’s minor son. Mr. Blankstein also owns warrants to purchase up to
861,250 shares of our Common Stock.
36
DIVIDEND
POLICY
The
payment of dividends is within the discretion of the Company’s Board of
Directors. The Company presently intends to retain all earnings, if any, for
use
in the Company’s business operations and accordingly, the Board of Directors
does not anticipate declaring any dividends in the foreseeable future.
We
have
not previously declared or paid any cash dividends on our Common Stock and
presently intend to retain our future earnings, if any, to fund the development
and growth of our business and, therefore, do not anticipate paying any cash
dividends in the foreseeable future. We have accrued $5,880 of dividends owed
to
holders of our Series “B” Convertible Preferred Stock (“Series
B Preferred Stock”).
The
Series B Preferred Stock was converted into Common Stock on December 29, 2006.
37
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price
Range of Our Common Stock
Our
Common Stock is currently quoted on the OTC Bulletin Board under the trading
symbol ATYG.OB (formerly TWKS.OB). The following table sets forth the range
of
closing high and low bid quotes for each period indicated as reported by
stockwatch.com and reflects all stock splits effected by us:
2007
2007
2006
2006
2005
2005
High
Low
High
Low
High
Low
First
Quarter
$1.05
$0.85
$1.80
$1.50
$1.40
$0.90
Second
Quarter
$1.01
$0.75
$1.70
$1.46
$1.35
$0.72
Third
Quarter
$1.60
$1.10
$1.75
$1.26
Fourth
Quarter
$1.19
$0.90
$1.80
$1.25
The
quotations above reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.
We
have
approximately 200 stockholders as of September 12, 2007 comprising both
registered stockholders and those whose shares are held in “street
name”.
Equity
Compensation Plan Information
We
established our 1999 Stock Option Plan (the “1999
Plan”)
on
November 2, 1999 with 133,333 shares of Common Stock (on an adjusted basis)
approved for issuance. We established our 2001 Stock Plan (the “2001
Plan”)
on
August 16, 2001 with 250,000 shares of Common Stock (on an adjusted basis)
approved for issuance. We established our 2004 Employee Stock Incentive Plan
(the “2004
Plan”)
on
March 24, 2004 which allows us to issue options to staff and consultants of
up
to 25% of our outstanding Common Stock, as determined from time to time, which
was equal to 8,464,201 shares at September 12, 2007. The purpose of the 1999
Plan is to grant our Common Stock and options to purchase our Common Stock
to
our employees and key consultants. The purpose of the 2001 Plan is to grant
stock and warrants to purchase our Common stock to employees and key consultants
for outstanding cash payments due. The purpose of the 2004 Plan is to grant
stock options to purchase our Common Stock, restricted stock (“Restricted
Stock”),
and
stock bonuses to employees, officers and key consultants. The outstanding
options at December 31, 2005 and December 31, 2006 were:
Plan
Category
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
Weighted-average
exercise price of outstanding options, warrants and
rights
Number
of securities remaining available for future issuance under equity
compensation plans
During
the year ended December 31, 2006, options to purchase 6,250 shares of our Common
Stock were exercised at an exercise price $0.48 per share.
On
December 29, 2006, new options to purchase 90,000 shares of our Common Stock
were issued under the 2004 Plan to two staff members and a consultant at an
exercise price of $1.00 per share with the options vesting 20% annually starting
December 31, 2007.
38
SELLING
STOCKHOLDERS
The
following table provides certain information regarding the selling stockholder’s
beneficial ownership of our Common Stock prior to and after the offering. The
aggregate number of shares in this offering constitutes 13.1% of our issued
and
outstanding shares of Common Stock and 33.0% of our public float. Beneficial
ownership is determined under the Securities and Exchange Commission’s rules,
and generally includes voting or investment power with respect to securities.
Except where otherwise indicated, each of the following selling stockholders
exercises solve voting and investment control over the shares of our Common
Stock owned by them.
The
shares of Common Stock being offered by the selling stockholders were originally
issued by the Company to investors in certain private placement
transactions. We are registering the resale of these shares of Common
Stock in order to permit the selling stockholders to offer the shares for resale
from time to time. Except for the ownership of the shares of Common Stock
issued pursuant to the Securities Purchase Agreement or pursuant to a
Subscription Agreement, the selling stockholders have not had any material
relationship with us within the past three years.
The
table
below lists the selling stockholders and other information regarding the
beneficial ownership of the shares of Common Stock by each of the selling
stockholders. The second column lists the shares of Common Stock being
offered by this prospectus by the selling stockholders as of the date hereof.
The third column lists the shares of Common Stock being offered by this
prospectus by the selling stockholders.
In
accordance with the terms of a registration rights agreement with the selling
stockholders, this prospectus (or future prospectuses) generally covers the
resale of up to 100% of the shares of Common Stock issued by the Company to
the
Securities Purchase Agreement.
The
selling stockholders may sell all, some or none of their shares in this
offering. See “Plan of Distribution.”
Selling
Stockholder
Number
of Shares Owned Prior to the Offering
Number
of Warrants Owned Prior to the Offering(1)
Number
of Shares Being Offered for Sale
Number
of Shares Owned After the Offering
West
Coast Opportunity Fund, LLC (2)
6,500,000
6,500,000
3,770,000
2,730,000
Petroleum
Corporation of Canada Limited
1,100,000
300,000
406,000
694,000
311466
Alberta Ltd.
200,000
0
58,000
142,000
Jim
Dubois
100,000
0
29,000
71,000
Peter
Maclean
200,000
(3)
0
29,000
171,000
Hazel
Bennett
50,000
0
14,500
35,500
Henri
Shohet
50,000
0
14,500
35,500
Michael
Wilson
50,000
0
14,500
35,500
Georgina
Jacobson
40,000
20,000
23,200
16,800
Charles
Nye
30,000
(4)
0
5,800
24,200
Timothy
Biggio
4,000
2,000
1,160
2,840
Roman
Haas
100,000
0
29,000
71,000
Margaret
Haas
100,000
0
29,000
71,000
____________________
(1)
The
resale of shares of Common Stock underlying warrants is not being registered
pursuant to this registration statement. The total number of shares of Common
Stock underlying warrants have been added to the total number of shares of
Common Stock owned by each stockholder for purposes of determining the total
number of shares for which resale of such shares can be registered by each
stockholder. We anticipate that shares of Common Stock underlying issued and
outstanding warrants will be registered in a future registration
statement(s).
(2)
The
shares of Common Stock and warrants are owned directly by West Coast Opportunity
Fund, LLC. West Coast Asset Management, Inc. is the managing member of West
Coast Opportunity Fund, LLC. Paul J. Orfalea, Lance W. Helfert and R. Atticus
Lowe, the members of the Investment Committee of West Coast Asset Management,
Inc. exercise shared voting and investment power over the shares of Common
Stock
and warrants. Each of West Coast Asset Management, Inc. and Messrs. Orfalea,
Helfert and Lowe disclaims beneficial ownership of the shares of Common Stock
and warrants except to the extent of his or its pecuniary interest
therein.
(3)
Mr.
Maclean has decided to only register the resale of 100,000 of the 200,000 shares
of Common Stock he beneficially owns.
(4)
Mr.
Nye has decided to only register the resale of 20,000 of the 30,000 shares
of
Common Stock he beneficially owns.
39
CERTAIN
RELATIONSHIPS AND TRANSACTIONS AND RELATED
PARTY TRANSACTIONS
On
January 20, 2006the Company acquired Atlas Technology Group Holdings Ltd.
and
its subsidiaries, which had over the previous 18 months been developing its
new
software system for providing external IT application support services for
organizations with large IT functions. This work is being carried out by both
employees of the Company and specialist consultants engaged to prepare modules
of this new system. Some of these consultants are engaged through WebConsult
Inc., a registered Microsoft vendor, and they continue to carry out such work
on
normal commercial terms. Robert Altinger a director of the Company was formerly
a consultant to WebConsult Inc. Robert Altinger’s wife is an officer of
WebConsult Inc.
Since
the
beginning of the second quarter of 2006, the three executive directors of the
Company have been paid or had fees accrued of $10,000 (or in one case 10,000
Euros) each per month to themselves or to their consulting companies in lieu
of
salary as compensation for their time until contracts are negotiated. In July
2006, Michael Murphy was engaged as COO and the three executive directors plus
the COO have together been paid or had accrued a total of $285,000 for the
six
months to June 30, 2007.
As
of
September 12, 2007, other than as already disclosed above we have not entered
into any other contractual arrangements with related parties. There is not
any
other currently proposed transaction, or series of the same, to which we are
a
party, in which the amount involved exceeds $60,000 and in which, to our
knowledge, any director, executive officer, nominee, 5% shareholder or any
member of the immediate family of the foregoing persons, have or will have
a
direct or indirect material interest.
40
DESCRIPTION
OF SECURITIES
The
following is a summary of the material terms of the Company’s capital stock.
This summary is subject to and qualified in its entirety by our Certificate
of
Incorporation as amended, Bylaws and by the applicable provisions of Delaware
law.
General
The
Company is authorized to issue 210,000,000 shares of capital stock, par value
$0.0004 per share, consisting of 200,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock. As of September 12, 2007, 33,856,805
shares of Common Stock were outstanding and held of record by
approximately 200 stockholders. The
total
shares of Common Stock outstanding reflect the results of a 1-for-3 reverse
stock split of outstanding common stock made effective August 19, 2005.
As
of
September 12, 2007, there were no outstanding shares of Preferred
Stock.
Common
Stock
Holders
of Common Stock are entitled to one vote for each share held on all matters
to
be voted on by the stockholders. Holders of Common Stock do not have preemptive,
subscription or conversion rights, and there are no redemption or sinking fund
provisions or rights. In the event of a liquidation, dissolution or winding
up
of the Company, subject to the prior rights of any holders of Preferred Stock,
the holders of Common Stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities.
Stockholders
do not have cumulative voting rights, which means that the holders of more
than
50% of the outstanding shares, voting for the election of directors, can elect
all of the directors to be elected, if they so choose, and, in such event,
the
holders of the remaining shares will not be able to elect any of the Company’s
directors.
Preferred
Stock
The
Board
of Directors is authorized to provide for the issuance of shares of Preferred
Stock in series, to establish the number of shares to be included in each such
series, and to fix the designation, powers, preferences, and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof. The number of authorized shares of Preferred Stock may be increased
or
decreased (but not below the number of shares thereof then outstanding) by
the
affirmative vote of the holders of a majority of Common Stock, without a vote
of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of
any such holders is required pursuant to the terms of any Preferred Stock
designation.
The
Company has previously issued both Series A and Series B Convertible Redeemable
Preferred Stock, all of which has since been converted to Common Stock. There
are no outstanding shares of either Series A or Series B Preferred Stock.
Warrants
and Yield Enhancement Shares
On
June15, 2007, the Company entered into a Securities Purchase Agreement with WCOF.
In
connection with the issuance of promissory notes in the amount of $5,000,000,
the Company issued warrants to purchase up to an aggregate of 6,500,000 shares
of Common Stock at $2.60, as well as a yield enhancement consisting of 6,500,000
shares of the Common Stock for the aggregate purchase price of
$2,000.
