UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB/A
(Amendment
No. 1)
(Mark
One)
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ANNUAL
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2005
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OR
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR
THE TRANSITION PERIOD FROM N/A TO
N/A
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COMMISSION
FILE NUMBER: 000-28675
TRIBEWORKS,
INC.
(Name
of
Small Business Issuer in Its Charter)
DELAWARE
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94-3370795
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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2001
152nd
AVENUE NE
REDMOND,
WASHINGTON 98052
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(Address
of Principal Executive Offices)
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(425)
458-2360
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(Issuer’s
Telephone Number, Including Area
Code)
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_________________________________________________________________
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
111
VIA QUITO
NEWPORT
BEACH, CA 92663
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(Address
of principal executive offices) (zip
code)
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Issuer’s
Telephone Number, Including Area Code: (949) 274-3633
Securities
registered pursuant to Section 12(b) of the Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: COMMON STOCK, par value
$0.0004 per share
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES x
NO o
Check
if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB.
State
issuer’s revenues for its most recent fiscal year. $593,595
The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 13, 2006 was approximately $16,582,997 based upon the
closing price per share of the Common stock of $1.60 on that date.
There
were 21,607,555 shares of the registrant’s Common Stock issued and outstanding
as of March 31, 2006.
Transitional
Small Business Disclosure Format (check one) YES o
NO x
EXPLANATORY
NOTE
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1.
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On
January 20, 2006, Tribeworks completed the acquisition of 100% of the
outstanding shares of TakeCareofIT Holdings Limited and its subsidiaries
(d/b/a the Atlas Technology Group) (“AtlasTG”). Tribeworks
paid $37,235 in cash in consideration to the selling shareholders of
AtlasTG and assumed various liabilities. The effect of this acquisition
has been filed in a Form 8-K/A on November 17, 2006, which included
a pro forma consolidation of AtlasTG into Tribeworks at December 31,
2005. These changes are now reflected in the restated financial statements
for the year ending December 31, 2005 and set out in new Notes N, O
and P of this amended filing. As a result of these amendments:
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a.
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The
investment in AtlasTG of $1,073,744 has been brought into the December
31,
2005 figures in the Balance Sheet as a change in accounting policies
to be
consistent with the accounting policies adopted following the acquisition
of AtlasTG on January 20, 2006;
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b.
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The
accumulated deficit at December 31, 2005 has been reduced by $1,073,744
and as a result the Total Stockholders’ Equity is now
$415,583;
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c.
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The
amount of product development expense has been reduced from $1,141,031
to
$67,287 and this in turn has reduced the loss from operations to
$191,283
from the previous $1,265,027, the loss before income taxes to $171,021
(previously $1,244,765) and the net loss to $175,791 from
$1,249,535;
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d.
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The
loss per share has been reduced to $0.02 from the previous
$0.06.
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e.
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The
reduced loss from operating activities has been reflected in the
Consolidated Statement of Cash Flows with a compensating investment
in
Atlas of $1,073,744.
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2.
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Further
note explanations have been added or amended to explain these changes
and
appropriate accounting standards associated with the amended results.
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To
comply with certain technical requirements of the SEC’s rules in connection with
the filing of this amendment on Form 10-KSB/A and for convenience, we are
setting forth in this amendment a restatement of the Form 10-KSB as amended
hereby, and adding, as exhibits, certain current dated certifications of our
principal executive and principal financial officers. Except for the matters
described in this Explanatory Note, this amendment does not modify or update
disclosures in, or exhibits to the Form 10-KSB originally filed on April 17,
2006. Furthermore, except for the matters described above, this amendment does
not materially change any previously reported financial results, nor does it
reflect events occurring after the date of the original Form
10-KSB.
TABLE
OF CONTENTS
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Page
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PART
I
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3
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Item
1. Description of Business
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3
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Item
2. Description of Property
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8
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Item
3. Legal Proceedings
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8
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Item
4. Submission of Matters to a Vote of Security Holders
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8
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PART
II
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9
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Item
5. Market for Common Equity and Related Stockholder
Matters
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9
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Item
6. Management’s Discussion and Analysis or Plan of
Operation
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10
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Item
7. Financial Statements
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19
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Item
8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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39
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Item
8A. Controls and Procedures
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40
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PART
III
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Item
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
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40
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Item
10. Executive Compensation
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42
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Item
11. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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43
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Item
12. Certain Relationships and Related Transactions
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43
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Item
13. Exhibits
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44
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Item
14. Principal Accountant Fees and Services
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45
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SIGNATURES
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46
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PART
I
ITEM
1. DESCRIPTION OF BUSINESS
Overview
Our
main
business during 2005 was the sale of software and we generate revenues through
two main distribution channels: the graphics software tools business and the
enterprise application development business.
Tools
customers, usually graphics industry professionals, license our iShell® branded
multimedia application authoring tools, iShell® or iShell Mobile, by purchasing
the software via our online store or via telephone with one of our sales
representatives. Tools customers either buy our software with a permanent
license or pay an annual subscription fee that includes a license to use our
software and free software upgrades. Kinoma Media Album (KMA), our first
consumer multimedia tool, is sold through three online stores: Kinoma.com,
Handango.com and PalmGear.com.
We
first
introduced our multimedia authoring tool iShell® in January 1999, as a
cross-platform software product to allow developers to create multimedia
applications in a variety of categories, such as sales and business
presentations, informational/catalog titles, training courses and modules for
corporations and/or educational institutions, games, learning aids, enhanced
CDs
(audio CDs that also contain videos and other visual digital content), video
yearbooks, and recruitment presentations.
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. To date we have 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.
Kinoma receives a per unit royalty on sales of iShell Mobile and Kinoma Media
Album. In addition to building these two products together, we have utilized
Kinoma as a subcontractor on Enterprise projects.
In
our
Enterprise business, most of our customers are large corporations that require
development of custom multimedia tools or complex multimedia applications.
Enterprise customers usually pay for consulting services performed by
Tribeworks’ employees and subcontractors. Certain Enterprise customers also
license our software, usually for a fixed fee or on a per unit basis. As
evidenced by results for the second half of the year, we generally anticipate
Enterprise business growth, particularly Enterprise consulting revenues, to
be
less predictable and “bumpier” than our Tools business revenues in the
foreseeable future, and this could impact whether or not we will be profitable
on a quarter-to-quarter and annual basis. The primary reason is that our
Enterprise business has a smaller number of customers.
We
incorporated in California in August 1998 as 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 their
shares in California Tribeworks for Pan World common stock. Subsequent to the
Recapitalization, we 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.
We
experienced a net loss of $175,791 for the year ended December 31, 2005 and
we closed the quarter and year with a working capital deficit of $660,073.
As
announced on March 30, 2005 the previous business stream has proven to be
of insufficient in scope and profitability to sustain a viable public company,
and we have decided to instead pursue a plan of reorganization that has the
potential to be larger in scope and more profitable than our prior
business.
The
plan
of reorganization that our board previously approved included the transfer
of
most assets and liabilities (including the accrued salary obligations described
in NOTE L to our financial statements included herewith) to our operating
subsidiary, Tribeworks Development Corporation (“TDC”), and to sell the
subsidiary to current and former members of our management or
others.
On
January 20, 2006 the Company acquired TakeCareofIT Holdings Ltd., doing business
as Atlas Technology Group (Atlas), a Malta Corporation that was established
in
September 2004 to provide external Information Technology (IT) application
support services for organizations with large IT functions.
Atlas
has
its head office in Malta with a subsidiary office in Wellington, New Zealand
and
a data center in Seattle. Atlas has 11 employees and 3 working
directors.
Atlas
Technology Group plans to become a leading Information Technology (IT)
outsourcing support company for custom software applications
worldwide.
Atlas
is
in the business of providing custom, outsourced, application software support
services to its customers. These will range from supporting specialized networks
and single applications to providing the entire IT infrastructure management
for
customers who want to outsource everything and focus on their core business.
In
partnership with other IT development consultancies, a fully outsourced IT
capability can be provided, with hard performance metrics and predictable
costs.
The
company is leveraging the recent advances in software, 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 on-boarding and monitoring processes should allow for dramatic
cost
savings over existing legacy IT service providers.
The
services offerings will be worldwide, with the majority of the targeted
customers having multi- national operations. It is intended to be a highly
distributable venture, able to place people in the best possible locations,
yet
offering a seamless service offering across geographies.
The
initial support centers are based in Malta, with the second support center
in
New Zealand, creating a “follow-the-sun”, 24 hour coverage. As business grows,
third and fourth locations are projected to increase capacity, as needed. State
of the art VoIP, Call Tracking and Monitoring technology provide each employee
with the leverage needed to maximize support delivery to the fullest possible
extent.
Two
central data center locations will also be established to run the required
infrastructure. All of these servers will be in a secure, fully redundant
configuration, and have on-demand high bandwidth available, as well as onsite
backup and hands-on support services.
This
is
discussed further in Note O (Subsequent Events) to the Consolidated Financial
Statements and below.
We
are
currently a fully reporting company under Section 12(g) of the Securities
Exchange Act of 1934, as amended, and our common stock is quoted on the OTC
Bulletin Board under the symbol TWKS.OB
Products
and Services
Tools
Business
Our
Tools
business in 2005 was focused on direct sales of licenses and bundled support
services to our proprietary graphical software application, iShell®, and
complementary products such as software plug-ins and product documentation.
For
the year ended December 31, 2005, the Tools business accounted for 27% of total
revenues.
iShell®
is a graphical software application that allows creation of interactive
rich-media applications. Applications can be deployed via the Internet, a
CD-ROM, a kiosk (interactive retail display), or a combination thereof. iShell
offers the ability to reuse common interactive elements in an expandable,
drag-and-drop, object-oriented environment that can save significant production
time for developers. iShell has been released for Windows and Macintosh
operating systems.
iShell
Mobile is an object oriented programming tool used to develop applications
for
the Palm OS. iShell Mobile allows developers to rapidly design interactive
multimedia rich applications including business presentations,
informational/catalog titles, training courses and modules for corporations
and/or educational institutions. iShell Mobile extends the benefits of iShell
to
software application developers working in the Palm OS handheld
market.
Kinoma
Media Album (KMA), our first consumer multimedia tool, allows customers to
build
interactive media albums for viewing on Palm OS devices. KMA is sold through
three online stores: Kinoma.com, Handango.com and PalmGear.com.
We
attract new iShell and iShell Mobile customers primarily through our websites,
www.tribeworks.com and www.iShell.com, where iShell and iShell Mobile can be
downloaded for trial use. Potential Tools customers register on our website
and
provide contact information which we use to attempt to convert them to paying
customers.
iShell®
customers either buy our software with a permanent license or pay an annual
subscription fee that includes a license to use our software and customer
support services. iShell Mobile and Kinoma Media Album customers buy our
software with a permanent license. No subscriptions are currently available
for
iShell Mobile or Kinoma Media Album.
Enterprise
Business
Enterprise
customers are large companies and other entities that require development of
customized multimedia authoring tools or multimedia applications or
presentations. For the year ended December 31, 2005, the Enterprise business
accounted for 73% of our total revenues.
Enterprise
customers pay for professional services, which we provide for a fixed fee or
on
a daily rate basis via our employees and outside consultants. Enterprise
customers also license customized versions of our software for a fixed fee
or on
a per unit basis. We try to structure our contracts so that we own some of
the
work that we create during Enterprise engagements, which helps to underwrite
our
research and development costs.
During
2005, one customer accounted for 42% of our Enterprise revenue. Our relationship
with this customer is described below:
Pioneer
Corporation, a consumer electronics company with more than 30,000 employees
and
more than $5 billion (USD) in sales, has been a customer since 2000. Under
the
contracts that were active during 2004 and 2005, we performed software
engineering services for Pioneer for the development of software products that
allow users to create and manage multimedia content for next generation digital
signs. The main part of this work was completed during the second quarter of
2005 and since then there has only revenue from some residual and maintenance
activities.
