UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
WASHINGTON,
DC 20549
FORM
10-QSB
(Mark
one)
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
For
the
quarterly period ended June 30, 2008
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For
the
transition period from __________ to __________
ATLAS
TECHNOLOGY GROUP, INC.
(Exact
Name of Small Business Issuer as Specified in Its Charter)
Delaware
|
|
94-3370795
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
2001
152nd
AVENUE NE
REDMOND,
WASHINGTON 98052
|
(Address
of Principal Executive Offices)
|
|
(425)
458-2360
|
(Issuer’s
Telephone Number, Including Area Code)
|
|
|
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
|
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
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
As
of the
close of business on Aug 18, 2008, there were 39,542,520 shares outstanding
of
the issuer’s common stock, par value $0.0004 per share.
Transitional
Small Business Disclosure Format: Yes o
No
x
ATLAS
TECHNOLOGY GROUP, INC.
FORM
10-QSB FOR THE QUARTER ENDED JUNE 30, 2008
TABLE
OF CONTENTS
|
|
PAGE
|
FINANCIAL
INFORMATION
|
|
3
|
|
|
|
Item
1. Financial Statements
|
|
3
|
|
|
|
UNAUDITED
CONSOLIDATED BALANCE SHEETS
|
|
3
|
|
|
|
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
|
|
4
|
|
|
|
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
5
|
|
|
|
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
6
|
|
|
|
Item
2. Management’s Discussion and Analysis or Plan of
Operation
|
|
12
|
|
|
|
Item
3. Controls and Procedures
|
|
17
|
|
|
|
Item
3A(T). Controls and Procedures
|
|
17
|
|
|
|
PART
II OTHER INFORMATION
|
|
18
|
|
|
|
Item
1. Legal Proceedings
|
|
18
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
18
|
|
|
|
Item
3. Defaults Upon Senior Securities
|
|
18
|
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
|
18
|
|
|
|
Item
5. Other Information
|
|
18
|
|
|
|
Item
6. Exhibits
|
|
19
|
|
|
|
SIGNATURES
|
|
20
|
|
|
|
Exhibits
|
|
21
|
|
|
|
Certification
of Chief Executive Officer
|
|
|
|
|
|
Certification
of Chief Financial Officer
|
|
|
|
|
|
Certification
of Chief Executive Officer Pursuant to Section 906
|
|
|
|
|
|
Certification
of Chief Financial Officer Pursuant to Section 906
|
|
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial
Statements.
ATLAS
TECHNOLOGY GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
JUNE
30, 2008
|
|
June 30,
2008
|
|
December 31,
2007
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
86,272
|
|
$
|
25,724
|
|
Cash
Escrow Deposit
|
|
|
—
|
|
|
4,011,107
|
|
Accounts
receivable
|
|
|
112,901
|
|
|
64,387
|
|
VAT
receivable
|
|
|
16,950
|
|
|
13,345
|
|
Prepaids
and deposits
|
|
|
19,125
|
|
|
18,636
|
|
Total
Current Assets
|
|
|
235,248
|
|
|
4,133,199
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Equipment
and furniture, net
|
|
|
152,574
|
|
|
168,024
|
|
Software
development, net
|
|
|
575,044
|
|
|
647,782
|
|
IT
technology, net
|
|
|
990,648
|
|
|
1,216,827
|
|
Customer
lists and Trademarks, net
|
|
|
325,096
|
|
|
414,388
|
|
Total
Other Assets
|
|
|
2,043,362
|
|
|
2,447,021
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
2,278,610
|
|
$
|
6,580,220
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Bank
Overdrafts
|
|
$
|
—
|
|
$
|
47,896
|
|
Accounts
payable
|
|
|
533,846
|
|
|
972,977
|
|
Accrued
expenses
|
|
|
189.573
|
|
|
341,304
|
|
Income
taxes payable
|
|
|
2,393
|
|
|
2,292
|
|
Loans
payable, related parties
|
|
|
134,723
|
|
|
241,481
|
|
Loans
payable
|
|
|
—
|
|
|
132,000
|
|
WCoF
loan of $3,500,000 and $5,000,000 net of discount of $1,487,500
and
$2,975,000, respectively
|
|
|
2,012,500
|
|
|
2,025,000
|
|
Total
Current Liabilities
|
|
|
2,873,035
|
|
|
3,762,950
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Redeemable
convertible preferred stock: 10,000,000 authorized - None issued
|
|
|
—
|
|
|
—
|
|
Common
stock, $0.0004 par value; 200,000,000 shares authorized 39,552,520
and 39,513,949 shares issued and outstanding, respectively
|
|
|
15,812
|
|
|
15,797
|
|
Additional
paid-in capital
|
|
|
20,935,130
|
|
|
20,905,146
|
|
Accumulated
(Deficit)
|
|
|
(21,542,586
|
)
|
|
(17,857,014
|
)
|
Other
comprehensive income (loss)
|
|
|
(2,781
|
)
|
|
(246,659
|
)
|
Total
Stockholders’ Equity (Deficit)
|
|
|
(594,425
|
)
|
|
2,817,270
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
$
|
2,278,610
|
|
$
|
6,580,220
|
|
The
accompanying notes are an integral part of these consolidated interim financial
statements.
ATLAS
TECHNOLOGY GROUP, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
|
|
Six Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
396,883
|
|
$
|
281,716
|
|
$
|
257,073
|
|
$
|
175,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
479,035
|
|
|
193,691
|
|
|
261,977
|
|
|
109,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT (LOSS)
|
|
|
(82,152
|
)
|
|
88,025
|
|
|
4,904
|
|
|
65,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT
software support overheads
|
|
|
455,202
|
|
|
642,336
|
|
|
235,108
|
|
|
406,959
|
|
Sales
and marketing
|
|
|
256,275
|
|
|
131,931
|
|
|
123,879
|
|
|
65,616
|
|
Depreciation
and amortization
|
|
|
426,487
|
|
|
134,478
|
|
|
234,913
|
|
|
111,956
|
|
General
and administrative
|
|
|
677,012
|
|
|
577,856
|
|
|
363,777
|
|
|
266,877
|
|
|
|
|
1,814,976
|
|
|
1,486,601
|
|
|
957,677
|
|
|
851,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
(1,897,128
|
)
|
|
(1,398,576
|
)
|
|
(962,581
|
)
|
|
(785,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
560
|
|
|
2,066
|
|
|
120
|
|
|
2,022
|
|
Interest
expense
|
|
|
(101,448
|
)
|
|
(30,862
|
)
|
|
(50,966
|
)
|
|
(19,569
|
)
|
Other
financing charges
|
|
|
(1,687,500
|
)
|
|
(1,415,181
|
)
|
|
(763,750
|
)
|
|
(1,415,181
|
)
|
|
|
|
(1,788,388
|
)
|
|
(1,443,977
|
)
|
|
(814,596
|
)
|
|
(1,432,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
|
|
(3,685,516
|
)
|
|
(2,842,553
|
)
|
|
(1,777,177
|
)
|
|
(2,218,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
|
(56
|
)
|
|
(25
|
)
|
|
(
31
|
)
|
|
(8
|
)
|
NET
INCOME (LOSS) AFTER TAXES from continuing operations
|
|
|
(3,685,572
|
)
|
|
(2,842,578
|
)
|
|
(1,777,208
|
)
|
|
(2,218,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange translation gains (losses)
|
|
|
243,878
|
|
|
(146,074
|
)
|
|
262,892
|
|
$
|
12,375
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
$
|
(3,441,694
|
)
|
$
|
(2,988,652
|
)
|
$
|
(1,514,316
|
)
|
$
|
(2,205,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER COMMON SHARE, BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$
|
(0.09
|
)
|
$
|
(0.11
|
)
|
$
|
(0.04
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND
DILUTED
|
|
|
39,526,806
|
|
|
27,175,972
|
|
|
39,539,663
|
|
|
27,886,805
|
|
The
accompanying notes are an integral part of these consolidated interim financial
statements.