In
connection with the foregoing private placement of capital stock, the Company
agreed to register for resale the shares of Common Stock underlying the warrants
and constituting the yield enhancement shares issued to WCOF. This registration
statement is intended to satisfy these obligations and is intended to register
the resale of such yield enhancement shares and shares of Common Stock
underlying warrants. Because of recent SEC interpretive guidance, we believe
only the resale of an amount of securities equal to one-third of a company’s
outstanding public float can be registered in a single registration statement.
Because of these limitations, we are only registering the resale of some of
the
shares of Common Stock issued to WCOF in this registration statement. In
addition to the registration of the resale of shares of Common Stock owned
by
WCOF, we are also registering the resale of shares of Common Stock issued to
certain existing stockholders of the Company in this registration statement.
Certain of our existing stockholders were issued shares of Common Stock and
warrants that provided them with piggyback registration rights. The resale
of
shares of Common Stock owned by WCOF and our existing stockholders are being
registered on a pro rata basis. We may register the resale of the remainder
of
the shares issued to WCOF and certain existing stockholders as well as the
resale of shares underlying warrants issued to WCOF and certain of our existing
stockholders in a future registration statement.
41
Transfer
Agent and Registrar
Our
transfer agent is Registrar and Transfer Company. They are located at
10
Commerce Drive, Cranford, NJ07016, and can
be
reached at 800-866-1340.
42
PLAN
OF DISTRIBUTION
The
selling stockholders, or their pledgees, donees, transferees or other successors
in interest may, from time to time, sell all or a portion of the shares at
fixed
prices that may be changed, at market prices prevailing at the time of sale,
at
prices related to such market prices or at negotiated prices. The selling
stockholders may offer their shares at various times in one or more of the
following transactions:
o
on
any national securities exchange, or other market on which our
Common
Stock may be listed at the time of
sale;
o
in
the over-the-counter market;
o
in
transactions otherwise than on these exchanges or systems or in
the
over-the-counter market;
o
through
block trades in which the broker or dealer so engaged will attempt
to sell
the shares as agent, but may position and resell a portion of the
block as
principal to facilitate the
transaction;
o
through
purchases by a broker or dealer as principal and resale by such
broker or
dealer for its account pursuant to this
prospectus;
o
in
ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o
through
options, swaps or derivatives;
o
in
privately negotiated transactions;
o
in
transactions to cover short sales;
o
through
a combination of any such methods of sale;
and
o
and
any other method permitted pursuant to applicable
law.
In
addition, the selling stockholders may also sell their shares that qualify
for
sale pursuant to Rule 144 under the Securities Act under the terms of such
rule
rather than pursuant to this prospectus.
The
selling stockholders may sell their shares directly to purchasers or may use
brokers, dealers, underwriters or agents to sell their shares upon terms and
conditions that will be described in the applicable prospectus supplement.
In
effecting sales, brokers and dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions, discounts or concessions from a selling stockholder or,
if
any such broker-dealer acts as agent for the purchaser of such shares, from
such
purchaser in amounts to be negotiated. Such compensation may, but is not
expected to, exceed that which is customary for the types of transactions
involved. Broker-dealers may agree with a selling stockholder to sell a
specified number of such shares at a stipulated price per share, and, to the
extent such broker-dealer is unable to do so acting as agent for a selling
stockholder, to purchase as principal any unsold shares at the price required
to
fulfill the broker-dealer commitment to the selling stockholders. Broker-dealers
who acquire shares as principal may thereafter resell such shares from time
to
time in transactions, which may involve block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above, in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions. In connection with such resales,
broker-dealers may pay to or receive from the purchasers of such shares
commissions as described above.
The
selling stockholders and any broker-dealers or agents that participate with
the
selling stockholders in sales of the shares may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales. In
such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
43
The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Exchange Act, and the rules
and
regulations thereunder, including, without limitation, Regulation M of the
Exchange Act, which may limit the timing of purchases and sales of any of the
shares of Common Stock by the selling stockholders and any other participating
person. Regulation M may also restrict the ability of any person engaged in
the
distribution of the shares of Common Stock to engage in market-making activities
with respect to the shares of Common Stock. All of the foregoing may affect
the
marketability of the shares of Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
Common Stock.
From
time
to time the selling stockholders may be engaged in short sales, short sales
against the box, puts and calls and other hedging transactions in our
securities, to the extent permitted by applicable law and exchange regulations,
and may sell and deliver the shares in connection with such transactions or
in
settlement of securities loans. These transactions may be entered into with
broker-dealers or other financial institutions. In addition, from time to time,
a selling stockholder may pledge its shares pursuant to the margin provisions
of
its customer agreements with its broker-dealer. Upon delivery of the shares
or a
default by a selling stockholder, the broker-dealer or financial institution
may
offer and sell the pledged shares from time to time.
We
will
pay all expenses of the registration of the resale of the shares of Common
Stock, estimated to be $143,000
in
total, including, without limitation, Securities and Exchange Commission filing
fees and expenses of compliance with state securities or “blue sky” laws;
provided,
however,
that a
selling stockholder will pay all underwriting discounts, commissions and
concessions and brokers’ or agents’ commissions and concessions or selling
commissions and concessions, if any. We will indemnify the selling
stockholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreement between
the
Company and WCOF, or the selling stockholders will be entitled to
contribution. We will be indemnified by the selling stockholders against
civil liabilities, including liabilities under the Securities Act, that may
arise from any written information furnished to us by the selling stockholder
specifically for use in this prospectus, in accordance with the related
registration rights agreement, or we may be entitled to
contribution.
Once
sold
under the shelf registration statement, of which this prospectus forms a part,
the shares of Common Stock will be freely tradable in the hands of persons
other
than our affiliates.
44
LEGAL
PROCEEDINGS
We
are
not aware of any legal proceedings (either presently engaged in or contemplated)
by any government authority or other party involving us, our properties or
our
products.
INTEREST
OF NAMED EXPERTS AND COUNSEL
None.
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
As
permitted by the Delaware General Corporation Law, our Certificate of
Incorporation, as amended, eliminates the liability of directors to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not
in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived any improper personal
benefit.
Our
Certificate of Incorporation, as amended, further provides that: “If the
Delaware General Corporation Law is amended after approval by the stockholders
of this Article to authorize corporate action further eliminating or limiting
the personal liability of directors then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by
the Delaware General Corporation Law as so amended.”
Section
145 of the Delaware General Corporation Law authorizes a corporation to
indemnify directors, officers, employees or agents of the corporation in
non-derivative suits if such party acted in good faith and in a manner which
he
or she reasonably believed to be in or not opposed to the best interest of
the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe this conduct was unlawful, as determined in
accordance with the Delaware General Corporation Law.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable.
45
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
On
October 13, 2006, the Board of Directors dismissed HLB Cinnamon, Jang,
Willoughby & Company, Chartered Accountants (“HLB
CJW”),
as
our independent registered public accountants. Except as noted in the next
sentence, the reports of HLB CJW on our consolidated financial statements as
of
and for the fiscal year ended December 31, 2005 did not contain any adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope, or accounting principle. The report of HLB CJW on
our
financial statements as of December 31, 2005 included an explanatory
paragraph expressing substantial doubt about the Company’s ability to continue
as a going concern. During the fiscal years ended December 31, 2005 and
2004 and the interim period through October 13, 2006, there were no
disagreements with HLB CJW on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of HLB CJW, would have
caused it to make reference thereto in its reports on the financial statements
for such periods, and there were no reportable events (as described in
Item 304(a)(1)(iv) of Regulation S-B).
On
October 13, 2006, the Board of Directors approved the dismissal of HLB CJW
and
approved the engagement of Williams & Webster, P.S. (a member of Russell
Bedford International, a global network of independent professional services
firms) as our principal independent registered public accountants to audit
our financial statements. Prior to the engagement of Williams & Webster,
P.S., neither we, nor any person on our behalf consulted Williams & Webster,
P.S. regarding either (i) the application of accounting principles to a
specified completed or proposed transaction or the type of audit opinion that
might be rendered on our financial statements, or (ii) any matter that was
the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-B
and the related instructions to such Item) There were also no reportable events
(as described in Item 304(a)(1)(iv) of Regulation S-B).
LEGAL
MATTERS
An
opinion has been rendered by the law firm of Hughes & Luce, LLP to the
effect that the shares of our common stock offered by the selling stockholders
under this prospectus are legally issued, fully paid and
non-assessable.
EXPERTS
The
financial statements included in this prospectus for the years ended December31, 2006 and December 31, 2005 have been audited by Williams & Webster,
P.S., independent registered public accounting firm and have been included
herein in reliance upon the report of such firm given upon their authority
as
experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the Securities and Exchange Commission, a registration statement
on
Form SB-2 under the Securities Act with respect to the Common Stock offered
in this offering. This prospectus does not contain all of the information set
forth in the registration statement. For further information with respect to
us
and the Common Stock offered in this offering, we refer you to the registration
statement and to the attached exhibits. With respect to each such document
filed
as an exhibit to the registration statement, we refer you to the exhibit for
a
more complete description of the matters involved.
You
may
inspect our registration statement and the attached exhibits and schedules
without charge at the Public Reference Room maintained by the Securities and
Exchange Commission at 100 F Street, N.E. Room 1580, Washington, DC 20549.
You
may obtain copies of all or any part of our registration statement from the
Securities and Exchange Commission upon payment of prescribed fees. You may
obtain information on the operation of the public reference room by calling
the
Securities and Exchange Commission at 1-800-SEC-0330.
Our
Securities and Exchange Commission filings, including the registration statement
and the exhibits filed with the registration statement, are also available
from
the Securities and Exchange Commission’s website at www.sec.gov, which contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange
Commission.
Report
of Independent Registered Public Accounting Firm
48
Consolidated
Balance Sheets
49
Unaudited
Consolidated Statements of Operations and Comprehensive
Loss
50
Audited Consolidated
Statements of Operations and Comprehensive Loss
51
Consolidated
Statements of Cash Flows
52
Consolidated
Statements of Stockholders’ Equity (Deficit)
54
Notes
to Consolidated Financial Statements
55
47
Tribeworks,
Inc.
Redmond,
Washington
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have audited the accompanying balance sheets of Tribeworks, Inc.
as of
December 31, 2006 and 2005 and the related statements of operations,
stockholders’ equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s 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 audits 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. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as 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 Tribeworks, Inc.
as of
December 31, 2006 and 2005 and the results of its operations, stockholders
equity and its cash flows for the years then ended in conformity
with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that
the
Company will continue as a going concern. As discussed in Note 2
to the
financial statements, the Company has limited cash. In addition,
the
Company’s significant operating losses raise substantial doubt about its
ability to continue as a going concern. Management’s plans regarding those
matters also are described in Note 2. The financial statements do
not
include any adjustments that might result from the outcome of this
uncertainty.
Our
business activity during 2005 and 2004 results from a mixture of consulting
services based on a technology and the sale of a technology that provided
tools
for creating and delivering multimedia applications. Internet media developers
used the technology for creation and deployment of electronic content that
utilizes interactive features combining graphics, video, and audio
content.