We
do not
have a dedicated sales force for our Enterprise business, as our TDC officers
serve the role of salesmen and account managers for prospective and current
Enterprise customers. During 2004 and 2005, the primary thrust of our Enterprise
sales efforts was to secure new relationships and contracts with mobile device
manufacturers and carriers, which we view as our primary targets for future
Enterprise revenue growth if we decide to continue this business.
IT
Support Services
Atlas
is
in the business of providing custom, outsourced, application software support
services to its customers. These will range from supporting specialized networks
and single applications to providing the entire IT infrastructure management
for
customers who want to outsource everything and focus on their core business.
In
partnership with other IT development consultancies, a fully outsourced IT
capability can be provided, with hard performance metrics and predictable
costs.
Atlas
is
leveraging the recent advances in software, 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 on-boarding and monitoring processes should allow for dramatic
cost
savings over existing legacy IT service providers. The services offerings will
be worldwide, with the majority of the targeted customers having multi-national
operations. It is intended to be a highly distributable venture, able to place
people in the best possible locations, yet offering a seamless service offering
across geographies.
The
initial support centers are based in Malta, with the second support center
in
New Zealand, creating a “follow-the-sun”, 24 hour coverage. As business grows,
third and fourth locations are projected to increase capacity, as needed. State
of the art VoIP, Call Tracking and Monitoring technology provide each employee
with the leverage needed to maximize support delivery to the fullest possible
extent.
Product
Development
Our
iShell products and services enable our customers to save time and cost building
and deploying rich-media applications. We believe that our future success
depends on our ability to enhance existing products and develop and introduce
new products on a timely basis. We maintain an internal staff to develop the
software that we market and sell to customers. A significant portion of our
software is created as a result of work that we perform for our Enterprise
customers. To date, we have structured our contracts with Enterprise customers
so that we retain most intellectual property rights in the software that we
develop for them. Due to the changing technological environment for computer
systems and other electronic devices, we continue to adapt our products to
new
hardware and software platforms and to embrace emerging technology standards.
For the years ended December 31, 2005 and 2004, iShell product development
expenditures were $39,900 and $94,387
In
addition the Company advanced $1,073,744 to Atlas to enable Atlas to development
its new IT Support system. Atlas is now testing a suite of software including
its unique on-boarding and monitoring processes which allow for dramatic cost
savings over existing legacy IT service providers. Atlas is leveraging the
recent advances in software, monitoring systems, and communications, to build
a
new, leading edge, global support infrastructure, providing 24x7 software
support to medium sized companies for their custom software applications
worldwide.
Technical
Support and Education
We
provide technical support to purchasers of iShell subscriptions, which include
rapid response to support questions via discussion lists. We are able to limit
expenditures for customer support because subscribers are able to answer most
questions for one another through discussion lists.
We
also
hold periodic training sessions in San Francisco and in other locations, where
we teach new and existing iShell users about our products and latest product
developments.
Competition
Our
present iShell based business competes in markets that are intensely
competitive, highly fragmented, and rapidly changing. We have experienced
increased competition from current and potential competitors, many of which
are
larger and more profitable and as a result have greater technical, marketing,
and other resources. We expect the competition will continue, and we will
compete with the major graphics and multimedia software tools companies, as
well
as service companies building custom multimedia applications for corporate
clients. We believe that the primary competitive factors in providing multimedia
software applications to businesses and educational institutions are ease of
use, price, quality of service, availability of customer support, reliability,
technical expertise, and experience. Our success will depend on our ability
to
provide quality development tools and value-added services,
including:
·
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Augmenting
the ability of the software application to function on different
hardware
platforms and operating systems, such as Windows and Macintosh
environments
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·
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Delivery
of our software to new devices such as mobile phones and personal
digital
assistants (PDA’s)
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Providing
flexibility in the degree and level of customization of software
applications
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·
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Increasing
product functionality and system
performance
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·
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Improving
quality of product
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·
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Reducing
total cost of product development
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·
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Improving
sales and distribution efficiency
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Improving
brand name recognition; and
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Providing
high quality professional support
services.
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We
experience competition in each area of our business. Companies in the graphics
software tools area include Macromedia, Adobe Systems, and Autodesk. These
companies market a variety of products addressing our target markets, including
software tools for authoring and delivering interactive information targeted
to
computer-based training specialists and educators, as well as multimedia
professionals. They also offer graphics and publishing products for online
publishing as well as print-based publishing. In addition, competitors also
provide extensive product training to support their products.
Most
of
our current and potential competitors in the Internet services and graphics
and
multimedia industries have longer operating histories, greater name recognition,
and larger existing customer bases than we have. These competitors may be able
to respond faster to new or emerging technologies and changes in customer
requirements. Accordingly, there can be no assurance that we will be able to
compete successfully.
In
the
case of Atlas, there are a large number of traditional consultancies endeavoring
to compete in this space, including IBM Global Services, HP, EDS, and Accenture
as well as a number of smaller independents. 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
largest firms in terms of 2005 revenue are IBM with total sales of $91.1
billion, of which approximately one half, or $44 billion, represents services,
and of this amount approximately $17.1 billion is outsourcing services.
Outsourcing is IBM’s fastest growing business segment and is growing at 17%
annually, or almost double the rate of the overall company.
HP
is the
second largest in terms of revenue, with $87.9 billion in total 2005 revenues,
of which approximately $14 billion is services including IT outsourcing, and
which is growing at an annual rate of 22%. HP is currently very interested
in a
new service offering, based on ITIL standards, for custom application support.
It is expected that they will release this new service offering to market during
2006. This offering is expected to be a reasonably close fit to the custom
support Atlas intends to offer.
The
pure-play IT service providers, with 90% or more of their revenues coming from
IT support services, include EDS, with $19.8 billion in revenue, Computer
Sciences Corporation with $14.6 billion, Accenture with $17.8 billion, and
Bearingpoint with $3.4 billion in 2005 revenues.
The
improvement of infrastructure has meant the introduction of the third group
to
the competitive picture, notably in India, where Wipro and Infosys are beginning
to provide support services and call centers. Many hosting providers are also
trying to offer ASP services as an add-on. There are other more regional
players, such as Wavex and Motive that are also targeting the SME
market.
In
addition, we believe that the single biggest competitive factor is entrenched
in-house support groups. In fact, we believe that we will be competing with
in-house support groups rather than external competitors in over 90% of
competitive cases.
Government
Regulation
Laws
relating to the Internet are constantly changing. Federal, state, local and
foreign governments are considering a number of new legislative and regulatory
proposals relating to Internet commerce. As a result, a number of laws or
regulations may be adopted regarding Internet user privacy, security, taxation,
pricing, quality of products and services, and intellectual property ownership,
which may also be applicable to us. How existing laws will be applied to the
Internet, in areas such as property ownership, copyrights, trademarks, trade
secrets, and obscene or indecent communications, is uncertain.
Proprietary
Rights
We
rely
on a combination of copyright laws, trademark laws, contract laws, and other
intellectual property protection methods to protect our technology, including
our logo and the names “Tribeworks” and “iShell” in the United States and other
countries and equally we will be relying on the Atlas name for the new business
stream. We believe that our trademarks and the use of material in our website
are protected under current provisions of copyright law, although legal rights
to Internet content and commerce are not clearly settled by law. We were granted
trademarks to “Tribeworks”, the Tribeworks faces logo, and “iShell” in
2000.
In
November 1999, we entered into a software agreement (Keepsake Software
Agreement) with Keepsake SPRL (Keepsake) and Gilbert Amar (one of our
co-founders) pursuant to which we acquired the right, title, and interest to
iShell, our lead product.
In
April
2001, we jointly filed a United States patent application with Pioneer Electric
Corporation in the area of interactive display technology.
On
January 20, 2006 the Company acquired Atlas and this brings with new proprietary
rights such as its unique OnBoarding processes well as a range of trade secrets
to its IT support technologies.
Employees
As
of
December 31, 2005, TDC had a total of 5 employees and 2 consultants working
on a
full-time and part-time basis.
With
the
acquisition of Atlas 11 new employees and 3 working directors were added. Atlas
also uses outside consultants to carry out some of its development and testing
work.
ITEM
2. DESCRIPTION OF PROPERTY
TDC
leases approximately 900 square feet in San Francisco, California for our sales,
engineering, and administrative offices. The current annual rent for the San
Francisco facility is approximately $23,400 and the lease expires in December
2006.
Atlas
has
a six (6) year office lease covering approximately 471 square meters located
at
Level 4, No. 9, Empire Street, Gzira GZR04, Malta expiring on August 14, 2010
at
a base annual rent of Lm16,000 (approx US$45,000).
Atlas
also 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$35,000) plus 12.5% Goods and Services Tax (“GST”) which is
claimable against GST revenue tax payable or is refundable.
All
of
the aforementioned leased facilities are adequate for our current
needs.
ITEM
3. LEGAL PROCEEDINGS
We
are
not aware of any legal proceedings (either presently engaged in or contemplated)
by any government authority or other party involving our Company, our properties
or our products except as set out below:
Robert
Davidorf, a former officer of our subsidiary, TDC, resigned on April 12, 2006.
In connection with his resignation, Mr. Davidorf has made demand for
approximately $130,000 in accrued salaries and expenses owed to him allegedly.
The Company disputes the amounts asserted by Mr. Davidorf as being owed to
him.
We have not yet been served with a lawsuit and we are attempting to negotiate
this claim with Mr. Davidorf. If such a suit is filed, we anticipate that we
will raise a number of affirmative defenses and file counter claims against
Mr.
Davidorf. We are unable at this time to make an assessment of the outcome of
this dispute.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 2005.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Tribeworks,
Inc. common stock is quoted on the OTC bulletin board under the symbol 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 the Company:
|
2005
|
|
2004
|
|
High
|
|
Low
|
|
High
|
|
Low
|
First
quarter
|
$1.395
|
|
$0.900
|
|
$0.900
|
|
$0.360
|
Second
quarter
|
$1.350
|
|
$0.720
|
|
$0.900
|
|
$0.360
|
Third
quarter
|
$1.750
|
|
$1.260
|
|
$0.600
|
|
$0.300
|
Fourth
quarter
|
$1.800
|
|
$1.250
|
|
$3.450
|
|
$0.300
|
The
above
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
We
have
approximately 300 stockholders as of April 17, 2006 comprising both registered
shareholders and those held in Street names.
We
have
not 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
established our 1999 Stock Option Plan (the “1999 Plan”) on November 2, 1999
with 133,333 shares (on an adjusted basis) approved for issuance. We established
our 2001 Stock Plan (“2001 Plan”) on August 16, 2001 with 250,000 shares (on an
adjusted basis) approved for issuance. We established our 2004 Employee Stock
Incentive Plan (“2004 Plan”) on March 24, 2004 which allows us to issue options
to staff and consultants up to 25% of our outstanding common stock, as
determined from time to time, which equalled 5,401,888 shares at December 31,
2005. The purpose of the 1999 Plan is to grant 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, and the purpose of the 2004
Plan
is to grant stock options to purchase our common stock, restricted stock, and
stock bonuses to employees, officers and key consultants. The total amount
of
shares subject to the three Plans as of December 31, 2004 was 775,721 shares
(on
an adjusted basis). Included in the Equity Compensation Plan line items, but
outside of the scope of the 1999 Plan, 2001 Plan, and 2004 Plan, was a warrant
to purchase 15,000 shares of our common stock issued to a former officer and
director which expired on January 1, 2006.
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
|
|
Equity
Compensation Plans approved by security holders.
|
|
|
50,333
|
|
$
|
6.53
|
|
|
5,702,221
|
|
Total
|
|
|
50,333
|
|
$
|
6.53
|
|
|
5,702,221
|
|
No
new
options or warrants were issued to staff during the 2005 year.
We
made
no sales of our unregistered common stock during the quarter ended December
31,
2005.
On
December 28, 2005, the 818,000 Series A Preferred Stock were converted into
818,000 shares of common stock by the company bringing the total number of
outstanding shares of common stock to 21,607,555.
ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Forward
Looking Statements
The
following discussion contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that are subject to risks and uncertainties. These
forward-looking statements are based on our management’s beliefs as well as
assumptions and information currently available to us. When used in this report,
the words “believe,” “expect,” “anticipate,” “estimate” and similar expressions
are intended to identify forward-looking statements. There are several important
factors that could cause actual results to differ materially from historical
results and percentages and results anticipated by the forward-looking
statements, such as, but not limited to:
· |
whether
or not our products are accepted by the marketplace and the pace
of any
such acceptance,
|
· |
our
ability to continue to grow our Tools and Enterprise
businesses,
|
· |
Improvements
in the technologies of our competitors,
|
· |
changing
economic conditions, and
|
· |
other
factors, some of which will be outside of our
control.
|
We
have
sought to identify most risks to our business but cannot predict whether or
to
what extent any of such risks may be realized. There can be no assurance that
we
have identified all possible risks that might arise. Investors should carefully
consider all such risks before making an investment decision with respect to
our
common stock. We caution you not to place undue reliance on any forward-looking
statements, all of which speak only as of the date of this report. You should
refer to and carefully review the information in future documents we file with
the Securities and Exchange Commission.
Results
of Operations
We
witnessed an unprofitable year in 2005, with a net loss of $175,791. This was
our second unprofitable year since recording two consecutive profitable years
in
2003 and 2002. Our financial success to date has relied on steady or growing
revenues in our Tools business, and the attainment of sustainable key contracts
in our Enterprise business, but in 2005 we decided to reorganize the Company
and
change its direction. Both the previous Tools and Enterprise businesses
witnessed significant declines during 2004 and 2005, which had a negative impact
on our profitability. In addition, having significantly reduced our cost
structure during 2002 and 2003, during 2004 we began to accrue salaries for
our
key officers and employees, who were being paid under-market wages. These salary
accruals also had a negative impact on our profitability. As previously
discussed, the future success of our business is not assured, and our financial
condition has weakened so taking account of these uncertainties in our business,
and in light of our financial condition, on March 30, 2005, we announced a
plan
of reorganization. As explained earlier it has now been decided to sell the
previous business and to concentrate on the new Atlas IT support business which
was acquired on January 20, 2006. The results set out below are for the
Tribeworks business including where noted the new equity funds raised and
invested into the new business stream via Atlas.
Revenues
Total
revenues were $593,595 for the year ended December 31, 2005, a decrease of
28%
compared to total revenues of $821,572 for the year ended December 31, 2004.
The
Tools Business, which primarily includes sales of commercial or educational
use
of our iShell software, sales of books and third party plug-ins, and a small
amount of sales of iShell Mobile and Kinoma Media Album, decreased by 47% to
$159,759 for 2005, compared to $300,799 for 2004. The decrease in Tools revenues
was due primarily to a decrease in iShell revenues, which we believe is the
result of a shrinking marketplace for interactive CD-ROM authoring tools. The
Enterprise business decreased in 2005 by 17% to $433,836, compared with $520,773
for 2004. Enterprise revenues for 2005 consisted of $426,477 in professional
services revenues and $7,359 in licensing revenues, compared with $514,687
in
professional services revenues and $6,086 in licensing revenues for 2004. The
decrease in Enterprise revenues is due primarily to a decrease in revenues
associated with our ongoing relationship with Pioneer Corporation, our only
ongoing Japanese client. This decrease was partially offset by an increase
in
revenues associated with our professional services related to building software
applications and presentations for mobile devices. International revenues,
which
consist of sales to foreign customers, represented 42% of revenues for 2005,
compared to 53% of revenues for 2004.
Cost
of Sales
Cost
of
sales includes 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. Cost of sales was $214,606 for the year ended December
31, 2005, down from $328,862 for the year ended December 31, 2004. The decrease
in cost of sales was due to a decrease in sales volume. Gross margins on a
percentage basis were 64% for 2005 compared to 60% for 2004.
Operating
Expenses
Product
support expenses consist mainly of compensation, benefits and consulting fees
paid to product support personnel. Product support expenses were $11,673 and
$40,377 for the years ended December 31, 2005 and 2004, respectively. As a
percentage of Tools sales, product support expenses were 7% and 13% for 2005
and
2004, respectively.
Product
support and product development expenses for the old business streams were
reduced substantially during 2005 as the real new development expenditure took
place in Atlas via the $1,073,744 of money advanced to Atlas to develop the
new
IT Support business stream. The iShell® product development expenses for the
year ended December 31, 2005 were $39,900 compared to the $94,387 spent in
the
year ended December 31, 2004. This decrease reflects reduced development work
on
iShell® during 2005.
Sales
and
marketing expenses consist primarily of compensation and benefits and other
public relations and marketing costs with regard to the pre-existing Tribeworks
business. Sales and marketing expenses were $132,262 and $200,488 for the years
ended December 31, 2005 and 2004, respectively.
General
and administrative expenses consist primarily of compensation and benefits,
fees
for professional services, and overhead. General and administrative expenses
were $359,050 and $350,671 for the years ended December 31, 2005 and 2004,
respectively.
Other
Income (Expense)
Interest
expense was $4,463 for the year ended December 31, 2005 (2004 - $792 of expense)
and there was also $23,667 of interest earned on the advances made to the Atlas
Technology Group in the 2nd
half of
2005. There was also $1,058 of Other income for the year ended December 31,
2005
(2004 - Nil).
Provision
for Income Taxes
$4,770
of
income tax provision was recorded for the year ended December 31, 2005 which
related to the taxes due for the 2003 and 2004 years. Note the 2003 tax return
had not been prepared when the 2004 financial statements were completed and
therefore there was no tax provided in 2004.
Net
Income
Net
loss
for 2005 was $175,791 for the year ended December 31, 2005 that relates to
the
pre-existing Tribeworks business (offset by $19,204 of net interest income)
and
which compares to a net loss of $194,005 for the year ended December 31,
2004.
Liquidity
and Capital Resources
At
December 31, 2005, we had cash of $84,527 compared to $43,729 at December 31,
2004. Since inception, we have financed our operations through issuance of
stock
and revenues derived from our Tools and Enterprise businesses. Through December
31, 2004, we had raised $2,672,656 from the sale of stock. At December 31,
2004,
our principal source of liquidity was $43,729 of cash. We were unprofitable
in
2004. Given our financial condition, on March 30, 2005, we announced a plan
of
reorganization that was described in Note
L - Subsequent Events
to our
2004 consolidated financial statements.
Following
the announcement of the plan of reorganization and the new Board’s decision to
move into a new revenue stream and acquire the Atlas Technology Group,
$1,061,831 of new equity has been raised in 2005 in the form of convertible
preferred stock and common stock, with $1,073,744 (before interest) being
advanced to Atlas to develop the new IT Support systems. The new equity raised
comprised $451,000 in new Preferred Stock ($409,000 of which was converted
into
Common Stock on December 28, 2005), $300,000 on new Common Stock ($190,000
of
which was approved for issue at the 2005 AGM) and we received $400,000 of new
subscription monies for new Common Stock during the 4th
quarter
of 2005.
The
net
loss for 2005 was funded out of a mixture of the proceeds from a loan note
payable ($91,474 drawn down during 2005), collections of accounts receivables
and increases in accounts payable and accrued expenses.
Critical
Accounting Policies
Our
critical accounting policies are described in Note B - 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
of
America. 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. The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments, which
is included in 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.
Percentage-of-Completion
Accounting/Revenue Recognition.
Revenue
is generally recognized when all contractual or transfer obligations have been
satisfied and collection of the resulting receivable is probable. Revenues
from
membership subscriptions are recognized proportionally over the membership
period, usually one year. Revenues and estimated profits on custom development
services are generally recognized under the percentage-of-completion method
of
accounting using a cost-to-cost methodology; profit estimates are revised
periodically based on changes in facts; any losses on contracts are recognized
immediately. Revenue from the sale of licenses are recognized when all the
following criteria are met: persuasive evidence of an agreement exists, delivery
has occurred, the fee is fixed or determinable and collectability is probable.
If all aspects but the last have been met or if post contract customer support
could be material, revenue is recognized as payments from customers are
received.
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.
Risk
Factors
These
risk factors equally apply to both the existing Tribeworks business as well
as
the new Atlas business unless otherwise stated.
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 Tools business or Enterprise business to or our
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
expect high variability and uncertainty as to our future operations and
financial results.
Failure
to continue to operate profitably on an annual basis may adversely affect the
market price of our common stock and our ability to raise capital and continue
operations. 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 of rich-media applications, the 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
products and services may not be accepted by the industries that use rich-media
applications.
Our
future success in our present business depends on our ability to create and
deliver sophisticated rich-media tools and applications. If our products and
related services are not widely accepted, our ability to make sales in our
new
business will be hampered just as has been the case in the present Tools
business and Enterprise business. There can be no assurance that our new IT
support business will be attractive to a sufficient number of users to generate
significant revenues. Just as we have been unable to evolve our present products
and to develop new products that allow us to attract, retain, and expand a
loyal
membership base, if we are unable to establish a sound customer base for our
new
business, then results of operations, and financial condition will be materially
adversely affected.
The
rich-media market is intensely competitive. We cannot assure you that we will
be
able to achieve market acceptance.
The
rich-media market is intensely competitive. We expect the competition to
increase as new competitors enter the market. Many of our competitors may have
greater technical, marketing, and other resources. We believe the primary
competitive factors in providing rich-media application services and tools
to
development organizations and large corporations are value-added services,
ease
of use, price, quality of service, availability of customer support,
reliability, technical expertise, and experience. To the extent that we are
not
able to attract sources of revenues from the Tools business and the Enterprise
business, our business, results of operations, and financial condition will
be
materially adversely affected as hence the Board has made the decision to sell
this business.
A
number
of companies currently offer services or products that compete directly or
indirectly with our current products and service offerings. These companies
include Macromedia and Adobe Systems. These companies market a variety of
products addressing our target markets, including software tools for authoring
multimedia content. If we are unable to introduce competitive products with
competitive training and consulting services, our business, results of
operations, and financial condition will be materially adversely
affected.
Most
of
our current and potential significant competitors in the Internet services,
graphics, and multimedia industries have longer operating histories, greater
name recognition, and larger existing customer bases than us. These competitors
may be able to respond faster to new or emerging technologies and changes in
customer requirements. Because of their greater resources, they will be able
to
make more responsive changes to market conditions. Accordingly, there can be
no
assurance that we will be able to compete successfully in these
industries.
In
the
case of Atlas, there are a large number of traditional consultancies endeavoring
to compete in this space, including IBM Global Services, HP, EDS, and Accenture
as well as a number of smaller independents. 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
largest firms in terms of 2005 revenue are IBM with total sales of $91.1
billion, of which approximately one half, or $44 billion, represents services,
and of this amount approximately $17.1 billion is outsourcing services.
Outsourcing is IBM’s fastest growing business segment and is growing at 17%
annually, or almost double the rate of the overall company. HP is the second
largest in terms of revenue, with $87.9 billion in total 2005 revenues, of
which
approximately $14 billion is services including IT outsourcing, and which is
growing at an annual rate of 22%. HP is currently very interested in a new
service offering, based on ITIL standards, for custom application support.
It is
expected that they will release this new service offering to market during
2006.
This offering is expected to be a reasonably close fit to the custom support
Atlas intends to offer.
The
pure-play IT service providers, with 90% or more of their revenues coming from
IT support services, include EDS, with $19.8 billion in revenue, Computer
Sciences Corporation with $14.6 billion, Accenture with $17.8 billion, and
Bearingpoint with $3.4 billion in 2005 revenues.
The
improvement of infrastructure has meant the introduction of the third group
to
the competitive picture, notably in India, where Wipro and Infosys are beginning
to provide support services and call centers. Many hosting providers are also
trying to offer ASP services as an add-on. There are other more regional
players, such as Wavex and Motive that are also targeting the SME
market.
In
addition, we believe that the single biggest competitive factor is entrenched
in-house support groups. In fact, 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 Atlas’ IT support
services and Atlas is at present doing testing with potential customers, albeit
on a small scale to start with.