ATLAS
TECHNOLOGY GROUP, INC.
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
|
(3,685,572
|
)
|
|
(2,842,578
|
)
|
Adjustments
to reconcile net loss to net cash (used) by operating
activities:
|
|
|
|
|
|
|
|
Non-cash
financing charges associated with issue of stock and warrants
|
|
|
1,507,500
|
|
|
1,415,181
|
|
Depreciation
and amortization
|
|
|
426,487
|
|
|
134,478
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
|
|
(48,514
|
)
|
|
(73,639
|
)
|
(Increase)
decrease in VAT receivable
|
|
|
(3,605
|
)
|
|
16,349
|
|
(Increase)
decrease in prepaid expenses
|
|
|
(489
|
)
|
|
(18,405
|
)
|
Increase
(decrease) in bank overdrafts
|
|
|
(47,896
|
)
|
|
—
|
|
Increase
(decrease) in accounts payable
|
|
|
(439,131
|
)
|
|
111,281
|
|
Increase
(decrease) in accrued expenses
|
|
|
(151,731
|
)
|
|
229,153
|
|
Increase
(decrease) in taxes payable
|
|
|
101
|
|
|
(3,149
|
)
|
Total
adjustments
|
|
|
1,242,722
|
|
|
1,811,249
|
|
Net
cash provided (used) by operating activities
|
|
|
(2,442,850
|
)
|
|
(1,031,329
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Cash
acquired in acquisition of assets
|
|
|
—
|
|
|
414
|
|
Purchase
of furniture and equipment
|
|
|
(22,829
|
)
|
|
(
20,723
|
)
|
Software
development costs
|
|
|
—
|
|
|
(193,676
|
)
|
Net
cash provided (used) by investing activities
|
|
|
(22,829
|
)
|
|
(213,985
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Term
loan
|
|
|
— |
|
|
2,500,000
|
|
(Deposit)
Drawdown of restricted cash escrow
|
|
|
4,011,107
|
|
|
(1,500,000
|
)
|
(Repay)
term loan
|
|
|
(1,500,000
|
)
|
|
—
|
|
(Repay)
related party loans
|
|
|
(106,758
|
)
|
|
(5,463
|
)
|
(Repay)
note payable
|
|
|
(132,000
|
)
|
|
—
|
|
Net
proceeds from issue of shares and application monies received
|
|
|
10,000
|
|
|
768,750
|
|
Net
cash provided (used) by financing activities
|
|
|
2,282,349
|
|
|
1,763,287
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
(183,330
|
)
|
|
517,973
|
|
Gain
(Loss) on foreign exchange
|
|
|
243,878
|
|
|
(67,494
|
)
|
CASH,
BEGINNING OF PERIOD
|
|
|
25,724
|
|
|
130,991
|
|
|
|
|
|
|
|
|
|
CASH,
END OF PERIOD
|
|
|
86,272
|
|
$
|
581,470
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
442
|
|
$
|
2,453
|
|
Income
taxes paid
|
|
$
|
101
|
|
$
|
3,897
|
|
NON-CASH
TRANSACTIONS:
|
|
|
|
|
|
|
|
Acquisition
of IT Technology
|
|
$
|
—
|
|
$
|
505,121
|
|
Acquisition
of customer list and trademarks
|
|
$
|
—
|
|
$
|
555,312
|
|
The
accompanying notes are an integral part of these consolidated interim financial
statements.
ATLAS
TECHNOLOGY GROUP, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2008
NOTE
A — PRINCIPLES OF PRESENTATION AND NATURE OF BUSINESS
These
financial statements are presented on a consolidated basis and include Atlas
Technology Group Inc (formerly Tribeworks Inc) and its wholly owned
subsidiaries, Atlas Technology Group Holdings Limited, a Malta corporation;
Atlas Technology Group Limited, a Malta corporation; Atlas Technology Group
(NZ)
Limited, a New Zealand corporation; Atlas Technology Group (US), Inc., a
Delaware corporation; Atlas Technology Group Consulting Inc., a Delaware
corporation; and BLive Networks, Inc. (formerly Infobuild Systems (Canada),
Inc.), a British Columbia, Canada corporation, which has been consolidated
into
these financial statements from January 26, 2007, collectively the “Company”
or
“AtlasTG”.
All
material intercompany transactions have been eliminated.
The
Company acquired Atlas Technology Group Holdings Ltd, a Malta Corporation
that
was established in September 2004, to provide external Information Technology
(“IT”)
application support services for organizations with IT functions, as a wholly
owned subsidiary on January 20, 2006. At the annual general meeting of the
Company on July 12, 2007, the name of the Company was changed from Tribeworks,
Inc. to Atlas Technology Group, Inc. We are currently a reporting company
under
Section 12(g) of the Securities Exchange Act of 1934, as amended, (the
“Exchange
Act”)
and
our common stock (“Common
Stock”)
is
quoted on the OTC Bulletin Board under the symbol ATYG.OB.
On
January 26, 2007, the Company acquired all of the assets and customers of
BLive
Networks, Inc., further expanding the Company’s capability of delivering high
quality outsourced support into the annual IT Support market. Prior to our
acquisition, BLive Networks Inc had developed and operated interactive support
tools for companies providing IT support worldwide. Utilizing proprietary
technology, BLive’s systems are used by companies for remote technical support
and sales, both externally, and for internal corporate ‘Helpdesk’ support
departments. This technology enables service providers to deliver faster
response times and a personal connection with users and is complimentary
to the
tools developed by the Company and is generating revenue.
Following
the acquisition of Atlas Technology Group Holdings Ltd. on January 20, 2006,
the
services performed by the Company have been considered our new operating
business. The services previously offered by the Company that were transferred
into the Tribeworks Development Corporation (“TDC”)
were
sold on September 14, 2006.
The
accompanying unaudited financial statements of AtlasTG have been prepared
in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do
not
include all of the information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements, although the Company
believes that the disclosures are adequate to make the information presented
not
misleading. In the opinion of management, all adjustments necessary for a
fair
presentation of the Company’s financial position at June 30, 2008 and December
31, 2007, and its results of operations for the six months ended June 30,
2008
and 2007, the three months ended June 30, 2008 and 2007, and the operations
and
cash flows for the six months ended June 30, 2008 and 2007 have been made.