On
March30, 2005, the Company announced that it had determined that this business
was
insufficient to sustain a viable public company, and that we had decided
to
pursue a plan of reorganization to attempt to increase its scope and
profitability. The plan of reorganization that the Board of Directors approved
included the transfer of most assets and liabilities (including the accrued
salary obligations described in Note 11 to Tribeworks Development Corporation
(“TDC”),
a
wholly owned subsidiary, and Tribeworks began investing in a new business
stream
via advances to TakeCareofIT Holdings Ltd., doing business as Atlas Technology
Group, a Malta Corporation that was established in September 2004 to provide
external Information Technology (“IT”)
application support services for organizations with large IT functions.
TakeCareofIT Holdings Ltd., which has since changed its name to Atlas Technology
Group Holdings Ltd. (“AtlasTG
Holdings”)
was
acquired as a wholly owned subsidiary on January 20, 2006. The advances
from the
Company that were initially written off to product development costs in
the 2005
financial statements and then reinstated in amended financial statements
(see
Notes 12 and 13) and treated as a loan to AtlasTG Holdings in those financial
statements.
As
the
acquisition of AtlasTG Holdings and subsidiaries took place on January20, 2006
all of the 2006 comparative figures relate to the parent company, previously
called Tribeworks, Inc. and the new AtlasTG Holdings and subsidiaries line
of
business which are hereinafter collectively described as “AtlasTG”.
TDC
was
sold to its former management on September 14, 2006 and a significant number
of
the deferred payment obligations (including the accrued salary obligations
- see
Note 11) that appeared in the 2005 financial statements were transferred
with
this business or were released as a result of that sale. The former assets,
liabilities and business operations of TDC have been reclassified as
discontinued operations in these financial statements and when referring
to our
former business in these financial statements the reference will be to
the TDC
business to separate it from the new AtlasTG business stream of the going
forward business. The TDC business was built around the sale of software
through
two main distribution channels: the graphics software tools business and
proprietary products called iShell® or iShell Mobile and an enterprise
application development business.
On
January 26, 2007the Company acquired all of the assets (but not the
liabilities) including its IT technology, trademarks and 700 customers
of BLive
Networks, Inc., in exchange for the issuance of 1,150,000 shares of
restricted common stock of the Company (the “Common
Stock”).
150,000 of these shares of Common Stock were for an M&A Advisory Fee.
Additionally, in consideration of the payment by Petroleum Corporation
of Canada
Limited (“Petroleum
Corp.”)
of
$100,010, the Company agreed to issue to Petroleum Corp. 100,000 fully
paid
shares of Common Stock and a warrant to purchase 300,000 shares of Common
Stock
exercisable for a period of two years at a strike price of $1.25 per
share. Included in the assets was 49% of a Canadian company called InfoBuild
Networks (Canada) Inc., and subsequent to the initial acquisition an option
to
purchase the remaining 51% of InfoBuild Networks (Canada) Inc was exercised.
The
assets acquired have been transferred into InfoBuild Networks (Canada)
Inc. and
the name of it has been changed to BLive Networks Inc. The assets acquired
have
been consolidated into these financial statements along with the results
of
BLive Networks Inc. from January 26, 2007.
We
plan
to become a leading IT outsourcing support company for custom software
applications worldwide. The AtlasTG business is a start-up business and
is now
at the revenue launch stage with the first support customers going live
in March
2007 after extensive beta testing of the new in-house developed
tools.
55
The
initial support centers are based in Malta and Wellington, New Zealand,
with
technical support from a small staff in Redmond, Washington, creating
“follow-the-sun”, 24 hour coverage. As business grows, third and fourth
locations are planned to be added to increase capacity, as needed. State
of the
art VoIP, call tracking and monitoring technology provide each employee
with
leverage needed to maximize support delivery to the fullest possible extent.
The
Company continues to test its new software tools and is now beginning to
implement its plan of selling software support services, and is pursuing
sales
in the western US, the European Union (“EU”),
specifically the United Kingdom and Italy. AtlasTG now has support contracts
with two customers in the United States (“US”).
AtlasTG continue to target customers in Italy, the UK and the west coast
of the
US before it later expands its sales efforts worldwide. AtlasTG is initially
marketing to four targeted groups of potential clients:
1)
Directly
to initial pilot customers, who will serve as final beta test
opportunities for the Company’s systems, software monitoring and incident
management systems;
2)
Agent
companies, who are strategic partners and will represent the
company in
specific regions in defining strategic reseller and onboarding
partners;
3)
Onboarding
partners who have the internal capabilities to select and technically
audit, harden, stress-test, and document complex software systems,
and;
4)
Reseller
channel partners who will be the backbone of the Company’s sales strategy.
With existing large customer bases of large and complex software
systems,
resellers will be provided the advanced AtlasTG tools and systems
to
monitor and support highly complex software systems on an ongoing
basis.
AtlasTG
began actively marketing its software support services on October 1, 2006
and
has signed commitments from two onboarding partners in the EU, as well
as two
support customers in the US.
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
At
the
annual general meeting of the Company on July 12, 2007, the name of the
Company
was changed from Tribeworks, Inc. to Atlas Technology Group, Inc. and as
of
August 16, 2007, the Company’s Common Stock now trades under the ticker
symbol ATYG.OB with the new CUSIP number of 049432 107 and new ISIN number
of US0494321070. The accompanying financial statements of Atlas Technology
Group, Inc. (formerly Tribeworks, Inc.) (the “Company”)
have
been audited for the years ended December 31, 2006 and 2005.
The
financial statements for the six and three monthly interim periods have
been
prepared in accordance with generally accepted accounting principles for
interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they did not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial statements,
although the Company believes that the disclosures are adequate to make
the
information presented not misleading. In the opinion of management, all
adjustments necessary for a fair presentation of the Company’s financial
position at June 30, 2007, and its results of operations for the six months
ended June 30, 2007 and 2006, and the operations and cash flows for the
six
months ended June 30, 2007 have been made. However, operating results for
the
interim periods noted are not necessarily indicative of the results that
may be
expected for the year ending December 31, 2007. This report should be read
in
conjunction with the Company’s financial statements and notes thereto contained
in the Company’s Annual Report on Form 10-KSB for the year ended December 31,2006.
This
summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes
are
representations of our management, which is responsible for their integrity
and
objectivity. These accounting policies conform to accounting principles
generally accepted in the United States of America and have been consistently
applied in the preparation of the financial statements.
Accounting
Methods
The
Company’s financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted
in the
United States of America.
56
Basis
of Consolidation
The
financial statements of the Company are presented on a consolidated basis
and
include the Company and its wholly owned subsidiaries since the first quarter
of
2006:
Atlas
Technology Group Holdings Limited
Malta
TakeCareofIT
Limited
Malta
Atlas
Technology Group (NZ) Limited
New
Zealand
Atlas
Technology Group (US) Inc.
Washington
State, USA
Atlas
Technology Group Consulting Inc.
Washington
State, USA
These
subsidiaries were incorporated at various dates ranging from September
2004
through to August 2006 and have been included in the consolidated financial
results following the acquisition of AtlasTG on January 20, 2006. In
addition The Company’s wholly owned subsidiary, TDC, which was sold September14, 2006, was included in the 2005 financial statements, but was reclassified
as
a discontinued activity once an agreement to sell TDC was reached. The
results
of the Company’s wholly owned subsidiary, BLive Networks Inc., have been
consolidated from January 26, 2007.
All
material inter-company transactions have been eliminated.
Advertising
Expenses
Advertising
expenses consist primarily of costs incurred in the design, development,
and
printing of literature and marketing materials including website design.
The
Company expenses all advertising expenditures as incurred. Advertising
expenses
were $136,260 and $0 for the years ended December 31, 2006 and 2005,
respectively, and $131,931 for the six months ended June 30, 2007.
Accounts
Receivable
Accounts
receivable are reported at net realizable value. The Company provides an
allowance for doubtful accounts and records bad debts based on a periodic
review
of accounts receivable to consider the collectability of each
account.
At
December 31, 2006, we had $50,934 (2005: $0) outstanding accounts receivable.
Included in accounts receivable were valued added tax refunds receivable
at
December 31, 2006 of $40,705 and $10,229 of trade accounts receivable.
AtlasTG
had $22,596 of VAT refunds due at December 31, 2005 which have been received
during 2006 and the tax refunds recorded in 2006 are expected to be collected
in
2007. At June 30, 2007 accounts receivable have increased to $83,868 (of
which
$55,662 has been collected since that date) and VAT receivables have reduced
to
a net $24,356, following receipt of some of the December 31, 2006 receivable
and
new receivables due.
Cash
and Cash Equivalents
For
purposes of the statements of cash flows, the Company considers all highly
liquid investments (or short term instruments) with original maturities
of three
months or less to be cash equivalents.
Compensated
Absences
Employees
are entitled to paid vacation, sick, and personal days off, depending on
job
classification, length of service, and other factors, after the employee
has
worked for a minimum period of one year. The Company’s policy is to recognize
the cost of compensated absences when actually paid to employees as the
compensation can also be lost if not taken within a specified time. If
the
amounts were estimable, it would not be currently recognized as the amount
would
be deemed immaterial because of our small size and number of employees
who have
been with us for less than a year.
57
Comprehensive
Income
The
Company has adopted Statement of Financial Accounting Standards No. 130,
“Reporting Comprehensive Income” (hereinafter “SFAS
No. 130”),
which
was issued in June 1997. SFAS No. 130 established rules for the reporting
and
display of comprehensive income and its components. SFAS No. 130 requires
unrealized gains and losses on our foreign currency translation to be included
in comprehensive income.
Concentration
of Credit Risk
The
Company and each of its subsidiaries maintain cash in both local currency
and US
dollar commercial bank accounts with major reputable financial institutions.
The
financial institutions are considered credit worthy and have not experienced
any
losses on their deposits at December 31, 2006. Cash balances did not exceed
Federal Deposit Insurance Corporation (“FDIC”)
limits
within the United States, however, funds were held in accounts with HSBC
in
Malta and New Zealand, countries not covered by FDIC.
Customer
Concentrations
In
2006,
three customers accounted for 77%, 13% and 10% of total revenues, respectively.
In 2005, three customers accounted for 42%, 20% and 3% of total revenues,
respectively. At December 31, 2006 and 2005, accounts receivable from these
major customers totaled $10,229 and $3,814 respectively.
Revenues
from international customers were approximately 90% and 42% of total revenues
in
2006 and 2005, respectively. Revenues are paid in US dollars and Euros.
Approximately 11% and 42% of revenues in 2006 and 2005, respectively, were
generated from non-US based customers. At December 31, 2006 and 2005, accounts
receivable from all international customers totaled approximately $10,301
and
$3,814, respectively.
Earnings
(Loss) per Share
Basic
earnings per share (“EPS”)
is
computed based on net income (loss) divided by the weighted average number
of
shares of Common Stock outstanding. Diluted EPS is computed based on net income
(loss) divided by the weighted average number of shares of Common Stock
and
potential Common Stock equivalents outstanding. At our annual meeting of
stockholders held August 19, 2005, a one-for-three reverse stock split
was
approved, which reduced the number of shares of Common Stock outstanding
by
two-thirds. All references in the accompanying consolidated financial statements
to the number of shares of Common Stock, number and exercise price of stock
options and stock warrants, and per share amounts for the periods prior
to the
reverse stock split have been restated to reflect the reverse stock
split.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates and assumptions are reviewed periodically and the effects of
revisions
are reflected in the consolidated financial statements in the period they
are
determined.