Our
iShell software depends on Apple’s QuickTime technology to function properly. We
cannot assure you that Apple will continue to develop the QuickTime technology
or distribute it free of charge, or will not develop software applications
which
compete directly with Tribeworks iShell product.
Our
iShell product line currently requires installation of Apple Computer’s
QuickTime software in order to function properly on both Windows and Macintosh
systems. We have no control over whether, and cannot assure that, Apple’s
QuickTime will maintain or enlarge its current market share against competitive
technologies. In addition, although Apple’s QuickTime technology has been under
development for more than nine years, we cannot assure that Apple will continue
to develop the technology or distribute it free of charge to consumers. Apple
may also substantially alter its business or licensing strategy with QuickTime
in a way that could adversely impact our business, resulting in increases in
our
development costs. In addition, Apple has increased its graphic software
development efforts and may decide to compete directly in the multimedia
authoring tool market.
We
cannot be certain that we will be able to establish and maintain the Tribeworks
brand, which is critical to our efforts to attract and expand our
market.
We
believe that establishing and maintaining the Tribeworks brand is a critical
aspect of our efforts to attract and expand our Internet audience. The
importance of brand recognition will increase due to the growing number of
Internet sites and the relative lack of significant barriers to entry in
providing Internet services, tools, products, and content. If we fail to promote
and maintain our brand, or if we incur excessive expenses in an attempt to
promote and maintain our brand, our business, financial condition and operating
results will be materially adversely affected.
Equally
so, Atlas as a new ‘start-up’ in the market will also have to establish it’s
brand and marketing of the brand has already commenced at various trade shows
in
Europe.
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
success depends upon our ability to address market opportunities while managing
our expenses to match our ability to finance our operations. 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 2005, and we expect increased expenses
in future quarters as we begin to comply with the requirements of the
Sarbanes-Oxley Act of 2002.
Our
success depends on our key personnel and the consulting services provided by
Keepsake. We may be unable to attract and retain qualified employees and may
not
be able to retain the services of Keepsake after the expiration of the Keepsake
Software Agreement.
Our
performance and success of the existing business depended substantially on
the
services of the existing small group of experienced senior staff as well as
on
our ability to recruit, retain and motivate our key employees. This will be
the
same with Atlas to start with but as the new business unit will require a much
larger number of staff this will in itself mitigate some of the risk once
critical mass in staff numbers has been achieved. Now leading the management
team are executives such as Robert Altinger who has over 20 years experience
of
developing, building, and leading application support teams worldwide, including
with JP Morgan, Microsoft and Avanade (a joint venture between Microsoft and
Accenture). Supporting him is a management team that has the experience,
operating skills, in both the IT sector and with the proven ability to build
a
world-class organization. Prior to joining Atlas, Peter Jacobson has had
experience as the founder and President of Monitor Technologies, Inc., an IT
network and support company to Fortune 1000 companies, a partner and marketing
Director of OceanPC, Inc., a leader in computer-based marine GPS navigation
systems, and, as President of First Call Wireless, LLC., a worldwide cellular
distribution company. Paddy Marra, the CFO, has spent over 30 years working
in
the areas of project development and management, corporate finance,
troubleshooting and restructuring. His experience has included being CFO of
Brierley Investments Ltd, a New Zealand based internationally publicly listed
company, from its formative years to its peak as an international investment
conglomerate with some US$6 million in gross assets.
We
do not
have employment contracts with key officers or employees in either Tribeworks
or
Atlas, and their relationships with us are terminable at-will. It is intended
that we will address the issue of employment contracts in 2006. Our success
also
depends on our ability to attract and retain additional qualified employees.
Competition for qualified personnel in all our locations is intense and there
are a limited number of persons with the knowledge of and experience in our
field of business. There can be no assurance that we will be able to attract
and
retain key personnel. The loss of one or more key employees or of our key
service providers could have a material adverse effect on the Company. In the
case of Atlas, the key initial recruitment areas will be Malta and Wellington,
New Zealand, and already 10 staff have been recruited. The advantage of the
new
business model is that it is easily set up in new locations, so to that extent
new locations can be established if staff recruitment becomes an issue in any
location.
Our
success depends on our ability to develop services that meet our customers’
requirements. We may not be able to meet those requirements if we are unable
to
keep pace with technology trends and the evolving rich-media industry
standards.
Our
success depends on our ability to develop and provide new services that meet
our
customers’ changing requirements. The Internet is 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.
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
decrease the growth in the use of the Internet, which could in turn 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 relating to Internet commerce.
As
a result, a number of laws or regulations may be adopted regarding Internet
user
privacy, security, taxation, pricing, quality of products and services, and
intellectual property ownership, which may also be applicable to us. How
existing laws will be applied to the Internet, in areas such as property
ownership, copyrights, trademarks, trade secrets, and obscene or indecent
communications, is uncertain.
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 Internet sites
and
our network infrastructure are critical to attracting Internet users and
maintaining relationships with subscribing customers. System interruptions
that
result in the unavailability of our Internet sites and slower response times
for
users could reduce the number of products and multi-media services we deliver
and reduce the attractiveness of our services to Members and subscribers. Any
disruption of our services would materially adversely affect our business,
financial condition and results of operations.
Our
present Tribeworks internet operations are located in a single facility, which
is located in the San Francisco Bay Area in California. A natural disaster
is
possible and could result in prolonged interruption of our
business.
Our
present Internet operations for the Tribeworks business are located in the
San
Francisco Bay Area. This area is seismically active. With our operations
centralized in a single facility, a natural disaster, such as an earthquake,
fire, or flood, could substantially disrupt our manufacturing operations or
destroy our facilities. This could cause delays and cause us to incur additional
expenses and adversely affect our reputation with our customers. In addition,
since the real estate market in the San Francisco Bay Area is extremely
competitive and is likely to remain competitive, an alternative facility may
not
be available on commercially reasonable terms if we suffer a catastrophic loss
from a natural disaster.
The
new
Atlas business at present has one main base data center in Seattle, but as
resources allow and growth develops it is intended that a second data center
will be installed so that we have redundancy against any natural or other
disaster. Until this second data center is developed some duplicate files are
being kept on the local systems in Malta and New Zealand.
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.
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. However, 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.
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.
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.
Our
future success depends on our ability to attract customers from 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. We believe that the growth of the Internet
in foreign countries will outpace growth of the Internet in the United States
in
the next decade. 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. Atlas intends marketing its products initially in both North America
and Europe and already we have pilot customers in both the United States and
Italy.
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 under Atlas. Our quarterly
results may fluctuate for many reasons, including:
· |
Limited
operating history
|
· |
Dependence
on a limited number of customers for a significant portion of our
revenue;
and
|
· |
Dependence
on membership fees to provide future
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.
Our
stock price is volatile and, as a result, you could lose some or all of your
money.
We
believe that various factors may cause the market price of our common stock
to
fluctuate, including announcements of:
· |
New
products by us or our competitors;
|
· |
Developments
or disputes concerning intellectual property proprietary
rights;
|
· |
Our
failing to achieve our operational milestones;
and
|
· |
Changes
in our financial conditions or securities = analysts’
recommendations.
|
The
stock
markets, in general, and the shares of Internet 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.
ITEM
7. FINANCIAL STATEMENTS
TRIBEWORKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2005 AND 2004
TRIBEWORKS,
INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm for 2005
|
|
|
21
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm for 2004
|
|
|
22
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
23
|
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
|
24
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
25
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
|
|
27
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
28
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2005
![logo](logo.jpg) |
Williams
& Webster, P. S Certified
Public Accountants & Business
Consultants
|
Tribeworks,
Inc.
Redmond,
Washington
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
have
audited the accompanying balance sheet of Tribeworks, Inc. as of December
31,
2005 and
the
related statement of operations, stockholders' equity and cash flows for
the
year 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
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the financial statements. 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 audit provides 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, 2005 and the results
of its operations,
stockholders equity and its cash flows for the year 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 C 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 C. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Williams
& Webster, P.S.
Certified
Public Accountants
Spokane,
Washington
December
15, 2006
Members
of Private Companies Practice Section, SEC Practice Section, AICPA and
WSCPA
Bank
of
America Financial Center •
601
W.
Riverside, Suite 1940 •
Spokane,
WA 99201
Phone
(509) 838-5111 •
Fax
(509)
838-5114 •
www.williams-webster.com
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2004
To
the
Board of Directors and Stockholders Tribeworks, Inc.
We
have
audited the accompanying consolidated balance sheet of Tribeworks, Inc. and
subsidiaries as of December 31, 2004, and the related consolidated statements
of
operations, cash flows, and stockholders’ deficit for the year 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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 audit provides
a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Tribeworks, Inc. and
subsidiaries as of December 31, 2004, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company’s financial position and limited capital
resources raise substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also described in
Notes C and L. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/
TAUBER & Balser, P.C.
Tauber
& Balser, P.C.