However, operating results for the interim periods noted are not necessarily
indicative of the results that may be expected for the year ending December
31,
2008. This report should be read in conjunction with the Company’s financial
statements and notes thereto contained in the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2007.
NOTE
B —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Foreign
Currency Translation
The
Company reports in United States Dollars (“USD”)
but
through its subsidiaries does business in the USA, Malta, and New Zealand.
BLive
does business both in U.S. and Canadian dollars, but primarily in USD. The
Company seeks to borrow in USD to match with the reporting currency, but
business units outside of the United States receive some revenue and incur
expenses and credit in foreign currencies. Transactions denominated in foreign
currencies are translated at the rates of exchange ruling on the dates of
the
transactions. Monetary assets and liabilities expressed in foreign currencies
are translated at the rates of exchange prevailing at the end-of-period exchange
rates and the translation differences are reported as other comprehensive
income.
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
operating losses in both calendar years 2006 and 2007 of $1,780,896 and
$3,190,059, respectively. The Company has reported a further operating loss
of
$1,897,128 for the six months ended June 30, 2008, and an accumulated deficit
of
$21,542,586.
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 succeed in its future operations. There can be no assurance that management
will be successful in implementing its plans. The accompanying consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
Concentration
of Credit Risk
AtlasTG
and each subsidiary maintain cash in both local currency and USD commercial
bank
accounts with major reputable financial institutions. The financial institutions
are considered creditworthy and have not experienced any losses on their
deposits at June 30, 2008. At June 30, 2008, the cash balances held with
Wells
Fargo by the Company in the United States were within the limits of the
guarantees of the Federal Deposit Insurance Corporation (FDIC). In addition,
funds were held in accounts with HSBC in Malta and New Zealand, countries
not
covered by FDIC.
Net
Earnings (Loss) Per Share of Common Stock
Basic
earnings per share (“EPS”)
is
computed based on net income (loss) divided by the weighted average number
of
shares of Common Stock outstanding. Diluted EPS is computed based on net
income
(loss) divided by the weighted average number of shares of common stock and
potential common stock equivalents outstanding. Outstanding options and warrants
have been excluded from the calculation of diluted loss per share as they
would
have been antidilutive. Accordingly the basic and diluted loss per share
is the
same.
Intangible
Assets
Software
Development Costs
From
January 1, 2006, the Board of Directors has adopted Statement of Financial
Accounting Standards No. 86, “Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed” (“SFAS
86”)
the
Company has capitalized certain development costs that meet the requirements
of
SFAS 86.
As
a
result of the adoption of SFAS 86 a total of $748,164 of software development
costs have been capitalized. These capitalized costs are now being amortized
over three years and this amortization is being included along with normal
depreciation of fixed assets in the Consolidated Statement of Operations
and
Comprehensive Loss.
IT
Technology
As
part
of the acquisition of Atlas Technology Group Holdings Ltd, the Company acquired
various software that had been developed at the date of acquisition. This
software was valued at $835,192 and treated as IT Technology and is now being
amortized over three years. In addition with the acquisition of BLive, the
Company acquired IT Technology valued at $505,121. As BLive had already
commercialized their IT technology and is generating revenue, the IT Technology
acquired from BLive is also being amortized over three years. This amortization
is being included along with normal depreciation of fixed assets in the
Consolidated Statement of Operations and Comprehensive Loss.
Customer
List and Trademarks
As
part
of the acquisition of BLive, the Company acquired 700 customers and various
trademarks and has valued this customer list and trademarks by way of the
value
of the future revenue these customers can generate over three years with
an
allowance for their diminishing value. As BLive had already commercialized
its
technology and is generating revenue, the customer list and trademarks acquired
from BLive are being amortized over three years and this amortization is
being
included along with normal depreciation of fixed assets in the Consolidated
Statement of Operations and Comprehensive Loss.
The
Company’s intangible assets are summarized as follows:
|
|
June 30, 2008
|
|
December
31,
2007
|
|
Software
Development
|
|
|
748,164
|
|
|
748,164
|
|
IT
Technology Acquired
|
|
|
1,340,313
|
|
|
1,340,313
|
|
Customer
List and Trademarks
|
|
|
555,312
|
|
|
555,312
|
|
Less:
Accumulated Amortization
|
|
|
(753,001
|
)
|
|
(364,792
|
)
|
|
|
$
|
1,890,788
|
|
$
|
2,278,997
|
|
Stock-Based
Awards
The
Company did not grant any options to purchase shares of the Company’s Common
Stock during the three months ended June 30, 2008, or during the same
period in 2007.
NOTE
C — LOANS, ADVANCES AND NOTES PAYABLE
During
the six months ended June 30, 2008, the Company repaid $132,000 of the original
note associated with the plan of reorganization of March 2005 that included
the
transfer of most assets and liabilities to the Company’s operating subsidiary,
TDC.
Also
during six months ended June 30, 2008, a loan denominated in Euro originally
for
the equivalent of US$100,000 was repaid. The loans payable of $134,723 comprises
advances from a stockholder and has no fixed repayment dates, but are considered
to be of a short-term nature.
In
June
2007, the Company entered into a Securities Purchase Agreement (the
“Securities
Purchase Agreement”)
with
West Coast Opportunity Fund, LLC, a Delaware limited liability company
(“WCOF”).
Pursuant to the terms of the Securities Purchase Agreement, a subsidiary
of the
Company, issued to WCOF two senior secured non-convertible promissory notes
totaling $5,000,000 with $4,000,000 placed in escrow with Wells Fargo Bank,
N.A.
until the Company or any of its subsidiaries enters into contracts with certain
entities.
On
December 31, 2007, the Company entered into a Note Amendment and Securities
Purchase Agreement (the “WCOF
Amendment Agreement”)
with
WCOF. The WCOF Amendment Agreement amends the earlier Securities Purchase
Agreement of June 15, 2007, under which our wholly-owned subsidiary, Atlas
Technology Group (US) Inc (“ATG
US”)
issued
to the Buyer two senior secured promissory notes, each in the principal amount
of $2,500,000.00, dated June 15, 2007 and July 11, 2007 (each, a “Promissory
Note,”
and
together, the “Promissory
Notes”);
6,500,000 shares of the Company’s Common Stock and 6,500,000 warrants to
purchase Common Stock, exercisable for a period of five years from the date
of
issuance at an initial exercise price of $2.60 per share. Pursuant to the
WCOF
Amendment Agreement, the WCOF agreed to cancel and return the Warrants to
the
Company, in consideration for which the Company has agreed to: (i) enter
into
the WCOF Amendment Agreement, amending the earlier agreement; (ii) amend
the
Promissory Note dated June 15, 2007, to extend the maturity date from November
30, 2008 to December 31, 2008 and increase the interest rate on this Promissory
Note from 5% to 7.5% per annum; (iii) amend and restate the Promissory Note
dated July 11, 2007; and (iv) issue a yield enhancement consisting of 3,500,000
shares (the “Yield
Enhancement Shares”)
of
Common Stock. As a result of issuing the Yield Enhancement Shares, the Company
recorded a discount on debt of $2,975,000 at December 31, 2007 and has amortized
to financing charges $1,487,500 at June 30, 2008. As a result of the WCOF
Amendment Agreement, the $4 million Escrow Deposit was released on January
3,
2008 and $1,500,000 was used to reduce the amended June 15, 2007 note. The
balance now repayable on December 31, 2008 is $3,500,000.