Fair
Value of Financial Instruments
The
Company’s financial instruments defined by SFAS No. 107 “Disclosures about Fair
Value of Financial Instruments”, include cash, receivables and short-term debt
for which the Company believes, due to the short maturity of these financial
Instruments, approximates fair value at December 31, 2006.
58
Foreign
Currency Translation
Transactions
in foreign currencies are translated at the rates of exchange ruling on
the
dates of the transactions. Monetary assets and liabilities expressed in
foreign
currencies are translated at the rates of exchangeprevailing
at the end-of-period exchange rates and the translation differences are
dealt
with through the profit and loss account.
Atlas
Technology Group Holdings Limited and TakeCareofIT Limited functional currency
is Maltese Lira (“MTL”),
however, the statutory financial statements are presented in terms of Euros
as
required by Article 187 of the Companies Act, 1995 (Malta), which stipulates
that a company must draw up its annual accounts in the same currency as
that of
its share capital. The US companies use US dollars and the New Zealand
subsidiary uses New Zealand dollars as their functional currencies. The
AtlasTG
financial statements have been converted into US Dollars and reformatted
to
conform to US GAAP. The prime accounting records transactions denominated
in
foreign currencies are translated at the rates of exchange ruling on the
dates
of the transactions. Monetary assets and liabilities expressed in foreign
currencies are translated at the rates of exchange prevailing at balance
sheet
date. Transaction differences are dealt with through the operating statement.
Unrealized gains or losses on foreign currency translations are included
in
comprehensive income.
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. The Company reported net
losses
during both 2006 and 2005 and had a working capital deficiency. These factors,
among others, indicate that the Company may be unable to continue as a
going
concern for a reasonable period of time. The financial statements do not
include
any adjustments that might result from the outcome of this
uncertainty.
To
fully
develop the new AtlasTG business stream, which is now in the initial productions
stages and is being deployed with customers, management plans to raise
additional equity. This process is currently underway and unless this equity
is
raised there is substantial doubt about our ability to continue as a going
concern. The recoverability of the recorded assets and satisfaction of
the
liabilities reflected in the accompanying balance sheets is dependent upon
our
continued operation, which is in turn dependent upon our ability to raise
additional equity to meet its cash flow requirements on a continuing basis
and
to succeed in its future operations. There can be no assurance that management
will be successful in implementing its plans. The financial statements
do not
include any adjustments that might result from the outcome of this
uncertainty.
In
June
2007, the Company entered into a Securities Purchase Agreement with West
Coast
Opportunity Fund, LLC, a Delaware limited liability company (“WCOF”).
Pursuant to the terms of the Securities Purchase Agreement with WCOF, a
subsidiary of the Company, issued to WCOF two senior secured non-convertible
promissory notes totaling $5,000,000 with $4,000,000 being placed in escrow
with
Wells Fargo Bank, N.A. until the Company or any of its subsidiaries enters
into
contracts with certain entities. $1,500,000 will be released from escrow
upon the Company entering into contracts with certain entities totaling
$1,000,000 in annual, non-contingent future revenues prior to 5:00 p.m.
on
December 31, 2007. An additional $2,500,000 will be released from escrow
upon
the Company entering into contracts with certain entities totaling $5,000,000
in
annual, non-contingent revenues prior to 5:00 P.M. on December 31, 2007.
The first promissory note for $2,500,000 was made on June 15, 2007, with
$1,500,000 placed in escrow and the second promissory note was made on
July 11,2007, and all of these funds were placed in escrow. This is further explained
in
Note 5.
New
Accounting Pronouncements
In
September, 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87,88,106, and 132(R)” (hereinafter “SFAS
No. 158”).
This
statement requires an employer to recognize the overfunded or underfunded
status
of a defined benefit postretirement plan (other than a multiemployer plan)
as an
asset or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted net
assets
of a not for profit organization. This statement also requires an employer
to
measure the funded status of a plan as of the date of its year end statement
of
financial position, with limited exceptions. The adoption of this statement
had
no immediate material effect on our financial condition or results of
operations.
59
In
September, 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 157, “Fair Value Measurements” (hereinafter
“SFAS
No. 157”).
This
statement defines fair value, establishes a framework for measuring fair
value
in generally accepted accounting principles (“GAAP”),
and
expands disclosure about fair value measurements. This statement applies
under
other accounting pronouncements that require or permit fair value measurements.
This statement does not require any new fair value measurements, but for
some
entities, the application of this statement may change current practice.
The
adoption of this statement had no immediate material effect on our financial
condition or results of operations.
In
March
2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 156, “Accounting for Servicing of Financial Assets - an
amendment of FASB Statement No. 140.” This statement requires an entity to
recognize a servicing asset or servicing liability each time it undertakes
an
obligation to service a financial asset by entering into a servicing contract
in
any of the following situations: a transfer of the servicer’s financial assets
that meets the requirements for sale accounting; a transfer of the servicer’s
financial assets to a qualifying special-purpose entity in a guaranteed
mortgage
securitization in which the transferor retains all of the resulting securities
and classifies them as either available-for-sale securities or trading
securities; or an acquisition or assumption of an obligation to service
a
financial asset that does not relate to financial assets of the servicer
or its
consolidated affiliates. The statement also requires all separately recognized
servicing assets and servicing liabilities to be initially measured at
fair
value, if practicable and permits an entity to choose either the amortization
or
fair value method for subsequent measurement of each class of servicing
assets
and liabilities. The statement further permits, at its initial adoption,
a
one-time reclassification of available for sale securities to trading securities
by entities with recognized servicing rights, without calling into question
the
treatment of other available for sale securities under Statement 115, provided
that the available for sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing assets or
servicing liabilities that a servicer elects to subsequently measure at
fair
value and requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial
position and additional disclosures for all separately recognized servicing
assets and servicing liabilities. This statement is effective for fiscal
years
beginning after September 15, 2006, with early adoption permitted as of
the
beginning of an entity’s fiscal year. Management believes adoption of this
statement will have no immediate impact on our financial condition or result
of
operations.
In
February 2006, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Standards No. 133 and 140” (hereinafter
“SFAS
No. 155”).
This
statement established the accounting for certain derivatives embedded in
other
instruments. It simplifies accounting for certain hybrid financial instruments
by permitting fair value remeasurement for any hybrid instrument that contains
an embedded derivative that otherwise would require bifurcation under SFAS
No.
133 as well as eliminating a restriction on the passive derivative instruments
that a qualifying special-purpose entity (“SPE”)
may
hold under SFAS No. 140. This statement allows a public entity to irrevocably
elect to initially and subsequently measure a hybrid instrument that would
be
required to be separated into a host contract and derivative in its entirety
at
fair value (with changes in fair value recognized in earnings) so long
as that
instrument is not designated as a hedging instrument pursuant to the statement.
SFAS No. 140 previously prohibited a qualifying special-purpose entity
from
holding a derivative financial instrument that pertains to a beneficial
interest
other than another derivative financial instrument. This statement is effective
for fiscal years beginning after September 15, 2006, with early adoption
permitted as of the beginning of an entity’s fiscal year. Management believes
the adoption of this statement will have no impact on our financial condition
or
results of operations.
In
May
2005, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 154, “Accounting Changes and Error Corrections,”
(hereinafter “SFAS
No.154”)
which
replaces Accounting Principles Board Opinion No. 20, “Accounting Changes”, and
SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements - An
Amendment of APB Opinion No. 28”. SFAS No. 154 provides guidance on accounting
for and reporting changes in accounting principle and error corrections.
SFAS
No. 154 requires that changes in accounting principle be applied retrospectively
to prior period financial statements and is effective for fiscal years
beginning
after December 15, 2005. See Note 13.
60
Property
and Equipment
Property
and equipment are stated at cost. Depreciation of property and equipment
is
calculated using the straight-line method over the estimated useful lives
of the
assets, which range from three to seven years. See Note 4.
Revenue
Recognition
Revenue
is generally recognized when all contractual or transfer obligations have
been
satisfied and collection of the resulting receivable is probable.
Software
Development Costs and Customer List and Trademarks
The
Company has in the past expensed all of its software development costs
in the
period the costs are incurred. With the new software purchased with AtlasTG
and
being developed by AtlasTG reaching the beta stage, the Company has adopted
Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS
86”)
and
has capitalized certain development costs that meet the requirements of
SFAS
86.
Capitalized
costs will be amortized over three years from the date on which the new
AtlasTG
business goes into full commercialization. Not all of the development costs
for
the period meet the requirements of SFAS 86, and $859,780 of software
development costs have been expensed in the period ended December 31,2006.
As
part
of the acquisition of BLive, the Company acquired 700 customers and various
trademarks and has valued this customer list and trademarks by way of the
value
of the future revenue these customers can generate over the next three
years
with an allowance for their diminishing value. As BLive had already
commercialized their technology and is generating revenue, this customer
list
and trademarks acquired from BLive will be amortized over the next three
years
and $88,127 was amortized in the period ended June 30, 2007.
Prior
to
2006, the Company accounted for stock based awards to employees under its
“Equity Incentive Plan” as compensatory in accordance with Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB
25”).
The
Company also recorded stock-based awards for services performed by consultants
and other non-employees in accordance with Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS
No. 123”).
In
December 2002, the Financial Accounting Standards Board issued Statement
of
Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation
- Transition and Disclosure” (hereinafter “SFASNo.148”).
SFAS
No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to
provide alternative methods of transition for a voluntary change to the
fair
value based method of accounting for stock-based employee compensation.
In
addition, the statement amends the disclosure requirements of SFAS No.
123 to
require prominent disclosure in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and
the
effect of the method used on reported results. The provisions of the statement
are effective for financial statements for fiscal years ending after December15, 2002. The Company has adopted SFAS No. 123(R) in 2006.
61
NOTE
3 - LOAN TO ATLAS TECHNOLOGY GROUP
During
2005, the Company advanced $1,073,744 to AtlasTG Holdings and its subsidiaries,
a group of companies then controlled by the current directors of the Company,
in
order for AtlasTG Holdings to pursue its business plan. AtlasTG Holdings
had not
yet established profitable operations, nor is it in a position to repay
the
loan. Subsequent to the acquisition of AtlasTG Holdings on January 20,2006,
AtlasTG Holdings and its subsidiaries are now fully consolidated into the
consolidated accounts presented in these financial statements and the loan
is
now treated as an inter-company advance and eliminated in the consolidation.
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. The
useful
lives of property, plant and equipment for purposes of computing depreciation
are five to forty years. The following is a summary of property, equipment,
and
accumulated depreciation:
Depreciation
and amortization expense for the year ended December 31, 2006 was $71,047
(2005:
$0) and for the six months ended June 30, 2007, $28,721. We evaluate the
recoverability of property and equipment when events and circumstances
indicate
that such assets might be impaired. We determine impairment by comparing
the
undiscounted future cash flows estimated to be generated by these assets
to
their respective carrying amounts. Maintenance and repairs are expensed
as
incurred. Replacements and betterments are capitalized. The cost and related
reserves of assets sold or retired are removed from the accounts, and any
resulting gain or loss is reflected in results of operations.