Atlanta,
Georgia
March
30,
2005
TRIBEWORKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2005 AND 2004
|
|
2005
(Restated)
|
|
2004
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
84,527
|
|
$
|
43,729
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$1,500
|
|
|
12,698
|
|
|
32,641
|
|
Prepaid
expenses
|
|
|
27,145
|
|
|
31,292
|
|
Total
Current Assets
|
|
|
124,370
|
|
|
107,662
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
Loans
to Atlas
|
|
|
1,073,744
|
|
|
-
|
|
Equipment,
net of accumulated depreciation of $51,834 and $50,602,
respectively
|
|
|
1,912
|
|
|
1,691
|
|
Total
Other Assets
|
|
|
1,075,656
|
|
|
1,691
|
|
Total
Assets
|
|
$
|
1,200,026
|
|
$
|
109,353
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
381,495
|
|
$
|
247,703
|
|
Accrued
expenses
|
|
|
182,108
|
|
|
134,887
|
|
Due
to shareholders
|
|
|
6,232
|
|
|
6,232
|
|
Billings
in excess of costs and estimated earnings on uncompleted
contract
|
|
|
—
|
|
|
53,240
|
|
Income
taxes payable
|
|
|
3,882
|
|
|
—
|
|
Note
payable
|
|
|
175,175
|
|
|
83,701
|
|
Deferred
revenue
|
|
|
35,551
|
|
|
61,971
|
|
Total
Current Liabilities
|
|
|
784,443
|
|
|
587,734
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
Application
Monies for new Stock
|
|
|
417,289
|
|
|
—
|
|
Redeemable
convertible preferred stock: $.0004 par value, 10,000,000 shares
authorized, 84,000 and 0 Series B preferred shares issued and
outstanding
|
|
|
34
|
|
|
—
|
|
Common
stock: $.0004 par value, 200,000,000 shares authorized, 21,607,555
and
1,569,555 shares issued and outstanding at December 31, 2005 and
2004
|
|
|
8,635
|
|
|
628
|
|
Additional
paid-in capital
|
|
|
3,681,613
|
|
|
3,036,980
|
|
Accumulated
deficit
|
|
|
(3,691,988
|
)
|
|
(3,515,989
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
415,583
|
|
|
(478,381
|
)
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
1,200,026
|
|
$
|
109,353
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
TRIBEWORKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS
ENDED DECEMBER 31, 2005 AND 2004
|
|
2005
(Restated)
|
|
2004
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
593,595
|
|
$
|
821,572
|
|
|
|
|
|
|
|
|
|
Cost
of Sales
|
|
|
214,606
|
|
|
328,862
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
378,989
|
|
|
492,710
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
Product
support
|
|
|
11,673
|
|
|
40,377
|
|
Product
development
|
|
|
67,287
|
|
|
94,387
|
|
Sales
and marketing
|
|
|
132,262
|
|
|
200,488
|
|
General
and administrative
|
|
|
359,050
|
|
|
350,671
|
|
|
|
|
570,272
|
|
|
685,923
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(191,283
|
)
|
|
(193,213
|
)
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(4,463
|
)
|
|
—
|
|
Interest
income
|
|
|
23,667
|
|
|
(792
|
)
|
Other
income
|
|
|
1,058
|
|
|
—
|
|
|
|
|
20,262
|
|
|
(792
|
)
|
|
|
|
|
|
|
|
|
Loss
Before Income Taxes
|
|
|
(171,021
|
)
|
|
(194,005
|
)
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
4,770
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(175,791
|
)
|
$
|
(194,005
|
)
|
|
|
|
|
|
|
|
|
Net
Loss per Common Share, Basic and Diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares Outstanding, Basic and
Diluted
|
|
|
10,325,995
|
|
|
1,569,555
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
TRIBEWORKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2005 AND 2004
|
|
2005
(Restated)
|
|
2004
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(175,791)
|
)
|
$
|
(194,005
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,130
|
|
|
1,232
|
|
Amortization
of unearned compensation
|
|
|
—
|
|
|
3,369
|
|
Changes
in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
19,943
|
|
|
133,777
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
(53,240
|
)
|
|
23,643
|
|
Prepaid
expenses
|
|
|
4,146
|
|
|
26,582
|
|
Accounts
payable
|
|
|
133,793
|
|
|
(1,167
|
)
|
Accrued
expenses
|
|
|
47,221
|
|
|
116,534
|
|
Taxes
Payable
|
|
|
3,882
|
|
|
—
|
|
Deferred
revenue and billings in excess of costs and estimated earnings on
uncompleted contracts
|
|
|
(26,420
|
)
|
|
(106,008
|
)
|
Net
cash provided (used) by operating activities
|
|
|
(45,336
|
)
|
|
3,957
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
Loans
to Atlas
|
|
|
(1,073,744
|
)
|
|
—
|
|
Purchase
of equipment
|
|
|
(1,350
|
)
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(1,075,094
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from new equity raised (net of costs)
|
|
|
652,466
|
|
|
—
|
|
Application
monies for new equity (net)
|
|
|
417,289
|
|
|
—
|
|
Proceeds
from note payable
|
|
|
91,473
|
|
|
—
|
|
Net
cash provided by financing activities
|
|
|
1,161,228
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash
|
|
|
40,798
|
|
|
3,957
|
|
|
|
|
|
|
|
|
|
Cash,
Beginning of Period
|
|
|
43,729
|
|
|
39,772
|
|
|
|
|
|
|
|
|
|
Cash,
End of Period
|
|
$
|
84,527
|
|
$
|
43,729
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
TRIBEWORKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS
ENDED DECEMBER 31, 2005 AND 2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
3,675
|
|
$
|
792
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Financing Activities
|
|
|
|
|
|
|
|
Capitalization
of accrued interest into advance to Atlas Technology Group
|
|
$
|
23,667
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
TRIBEWORKS,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
YEARS
ENDED DECEMBER 31, 2005 AND 2004
|
|
Common
Stock
|
|
Preferred
Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
$
|
|
Shares
|
|
Amount
$
|
|
Capital
$
|
|
Deficit
$
|
|
Total
$
|
|
Balances
at January 1, 2004
|
|
|
1,569,555
|
|
|
628
|
|
|
—
|
|
|
—
|
|
|
3,036,980
|
|
|
(3,321,984
|
)
|
|
(284,376
|
)
|
Net
income (loss)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(194,005
|
)
|
|
(194,005
|
)
|
Balances
at December 31, 2004
|
|
|
1,569,555
|
|
|
628
|
|
|
—
|
|
|
—
|
|
|
3,036,980
|
|
|
(3,515,989
|
)
|
|
(478,381
|
)
|
Common
stock issued at $0.01 approved at AGM
|
|
|
19,000,000
|
|
|
7,600
|
|
|
—
|
|
|
—
|
|
|
182,400
|
|
|
—
|
|
|
190,000
|
|
Common
stock issued at $0.50
|
|
|
220,000
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
109,920
|
|
|
—
|
|
|
110,000
|
|
Preferred
‘A’ stock issued at $0.50
|
|
|
—
|
|
|
—
|
|
|
818,000
|
|
|
327
|
|
|
408,673
|
|
|
—
|
|
|
409,000
|
|
Preferred
‘A’ stock converted to common stock and warrants
|
|
|
818,000
|
|
|
327
|
|
|
(818,000
|
)
|
|
(327
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Preferred
‘B’ Stock issued at $0.50
|
|
|
—
|
|
|
—
|
|
|
84,000
|
|
|
34
|
|
|
41,966
|
|
|
—
|
|
|
42,000
|
|
Net
costs of new issues
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(98,326
|
)
|
|
(208
|
)
|
|
(98,534
|
)
|
Application
monies for unallocated stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
417,289
|
|
Net
income (loss)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(175,791
|
)
|
|
(175,791
|
)
|
Balances
at December 31, 2005
|
|
|
21,607,555
|
|
$
|
8,635
|
|
|
84,000
|
|
$
|
34
|
|
$
|
3,681,613
|
|
$
|
(3,691,988
|
)
|
$
|
(415,583
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
A - NATURE OF BUSINESS
The
Company’s business activity during 2005 and 2004 results from a mixture of
consulting services based on a technology and the sale of a technology that
provides tools for creating and delivering multimedia applications. Internet
media developers use the technology for creation and deployment of electronic
content that utilizes interactive features combining graphics, video, and audio
content.
The
Company exploits its software primarily through the licensing of its software
tools to multimedia and software developers and through building customized
licensed versions that include professional engineering to meet contract
requirements.
During
2005, the Company began investing in a new business stream via advances to
Atlas
Technology Group, which was acquired as a wholly owned subsidiary as of January
20, 2006, and was treated solely as an investment in these financial
statements.
NOTE
B - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis
of Consolidation
The
financial statements of the Company are presented on a consolidated basis and
include the Company and its wholly owned subsidiaries, Tribeworks Development
Corporation and Tribeworks Japan Limited, through the third quarter of 2004,
the
date of the termination of Tribeworks Japan Limited. All material inter-company
transactions have been eliminated.
During
the quarter ended September 30, 2004, the Company officially terminated its
Tribeworks Japan subsidiary and office in Japan. The costs of closure were
not
material. The Company has continued to conduct its business operations in Japan
through the use of consultants.
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles 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.
Significant
estimates used in preparing these financial statements include those used in
computing profit percentages under the percentage-of-completion revenue
recognition method. It is at least reasonably possible that these significant
estimates used will change within the next year.
Accounts
Receivable
Accounts
receivable are reported at the amount management expects to collect on balances
outstanding at year-end. The amount of the accounting loss that the Company
is
at risk for these unsecured accounts receivable is limited to their carrying
value, which was $12,698 at December 31, 2005. The Company provides an allowance
for doubtful accounts and records bad debts based on a periodic review of
accounts receivable to consider the collectibility of each account.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
Customer
Concentrations
In
2005,
three customers accounted for 42%, 20% and 3% of total revenues, respectively.
In 2004, three customers accounted for 36%, 14% and 7% of total revenues,
respectively. At December 31, 2005 and 2004, accounts receivable from these
major customers totalled $3,814 and $17,000, respectively.
Revenues
from international customers were approximately 42% and 53% of total revenues
in
2005 and 2004, respectively. Revenues are paid in U.S. dollars and Japanese
yen.
Approximately 42% and 37% of revenues in 2005 and 2004, respectively, were
generated from Japanese customers. At December 31, 2005 and 2004, accounts
receivable from all international customers totalled approximately $3,814 and
$7,000, respectively.
Technology
License
The
Company’s principal business activity focuses on the commercialization of
iShell®, which was developed by a former officer and director of the Company and
an affiliate of the Company. In November 1999, the Company purchased all rights,
title and interest in iShell in exchange for $100,000 and warrants to purchase
25,253 shares of common stock at an exercise price of $3.96 per share, valued
at
$30,000. The $130,000 cost was fully amortized at December 31,
2002.
Revenue
Recognition
Revenue
is generally recognized when all contractual or transfer obligations have been
satisfied and collection of the resulting receivable is probable.
Revenues
from membership subscriptions are recognized proportionally over the membership
period, usually one year. Revenues and estimated profits on custom development
services are generally recognized under the percentage-of-completion method
of
accounting using cost-to-cost methodology; profit estimates are revised
periodically based on changes in facts; with any losses on contracts are
recognized immediately. Revenue from the sale of licenses are recognized when
all the following criteria are met: persuasive evidence of an agreement exists,
delivery has occurred, the fee is fixed or determinable and collectability
is
probable. If all aspects but the last have been met, revenue is recognized
as
payments from customers are received.
Product
Development Costs
The
Company has in the past expensed all of its software development costs in the
period the costs are incurred and did so during 2004 and 2005. With the new
software being developed by Atlas now reaching the live beta testing and
production testing stages, the Board of Directors has decided to adopt Statement
of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS 86”) with effect from
January 1, 2006, and to capitalize certain enhancement costs that meet the
requirements of SFAS 86.
Stock-Based
Awards
Previously,
the Company had 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 issues stock-based awards for services performed by consultants
and
other non-employees and accounts for them in accordance with Statement of
Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 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 “SFAS No. 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 December 15, 2002. The
Company has adopted SFAS No. 123(R).
The
Company did not grant any options during 2004 or 2005.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
Foreign
Currency Translation
Prior
to
its closure, Tribeworks Japan prepared its financial statements in a currency
other than U.S. dollars. Results of operations and cash flows were translated
at
average exchange rates during the period, and assets and liabilities were
translated at end-of-period exchange rates. The Company determined that the
foreign currency translation effect was immaterial and, therefore, translation
adjustments were not included as a separate component of accumulated other
comprehensive income (loss) in stockholders’ equity (deficit).
Earnings
(Loss) per Common Share
Basic
earnings (loss) per share (“EPS”) is computed based on net income (loss) divided
by the weighted average number of common shares outstanding. Diluted EPS is
computed based on net income (loss) divided by the weighted average number
of
common shares and potential common share equivalents outstanding. Potential
common share equivalents are those related to stock options and warrants.
However, such potential common share equivalents would have no effect on diluted
earnings per share in 2005 and 2004. Therefore, the basic and diluted earnings
per share is the same in 2005 and 2004.
NOTE
C - 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 2004 and 2005 and had a working capital deficiency of $660,073
and
$480,072 for 2005 and 2004. At December 31, 2005, the Company has stockholders’
equity of $415,583 compared to an equity deficiency of $478,381 at December
31,
2005. The Company is in default on its note payable and has deferred payment
of
certain accounts payable and accrued expenses while further new equity is
raised.
In
light
of the Company’s financial condition, on March 30, 2005, the Company announced a
plan of reorganization. During 2005, the old business was separated into
Tribeworks Development Corporation, and approximately $1 million of new equity
was raised with the intention of investing in a new business stream of offsite
IT support. On January 20, 2006, the Atlas Technology Group was acquired in
order to develop this new business stream. This is further explained
in Note
O -
Subsequent Events.
To
fully
develop this new business stream, which is now at the live testing stage,
further equity will need to be raised and this is currently underway. In view
of
the matters described, there is substantial doubt about the Company’s 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 continued operation of the Company, which is in turn dependent
upon the Company’s ability to raise new 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.
NOTE
D - LOAN TO ATLAS TECHNOLOGY GROUP
During
2005 the Company advanced $1,073,744 (plus accrued interest) to Atlas Technology
Group (Atlas), a group of companies controlled by the directors of Tribeworks,
in order for Atlas to pursue its business plan. (Also see Note O). At December
31, 2005, Atlas had not yet established profitable operations, nor was it in
a
position to repay the loan. Consequently, The Company has written this balance
down to its estimated realizable balance, charging the whole of the advance
to
product development costs in the Consolidated Statement of
Operations.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
E - COSTS, ESTIMATED EARNINGS AND BILLINGS ON UNCOMPLETED
CONTRACTS
At
December 31, 2005, there were no costs and estimated earnings in excess of
billings on uncompleted contracts. At December 31, 2004, billings in excess
of
costs and estimated earnings on uncompleted contracts, which was comprised
of
two jobs in progress, consisted of $148,000 of billings, less $46,000 of costs
and $49,000 of estimated earnings.