NOTE
C — LOANS, ADVANCES AND NOTES PAYABLE (Continued)
Subject
to certain grace periods, the Promissory Notes provide the following events
of
default (among others):
·
|
Failure
of the Company to pay principal and interest when
due;
|
·
|
Any
form of bankruptcy or insolvency proceeding is instituted by or
against
the Company or any of its subsidiaries that is not withdrawn within
90
days;
|
·
|
A
breach by the Company or Atlas US of any material representation
or
warranty made in the Securities Purchase
Agreement;
|
·
|
An
uncured breach by the Company or Atlas US of any material covenant,
term,
or condition in the Securities Purchase Agreement or the Promissory
Notes;
and
|
·
|
Any
event of default set forth in the Security
Agreement.
|
Subject
to certain grace periods, the Security Agreement provides the following events
of default (among others):
·
|
Any
event of default set forth in the Promissory
Notes;
|
·
|
A
breach by the Company, or any of its subsidiaries, of any material
representation or warranty made in the Security Agreement;
and
|
·
|
Failure
of the Company, or any of its subsidiaries, to observe or perform
any of
its obligations under the Security
Agreement.
|
Upon
the
occurrence of an event of default, the payment of the principal amounts under
the Promissory Notes may be accelerated and the interest rate applicable
to the
principal amounts is increased to 7.5% per annum during the period the default
exists.
Members
of the Company’s management team and certain of its stockholders executed a
lock-up agreement with WCOF that prohibits them from selling any of their
holdings of Common Stock until 90 days following the repayment of the Promissory
Notes.
The
Company paid its placement agent, Equity Source Partners, LLC (“ESP”),
a
NASD member investment firm, cash commissions of $80,000 on the closing date
for
the initial Promissory Note and issued a 5-year warrant to purchase 30,769
shares of common stock of the Company on equal terms to the warrants issued
to
WCOF. Atlas US also agreed to pay the legal fees of counsel to WCOF in an
amount
not to exceed $15,000. The Company has also reimbursed ESP for its reasonable
expenses incurred in connection with the WCOF financing transaction. With
renegotiation of the WCOF Agreement, ESP became eligible to receive further
fees
of $200,000 (which they agreed to take in cash of $180,000) paid during the
quarter ended March 31, 2008, and during the six months ended June 30, 2008
28,571 shares of Common Stock in the Company and a 3-year warrant to purchase
280,000 shares of Common Stock at a strike price of $0.70 per share in
settlement of the balance.
NOTE
D — FAIR VALUE OF FINANCIAL INSTRUMENTS
In
September 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“SFAS
157”).
SFAS
157 defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles, and expands disclosures about fair
value measurements. The provisions of SFAS 157 were adopted January 1, 2008.
SFAS
157
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under SFAS 157 are described below:
Level
1 -
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical unrestricted assets or liabilities;
Level
2 -
Quoted prices in markets that are not active, or inputs that are observable,
either directly or indirectly, for substantially the full term of the asset
or
liability; and
Level
3 -
Prices or valuation techniques that require inputs that are both significant
to
fair value measurement and unobservable (supported by little or no market
activity).
The
Company’s cash instruments are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices.
NOTE
E — COMMON STOCK AND WARRANT ISSUANCES
During
the quarter ended June 30, 2008, the Company issued 38,571 fully paid shares
of
Common Stock. 10,000 shares of Common Stock were issued at $1.00 per share
on
the exercise of a warrant for 10,000 shares, and the other 28,571 shares
were
issued at a price of $0.70 per share for advisory fees due to
ESP – see Note C above.
A
3-year
warrant to purchase 280,000 shares of Common Stock at a strike price of $0.70
per share was issued during the quarter ended June 30, 2008 and 635,500 warrants
expired during the quarter ended June 30, 2008.
As
of
June 30, 2008, the total number of shares of Common Stock issued and outstanding
was 39,552,520.
The
Company also entered into a registration rights agreement with WCOF (the
“Registration
Rights Agreement”)
requiring the Company to register the resale of the shares of Common Stock
and
the resale of the shares underlying the warrants (the “Registrable
Securities”) issued
to
WCOF under the Securities Act of 1933, as amended (the “Securities
Act”).
Pursuant to the terms of the Registration Rights Agreement, the Company is
required to register the Registrable Securities with the SEC. The Registration
Statement covering a portion of WCOF’s registrable securities has been filed
with the SEC and was declared effective on November 7, 2007, and it is
anticipated that further registration statements covering the resale of
additional shares will be filed during 2008.
NOTE
F _ SUBSEQUENT EVENTS
Resignation
of Our Chief Executive Officer
On
July
21, 2008, Mr. Peter B. Jacobson resigned his position as our Chief Executive
Officer. There were no disagreements on any matter related to our operations,
policies, or practices. Mr. Jacobson continues to serve as a member of our
board
of directors.
Appointment
of a New Chief Executive Officer
Effective
as of July 21, 2008, our board of directors appointed Ralph B. Muse,
63, to
serve
as our interim Chief Executive Officer. In connection with this appointment
and
on July 14, 2008, Mr. Muse entered into a Consulting Agreement (the
“Consulting
Agreement”)
by and
between our Company and Muse Consulting covering the terms of Mr. Muse’s
consulting arrangement. The Consulting Agreement sets forth the terms and
provisions of Mr. Muse’s independent contractor relationship with our
Company. Pursuant to the Consulting Agreement, the term of Mr. Muse’s
consulting as interim Chief Executive Officer will continue until a permanent
Chief Executive Officer is hired. Mr. Muse will receive an immediate fee
of
$5,000 per week with a deferred fee of an additional $3,000 per week, which
payment shall be deferred until after the interim assignment has been
completed. Our Company will also issue warrants to purchase up to
2,000,000 shares of our common stock at an exercise price of $0.30 per share.
Of
the 2,000,000 warrants, 750,000 shall vest upon the successful raising of
additional equity or debt in an mount no less than $5,000,000; 500,000 shall
vest upon the our Company achieving a revenue run rate of at least $4,000,000
per year; 500,000 shall vest once our Company first reports earnings before
interest, taxes, depreciation and amortization of at least $0.05 per issued
and
outstanding shares of common stock for the preceding quarter; and the remaining
250,000 shall vest upon our Company hiring a permanent Chief Executive Officer
to replace Mr. Muse. In the event the above-discussed milestones are not
achieved within six months of the end of Mr. Muse’s service as our interim Chief
Executive Officer, the warrants shall expire. Our Company will not provide
fringe benefits, including health insurance benefits, paid vacation, or any
other employee benefits. However, our Company will reimburse Mr. Muse’s
reasonable and documented “out-of-pocket” expenses.
