e10qsb
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
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þ |
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
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o |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Tribeworks, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
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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.) |
2001 152nd AVENUE NE, REDMOND WA 98052
(Address of Principal Executive Offices)
(425) 458-2360
(Issuers Telephone Number, Including Area Code)
111 VIA QUITO, NEWPORT BEACH, CA 92663; (949) 274-3633
(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
þ 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 þ
As of the close of business on August 14, 2006, there were 24,467,805 shares outstanding of the issuers common stock, par value $0.0004 per share.
Transitional Small Business Disclosure Format: Yes o No þ
TRIBEWORKS, INC.
FIRST QUARTER 2006 REPORT ON FORM 10-QSB
TABLE OF CONTENTS
-2-
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
TRIBEWORKS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 2006
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June 30, |
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December 31 |
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2006 |
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2005 |
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See-Note D |
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Current Assets |
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Cash |
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$ |
1,043,665 |
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$ |
177,799 |
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Accounts receivable, net of allowance for
doubtful accounts of $1,500 |
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108,661 |
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35,294 |
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Prepaid expenses |
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12,669 |
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27,145 |
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TOTAL CURRENT ASSETS |
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1,164,995 |
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240,238 |
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Other Assets |
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Equipment, net of accumulated depreciation of
$110,259 - 2005: $51,834 |
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310,085 |
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245,903 |
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Capitalized Software Development Costs |
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220,858 |
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530,943 |
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245,903 |
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TOTAL ASSETS |
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$ |
1,695,938 |
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$ |
486,141 |
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LIABILITIES AND STOCKHOLDERS DEFICIT |
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Current Liabilities |
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Accounts payable |
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$ |
639,369 |
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$ |
447,108 |
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Accrued expenses |
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359,109 |
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182,108 |
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Due to stockholders |
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6,232 |
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6,232 |
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Income Taxes Payable |
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3,863 |
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3,882 |
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Notes payable |
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190,000 |
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175,175 |
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Other Loan |
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1,186 |
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11,758 |
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Deferred revenue |
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35,551 |
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35,551 |
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TOTAL CURRENT LIABILITIES |
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1,235,310 |
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861,814 |
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Stockholders Deficit |
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Application Monies for new Stock |
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417,289 |
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Preferred stock: $.0004 par value, 10,000,000
shares authorized, 84,000 shares issued and
outstanding |
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34 |
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34 |
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Common stock: $.0004 par value, 200,000,000
shares authorized, 24,467,805 shares issued and
outstanding |
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9,789 |
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8,635 |
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Additional paid-in capital |
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5,770,284 |
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3,681,613 |
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Accumulated deficit |
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(5,319,479 |
) |
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(4,483,244 |
) |
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TOTAL STOCKHOLDERS SURPLUS (DEFICIT) see Note A |
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460,628 |
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(375,673 |
) |
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TOTAL LIABILITIES AND STOCKHOLDERS SURPLUS |
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$ |
1,695,938 |
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$ |
486,141 |
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The accompanying notes are an integral part of these consolidated financial statements
-3-
TRIBEWORKS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
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Three Months Ended June 30, |
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Atlas |
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Tribeworks |
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Consolidated |
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2006 |
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2006 |
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2006 |
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2005 |
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REVENUES |
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$ |
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$ |
61,885 |
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$ |
61,885 |
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$ |
182,501 |
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COST OF SALES |
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65,729 |
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65,729 |
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68,654 |
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GROSS PROFIT |
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(3,844 |
) |
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(3,844 |
) |
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113,847 |
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OPERATING EXPENSES |
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Product support |
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3,160 |