NOTE
F - NOTE PAYABLE
On
January 21, 2001, the Company borrowed $100,000 under a private placement
agreement. Under the terms of the agreement the lender, upon the closing of
a
“Qualified Financing” (as that term is defined in the agreement), could convert
the loan to common stock of the Company. Such conversion never took place,
and
on June 12, 2003, the Company and the creditor restructured this note. The
original terms for the $100,000 note accrued simple interest at 10%, with all
principal and accrued interest due on demand. The restructured note accrues
interest at 4% and was increased by $20,000 for previously accrued interest.
The
new note is nonconvertible, and calls for an initial payment of $30,000, which
was made during June 2003, and then monthly payments of $3,500 through February
2005, with a final payment of $24,201 in March 2005. If the Company had made
all
of the note payments timely in accordance with the note agreement, the creditor
would have forgiven $20,000 of the final payment.
The
Company failed to make the scheduled note payments after September 2003 and
has
received notification of default from the lender. As such, the note was due
in
full on September 30, 2004 and is accruing default interest at a rate of 4%
on
the outstanding payment amounts of the note. At December 31, 2005, this
obligation had an outstanding principal balance of $83,701.
On
March 30, 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 registrant’s operating
subsidiary, Tribeworks Development Corporation, and possible sale of the
subsidiary to current management or others. After further development, the
plan
was expected to be submitted to shareholders for a vote and a separate note
agreement (“Note”) which provided for unsecured borrowing at 4% in an amount of
up to $100,000 was entered into as of March 29, 2005 to help cover
reorganization costs. The funds received under the Note were from the lender
of
the aforementioned debt of $83,701 and were to be used only against applicable
expenses to be incurred. 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. This Note is expected to be repaid from the new equity
to
be raised in 2006 and there can be no assurance that management will be
successful in implementing its plan to raise this new equity.
NOTE
G - FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company’s financial instruments include cash, receivables and short-term debt
for which the Company believes that the fair value approximates their carrying
amounts.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
H - INCOME TAXES
Deferred
income tax assets and the related valuation allowances result principally from
the potential tax benefits of net operating loss carryforwards. The Company
has
recorded a valuation allowance to reflect the uncertainty of the ultimate
utilization of the deferred income tax assets as follows:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Deferred
income tax assets
|
|
$
|
1,491,000
|
|
$
|
1,391,000
|
|
Less
valuation allowance
|
|
|
(1,491,000
|
)
|
|
(1,391,000
|
)
|
Net
deferred income tax assets
|
|
$
|
—
|
|
$
|
—
|
|
The
following is a reconciliation of the applicable U.S. federal income tax rate
to
the effective tax rate included in the consolidated statements of
operations:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
U.S.
federal income tax rate
|
|
|
(34.0
|
)%
|
|
(34.0
|
)%
|
State
income tax rate, net of federal rate
|
|
|
(8.4
|
)
|
|
(5.8
|
)
|
Valuation
allowance
|
|
|
42.4
|
|
|
39.8
|
|
|
|
|
0.0
|
%
|
|
0.0
|
%
|
At
December 31, 2005, the Company had available net operating loss carryforwards
for income tax reporting purposes of approximately $3,516,000 which will expire
in various periods through 2025.
NOTE
I—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 (“AGM”)
held
on August 19, 2005, the shareholders 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 AGM,
where
shareholders 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 common shares were issued.
On
June
29 2005, the Company announced the closing of a preferred stock issuance whereby
$409,000 was raised from investors into Series A preferred stock (the
“Series
A Stock”)
by the
issuance of 818,000 shares at $0.50 each. These shares were fully convertible
on
a 1-for-1 basis into common shares of the company at the discretion of the
board
at any time after the approval of the reverse split discussed above and on
December 28, 2005 the board had these preferred shares converted into 818,000
shares of common stock and as per the terms of the issue one (1) warrant for
every two (2) new common shares was attached which will allow the holder to
subscribe for common shares in the Company at $1.00 per common share within
one
year of these new common shares being issued.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
The
Company subsequently raised a further $42,000 by placement of 84,000 shares
of
Series B preferred stock (the “Series
B Stock”)
at a
stated value $0.50 per share during the third quarter. Each share is fully
convertible on a one-for-one basis into common shares of the Company at the
discretion of the board (which has not yet been given). Upon conversion into
common shares each stockholder will receive one (1) warrant for every two (2)
new common shares to subscribe for common shares in the Company at $1.00 per
common share within one year. The Series B Stock is entitled to an annual
cumulative dividend of 10% of the Stated Value from the date of issuance and
can
be redeemed at face plus accumulated dividends by the Company at any time by
giving the required notice.
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 common shares to subscribe for common
shares in the Company at $1.00 per common share within one year of these new
common shares being issued.
In
addition in the fourth quarter of 2005, the Company received $417,289 of
subscription monies to subscribe for 800,000 common shares at a value of $0.50
per share. The subscribers will receive one (1) warrant for every two (2) new
common shares to subscribe for common shares in the Company at $1.00 per common
share within one year of these new common shares being issued.
Following
the 2005 reverse stock split and the issue and conversion of the Series A and
the Series B Stock issues (but without the conversion of any warrants yet to
be
issued) plus the issue of common shares for the application monies received
in
the 4th
quarter,
the fully diluted capital of the Company will be 22,491,555 common
shares.
NOTE
J - 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 December
31, 2005, there were 50,333 shares reserved for issuance under the 1999 Equity
Incentive Plan after adjusting for the two subsequent reverse
splits.
The
Company also maintains a 2004 Employee Stock Incentive 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 December 31, 2005 and therefore
no
shares have been reserved for issuance under that Plan.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
A
summary
of the Company’s stock options as of December 31, 2005 and 2004 and changes
during the years ending on those dates is presented below:
|
|
2005
|
|
2004
|
|
|
|
Options
|
|
Weighted
Average Exercise
Price
|
|
Options
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
82,833
|
|
$
|
4.26
|
|
|
117,326
|
|
$
|
4.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(32,500
|
)
|
|
2.16
|
|
|
(34,493
|
)
|
$
|
6.63
|
|
Outstanding
at end of year
|
|
|
50,333
|
|
$
|
6.53
|
|
|
82,833
|
|
$
|
4.26
|
|
Options
exercisable at end of year
|
|
|
50,333
|
|
$
|
6.53
|
|
|
82,833
|
|
$
|
4.26
|
|
Weighted-average
fair value of options granted during the year
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
The
following table summarizes information about stock options outstanding at
December 31, 2005:
Options
Outstanding
|
|
Options
Exercisable
|
|
Options
Outstanding
|
|
Weighted
Average
Remaining
Life
|
|
Weighted
Average
Exercise
Price
|
|
Options
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
1,667
|
|
|
3.50
years
|
|
$
|
0.60
|
|
|
1,667
|
|
$
|
0.60
|
|
2,083
|
|
|
4.40
years
|
|
|
33.60
|
|
|
2,083
|
|
|
33.60
|
|
2,500
|
|
|
4.55
years
|
|
|
37.08
|
|
|
2,500
|
|
|
37.08
|
|
2,000
|
|
|
4.65
years
|
|
|
30.00
|
|
|
2,000
|
|
|
30.00
|
|
1,667
|
|
|
4.88
years
|
|
|
12.00
|
|
|
1,667
|
|
|
12.00
|
|
15,000
|
|
|
5.01
years
|
|
|
4.50
|
|
|
15,000
|
|
|
4.50
|
|
2,500
|
|
|
5.22
years
|
|
|
3.00
|
|
|
2,500
|
|
|
3.00
|
|
16,667
|
|
|
6.47
years
|
|
|
0.42
|
|
|
16,667
|
|
|
0.42
|
|
6,250
|
|
|
6.78
years
|
|
|
0.48
|
|
|
6,250
|
|
|
0.48
|
|
50,333
|
|
|
|
|
|
|
|
|
50,333
|
|
|
|
|
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
Stock
Warrants
The
Company has issued stock warrants in conjunction with the issuance of common
stock, debt, and the settlement of debt and for services. Activity related
to
stock warrants was as follows:
|
|
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2003
|
|
|
18,333
|
|
|
3.75
|
|
Expired
|
|
|
(3,333
|
)
|
|
0.42
|
|
Outstanding
at December 31, 2004
|
|
|
15,000
|
|
|
4.50
|
|
Issued
during 2005
|
|
|
519,000
|
|
|
1.00
|
|
Outstanding
at December 31, 2005
|
|
|
534,000
|
|
|
1.10
|
|
No
warrants were granted during the year ended December 31, 2004. A total of
519,000 warrants were granted in the year ended December 31, 2005 in conjunction
with the issue of 220,000 common shares and the issue and conversion of 818,000
Series ‘A’ Preferred shares. An additional 42,000 warrants will be issued when
the 84,000 Series ‘B’ Preferred shares are converted to common stock. The 15,000
(post reverse stock split) warrants outstanding from pre December 31, 2004
expired on January 1, 2006 and were not exercised.
The
following table summarizes information about stock warrants outstanding at
December 31, 2005:
Warrants
Outstanding
|
|
Warrants
Exercisable
|
|
Warrants
Outstanding
|
|
Weighted
Average
Remaining
Life
|
|
Exercise
Price
|
|
Warrants
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
nil
|
|
$
|
4.50
|
|
|
15,000
|
|
$
|
4.50
|
|
|
1/01/06
|
|
110,000
|
|
|
11
months
|
|
$
|
1.00
|
|
|
110,000
|
|
$
|
1.00
|
|
|
10/26/06
|
|
409,000
|
|
|
12
months
|
|
$
|
1.00
|
|
|
409,000
|
|
$
|
1.00
|
|
|
1/05/07
|
|
534,000
|
|
|
|
|
|
|
|
|
534,000
|
|
|
|
|
|
|
|
NOTE
K - COMMITMENTS
Leases
On
December 16, 2004, the Company entered into a two-year lease agreement for
its
principal office space. The monthly rent is approximately $1,950 per month.
Total rent expense for the years ended December 31, 2005 and 2004 was
approximately $24,000 and $40,000, respectively. At December 31, 2005 the
Company’s remaining lease commitment is $23,400.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
L - RELATED PARTY TRANSACTIONS
Officer
and Director Options and Warrants
At
December 31, 2004, the Company had outstanding the following qualified and
nonqualified stock options granted to officers and directors of a subsidiary
which are included in Note J:
Common
Shares
Under
Option
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
|
|
7,500
|
|
$
|
0.72
|
|
|
June
30, 2009
|
|
15,000
|
|
|
4.50
|
|
|
January
11, 2011
|
|
25,000
|
|
|
0.72
|
|
|
March
26, 2011
|
|
47,500
|
|
|
|
|
|
|
|
At
December 31, 2005 no options were outstanding to the directors and officers
of
Tribeworks, Inc.
At
December 31, 2005, the Company had outstanding the following warrants to
officers and directors of a subsidiary which are included in Note
J:
Common
Shares
Under
Warrant
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
|
|
15,000
|
|
$
|
4.50
|
|
|
January
1, 2006
|
|
Of
the
total outstanding warrants granted to officers and directors as discussed above,
all are exercisable at December 31, 2005, but were not exercised on January
1,
2006 and have therefore expired.
Due
to
Shareholders
The
$6,232 due to shareholders at December 31, 2005 and 2004 is non-interest
bearing, not collateralized and due on demand.
Accrued
Payroll
Effective
July 1, 2004, the Company entered into one-year compensation arrangements with
two of its executive officers. The arrangements provide for annualized salaries
of $120,000 and $110,000 for the Company’s chief executive officer, Mr. Duncan
Kennedy, and chief financial officer, Mr. Robert Davidorf, respectively. As
part
of the arrangement, any of this compensation accrued but not paid can be
converted, at the option of the executive officers, into common shares of the
Company at any time through June 30, 2007. The conversion rate is equal to
the
accrued amount divided by the average closing bid of the Company’s common stock
for the 20 trading days previous to the election date. As part of the
arrangement, the Company will hold any issued shares in escrow for one year
following the date of conversion. Termination of employment during the one-year
period from July 1, 2004 shall cause the issued stock to be forfeited and
returned to the Company and, as such, the outstanding salary underlying the
forfeited stock shall not be owed. At December 31, 2005 and 2004, the Company
had accrued payroll balances of $41,706 and $35,208 to Mr. Kennedy, and $76,545
and $51,890 to Mr. Davidorf respectively and have been accrued in the financials
statements. Note that Mr. Kennedy resigned as CEO on March 29, 2005 and Mr.