Item
2. Management’s Discussion and Analysis or Plan of
Operation.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
In
addition to historical information, the following discussion contains statements
that plan for or anticipate the future. These forward-looking statements
include
statements about our future business plans and strategies, future actions,
future performance, costs and expenses, interest rates, outcome of
contingencies, financial condition, results of operations, liquidity, objectives
of management, and other such matters, as well as certain projections and
business trends, and most other statements that are not historical in nature,
that are "forward-looking" within the meaning of the Private Securities
Litigation Reform Act of 1995.
The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking information to encourage companies to provide prospective
information about themselves without fear of litigation so long as that
information is identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information.
Forward-looking information may be included in this Quarterly Report or may
be
incorporated by reference from other documents we have filed with the Securities
and Exchange Commission (the “SEC”).
You
can identify these forward-looking statements by the use of words like “may,”
“will,” “could,” “should,” “project,” “believe,” “anticipate,” “expect,” “plan,”
“estimate,” “forecast,” “potential,” “intend,” “continue” and variations of
these words or comparable words. Forward-looking statements do not guarantee
future performance, and because forward-looking statements involve future
risks
and uncertainties, there are factors that could cause actual results to differ
materially from those expressed or implied. These risks and uncertainties
include, without limitation, those detailed from time to time in our filings
with the SEC.
We
have
based the forward-looking statements relating to our operations on management's
current beliefs expectations, estimates, and projections about us and the
industry in which we operate, as well as assumptions and information currently
available to us. These statements are not guarantees of future performance
and
involve risks, uncertainties and assumptions that we cannot predict. In
particular, we have based many of these forward-looking statements on
assumptions about future events that may prove to be inaccurate. Because
forward-looking statements involve future risks and uncertainties, there
are
several important factors that could cause actual results to differ materially
from historical results and percentages and from the results anticipated
by
these forward-looking statements.
For
example, a few of the uncertainties that could affect the accuracy of
forward-looking statements include, without limitation:
|
· |
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.
|
Our
business model is primarily focused on delivering IT support services. We
are
leveraging the recent advances in software, IT monitoring systems, and
communications, to build a new, leading edge, global support infrastructure,
providing 24x7 software support to large and medium sized companies. The
new
application onboarding and monitoring processes that we have developed should
allow for cost savings over existing IT service providers. We believe the
IT
support offerings offered using our software, systems, and processes will
provide a quality product to a wide range of business enterprises and provide
a
maximum return on our investment.
RISK
FACTORS
We
wish
to caution you that there are risks and uncertainties that could cause our
actual results to be materially different from those indicated by
forward-looking statements that we make from time to time in filings with
the
SEC, news releases, reports, proxy statements, registration statements, and
other written communications, as well as oral forward-looking statements
made
from time to time by representatives of our Company. These risks and
uncertainties include, but are not limited to, those listed in the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2007. These
risks
and uncertainties and additional risks and uncertainties not presently known
to
us or that we currently deem immaterial may cause our business, financial
condition, operating results and cash flows to be materially adversely affected.
Except for the historical information contained herein, the matters discussed
in
this analysis are forward-looking statements that involve risks and
uncertainties, including but not limited to general business conditions,
the
impact of competition, and other factors which are often beyond the control
of
the Company. The Company does not undertake any obligation to update
forward-looking statements except as required by law. You should refer to
and
carefully review the information in future documents we file with the
SEC.
SUBSEQUENT
EVENTS
Resignation
of Our Chief Executive Officer
On
July
21, 2008, Mr. Peter B. Jacobson resigned his position as our Chief Executive
Officer. There were no disagreements on any matter related to our operations,
policies, or practices. Mr. Jacobson continues to serve as a member of our
board
of directors.
Appointment
of a New Chief Executive Officer
Effective
as of July 21, 2008, our board of directors appointed Ralph B. Muse,
63, to
serve
as our interim Chief Executive Officer. In connection with this appointment
and
on July 14, 2008, Mr. Muse entered into a Consulting Agreement (the
“Consulting
Agreement”)
by and
between our Company and Muse Consulting covering the terms of Mr. Muse’s
consulting arrangement. Mr. Muse will perform his services to the Registrant
as
an independent contractor and will not be an employee of the Registrant.
Mr.
Muse’s career has included building and operating multiple successful businesses
on an international scale. These businesses have included executive positions
with General Electric, Asea Brown Boveri AG, Cabletron Systems and Booz Allen
Hamilton. As President and Chief Executive Officer of his consulting company,
Muse Consulting, Mr. Muse’s career has included numerous consulting assignments.
From June 2007 to the present, Mr. Muse has consulted for Melmedtronics,
Inc.,
McDonald Technology, Inc. and a mid-sized supply chain management company.
From
September 2007 to December 2007, Mr. Muse consulted as the interim Chief
Executive Officer of Safeguard Securities Holdings, Inc. From June 2005 to
June
2007, Mr. Muse served as Senior Vice President and General Manager of the
Land
Imaging Systems Division of Ion Geophysical Inc. From March 2001 to June
2005,
Mr. Muse provided consulting services to numerous companies, including the
Land
and Marina Imaging Systems Division of Input Output, Inc.; several Silicon
Valley and Dallas-based start-up companies; COMDEV International Ltd.;
LightPointe, Inc.; Renaissance Capital Group; two wireless equipment startup
companies; The Planet, Inc.; and SYSTEMS group, Inc. From September 1999
to
March 2001, Mr. Muse served as President and Chief Executive Officer of NextNet
Wireless, Inc. Mr. Muse received his Masters of Science in Operations Management
from the University of Arkansas in Fayetteville, Arkansas in 1977 and his
Bachelors of Science in Electrical Engineering from Christian Brothers
University in Memphis, Tennessee in 1968.
The
Consulting Agreement sets forth the terms and provisions of Mr. Muse’s
independent contractor relationship with our Company. Pursuant to the Consulting
Agreement, the term of Mr. Muse’s consulting as interim Chief Executive
Officer will continue until a permanent Chief Executive Officer is hired.
Mr.
Muse will receive an immediate fee of $5,000 per week with a deferred fee
of an
additional $3,000 per week, which payment shall be deferred until after the
interim assignment has been completed. Our Company will also issue
warrants to purchase up to 2,000,000 shares of our common stock at an exercise
price of $0.30 per share. Of the 2,000,000 warrants, 750,000 shall vest upon
the
successful raising of additional equity or debt in an mount no less than
$5,000,000; 500,000 shall vest upon the our Company achieving a revenue run
rate
of at least $4,000,000 per year; 500,000 shall vest once our Company first
reports earnings before interest, taxes, depreciation and amortization of
at
least $0.05 per issued and outstanding shares of common stock for the preceding
quarter; and the remaining 250,000 shall vest upon our Company hiring a
permanent Chief Executive Officer to replace Mr. Muse. In the event the
above-discussed milestones are not achieved within six months of the end
of Mr.
Muse’s service as our interim Chief Executive Officer, the warrants shall
expire. Our Company will not provide fringe benefits, including health insurance
benefits, paid vacation, or any other employee benefits. However, our Company
will reimburse Mr. Muse’s reasonable and documented “out-of-pocket”
expenses.