NOTE
5 - LOANS, ADVANCES AND NOTE PAYABLE
On
March30, 2005, the Company announced a plan of reorganization, intended to allow
the
Company to maintain its public reporting requirements, reduce its debt,
and
explore new business directions. The plan of reorganization included the
transfer of most assets and liabilities to the Company’s operating subsidiary,
TDC. As part of this initial reorganization the balance of an earlier Note
issued on January 21, 2001 was acquired by a financier who agreed to provide
under a new note agreement (“Note”)
which
provided for unsecured borrowing at 4% in an amount of up to $100,000 to
help
cover reorganization costs. As of December 31, 2005, the Company had borrowed
$91,474 against the new Note agreement increasing the total amount owing
under
the Note to $175,175.
During
2006, the Note was renegotiated with the lender agreeing to take 100,000
shares
of Common Stock of the Company at $1.00 per share plus a warrant to purchase
50,000 shares of Common Stock of the Company exercisable for two years
at a
price of $1.25 per new share as part repayment with the balance plus accrued
interest being converted into a new note issued for $120,000 repayable
on March30, 2007. This repayment date has subsequently been extended to September30, 2007 in exchange for the issuance of 25,000 fully paid shares of Common
Stock of the Company and a warrant exercisable for two years to purchase
50,000
shares of Common Stock of the Company at an exercise price of $1.00 per
share.
As a result of these issuances of shares and warrants, a financing charge
of
$35,275 was accrued and half of this was expensed in the three months ended
June30, 2007 and the other half will be expensed in the three months ending
September 30, 2007.
The
loans
repayable of $65,119 comprise advances from stockholders and related parties
and
have no fixed repayment dates, but are considered to be of a short-term
nature.
62
An
advance of $150,000 was made to the Company by an existing stockholder
on March29, 2007, and two further advances of $225,000 and $250,000 were made during
the
three months ended June 30, 2007. These advances initially incurred a 5%
arrangement fee and were evidenced by promissory notes totaling $656,250.
The
holder of these promissory notes converted $500,000 of the debt into 650,000
shares of Common Stock and a warrant exercisable for three years to purchase
650,000 shares of Common Stock of the Company at an exercise price of $1.30
per
share. As a result of these transactions the Company took expense financing
charges totaling $314,917. The remaining $156,250 of debt was repaid in
cash.
On
June15, 2007, Atlas Technology Group (US), Inc., a Delaware corporation
(“Atlas
US”),
and a
wholly -owned subsidiary of the Company, entered into a Securities Purchase
Agreement with WCOF. Pursuant to the terms of the Securities Purchase Agreement,
Atlas US agreed to issue and sell to WCOF two senior secured non-convertible
promissory notes in the initial amount of $2,500,000 (the “Initial
Note”)
which
was issued on June 15, 2007 and a second promissory note in the amount
of
$2,500,000 (the “Second
Note”
and
together with the Initial Note, the “Promissory
Notes”),
which
was subsequently issued on July 11, 2007.
Interest
on the Promissory Notes will be calculated at an annual rate of 5% and
is due
and payable bi-annually. The Promissory Notes must be paid in full by November30, 2008.
In
connection with the issuance of the Initial Promissory Note, pursuant to
the
Securities Purchase Agreement, the Company issued WCOF a warrant to purchase
3,250,000 shares of Common Stock of the Company and upon the issuance of
the
Second Promissory Note, the Company issued WCOF an additional warrant for
the
purchase of 3,250,000 shares of Common Stock of the Company. These warrants
are
exercisable for a period of five years at a price of $2.60 per share. The
Company is also permitted to force the exercise of these warrants if the
Common
Stock of the Company closes at a price above $10.00 per share for 20 out
of 30
days, certain trading volume requirements are satisfied and the resale
of the
Common Stock underlying these warrants have been registered with the Securities
and Exchange Commission (the “SEC”)
and
such registration statement has been declared effective.
In
connection with the issuance of the Promissory Notes, the Company and all
of its
subsidiaries other than Atlas US signed a Guaranty Agreement (the “Guaranty”)
that
provides WCOF with a guarantee to repay the Promissory Notes on behalf
of Atlas
US if Atlas US fails to repay the Promissory Notes. In addition to the
Guaranty,
the Company and all of its subsidiaries provided WCOF a first lien security
interest in all of each entity’s assets pursuant to the terms of a Pledge and
Security Agreement (the “Security
Agreement”).
Of
the
$2,500,000 paid by WCOF for the Initial Note on June 15, 2007, Atlas US
received
$1,000,000 less certain fees and expenses and $1,500,000 was placed into
escrow
pursuant to the terms of an escrow agreement (the “Escrow
Agreement”)
between Atlas US, WCOF and Wells Fargo Bank, N.A. Pursuant to the terms
of the
Escrow Agreement, the amount of $1,500,000 will not be released from escrow,
unless Atlas US, the Company or any of its subsidiaries enters into contracts
with certain customer entities, totaling $1,000,000 in annual, non-contingent
future revenues prior to 5:00 p.m. on December 31, 2007. In addition, the
entire proceeds of the Second Note were also placed into the escrow account
and
will not be released from escrow, unless Atlas US, the Company or any of
its
subsidiaries enters into contracts with certain customer entities, totaling
$5,000,000 in non-contingent future revenues prior to 5:00 p.m. on December31,2007.
In
the
event that Atlas US, the Company or any of its subsidiaries has not entered
into
the contracts described above, the amounts in the escrow account will be
returned to WCOF and will be applied to the repayment of the Promissory
Notes.
Subject
to certain grace periods, the Promissory Notes provide the following events
of
default (among others):
·
Failure
of Atlas US to enter into contracts with certain entities, totalling
$1,000,000 in annual, non-contingent future revenues to any of
Atlas US,
the Company or any of its subsidiaries prior
Failure
of Atlas US to pay principal and interest when
due;
63
·
Any
form of bankruptcy or insolvency proceeding is instituted by
or against
Atlas US, the Company or any of its subsidiaries that is not
withdrawn
within 90 days;
·
A
breach by the Company or Atlas US of any material representation
or
warranty made in the Securities Purchase
Agreement;
·
An
uncured breach by the Company or Atlas US of any material covenant,
term
or condition in
the
Securities Purchase Agreement or the Promissory Notes;
and
·
Any
event of default set forth in the Security
Agreement.
Subject
to certain grace periods, the Security Agreement provides the following
events
of default (among others):
·
Any
event of default set forth in the Promissory
Notes;
·
A
breach by Atlas US, the Company or any of its subsidiaries of
any material
representation or warranty made in the Security Agreement;
and
·
Failure
of Atlas US, the Company or any of its subsidiaries to observe
or perform
any of its obligations under the Security
Agreement.
Upon
the
occurrence of an event of default, the payment of the principal amounts
under
the Promissory Notes may be accelerated and the interest rate applicable
to the
principal amounts is increased to 7.5% per annum during the period the
default
exists.
As
further consideration for the making of the Initial Note, the Company issued
and
sold 3,250,000 shares of Common Stock of the Company to WCOF, for a purchase
price of $1,000 pursuant to the terms of the Securities Purchase Agreement.
Upon
the issuance of the Second Note, the Company issued and sold an additional
3,250,000 shares of Common Stock to WCOF for a purchase price of $1,000.
As
a
result of the issuance of these shares of Common Stock and warrants associated
with the Initial Note the Company and Atlas US incurred and expensed financing
charges of $854,375 for the three months ended June 30, 2007 and also booked
as
discount on debt of $2,429,775 which will be amortized over the remaining
tem of
the loan to the repayment date of November 30, 2008 and the net effect
is shown
in the Consolidated Balance Sheet at June 30, 2007. The corresponding credit
was
booked to additional paid -in capital and is included in the Stockholder’s
equity in the balance sheet.
Members
of the Company’s management team and certain of its stockholders executed a
lock-up agreement with WCOF that prohibits them from selling any of their
holdings of Common Stock until ninety (90) days following the repayment
of the
Promissory Notes.
The
Company paid its placement agent, Equity Source Partners, LLC (“ESP”),
an
NASD member investment firm cash commission of approximately $80,000 on
the
closing date for the Initial Note and issued 5 year warrants to purchase
30,769
shares of common stock of the Company on equal terms to the warrants issued
to
WCOF. Atlas US also agreed to pay the legal fees of counsel to WCOF $15,000.
ESP
will receive further commissions equal to 8% of any funds released from
escrow.
The Company also has agreed to reimburse ESP for its reasonable expenses
incurred in connection with the WCOF financing transaction. As a result,
the
Company incurred financing charges of $120,612 which were expensed during
the
three months ended June 30, 2007.
64
NOTE
6 - INCOME TAXES
Deferred
income tax assets and the related valuation allowances result principally
from
the potential tax benefits of net operating loss carryforwards. With the
changes
in shareholdings that have taken place since August 2005 many of the previous
losses carried forward may have been lost and the losses incurred in the
2005
and 2006 years have not yet been confirmed by the various taxing authorities.
With the Company’s historical losses, the Company cannot record and value the
tax benefit of its losses with any certainty.
Losses
have been incurred not only in the US, but also in Malta and in New Zealand
where the rates differ from those of the US, as to the carry forward rules.
The
Company has incurred losses in all of its jurisdictions. The tax accrued
is for
the minimum tax payable to the state of California where Tribeworks had
its US
offices until September 2006 when it was moved to Redmond,
Washington.
Based
on
the losses incurred for the years to December 31, 2006 and 2005, the Company
had
deferred tax assets of approximately $743,668 and $66,517, respectively,
principally arising from net operating loss carryforwards for income tax
purposes multiplied by an average expected tax rate of 34%. As management
of the
Company cannot determine that it is more likely than not that the Company
will
realize its benefit of the deferred tax assets, a valuation allowance equal
to
the deferred tax assets was present at December 31, 2006 and 2005.
The
significant components of the deferred tax assets at December 31, 2006
and 2005
were as follows:
December31, 2006 and 2005, the Company has net operating loss carryforwards of
approximately $2,187,000 and $195,000, respectively, which expire in the
years
2021 through 2025. The change in the allowance account from December 31,2005 to
2006 was $677,151.
The
majority of these losses are in companies outside of the United States
of
America and are subject to various restrictions as to there future use
and any
changes in ownership not dissimilar to the restrictions imposed by The
Tax
Reform Act of 1986 and Internal Revenue Code. Under such circumstances,
the
Company’s ability to utilize its net operating losses against future income may
be reduced
NOTE
7 - CAPITAL STOCK
The
Company has an authorized share capital of: 200,000,000 shares of Common
Stock
of $0.0004 each; and 10,000,000 shares of preferred stock of $0.0004
each.
At
the
Company’s annual general meeting held on August 19, 2005, the stockholders
approved a 1-for-3 reverse share split such that post the 1-for-3 reverse
split
there were 1,569,555 shares of Common Stock issued and outstanding. The
reverse
share split did not affect the number of authorized shares. Subsequent
to the
Company’s 2005 annual general meeting where stockholders approved the private
placement of up to 19,000,000 post-reverse split shares of Common Stock
at a
price of $0.01 per share, subscription monies of $190,000 were received
and
19,000,000 shares of Common Stock were issued.