Davidorf resigned as CFO on June 28, 2005. As at December 31, 2004, $34,437
of
salary had been accrued for Mr. Glen Pogue who was the CEO of the Company for
a
period during 2005.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
M - REVERSE STOCK SPLIT
On
March
24, 2004, the Board of Directors authorized a one-for-four reverse stock split
of the Company’s common stock. The reverse split became effective on June 4,
2004, thereby reducing the number of common shares outstanding by 75% and
increasing the par value to $0.0004. At the AGM on August 19, 2005 a further
one-for- three reverse split was approved, which further reduced the number
of
common shares by two-thirds. All references in the accompanying consolidated
financial statements to the number of common shares, 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.
NOTE
N- NEW ACCOUNTING PRONOUNCEMENTS
In
January 2003 the Financial Accounting Standards Board issued Interpretation
No.
46, “Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial Statements”.
Interpretation 46 establishes accounting guidance for consolidation of variable
interest entities that function to support the activities of the primary
beneficiary. Interpretation 46 applies to any business enterprise both private
and public that has a controlling interest, contractual relationship or other
business relationship with a variable interest entity. The Company has no
investment in or contractual relationship or other business relationship with
a
variable interest entity and therefore the adoption did not have any impact
on
the Company’s consolidated financial position, results of operations or cash
flows.
On
April
30, 2003 the Financial Accounting Standards Board issued Statement No. 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.
Statement 149 is intended to result in more consistent reporting of contracts
as
either freestanding derivative instruments subject to Statement 133 in its
entirety, or as hybrid instruments with debt host contracts and embedded
derivative features. In addition, Statement 149 clarifies the definition of
a
derivative by providing guidance on the meaning of initial net investments
related to derivatives. Statement 149 is effective for contracts entered into
or
modified after June 30, 2003. The adoption of Statement 149 did not have any
effect on the Company’s consolidated financial position, results of operations
or cash flows.
In
2004,
Financial Accounting Standards Board issued a revision of FASB Statement No.
123, “Accounting for Stock-Based Compensation”. This Statement supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related
implementation guidance. This revised pronouncement requires that all stock
options and warrants be accounted for using the fair value method. This
pronouncement will impact on the Company, as the Company currently accounts
for
all options and warrants using the intrinsic value method.
FIN
46(R), “Consolidation of Variable Interest Entities, applies at different dates
to different types of enterprises and entities, and special provisions apply
to
enterprises that have fully or partially applied Interpretation 46 prior to
issuance of Interpretation 46(R). Application of Interpretation 46 or
Interpretation 46(R) is required in financial statements of public entities
that
have interests in variable interest entities or potential variable interest
entities commonly referred to as special-purpose entities for periods ending
after December 15, 2003. Application by public entities (other than small
business issuers) for all other types of entities is required in financial
statements for periods ending after March 15, 2004. Application by small
business issuers to entities other than special-purpose entities and by
non-public entities is required at various dates in 2004 and 2005. There is
no
impact on the Company’s financial statements.
In
December 2004, the Financial Accounting Standards Board issued SFAS Statement
No. 153, “Exchanges of Non-monetary Assets”. The statement is an amendment of
APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. The Company
believes that the adoption of this standard will have no material impact on
its
financial statements.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
In
May
2005, Financial Accounting Standards Board issued SFAS Statement No. 154,
“Accounting Changes and Error Corrections” requiring retrospective application
to prior periods financial statements of a change in an accounting policy.
The
company believes that the adoption of this standard will have no material impact
on its financial statements.
The
Company accounts 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
issues stock based awards for services performed by consultants and other
non-employees and accounts for them in accordance with Statement of Financial
Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”).
NOTE
O - SUBSEQUENT EVENTS
Disposition
of Tribeworks Development Corp.
During
the period ended June 30, 2006 the Company elected to fully dispose of its
wholly owned subsidiary, Tribeworks Development Corporation (“TDC”) and this
sale was completed on September 14, 2006 by way of 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 Tribeworks
and certain members of the management of 541368 LLC, who formerly served as
the
management of Tribeworks and TDC (see Note H above). In addition, Tribeworks
agreed to make a one-time cash payment of $44,500 to TDC in full satisfaction
of
Tribeworks’ obligations under an existing Support Agreement dated as of August
1, 2005 between the Tribeworks 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.
Purchase
of Atlas Technology Group
On
January 20, 2006, the Company acquired all of the issued and outstanding capital
stock of TakeCareofIT Holdings Limited, a Malta corporation, along with its
wholly owned subsidiaries in Malta, New Zealand and the USA, collectively doing
business as Atlas Technology Group (“Atlas”) for a consideration of Euros 30,000
(US$37,237) in cash and the assumption of $1,144,106 of current liabilities
(of
which $1,073,744 plus interest was due to Tribeworks), from TakeCareofIT
Limited, a Gibraltar company.
Atlas
was
established in September 2004 and plans to become a leading Information
Technology (IT) outsourcing support company for custom software applications
worldwide. Atlas is in the business of providing custom, outsourced, application
software support services to its customers.
Atlas
is
expected to leverage recent advances in software, monitoring systems, and
communications, to build a new, leading edge, global support infrastructure,
providing 24x7 software support to large and medium sized companies.
During
the second half of 2005, Tribeworks made advances totaling $1,073,744 (plus
accrued interest) to Atlas which Atlas utilized to develop IT software systems
and to acquire computer hardware. The advances of $1,073,744 have been shown
as
an investment in Atlas in the Tribeworks financial statements as of December
31,
2005. As part of the acquisition closing, Atlas provided audited financial
statements at December 31, 2005, which were included with the Form 8-K filing
made in January 2006 and subsequently a Form 8K/A was filed with these financial
statements reaudited in accordance with US GAAP and attached thereto a pro
forma
balance sheet consolidating Tribeworks with Atlas effective at December 31,
2005. This was filed with the SEC on November 17, 2006.
The
acquisition of Atlas will be accounted for using the purchase method of
accounting and the purchase price will be 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.
TRIBEWORKS,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005 AND 2004
NOTE
P - ACCOUNTING CHANGES IN CONNECTION WITH ACQUISITION OF
ATLAS
In
the
year ended December 31, 2005 the Company initially wrote-off to Product
Development Expenditure the advances made to Atlas in accordance with the
previous accounting policy. It was subsequently decided by the Company that
it
was more appropriate to restate the previously written-off advances to Atlas
as
an investment in Atlas and to capitalize the software developed in accordance
with Statement of Financial Accounting Standards No. 86, “Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS
86”) which had already been adopted by the Company with effect from January 1,
2006,
As
a
result the Company re-measured the cost of the business acquired by allocating
the purchase price of $1,181,015 to the acquired assets, intangibles, and
assumed liabilities in accordance with Statements of Financial Accounting
Standards No. 141, "Accounting for Business Combinations."
The
correction and restatement of the advances as an investment rather than an expense
had the following effect on the reported net loss and earnings per share. Previously
the Company had expensed the loan to Atlas as software development costs. This
has been reclassified as an investment in Atlas at December 31, 2005, which
reduced the net loss at December 31, 2005 from $1,249,535 to $175,791 and as
a result the reported net loss per share was reduced from $0.06 to $0.02.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
After
the
completion of the 2004 audit, Tauber & Balser PC resigned as auditors for
the Company and at the annual general meeting of shareholders held on August
19,
2005, HLB Cinnamon Jang Willoughby & Company was appointed the auditors for
the Company. On October 13, 2006, the board of directors of Tribeworks, Inc.
(the “registrant”) approved the dismissal of HLB Cinnamon, Jang, Willoughby,
Chartered Accountants, as the registrant’s independent registered public
accounting firm.
No
report
of HLB Cinnamon, Jang, Willoughby, Chartered Accountants, on the financial
statements for either of the past two years contained any adverse opinion or
disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope, or accounting principle. During
the fiscal years ended December 31, 2005 and 2006 and through October 13, 2006,
there were no disagreements with HLB Cinnamon, Jang, Willoughby, Chartered
Accountants, 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 Cinnamon, Jang, Willoughby, Chartered
Accountants, would have caused it to make reference thereto in any
report.
During
the fiscal years ended December 31, 2005 and 2006 and through October 13, 2006,
there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation
S-K). The
registrant requested that HLB Cinnamon, Jang, Willoughby, Chartered Accountants,
furnish it with a letter addressed to the Securities and Exchange Commission
stating whether or not it agrees with the above statements. A copy of such
letter to the Securities and Exchange Commission is filed as Exhibit 16.1 to
this Current Report on Form 8-K.
On
October 13, 2006, the registrant engaged the firm of Williams & Webster,
P.S. as the registrant’s principal independent accountant to audit the
registrant’s financial statements. Since the registrant does not currently
maintain an audit committee, the full board of directors of the registrant
approved the engagement of Williams & Webster, P.S. Prior to the engagement
of Williams & Webster, P.S., neither the registrant nor any person on the
registrant’s 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 the
registrant’s financial statements, or (ii) any matter that was the subject of a
disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions to such Item) or a reportable event (as defined in Item
304(a)(1)(v) of Regulation S-K).
ITEM
8A. CONTROLS AND PROCEDURES
The
Chief
Executive Officer and the Chief Financial Officer of the Registrant have
concluded, based on their evaluation as of the end of the period covered by
this
Report, that the Registrant’s disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Registrant in the
reports filed or submitted by it under the Securities Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms, and
include controls and procedures designed to ensure that information required
to
be disclosed by the Registrant in such reports is accumulated and communicated
to the Registrant’s management, including the Chief Executive Officer, as
appropriate to allow timely decisions regarding required
disclosure.
There
were no significant changes in the Company’s internal controls or in other
factors that could significantly affect these controls subsequent to the date
of
such evaluation.
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(a) OF THE EXCHANGE ACT
Change
of Management
Effective
March 29, 2005, Duncan Kennedy and Patrick Soquet voluntarily resigned as
Directors of the Company. Duncan Kennedy also resigned as the CEO and President
of the registrant effective as of the same date, although he will continue
to
serve as President of the registrant’s wholly owned operating subsidiary,
Tribeworks Development Corporation. On June 28, 2005 Bob Davidorf resigned
as
the CFO and was replaced by David C. Hayes who subsequently resigned on
September 22, 2005 and was replaced that day by B S P (Paddy)
Marra.
Effective
March 29, 2005, J. Glenn Pogue was appointed by the Board of Directors as CEO
of
the registrant and was also brought onto the Board of Directors as Chairman.
Mr.
Pogue was formerly an employee of the Company.
At
the
AGM on August 19, 2005 a new board of directors was elected comprising Robert
Altinger, David C. Hayes, W. Gordon Blankstein, Robert C. Gardner and Peter
Jacobson. Peter Jacobson was appointed CEO in place of Mr Pogue.
Set
forth
below is the name, age, years of service and positions of the executive officers
and directors of Tribeworks as of March 31, 2006.
Name
|
|
Age
|
|
Position
|
|
Director
Since
|
|
|
|
|
|
|
|
|
|
Robert
Altinger
|
|
|
44
|
|
|
Director
|
|
|
August,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
W.
Gordon Blankstein
|
|
|
55
|
|
|
Director
|
|
|
August,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
C. Gardner
|
|
|
65
|
|
|
Director
|
|
|
August,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
B. Jacobson
|
|
|
45
|
|
|
Director
and
CEO
|
|
|
June,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
B
S
P (Paddy) Marra
|
|
|
59
|
|
|
Director
and
CFO
|
|
|
January
2006
CFO
since
September
2005
|
|
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 the next
annual general meeting of the stockholders of the Company in 2006. 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. We have not compensated
our Directors for service on our Board of Directors, any committee thereof,
or
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 and
reimburse Directors for expenses related to their activities.