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We
experienced a net operating loss (EBIT) of $1,897,128 for the six months
ended
June 30, 2008 and $962,581 for the quarter ended June 30, 2008, compared
to a
net operating loss of $1,443,977 for the six months ended June 30, 2007 and
$785,485 for the quarter ended June 30, 2007.
Set
out
in the following sections is an analysis of our results for the quarter.
Revenues
Total
revenues for the six months ended June 30, 2008 were $396,883 and for quarter
ended June 30, 2008 were $257,073, compared to $281,716 for the six months
ended
June 30, 2007 and $175,903 for the three months ended June 30, 2007. The
revenue
of $396,883 can be split into two categories: a) onboarding and support sales
(including recovery of expenses and third party costs) of $343,181 and b)
revenue from consulting services and placing consultants with third parties
of
$53,702, compared with $138,163 and $143,553, respectively, for the first
six
months to June 30, 2007. This shows an increase in revenue from our mainstream
IT support business and a decrease in our consulting and placement business
now
that we are getting further into our IT support mainstream business.
We
are
now regularly billing monthly support revenue to four customers. We have
refocused our marketing toward small to medium sized businesses for which
we can
provide 24x7 support at a substantial cost saving compared with these businesses
maintaining their own in-house support. The savings arise because we have
support teams in two locations on opposite sides of the world that just
specialize on IT support and can service and support more than one customer
at
the same time, compared to the resources needed by individual small to medium
sized companies. As we carry out our support remotely from our servers and
systems, this does not preclude these small to medium sized businesses from
maintaining their own IT department that focuses on the development of new
applications.
We
anticipate that revenue from our new IT support services will increase during
the 2008 year as new customers are recruited and onboarded.
Cost
of Sales and Gross Margin
Our
cost
of sales for the six months ended June 30, 2008 was $479,035 and for the
three
months ended June 30, 2008 was $261,977, compared to $193,691 for the first
six
months to June 30, 2007 and $109,980 for the three months ended June 30,
2007.
During the quarter ended June 30, 2008 the direct salary costs of our mainstream
IT support staff was reclassified into cost of sales, which was not the case
in
2007 when these costs were included under operating expenses with the IT
software development and support line as the business was still in its testing
phase at this time in 2007. Cost of sales includes the salary costs related
to
the consulting work performed and the BLive support services provided, as
well
as the salaries and engagement fees for the consultants provided to third
parties and the share of income for our joint venture partner as was the
case in
2007. The gross margin has improved in the quarter ended June 30, 2008 due
to
the better utilization of our staff generating additional revenue for the
same
basis static cost.
Operating
Expenses
Our
operating expenses are broken down into four categories: i) IT software support
and development; ii) sales and marketing; iii) depreciation and amortization;
and iv) general and administrative.
During
2006 and 2007, we developed our new software tools for onboarding and monitoring
of our customer’s software applications. Part of these costs have been
capitalized 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”)
and
the balance has been treated as an operating expense. This was the case in
2007,
but has not been the case since September 30, 2007 when we deemed that our
software and systems had reached the commercial operating stage and since
October 1, 2007 all costs associated with software development and support
have
been expensed.
In
the
six months ended June 30, 2008, our IT software support and development expenses
were $455,202, compared to $642,336 for the six months ended June 30, 2007.
The
decrease is the due to the reciprocal of the increased cost of sales discussed
above. This category now includes only support staff and overheads.
Sales
and
marketing expenses for the six months ended June 30, 2008 were $256,275,
compared to $131,931 for the six months ended June 30, 2007. This reflects
additional direct marketing costs and salaries expended in the first six
months
on 2008. Sales and marketing expense consists primarily of compensation and
benefits for our sales and marketing team, plus direct marketing costs and
advertising expenses which are primarily the costs incurred in the design,
development, and printing of our literature and marketing materials. We expense
all advertising expenditures as incurred.
Depreciation
and amortization expense increased substantially in the six months ended
June
30, 2008 to $426,487, compared to $134,478 in the six months ended June 30,
2007. The reason for the increase is that we are now fully amortizing IT
technology purchased with the acquisition of Atlas Technology Holdings Ltd
in
January 2006, as well as the IT technology and customer lists that we purchased
as part of BLive in January 2007. These intangibles are being amortized over
three years and the level of depreciation and amortization will remain at
the
current level for the remainder of 2008.
General
and administrative expenses consist primarily of head office compensation
and
benefits plus fees for professional services such as legal and audit. General
and administrative expenses were $677,012 for the six months ended June 30,
2008, compared to $577,856 for the six months ended June 30, 2007. General
and
administrative expenses were $363,777 for the three months ended June 30,
2008,
compared to $266,877 for the three months ended June 30, 2007. The increase
was
due to additional legal expenses and investor relations costs incurred in
2008
compared to the same period in 2007.
Loss
from Operations
The
loss
from operations for the six months ended June 30, 2008 was $1,897,128, compared
to a loss of $1,398,576 for the six months ended June 30, 2007. The loss
from
operations for the three months ended June 30, 2008 was $962,581, compared
to a
loss of $785,485 for the three months ended June 30, 2007. The increased
loss
was primarily due to additional sales and marketing expense, depreciation
and
amortization, and general and administrative expenses, offset by a reduction
in
support overheads due to the transfer to cost of sales as detailed above.
As
revenue increases the loss from operations will reduce as we have sufficient
staff to take on additional customers and sufficient office space in all
three
locations to accommodate our immediate needs and to accommodate additional
staff
we need to hire. In addition, general and administrative costs are expected
to
remain at the same levels as we build up revenue over the coming twelve months.
Interest
Income, Expense and other financing charges
Interest
income for the six months ended June 30, 2008 was $560, compared with $2,066
for
the six months ended June 30, 2007.
Interest
expense was $101,448 for the six months ended June 30, 2008, compared to
$30,862
for the six months ended June 30, 2007. The increase is due to the accrual
of
interest on the WCOF term loan which was borrowed back in mid-2007. The
quarterly cost will remain at this level with the loan being repayable on
December 31, 2008.
Following
the issuance to WCOF of 3,500,000 shares of Common Stock in the form of “yield
enhancement shares” as part of the WCOF amended securities transaction detailed
elsewhere in this report, $2,975,000 of non-cash prepaid financing charges
were
recorded as a discount to debt and as additional paid-in capital. This amount
will be amortized over the twelve months to interest expense in amount of
$743,750 in each quarter until December 31, 2008. In addition, the broker
for
the transaction was paid $200,000 of commissions, and together with the
amortization, these make up the $1,687,500 of other financing charges and
amortization expense. In the quarter ended June 30, 2007, there were similar
charges as a result of the original issue of warrants to WCOF on June 15,
2007.
The
offering of these unregistered securities to WCOF were exempt from registration
pursuant to Rule 506 promulgated under the Securities Act. WCOF represented
to
us in writing that it was an “accredited investor” as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act. The proceeds
from the sale of unregistered securities are being used for general working
capital purposes and to repay $1,500,000 of the WCOF debt.