The
Company raised a further $42,000 by placement of 84,000 shares of Series
B
Preferred Stock at a stated value $0.50 per share during the third quarter
of
2005. Each share is fully convertible on a one-for-one basis into shares
of
Common Stock of the Company at the discretion of the board. The board exercised
its discretion and these shares of Series B Preferred Stock were converted
on
December 29, 2006 into 84,000 shares of Common Stock per the terms of the
issue
together with the issue of one (1) warrant for every two (2) new shares
of
Common Stock to subscribe for shares of Common Stock at $1.00 per share
of
Common Stock within one year. Dividends totalling $5,880 were accrued,
being the
entitlement to an annual cumulative dividend of 10% of the Stated
Value.
65
In
the
third quarter of 2005 the Company also raised $110,000 by way of a private
placement of 220,000 shares of Common Stock at a value of $0.50 per share
with
these shares having attached to them one (1) warrant for every two (2)
new
shares of Common Stock to subscribe for shares of Common Stock of the Company
at
$1.00 per share of Common Stock within one year of these new shares of
Common
Stock being issued.
In
the
fourth quarter of 2005, the Company received $417,289 of subscription monies
to
subscribe for shares. Further private placement subscription monies were
received during the first quarter of 2006 and the Company then issued 1,714,000
shares of Common Stock at a price of $0.50 per share.
During
the quarter ended March 31, 2006, a staff option holder under the 1999
Stock
Incentive Plan exercised 6,250 options into 6,250 shares of Common Stock
for a
total consideration of $3,000.
During
the year ended December 31, 2006, 1,140,000 shares of Common Stock were
placed
during the quarter ended June 30, 2006 to five European investment funds
at a
price of $1.25 per share. Along with these shares, the Company also issued
one
warrant for every two new shares of Common Stock purchased. The warrants
have an
exercise price of $1.75 per share. The warrants have a two year term and
will
expire on May 31, 2008. Each investor represented in writing to the Company
that
it is “accredited investor” as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
In
addition to brokerage and commission fees of $85,500 for raising the funds
discussed above, Westmount Capital was issued 85,500 warrants with an exercise
price of $1.75 per share. These warrants have a two year term that expires
on
June 16, 2008 and have a fair market value of $8,550.
In
the
fourth quarter of 2006, 50,000 warrants to purchase shares of Common Stock
at
$1.00 per share were exercised. 80,000 shares of Common Stock were issued
at 50
cents per share. Additionally, 300,000 shares were issued at $1.00 per
share,
along with (1) warrant for every two (2) shares of Common Stock issued.
These
warrants are exercisable at a price of $1.25 per share of Common Stock
and are
exercisable for a period of two years.
During
the fourth quarter of 2006, 100,000 shares of Common Stock were issued
for debt
at $1.00 per share including 50,000 warrants exercisable at $1.25 per
share.
On
January 26, 2007the Company issued 1,150,000 shares of restricted
common
stock of the Company to acquire all of the assets (but not the
liabilities) including its IT technology, trademarks and 700
customers of
BLive Networks Inc. 150,000 of these shares of Common Stock were
for an
M&A Advisory Fee.
b)
In
consideration of the payment by Petroleum Corp. of $100,010,
the Company
agreed to issue to Petroleum Corp. 100,000 fully paid shares
of Common
Stock and a warrant to purchase 300,000 shares of Common Stock
exercisable
for a period of two years at a strike price of $1.25 per share.
The
warrants expire on January 26,2009.
c)
200,000
shares of Common Stock at a price of $1.00 per share. In addition
we
issued a warrant exercisable for a period of two years to purchase
200,000
shares of Common Stock at an exercise price of $1.25 per share
in
connection with this placement of 200,000 shares of Common Stock.
These
warrants expire on February 28,2009.
d)
3,250,000
shares of Common Stock and a warrant exercisable for five years
to
purchase 3,250,000 shares of Common Stock at an exercise price
of $2.60
per share were issued to WCOF as part of the Securities Purchase
Agreement. These warrants expire on June 15, 2012. This transaction
is
described in more detail on our Current Report on Form 8-K filed
on June19, 2007.
66
e)
650,000
shares of Common Stock and a warrant exercisable for three years
to
purchase 650,000 shares of Common Stock at an exercise price
of $1.30 per
share were issued in exchange for the repayment of $500,000 of
debt. These
warrants expire on June 26, 2010.
f)
140,000
shares of Common Stock were issued in exchange for a debt owing
with
regard to previously incurred consulting
fees.
g)
A
warrant exercisable for two years to purchase 131,250 shares
of Common
Stock at an exercise price of $1.00 per share as consideration
for certain
loans made by an existing stockholder. These warrants expire
on three
dates between March 29, 2009 and May 29,2009.
The
fair
value for warrants was estimated at the issuance date based upon using
a
Black-Scholes option pricing model with the following assumptions: risk
free
interest rate of 5%, expected volatility of 45%, expected option life of
2-5
years and dividend yield of $0.00
As
of
June 30, 2007 the total number of shares of Common Stock issued and outstanding
was 30,571,805.
The
Company also entered into a registration rights agreement with WCOF (the
“Registration
Rights Agreement”)
requiring the Company to register the resale of the shares of Common Stock
and
the resale of the shares underlying the warrants (the “Registrable
Securities”)issued
to
WCOF under the Securities Act of 1933, as amended (the “Securities
Act”).
Pursuant to the terms of the Registration Rights Agreement, the Company
must
file a registration statement to register the Registrable Securities with
the
SEC within ninety (90) days of June 15, 2007. In addition, the registration
statement must be declared effective by the Securities and Exchange Commission
no later than one hundred-fifty (150) days after June 15, 2007. In the
event
that the registration statement is not filed within ninety (90) days of
June 15,2007 or the effectiveness of the registration statement is not maintained,
the
Company is obligated to pay to WCOF certain payments described in the
Registration Rights Agreement.
NOTE
8 - STOCK OPTIONS AND STOCK WARRANTS
Stock
Options
The
Company maintains a 1999 Equity Incentive Plan for the issuance of stock
options
to employees, directors and consultants. The exercise price is generally
the
estimated fair market value at the grant date as determined by the Company’s
Board of Directors. The options vest over a period up to four years. At
December31, 2005, there were 50,334 shares reserved for issuance under the 1999
Equity
Incentive Plan after adjusting for the two subsequent reverse splits. During
the
quarter ended March 31, 2006, a staff option holder under the 1999 Stock
Incentive Plan exercised 6,250 options at an option price of 48 cents per
share
for a total consideration of $3,000.
The
Company also maintains a 2004 Employee Stock Incentive Plan (“2004
Plan”)
for
the issuance of stock options, Common Stock, restricted stock, and stock
bonuses
to employees, officers and key consultants. At December 31, 2005, it was
possible to award a total of options for 5,401,888 shares under the 2004
Employee Stock Incentive Plan, which equated to 25% of the issued Common
Stock
of the Company, however, no awards had been issued from the plan as of
December31, 2005 and therefore no shares have been reserved for issuance under
that
Plan. On December 29, 2006the Company made the first issue of 90,000
options under the 2004 Plan. These options have an exercise price of $1.00,
which was the market price on the date of issue, and vest as to 20% per
annum
starting December 31, 2007.
67
A
summary
of the Company’s stock options as of December 31, 2006 and 2005 and changes
during the years ending on those dates is presented below:
2006
2005
Shares
Under
Options
Weighted
Ave Exercise Price
Shares
Under
Options
Weighted
Ave
Exercise
Price
Outstanding
at beginning of year
50,334
$
6.53
82,834
$
4.26
Exercised
during the year
(6,250
)
(0.48
)
Issued
during the year
90,000
1.00
Cancelled
(32,500
)
$
2.16
Outstanding
at end of year
134,084
$
3.10
50,334
$
6.53
Options
exercisable at end of year
44,084
$
3.10
50,334
$
6.53
WWeighted-average
fair value of options granted during the year
90,000
$
1.00
—
$
—
Fair
market value of non-vested stock options
$
43,278
The
following table summarizes information about stock options outstanding
at
December 31, 2006:
Options
Outstanding
Options
Exercisable
Options
Outstanding
Weighted
Average
Remaining
Life
Weighted
Average
Exercise
Price
Options
Exercisable
Weighted
Average
Exercise
Price
1,667
2.50
years
$
0.60
1,667
$
0.60
2,083
3.40
years
33.60
2,083
33.60
2,500
3.55
years
37.08
2,500
37.08
2,000
3.65
years
30.00
2,000
30.00
1,667
3.88
years
12.00
1,667
12.00
15,000
4.01
years
4.50
15,000
4.50
2,500
4.22
years
3.00
2,500
3.00
16,667
5.47
years
0.42
16,667
0.42
90,000
6.00
years
1.00
90,000
1.00
134,084
134,084
3.10
68
NOTE
8 - STOCK OPTIONS AND STOCK WARRANTS (cont’d)
Stock
Warrants
The
Company has issued stock warrants in connection with the issuance of Common
Stock, debt, and the settlement of debt and for services. Activity related
to
stock warrants was as follows:
519,000
warrants were granted in 2005 in connection with the issue of
220,000
shares of Common Stock and the issue and conversion of 818,000
Series A
Preferred Stock.
·
15,000
(post reverse stock split) warrants outstanding from pre December31, 2004
expired on January 1, 2006without
being exercised and have expired.
50,000
warrants due to expire on January 5, 2007 were exercised during
2006 at
$1.00 per share.
·
570,000
2 year warrants with an exercise price of $1.75 per share were
issued in
conjunction placement of 1,140,000 shares of Common Stock. These
warrants
expire on May 31, 2008.
·
85,500
2 year warrants with an exercise price of $1.75 per share were
issued as
part of the brokerage fees paid for placement of 1,140,000 shares
of
Common Stock.
·
150,000
2 year warrants with an exercise price of $1.25 per share were
issued in
conjunction placement of 300,000 shares of Common Stock.
·
50,000
2 year warrants with an exercise price of $1.25 per share were
issued in
conjunction with the issue of 100,000 share of Common Stock for
the
partial conversion of an advance. Financing charge of $8,651
has been
taken to expense and credited into additional paid in capital
in regard to
these warrants.
·
42,000
warrants were granted in conjunction with the conversion of 84,000
shares
of Series B Preferred Stock.
69
The
following table summarizes information about stock warrants outstanding
at
December 31, 2006:
Warrants
Outstanding
Warrants
Exercisable
Warrants
Outstanding
Weighted
Average
Remaining
Life
Exercise
Price
Warrants
Exercisable
Exercise
Price
Expiration
Date
359,000
5
days
$
1.00
359,000
$
1.00
1/05/07
570,000
17
months
$
1.75
570,000
$
1.75
5/31/08
85,500
18
months
$
1.75
85,500
$
1.75
6/16/08
150,000
23
months
$
1.25
150,000
$
1.25
11/28/08
50,000
24
months
$
1.25
50,000
$
1.25
12/29/08
42,000
12
months
$
1.00
42,000
$
1.00
12/29/07
1,256,500
1,256,500
NOTE
9 - COMMITMENTS
Leases
Atlas
Technology Group Ltd. has a six (6) year office lease covering approximately
471
square meters located at Level 3, 9 Empire Stadium Street, Gzira GZR04,
Malta
expiring on August 14, 2010 at a base annual rent of MTL16,000 (approx
US$48,000), which escalates by MTL2,000 per annum (approx US$6,000) until
the
final year.