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.
Board
of Directors
Robert
Altinger, 44 - Director
Prior
to
founding Atlas, Robert Altinger was Principal Consultant of WebConsult, Inc,
a
Microsoft- approved vendor of IT consulting services since September 2001.
Prior
to joining WebConsult, Robert Altinger has 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 BSc (Eng)
from
Exeter University in the United Kingdom in 1986.
W.
Gordon Blankstein, 54 - 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
Director of Digifonica (International) Limited, a publicly-traded telecom
company. From 1997 through 2002, Gordon 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, 64 - 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. Robert Gardner acts as Corporate
Secretary to the board.
Peter
B. Jacobson, 45 - 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
BA
from University of Washington in 1985.
Byran
S P (Paddy) Marra, 59 - 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, 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.
Messr
Jacobson, Marra and Altinger all act as executive officers of the Company and
subsidiaries on a day-to-day basis.
Family
Relationships
None
Certain
Legal Proceedings
No
director, nominee for director, or executive officer of the Company has appeared
as a party in any legal proceeding material to an evaluation of his ability
or
integrity during the past five years.
ITEM
10. EXECUTIVE COMPENSATION
Director
Compensation
Directors
do not receive any compensation for their services as members of the Board
of
Directors, although this could be subject to change during 2006. 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.
Executive
Compensation
The
following table provides certain summary information concerning compensation
of
our former Chief Executive Officer during the year ended December 31, 2004.
No
other executive officer received annual salary and bonus in excess of $100,000
for the year ended December 31, 2005 and the current CEO and CFO do not have
an
employment agreement. These are to be negotiated during 2006.
|
|
|
|
|
|
Long
Term Compensation
|
|
|
|
|
|
|
|
Awards
|
|
Payouts
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other
Annual
Compensation
|
|
Restricted
Stock
Awards
($)
|
|
Securities
Underlying
Options/SARs
|
|
LTIP
Payout
($)
|
|
All
Other Compensation
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duncan
J. Kennedy,
|
|
|
2004
|
|
|
68,794
|
|
|
0
|
|
|
35,208
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Chief
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer,
President and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Grants in Last Fiscal Year
There
were no grants of stock options or warrants to any of the executive officers
named in the compensation table above during fiscal year 2005.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
No
options or warrants were granted or exercised in 2005 by any executive officers.
In 2004 a named executive officer held 7,500 unexercised in-the-money options
and warrants based on a value of $0.48 per share, the fair market value of
our
common stock as of December 31, 2004, as determined by our board of directors
minus the actual per share exercise prices, multiplied by the number of shares
underlying the option or warrant. The listed options and warrants were granted
under the 1999 Stock Option Plan.
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a)
Of The Exchange Act.
Based
upon the list of registered shareholders each person known to us to be the
beneficial owner of more than five percent of the outstanding shares of the
Company’s Common Stock, each director and each of the executive officers owned
beneficially as of March 31, 2006, the number and percentage of outstanding
shares of Tribeworks Common Stock of the Company indicated in the following
table.
Title
of Class
|
|
Name
and Address of Beneficial Owner of Beneficial
Owner
|
|
Amount
and Nature
|
|
Percent
of Class
|
|
|
|
|
|
|
|
Directors
and Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Robert
Altinger
34
Main Street
Mosta,
Malta
|
|
600,000
- Direct
|
|
2.8%
|
|
|
|
|
|
|
|
Common
Stock
|
|
W.
Gordon Blankstein
8011,
240 St
Vancouver,
B.C., Canada
|
|
400,000
- Direct
|
|
1.9%
|
|
|
|
|
|
|
|
Common
Stock
|
|
Robert
C. Gardner
2153,
349 West Georgia St
Vancouver,
B.C., Canada
|
|
500,000
- Direct
|
|
2.3%
|
|
|
|
|
|
|
|
Common
Stock
|
|
Peter
Jacobson
111
Via Quito
Newport
Beach CA 92663-5503
|
|
600,000
- Direct
|
|
2.8%
|
The
directors collectively hold 9.8% of Company’s stock. Paddy Marra does not hold
any stock in the Company.
Other
shareholders over 5%
Title
of Class
|
|
Name
and Address of Beneficial Owner
of
Beneficial Owner
|
|
Amount
and Nature
|
|
Percent
of Class
|
|
|
|
|
|
|
|
Common
Stock
|
|
Robert
Blankstein
8032
Government Rd
Burnaby,
B.C., Canada
|
|
1,575,000
- Direct (1)
|
|
7.3%
|
|
|
|
|
|
|
|
Common
Stock
|
|
Michael
T Murphy
2812
West Lake Sammamish Pkwy NE
Redmond
WA 98052
|
|
3,363,636
- Direct
|
|
15.6%
|
|
|
|
|
|
|
|
Common
Stock
|
|
Pharoah
Properties Corporation
Alves
De Souza Houman Colart
6
Cours De Rive
1204
Geneva, Switzerland
|
|
2,002,272
- Direct
|
|
9.3%
|
|
|
|
|
|
|
|
Common
Stock
|
|
WebConsult
Limited
Watergardens
5
PO
Box 417, Gibraltar
|
|
2,202,274
- Direct
|
|
10.2%
|
(1) Includes
575,000 shares held in trust for the benefit of Charlie Blankstein.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On
April
1, 2005, our wholly owned subsidiary Tribeworks Development Corporation entered
into a contract with a Canadian company wholly owned by our former CEO,
Chairman, and President, Duncan Kennedy, to provide the services of Mr. Kennedy
to continue to serve as President of Tribeworks Development
Corporation.
On
January 1, 2004, we entered into a consulting contract with a Belgian software
company that is wholly owned by the brother of Patrick Soquet, a former Director
and then a beneficial owner of more than 5% of our common stock. Under the
contract, the Belgian company will perform software engineering services for
us.
WebConsult,
Inc and WebConsult Ltd, companies with which Robert Altinger was formerly a
consultant to or associated with has over the past twelve months carried out
consulting work for the Atlas Technology Group and still carries out such work
on normal commercial terms.
As
of
March 31, 2006, 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.
ITEM
13. 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 July
10, 2000)*
|
|
|
|
2.2
|
|
Share
Transfer Agreement between Tribeworks Inc. and TakeCareofIT Limited,
dated
January 20, 2006 (incorporated by reference to Exhibit 2.01 to the
Registrant’s Current Report in Form 8-K filed January 26,
2006)*
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Tribeworks, Inc., a Delaware Corporation (incorporated
by reference to Exhibit 3.1 to the Registrant’s Form 10-SB/A filed July
10, 2000 and Exhibit A to the Registrant’s Proxy Statement on Schedule 14A
filed April 14, 2004)*
|
|
|
|
3.2
|
|
Bylaws
of Tribeworks, Inc., a Delaware Corporation (incorporated by reference
to
Exhibit 3.2 to the Registrant’s Form 10-SB/A filed July 10,
2000)*
|
|
|
|
4.1
|
|
Certificate
of Designation, Preferences, Rights and Limitations of Series B
Convertible Redeemable Preferred Stock of Tribeworks Inc. (incorporated
by
reference to Exhibit 4.1 to the Registrant’s Current Report in Form 8-K
filed October 11, 2005)*
|
|
|
|
10.1
|
|
Pan
World Corporation 1999 Stock Option Plan (incorporated by reference
to
Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed
September 26, 2001)*
|
|
|
|
10.2
|
|
Tribeworks,
Inc. 2001 Stock Plan (incorporated by reference to Exhibit 4.1 to
the
Registrant’s Registration Statement on Form S-8 filed September 26,
2001)*
|
|
|
|
10.3
|
|
Tribeworks,
Inc. 2004 Employee Stock Incentive Plan (incorporated by reference
to
Exhibit B to the Registrant’s Proxy Statement on Schedule 14A filed April
14, 2004)*
|
|
|
|
21.1
|
|
Subsidiaries
of the Issuer (Incorporated by reference to Exhibit B to the Registrant's Form 10-KSB filed April 17, 1006)
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) and
15d-14(a)
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) and
15(d)-14(a)
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 1350 of Title 18 of
the
United States Code
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer Pursuant to Section 1350 of Title 18 of
the
United States Code
|
|
|
|
99.1
|
|
Asset
and Liability Assignment and Indemnification Agreement, dated March
29,
2005 (incorporated by reference to Exhibit 99.2 to the Registrant’s
Current Report on Form 8-K filed on March 31, 2005)*
|
|
|
|
99.2
|
|
Promissory
Note, dated March 29, 2005 (incorporated by reference to Exhibit
99.3 to
the Registrant’s Current Report on Form 8-K filed on March 31,
2005)*
|
|
(b) |
The
following reports on Form 8-K were filed during the quarter ended
December
31, 2005:
|
4.1
|
|
Certificate
of Designation, Preferences, Rights and Limitations of Series B
Convertible Redeemable Preferred Stock of Tribeworks Inc. (incorporated
by
reference to Exhibit 4.1 to the Registrant’s Current Report in Form 8-K
filed October 11, 2005)*
|
|
|
|
4.1
|
|
Form
of Subscription Agreement for Common Stock of Tribeworks Inc.
(incorporated by reference to Exhibit 4.1 to the Registrant’s Current
Report in Form 8-K filed November 3,
2005)*
|
*
Previously filed
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Set
out
below are the various fees paid to or accrued for our previous auditors, Tauber
& Balser, P.C. and our present auditors, HLB Cinnamon Jang Willoughby &
Company for services provided during the years ended December 31, 2004 and
2005:
|
|
Fees
for the Year Ended
|
|
|
|
December
31,
2005
|
|
December
31,
2004
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Audit
fees (1)
|
|
$
|
41,342
|
|
$
|
34,494
|
|
Audit-related
fees (2)
|
|
|
13,836
|
|
|
—
|
|
Tax
fees (3)
|
|
|
—
|
|
|
—
|
|
All
other fees (4)
|
|
|
1,158
|
|
|
—
|
|
Total
fees for services
|
|
$
|
56,336
|
|
$
|
34,494
|
|
(1)
|
Audit
fees are the fees billed for professional services rendered for the
audit
of our annual financial statements. This category also includes fees
for
statutory audits required domestically and internationally, comfort
letters, consents, assistance with and review of documents filed
with the
SEC, attest services, work done by tax professionals in connection
with
the audit or quarterly reviews, and accounting consultations and
research
work necessary to comply with generally accepted auditing
standards.
|
(2)
|
Audit
Related fees are the fees billed for assurance and related services
by the
principal accountant that are reasonably related to the performance
of the
audit or review and are not reported as audit
fees.
|
(3)
|
Tax
fees are the fees billed for professional services rendered for tax
compliance, tax advice and tax planning, except those provided in
connection with the audit or quarterly
reviews.
|
(4)
|
All
other fees include fees billed for professional services not covered
by
(1) through (3) above.
|
The
Board
of Directors, acting as the Audit Committee, pre-approves all audit and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Company by its independent auditor.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
Tribeworks,
Inc.,
a
Delaware corporation
|
|
|
|
Date: December
21, 2006
|
By: |
/s/ Peter
B. Jacobson
|
|
Peter
B. Jacobson, Chief Executive Officer
(Registrant’s
Principal Executive
Officer)
|
|
|
|
|
By: |
/s/ B.S.P.
Marra
|
|
B.S.P.
Marra, Chief Financial Officer
(Registrant’s
Principal Financial Officer)
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the
dates indicated.
|
|
|
|
|
|
|
/s/ Robert
Altinger
|
|
|
|
Robert
Altinger, Director
|
|
|
|
|
|
|
|
/s/ W.
Gordon Blankstein
|
|
|
|
W.
Gordon Blankstein, Director
|
|
|
|
|
|
|
|
|
|
|
|
Robert
C. Gardner, Director
|
|
|
|
|
|
|
|
|
|
|
|
Peter
B. Jacobson,
Director
|