Provision
for Income Taxes
Income
taxes for the six months ended June 30, 2008 were $56 (which consists of
income
taxes and withholding taxes deducted from interest income). The comparative
figure for the six months ended June 30, 2007 was $31.
Net
Income (Loss)
In
summary and as discussed above, we experienced a net operating loss (EBIT)
of
$1,897,128 for the six months ended June 30, 2008, compared to a net operating
loss of $1,398,576 for the six months ended June 30, 2007. When our net
operating loss is added to our net interest and other financing charges of
$1,788,388, taxes of $56 and foreign exchange translation gain of $243,878,
our
comprehensive loss for the six months ended June 30, 2008 is $3,441,694,
compared to a comprehensive loss of $2,988,652 for the six months ended June
30,
2007.
We
experienced a net operating loss (EBIT) of $962,581 for the three months
ended
June 30, 2008, compared to a net operating loss of $785,485 for the three
months
ended June 30, 2007. When our net operating loss is added to our net interest
and other financing charges of $814,596, taxes of $31 and foreign exchange
translation gain of $262,892, our comprehensive loss for the three months
ended
June 30, 2008 is $1,514,316, compared to a comprehensive loss of $2,205,846
for
the three months ended June 30, 2007.
We
do not
expect to be profitable during 2008, but we expect our level of operating
losses
to reduce as we gain new application support customers, and reduce staff
and
cost while increasing our revenues throughout the year.
Liquidity
and Capital Resources
On
June
30, 2008, we had total cash resources of $86,272, compared to $25,724 on
December 31, 2007.
With
the
signing of the WCOF Amendment Agreement on December 31, 2007, this enabled
the
previously restricted escrowed WCOF funds of $4,011,107 to be released. These
funds have been used to repay WCOF $1,500,000, pay $180,000 of commissions
due
on this fundraising, to repay $889,915 of overdrafts, creditors, accruals,
and
short-term debt raised from shareholders.
Related
Party Transactions
During
the six months ended June 30, 2008 we have repaid $106,758 of loans from
related
parties, being a stockholder who is a director. There are no other currently
proposed transactions, or series of the same, to which we are a party, in
which
the amount involved exceeds $60,000 (other salaries paid to executive officers
at the same rates as disclosed in the 10-KSB filed for the year ended December
31, 2007) and in which, to our knowledge, any director, executive officer,
nominee, 5% stockholder or any member of the immediate family of any of the
foregoing persons have or will have a direct or indirect material
interest.
Recently
Issued Financial Accounting Pronouncements
In
February 2008, FASB issued FASB Staff Position ("FSP") No. 157-2 "Effective
Date
of Statement No. 157" ("FSP No. 157-2"). FSP No. 157-2 delays the
effective date of SFAS No. 157 ("SFAS No. 157") "Fair Value Measurements,"
for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually) to fiscal years beginning after November 15, 2008.
The Company is currently assessing the impact of FSP No. 157-2 on the
Company's financial condition and results of operations for the year ending
December 31, 2008.
In
March
2008, FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133." SFAS
No. 161 requires enhanced disclosures about an entity's derivative and
hedging activities. These enhanced disclosures will discuss: (a) how
and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and its related
interpretations and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance and cash
flows. SFAS No. 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008.
The Company has not confirmed the impact, if any, that implementation of
SFAS
No. 161 will have on the Company's financial condition and results of
operations for the fiscal year ending December 31, 2008.
Off-Balance
Sheet Arrangements
We
have
no off-balance sheet arrangements that have or are reasonably likely to have
a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources that is material to investors.
Item
3. Controls
and Procedures
Our
Chief
Executive Officer and Chief Financial Officer have concluded, based on their
evaluation required by Rule 13a-15(b) promulgated under the Exchange Act,
that
as of June 30, 2008 our disclosure controls and procedures (as defined in
Rule
13a-15(e) promulgated under the Exchange Act) are effective in alerting them
on
a timely basis to material information relating to us (including our
consolidated subsidiaries) required to be included in our periodic filings
under
the Exchange Act, and include controls and procedures designed to ensure
that
information required to be disclosed by us in such periodic filings is
accumulated and communicated to our management, including our Chief Executive
Officer, as appropriate to allow timely decisions regarding required disclosure.
Since June 30, 2008, there have not been any significant changes in our
disclosure controls and procedures or in other factors that could significantly
affect such controls.
There
were no significant changes in our internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d)
promulgated under the Exchange Act that occurred during the fiscal quarter
ended
June 30, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Item
3A(T). Controls and Procedures
Our
Company's Chief Executive Officer and Chief Financial Officer have determined
that there were no material changes in our Company's internal control over
financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) of the
Exchange Act) identified in connection with the evaluation required by Rule
13a-15(d) and Rule 15d-15(d) of the Exchange Act that occurred during the
fiscal
quarter ended June 30, 2008 that materially affected, or are reasonably likely
to materially affect, our Company’s internal control over financial
reporting.
PART
II — OTHER INFORMATION
Item
1. Legal
Proceedings
None.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
During
the quarter ended June 30, 2008, the Company issued 38,571 shares of fully
paid
Common Stock for a total consideration of $30,000.
Item
3. Defaults
upon Senior Securities.
Interest
of $99,643 that was due to WCOF on June 30, 2008 has not been paid. No demand
for payment has been received from WCOF.
Item
4. Submission
of Matters to a Vote of Security Holders.
None.
Item
5. Other
Information.
None.
Item
6. Exhibits.
(a) The
following exhibits are included in this report or incorporated by reference
into
this report:
Exhibit
Number
|
|
Description of Exhibits
|
|
|
|
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
|
|
Certificate
of Amendment to Certificate of Incorporation (incorporated by reference
to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed July 31,
2007)*
|
|
|
|
3.3
|
|
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)*
|
|
|
|
10.1
|
|
Promissory
Note, dated June 15, 2007, between Atlas Technology Group (US ),
Inc. and
West Coast Opportunity Fund, LLC (incorporated by reference to
Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed June 19,
2007)*
|
|
|
|
10.2
|
|
Pledge
and Security Agreement, dated June 15, 2007, between Tribeworks,
Inc., all
of its subsidiaries and West Coast Opportunity Fund, LLC (incorporated
by
reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
|
10.3
|
|
Guaranty,
dated June 15, 2007, between Tribeworks, Inc. and all of its subsidiaries
other than Atlas Technology Group (US), Inc. and West Coast Opportunity
Fund, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K filed June 19, 2007)*
|
|
|
|
10.4
|
|
Escrow
Agreement, dated June 15, 2007, by and among Tribeworks, Inc.,
Atlas
Technology Group (US), Inc. and West Coast Opportunity Fund, LLC
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
|
10.5
|
|
Registration
Rights Agreement, dated June 15, 2007, between Tribeworks, Inc.