Atlas
Technology Group (NZ) Ltd. has a four year office lease of the second floor
of
139-141 Featherston Street in Wellington, New Zealand expiring on July31, 2009.
The office comprises approximately 300 sq meters with a base annual rental
of
NZ$55,500 per annum (approx US$38,500) plus 12.5% Goods and Services Tax
(“GST”)
which
is claimable against GST revenue tax payable or is refundable.
Atlas
Technology Group (US) Inc. has a three year office lease of Suite 2001
at the
Limited Edition Office Park, 2001 152nd
Avenue
NE, Redmond, WA., expiring on July 31, 2009. The office comprises 3,825
rentable
square feet at a base annual rental of US$61,200 in the first year, escalating
to $68,850 in the 2nd
year and
$76,500 in the 3rd
year.
Approximate
future lease commitments are as follows:
2007
$
150,000
2008
$
160,000
2009
$
90,000
2010
$
30,000
NOTE
10 - RELATED PARTY TRANSACTIONS
Due
to
Shareholders
The
$190,582 of advances and loans showing in current liabilities are owed
to
shareholders and/or a company which is a related party of a shareholder.
The
advances are all interest bearing at 6% per annum and the largest is
collateralized by a note payable equal to $120,000 at maturity on March30,2007. The interest content of this advance is being amortized over the
life to
maturity. At December 31, 2005 there was a $6,232 non-interest bearing
advance
from a shareholder to a subsidiary that has been reclassified into discontinued
operations in 2006.
70
Transactions
with Related Parties
On
January 20, 2006the Company acquired Atlas Technology Group Holdings and
its
then subsidiaries,
which
over the previous 18 months had been developing its new software system
for
providing external IT application support services for organizations with
large
IT functions. Since January 2006 this work has been carried out by both
AtlasTG
employees and specialist consultants engaged to prepare modules of this
new
software system. Some of these consultants are engaged through WebConsult
Inc.,
a registered Microsoft vendor, and they continue to carry out such work
on
normal commercial terms. Robert Altinger a director of the Company was
formerly
a consultant to WebConsult Inc. Robert Altinger’s wife is an officer of
WebConsult Inc.
NOTE
11 - DISCONTINUED OPERATIONS AND SALE OF TDC
The
Company’s principal business activity in 2005 and prior years was focused on the
commercialization of the iShell® technology. The rights to the iShell®
technology were sold to a former staff member in mid 2006 together with
the
lease commitments to the office in San Francisco.
On
April12, 2006, Robert Davidorf, a former director and officer of the Company,
and on
that date a director and officer of TDC, resigned. In his letter of resignation,
Mr. Davidorf made certain claims for payment of approximately $130,000
in
accrued salaries (including $95,388 relating to an deferred compensation
arrangement) and expenses allegedly owed to him. This matter was settled
without
payment of any extra compensation as part of the sale of the Company’s wholly
owned subsidiary, TDC, which was completed on September 14, 2006 by way
of a
sale to 541368 LLC, a California limited liability company, purchasing
100% of
the stock of TDC for an aggregate consideration of $100 and the settlement
of
certain disputes between the Company and certain members of the management
of
541368 LLC, who formerly served as the management of the Company and TDC
(see
above). In addition, the Company agreed to make a one-time cash payment
of
$44,500 to TDC in full satisfaction of the Company’s obligations under an
existing support agreement dated as of August 1, 2005 between the Company
and
TDC, and the support agreement was terminated pursuant to the sale agreement.
The sale agreement also contained customary representations, warranties,
covenants and mutual indemnity provisions.
The
assets and liabilities disposed of from the discontinued operations of
TDC at
June 30, 2006 (the financial statements used in the sale) were as
follows:
Assets:
Accounts
receivable
$
108,661
Prepayments
4,291
Computers
and equipments, net
811
Total
assets
$
113,763
Liabilities:
Bank
overdraft
$
14,810
Accounts
payable and accruals
373,676
Total
Liabilities
$
388,486
In
June
2002, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 146, “Accounting for Costs Associated with Exit or
Disposal Activities” (hereinafter “SFAS
No. 146”).
SFAS
No. 146 addresses significant issues regarding the recognition, measurement,
and
reporting of costs associated with exit and disposal activities, including
restructuring activities. SFAS No. 146 also addresses recognition of certain
costs related to terminating a contract that is not a capital lease, costs
to
consolidate facilities or relocate employees, and termination benefits
provided
to employees that are involuntarily terminated under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. SFAS No. 146 was issued in June 2002, effective
December 31, 2002 with early adoption encouraged. The effect on the Company’s
financial statement of the adoption of SFAS No. 146 is reflected in discontinued
operations.
71
The
Company’s financial results for prior periods have been reclassified to reflect
the discontinued operations of TDC in 2005. Condensed results of discontinued
segments are as follows:
On
January 20, 2006, the Company acquired 100 percent of the issued capital
of
TakeCareofIT Holdings Limited, a Malta corporation, and its subsidiaries,
which
had been collectively doing business as Atlas Technology Group, for $37,235
in
cash and the assumption of $1,144,106 of current liabilities (of which
$1,073,744 plus interest was due to the Company. TakeCareofIT Holdings
Ltd.
(subsequently renamed Atlas Technology Group Holdings Ltd. was established
in
September 2004 to provide external Information Technology (IT) application
support services for organizations with large IT functions.
The
acquisition of Atlas Technology Group Holdings Ltd. was accounted for using
the
purchase method of accounting. The purchase price was allocated to the
tangible
and intangible net assets acquired based on the management’s evaluation of their
respective replacement values on the acquisition date in accordance with
SFAS
No. 141. Upon acquisition, Atlas Technology Group Holdings Ltd. became
a wholly
owned subsidiary of the Company. The results of Atlas Technology Group
Holdings
Ltd. and its subsidiaries, commencing with the date of acquisition, January20,2006, are included in these financial statements.
The
purchase price was allocated as follows:
Cash
$
93,273
VAT
receivable
22,596
Deposits/prepaids
4,924
Equipment
225,030
IT
Technology
835,192
$
1,181,015
NOTE
13 - CORRECTION OF AN ERROR
On
January 20, 2006, the Company completed the acquisition of 100% of the
outstanding shares of TakeCareofIT Holdings Limited and its subsidiaries
(d/b/a
the Atlas Technology Group). The effect of this acquisition has been filed
in a
Current Report on Form 8-K/A on November 17, 2006, which included a pro
forma
consolidation of the Atlas Technology Group Holdings Ltd. and subsidiaries
financial results with those of the Company at December 31, 2005. These
changes
were reflected in the restated financial statements for the year ending
December31, 2005 and set out in an amended filing in a Current Report Form 8-K/A
filed
on March 28, 2007. As a result of these amendments and corrections of errors
the
following adjustments were made:
·
Advance
to Atlas Technology Group Holdings Ltd. of $1,073,744 has been
brought
into the December 31, 2005 assets in the Balance Sheet as a correction
of
an error and change in accounting policies to be consistent with
the
accounting policies adopted following the acquisition of Atlas
Technology
Group Holdings Ltd. on January 20, 2006 (the assets acquired
are set out
in the table in Note 12);
·
The
accumulated deficit at December 31, 2005 was reduced by $1,073,744
and as
a result the Total Stockholders’ Equity was restated as
$415,583;
·
The
amount of product development expense was been reduced from $1,141,031
to
$67,287 and this in turn reduced the loss from continuing operations
to
$191,283 from the previous $1,265,027, the net loss before income
taxes to
$171,021 (previously $1,244,765) and the net loss to $175,791
from
$1,249,535, before the subsequent adjustment for discontinued
operations
on the sale of TDC in September
2006);
72
·
The
2005 loss per share has been reduced to $0.02 for continuing
operations
from the previous $0.06.
·
The
reduced loss from operating activities has been reflected in
the
Consolidated Statement of Cash Flows with a compensating investment
in
Atlas Technology Group Holdings Ltd. of $1,073,744.
·
Further
note explanations were added or amended to explain these changes
and
appropriate accounting standards associated with the amended
results.
·
In
addition, with the sale of TDC and the reclassification of the
results of
TDC as discontinued operations, there have been further amendments
to some
of these 2005 comparative figures in the financial statements
for the year
ended December 31, 2006.
NOTE
14 - SUBSEQUENT EVENTS
Purchase
of the business of BLive Networks Inc.
On
January 19, 2007, the Company entered into an Asset and Stock Purchase
Agreement
(the “BLive
Agreement”)
with
BLive Networks Inc., a Delaware corporation, Forte Finance Limited, a Maltese
limited liability company (“Forte”)
and
Petroleum Corp., pursuant to which the Company purchased substantially
all of
the assets of BLive Networks Inc. in exchange for 1,000,000 fully paid
shares of
Common Stock in the Company. This agreement was closed on January 26, 2007.
Additionally,
in consideration of the payment by Petroleum Corp. of $100,010, the Company
agreed to issue to Petroleum Corp. 100,000 fully paid shares of the Company’s
Common Stock and a warrant to purchase 300,000 shares of Common Stock of
Tribeworks at $1.25 per share for a period of two years. The shares issued
in
connection with this transaction have been issued to Petroleum Corp., as
a
creditor of BLive Networks Inc. In addition, 150,000 shares of Common Stock
have
been issued to Forte as an M&A fee for the transaction (“Advisory
Shares”).
The
shares issued in connection with this transaction are “restricted securities”
(as defined in the Securities Act of 1933, as amended, (the “Act”)).
In
connection with the BLive Agreement, the Company also entered into an escrow
agreement with the following parties with the following terms: (a) an Escrow
Agreement between Petroleum Corp. and the Company, whereby 300,000 shares
of
Common Stock are held in escrow until the receipt of certain Canadian tax
refunds owed to Infobuild Networks (Canada) Inc (refund since received);
and (b)
an Escrow Indemnification Agreement between Forte and the Company, whereby
the
150,000 shares of Common Stock issued to Forte are held in escrow until
the
expiration of a twelve month indemnity period that was signed pursuant
to an
agreement with Forte, dated January 19, 2007.
As
part
of the BLive Agreement, the Company has also acquired a forty-nine percent
ownership interest in BLive Network Inc.’s Canadian affiliate, Infobuild
Networks (Canada) Inc. Infobuild Networks (Canada) Inc has subsequently
been
renamed BLive Networks Inc., and the business is now trading through this
entity. Tribeworks has also entered into an option agreement to purchase
the
remaining 51% of Infobuild which can be exercised at any time over the
next
twelve months at the option of Tribeworks. This option has been exercised
and
BLive Networks Inc is 100% owned.
73
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24.Indemnification
of Directors and Officers.
As
permitted by the Delaware General Corporation Law, the Company’s Certificate of
Incorporation, as amended, eliminates the liability of directors to the
Company
or its stockholders for monetary damages for breach of fiduciary duty as
a
director, except for liability (i) for any breach of the director's duty
of
loyalty to the Company or its stockholders, (ii) for acts or omissions
not in
good faith or which involve intentional misconduct or a knowing violation
of
law, (iii) under Section 174 of the Delaware General Corporation Law, or
(iv)
for any transaction from which the director derived any improper personal
benefit.
The
Company’s Certificate of Incorporation, as amended, further provides that: “If
the Delaware General Corporation Law is amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors then the liability of a
director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law as so amended.”
Section
145 of the Delaware General Corporation Law authorizes a corporation to
indemnify directors, officers, employees or agents of the corporation in
non-derivative suits if such party acted in good faith and in a manner
which he
or she reasonably believed to be in or not opposed to the best interest
of the
corporation and, with respect to any criminal action or proceeding, had
no
reasonable cause to believe this conduct was unlawful, as determined in
accordance with the Delaware General Corporation Law.
Item
25.Other
Expenses of Issuance and Distribution.
The
estimated expenses payable by the Company in connection with the issuance
and
distribution of the securities being registered are as follows:
SEC
Registration Fee
$
500
Blue
Sky Fees and Expenses
5,000
Legal
Fees and Expenses
125,000
Accounting
Fees and Expenses
4,500
Printing
and Engraving
3,000
Miscellaneous
5,000
TOTAL
$
143,000
Item
26.Recent
Sales of Unregistered Securities.
All
of
the following offerings and sales were deemed or determined by us to be
exempt
under Section 4(2) of the Securities Act. The offerings and sales were
made in a
number of private placements to a limited number of persons, all of whom
represented in writing to us that they were accredited investors, as that
term
is defined in Rule 501 of Regulation D promulgated under the Securities
Act.
During
the quarter ended March 31, 2006, a staff option holder under the 1999
Stock
Incentive Plan exercised 6,250 options to purchase one share of our Common
Stock
into 6,250 shares of our Common Stock for a total consideration of
$3,000.
1,140,000
restricted shares of our Common Stock were sold and issued during the quarter
ended June 30, 2006, in a private placement to five European investment
funds at
a price of $1.25 per share, resulting in an aggregate purchase price received
by
us of $1,425,000. Along with these shares we also issued one warrant to
purchase one share of our Common Stock for every two new shares of Common
Stock
purchased. The warrants have an exercise price of $1.75 per share. The
warrants
have a two year expiration date and expire on May 31, 2008.
We
paid
brokerage and commission fees of $85,500 for raising the funds obtained
from the
European investment funds discussed above to Westmount Capital and issued
warrants to purchase 85,500 shares of our Common Stock at an exercise price
of
$1.75 per share. of our Common Stock to Westmount Capital. These warrants
have a
two year term and will expire on June 16, 2008.
74
In
the
fourth quarter of 2006, a warrant to purchase 50,000 shares of our Common
Stock
at $1.00 per share was exercised.
On
December 29, 2006, a total of 480,000 restricted shares of our Common Stock
were
issued to various investors. These issuances consisted of 80,000 shares
purchased at a price of $0.50 per share of Common Stock and 400,000 shares
purchased at a price $1.00 per share of Common Stock. Warrants to purchase
200,000 shares of our Common Stock at a price of $1.25 per share exercisable
for
a period of two years were issued in connection with the private placement
of
300,000 shares of our Common Stock and 100,000 shares of our Common Stock
issued
as part repayment of debt. On December 29, 2006, we converted 84,000 shares
of
our Series B Preferred Stock into 84,000 restricted shares of our Common
Stock.
During
the quarter ended March 31, 2007the Company issued 1,150,000 fully paid
shares of Common Stock in the Company in exchange for the assets, IT Technology,
Customer list and Trademarks of BLive Networks Inc. Additionally, in
consideration of the payment by Petroleum Corp. of $100,010, the Company
issued
to Petroleum Corp. 100,000 fully paid shares of the Company’s Common Stock and a
warrant to purchase 300,000 shares of Common Stock of the Company at $1.25
per
share exercisable for a period of two years. The shares issued in connection
with this transaction have been issued to Petroleum Corp., as a creditor
of
BLive. In addition, 150,000 shares of these shares of Common Stock have
been
issued to Forte as an M&A fee for the transaction (“Advisory
Shares”).
The
shares issued in connection with this transaction are “restricted securities”
(as defined in the Act).
200,000
shares of Common Stock at a price of $1.00 per share. This
was in exchange
for $200,000 of subscription monies held by us as of March31, 2007. In
addition we issued a warrant
exercisable for a period of two years to purchase 200,000 shares
of Common
Stock at an exercise price of $1.25 per share in connection
with this
placement of 200,000 shares of Common Stock. These warrants
expire on
February 28, 2009.
b)
3,250,000
shares of Common Stock and a warrant exercisable for five years
to
purchase 3,250,000 shares of Common Stock at an exercise price
of $2.60
per share were issued to WCOF as part of the Securities Purchase
Agreement,
dated June 15, 2007, between the Company, all of its subsidiaries
and
WCOF.
These warrants expire on June 15, 2012. This transaction is
described in
more detail on our Current Report on Form 8-K filed on June19, 2007.
c)
650,000
shares of Common Stock and a warrant exercisable for three
years to
purchase 650,000 shares of Common Stock at an exercise price
of $1.30 per
share were issued in exchange for the
repayment of $500,000 of debt. These warrants expire on June26,2010.
d)
140,000
shares of Common Stock were issued in exchange for a debt owing
with
regard to previously incurred consulting
fees.
e)
A
warrant exercisable for two years to purchase 131,250 shares
of Common
Stock at an exercise
price of $1.00 per share as consideration
for certain
loans made by an existing
stockholder. These warrants expire on three dates between March29, 2009
and May 29, 2009.
As
of
September12, 2007, we have issued a further 35,000 unregistered shares of Common
Stock
during the third quarter of 2007. 10,000 of these shares were issued following
the exercise of a warrant to purchase shares of Common Stock at $1.00 per
share.
The
offering of these unregistered securities were exempt from registration
pursuant
to Rule 506 promulgated under the Securities Act of 1933. Each of these
investors represented to us, in writing that it was an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933. The proceeds from these sales of unregistered securities
are being used for general working capital purposes.
75
Item27.
Exhibits.
(a)
The
following is a list of exhibits, some of which are incorporated
by
reference:
Exhibit
Number
Description
of Exhibits
2.1
Agreement
of Merger between Tribeworks, Inc., a California corporation,
and
Tribeworks Acquisition Corporation, dated November 2, 1999 (Incorporated
by reference to Exhibit 2.1 to the Registrant’s Form 10-SB/A filed July10, 2000)*
Certificate
of Designation, Preferences, Rights and Limitations of Series
B
Convertible Redeemable Preferred Stock of the Registrant (incorporated
by
reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed October 11, 2005)*
Asset
and Stock Purchase Agreement, dated January 19, 2007, between
BLive
Networks, Inc., Forte Finance Limited, Petroleum Corporation
of Canada
Limited and Tribeworks, Inc. (incorporated by reference to Exhibit
10.1 to
the Registrant’s Current Report on Form 8-K filed January 25,2007)*
Securities
Purchase Agreement, dated June 15, 2007 by and among Tribeworks,
Inc., all
of its subsidiaries and West Coast Opportunity Fund, LLC (incorporated
by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
10.12
Form
of Senior Secured Non-Convertible Promissory Note, dated June15, 2007,
issued by Atlas Technology Group (US), Inc. to West Coast Opportunity
Fund, LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K filed June 19, 2007)*
Secured
Guaranty, dated June 15, 2007, by and among Tribeworks, Inc.
all of its
subsidiaries except Atlas Technology Group (US), Inc. and West
Coast
Opportunity Fund, LLC (incorporated by reference to Exhibit 10.4
to the
Registrant’s Current Report on Form 8-K filed June 19,2007)*
10.15
Escrow
Agreement, dated June 15, 2007, by and among Atlas Technology
Group (US),
Inc., West Coast Opportunity Fund, LLC and Wells Fargo Bank,
National
Association (incorporated by reference to Exhibit 10.5 to the
Registrant’s
Current Report on Form 8-K filed June 19, 2007)*
Form
of Lock-Up Agreement, dated June 15, 2007, between West Coast
Opportunity
Fund, LLC and certain stockholders of Tribeworks, Inc. (incorporated
by
reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
(1)
To file,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include
any prospectus required by Sections 10(a)(3) of the Securities Act;
(ii)
To
reflect in the prospectus any facts or events arising after the effective
date
of this registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change
in the information set forth in this registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if
the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum
offering range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent change
in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement;
(iii)
To
include any additional or changed material information on the plan of
distribution;
(2)
For
the
purpose of determining any liability under the Securities Act, treat each
such
post-effective amendment as a new registration statement of the securities
offered therein, and the offering of the securities at that time shall
be deemed
to be the bona fide offering.
(3)
File
a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
(4)
Insofar
as indemnification for liabilities arising under the Securities Act may
be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the
Securities Act and is, therefore, unenforceable. If a claim for indemnification
against such liabilities (other than the payment by the small business
issuer of
expenses incurred or paid by a director, officer or controlling person
of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in
connection with the securities being registered, the small business issuer
will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
78
SIGNATURES
In
accordance with the requirements of the Securities Act, the Registrant
certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form SB-2 and authorized this Registration Statement to be
signed
on its behalf by the undersigned, in the City of Newport Beach, State of
California on September 13, 20007.
ATLAS
TECHNOLOGY GROUP, INC.
/s/
Peter B. Jacobson
Peter
B. Jacobson
Chief
Executive Officer and Director
(Principal
Executive Officer)
/s/
B.S.P. Marra
B.S.P.
Marra
Chief
Financial Officer and Director
(Principal
Financial and Accounting Officer)
POWER
OF ATTORNEY
KNOW
ALL
MEN BY THESE PRESENT, that each person whose signature appears below constitutes
and appoints Peter B. Jacobson, his attorney-in-fact, with full power of
substitution, for him in any and all capacities, to sign any amendment
to this
Registration Statement on Form SB-2, including post-effective amendments,
and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying
and
confirming all that said attorney-in-fact, or his substitute or substitutes,
to
do and perform each and every act and thing requisite or necessary to be
done in
about the premises, as fully to all intents and purposes as he might or
could do
in person, hereby ratifying the confirming all that said attorney-in-fact
and
agent, or any substitute or substitutes, may lawfully do or cause to be
done by
virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Form SB-2 Registration
Statement has been signed by the following persons in the capacities set
forth
below on September 13, 2007.
/s/
Peter B. Jacobson
Chief
Executive Officer and Director
Peter
B. Jacobson
(Principal
Executive Officer)
/s/
B.S.P. Marra
Chief
Financial Officer and Director
B.S.P.
Marra
(Principal
Financial and Accounting Officer)
/s/
Robert
Altinger
Director
Robert
Altinger
Director
Andrew
Berger
/s/
W. Gordon Blankstein
Director
W.
Gordon Blankstein
/s/
Robert C. Gardner
Director
Robert
C. Gardner
Dates Referenced Herein and Documents Incorporated by Reference