and West
Coast Opportunity Fund, LLC (incorporated by reference to Exhibit
10.6 to
the Registrant’s Current Report on Form 8-K filed June 19,
2007)*
|
|
|
|
10.6
|
|
Form
of Warrant issued by Tribeworks, Inc., to West Coast Opportunity
Fund, LLC
(incorporated by reference to Exhibit 10.7 to the Registrant’s Current
Report on Form 8-K filed June 19, 2007)*
|
|
|
|
10.7
|
|
Form
of Lock-up Agreement, dated June 15, 2007, between West Coast Opportunity
Fund, LLC and certain stockholders of Tribeworks, Inc. (incorporated
by
reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
|
10.8
|
|
Promissory
Note, dated July 11, 2007, between Atlas Technology Group (US),
Inc. and
West Coast Opportunity Fund (incorporated by reference to Exhibit
10.1 to
the Registrant’s Current Report on Form 8-K filed July 13,
2007)*
|
|
|
|
10.9
|
|
Consulting
Agreement by and between Atlas Technology Group, Inc. and Muse
Consulting,
dated as of July 14, 2008 (incorporated by reference to Exhibit
10.1 to
the Registrant’s Current Report on Form 8-K filed July 21,
2008)*
|
|
|
|
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
|
*
Previously filed.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
ATLAS
TECHNLOGY GROUP, INC.,
a
Delaware corporation
|
|
|
Date:
August 19, 2008
|
By:
|
/s/
Ralph B Muse
|
|
Ralph
B. Muse
|
Date:
August 19, 2008
|
By:
|
/s/
B. S. P. Marra
|
|
B.
S. P. Marra
|
Index
to Exhibits
EXHIBIT
NUMBER
|
|
DESCRIPTION OF EXHIBITS
|
|
|
|
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
|
|
Certificate
of Amendment to Certificate of Incorporation (incorporated by reference
to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed July 31,
2007)*
|
|
|
|
3.3
|
|
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)*
|
|
|
|
10.1
|
|
Promissory
Note, dated June 15, 2007, between Atlas Technology Group (US ),
Inc. and
West Coast Opportunity Fund, LLC (incorporated by reference to
Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed June 19,
2007)*
|
|
|
|
10.2
|
|
Pledge
and Security Agreement, dated June 15, 2007, between Tribeworks,
Inc., all
of its subsidiaries and West Coast Opportunity Fund, LLC (incorporated
by
reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
|
10.3
|
|
Guaranty,
dated June 15, 2007, between Tribeworks, Inc. and all of its subsidiaries
other than Atlas Technology Group (US), Inc. and West Coast Opportunity
Fund, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K filed June 19, 2007)*
|
|
|
|
10.4
|
|
Escrow
Agreement, dated June 15, 2007, by and among Tribeworks, Inc.,
Atlas
Technology Group (US), Inc. and West Coast Opportunity Fund, LLC
(incorporated by reference to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
|
10.5
|
|
Registration
Rights Agreement, dated June 15, 2007, between Tribeworks, Inc.
and West
Coast Opportunity Fund, LLC (incorporated by reference to Exhibit
10.6 to
the Registrant’s Current Report on Form 8-K filed June 19,
2007)*
|
|
|
|
10.6
|
|
Form
of Warrant issued by Tribeworks, Inc., to West Coast Opportunity
Fund, LLC
(incorporated by reference to Exhibit 10.7 to the Registrant’s Current
Report on Form 8-K filed June 19, 2007)*
|
|
|
|
10.7
|
|
Form
of Lock-up Agreement, dated June 15, 2007, between West Coast Opportunity
Fund, LLC and certain stockholders of Tribeworks, Inc. (incorporated
by
reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K
filed June 19, 2007)*
|
|
|
|
10.8
|
|
Promissory
Note, dated July 11, 2007, between Atlas Technology Group (US),
Inc. and
West Coast Opportunity Fund (incorporated by reference to Exhibit
10.1 to
the Registrant’s Current Report on Form 8-K filed July 13,
2007)*
|
|
|
|
10.9
|
|
Consulting
Agreement by and between Atlas Technology Group, Inc. and Muse
Consulting,
dated as of July 14, 2008 (incorporated by reference to Exhibit
10.1 to
the Registrant’s Current Report on Form 8-K filed July 21,
2008)*
|
|
|
|
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
|
*
Previously filed.
Exhibit
31.1
CERTIFICATION
PURSUANT TO RULE 13a-14(a) PROMULGATED UNDER
THE
SECURITIES EXCHANGE ACT OF 1934
I,
Ralph
B. Muse, Chief Executive Officer of Atlas Technology Group, Inc., certify
that:
1.
|
I
have reviewed this quarterly report on Form 10-Q of Atlas Technology
Group, Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such
statements
were made, not misleading with respect to the period covered by
this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial
information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including
its
consolidated subsidiaries, is made known to us by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such
internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
August 19, 2008
/s/
Ralph
B. Muse
|
Ralph
B. Muse
|
Chief
Executive Officer (Principal Executive
Officer)
|
Exhibit
31.2
CERTIFICATION
PURSUANT TO RULE 13a-14(a) PROMULGATED UNDER
THE
SECURITIES EXCHANGE ACT OF 1934
I,
B. S.
P. Marra, Chief Financial Officer of Atlas Technology Group, Inc., certify
that:
1.
|
I
have reviewed this quarterly report on Form 10-Q of Atlas Technology
Group, Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such
statements
were made, not misleading with respect to the period covered by
this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial
information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures
(as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including
its
consolidated subsidiaries, is made known to us by others within
those
entities, particularly during the period in which this report is
being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such
internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
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5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design
or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
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|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
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Date:
August 19, 2008
/s/
B. S. P. Marra
|
B.
S. P. Marra
|
Chief
Financial Officer (Principal Financial
Officer)
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. 1350
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Atlas Technology Group,
Inc. (the “Registrant”) for the quarter ended June 30, 2008, as filed with the
Securities and Exchange Commission on the date hereof (the “report”), I, Ralph
B. Muse, Chief Executive Officer of the Registrant, certify to my knowledge
and
in my capacity as an officer of the Registrant, pursuant to 18 U.S.C. 1350,
that:
(1)
|
The
report fully complies with the requirements of Section 13(a) or
15(d) of
the Securities Exchange Act of 1934;
and
|
(2)
|
The
information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of
the
Registrant as of the dates and for the periods expressed in the
report.
|
Date:
August 19, 2008
/s/
Ralph B. Muse
|
Ralph
B. Muse
|
Chief
Executive Officer (Principal Executive
Officer)
|
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. 1350
PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of Atlas Technology Group,
Inc. (the “Registrant”) for the quarter ended June 30, 2008, as filed with the
Securities and Exchange Commission on the date hereof (the “report”), I, B. S.
P. Marra, Chief Financial Officer of the Registrant, certify to my knowledge
and
in my capacity as an officer of the Registrant, pursuant to 18 U.S.C. 1350,
that:
(1)
|
The
report fully complies with the requirements of Section 13(a) or
15(d) of
the Securities Exchange Act of 1934;
and
|
(2)
|
The
information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of
the
Registrant as of the dates and for the periods expressed in the
report.
|
Date:
August 19, 2008
|
|
Chief
Financial Officer (Principal Financial
Officer)
|