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Product development |
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270,117 |
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270,117 |
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10,951 |
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Sales and marketing |
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32,292 |
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32,292 |
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42,011 |
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General and administrative |
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227,297 |
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8,711 |
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236,008 |
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125,877 |
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529,706 |
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8,711 |
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538,417 |
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181,999 |
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INCOME (LOSS) FROM
OPERATIONS |
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(529,706 |
) |
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(12,555 |
) |
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(542,261 |
) |
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(68,152 |
) |
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INTEREST EXPENSE |
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(179 |
) |
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(179 |
) |
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(696 |
) |
OTHER INCOME (EXPENSE) |
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(756 |
) |
| |
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(756 |
) |
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850 |
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(935 |
) |
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(935 |
) |
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154 |
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INCOME (LOSS) BEFORE
INCOME TAXES |
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(530,641 |
) |
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(12,555 |
) |
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(543,196 |
) |
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(67,998 |
) |
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INCOME TAXES |
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25 |
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25 |
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1,201 |
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NET INCOME (LOSS) |
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$ |
(530,666 |
) |
|
$ |
(12,555 |
) |
|
$ |
(543,221 |
) |
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$ |
(69,199 |
) |
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EARNINGS (LOSS) PER
COMMON SHARE, BASIC AND
DILUTED |
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$ |
(0.02 |
) |
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$ |
(0.04 |
) |
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WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING,
BASIC AND DILUTED |
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22,329,420 |
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1,569,555 |
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The accompanying notes are an integral part of these consolidated financial statements
-4-
TRIBEWORKS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
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Six Months Ended June 30, |
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|
Atlas |
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Tribeworks |
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Consolidated |
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2006 |
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2006 |
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|
2006 |
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|
2005 |
|
REVENUES |
|
$ |
|
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|
$ |
122,370 |
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|
$ |
122,370 |
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$ |
401,614 |
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|
COST OF SALES |
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|
87,534 |
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|
87,534 |
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|
129,569 |
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GROSS PROFIT |
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|
34,836 |
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34,836 |
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|
272,045 |
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OPERATING EXPENSES |
|
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|
|
|
|
|
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|
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|
|
|
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|
Product support |
|
|
|
|
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|
|
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|
5,535 |
|
Product development |
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|
374,096 |
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|
|
33,476 |
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|
407,572 |
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|
18,935 |
|
Sales and marketing |
|
|
44,524 |
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|
463 |
|
|
|
44,987 |
|
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|
80,333 |
|
General and administrative |
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|
376,371 |
|
|
|
42,327 |
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|
418,698 |
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|
192,585 |
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|
794,930 |
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|
76,266 |
|
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|
871,257 |
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|
297,388 |
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INCOME (LOSS) FROM OPERATIONS |
|
|
(794,991 |
) |
|
|
(41,430 |
) |
|
|
(836,421 |
) |
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|
(25,342 |
) |
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INTEREST INCOME (EXPENSE) |
|
|
2,288 |
|
|
|
(1,322 |
) |
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|
966 |
|
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|
(696 |
) |
OTHER INCOME (EXPENSE) |
|
|
(756 |
) |
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|
|
|
|
|
(756 |
) |
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|
850 |
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
1,532 |
|
|
|
(1,322 |
) |
|
|
210 |
|
|
|
154 |
|
|
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INCOME (LOSS) BEFORE INCOME TAXES |
|
|
(793,459 |
) |
|
|
(42,752 |
) |
|
|
(836,211 |
) |
|
|
(25,188 |
) |
|
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INCOME TAXES |
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25 |
|
|
|
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|
25 |
|
|
|
1,201 |
|
|
|
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NET INCOME (LOSS) |
|
$ |
(793,484 |
) |
|
$ |
(42,752 |
) |
|
$ |
(836,236 |
) |
|
$ |
(26,389 |
) |
|
|
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EARNINGS (LOSS) PER COMMON
SHARE, BASIC AND DILUTED |
|
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|
|
|
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|
|
|
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
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|
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|
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|
|
|
|
|
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|
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING, BASIC AND
DILUTED |
|
|
|
|
|
|
|
|
|
|
22,329,420 |
|
|
|
1,569,555 |
|
|
|
|
|
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|
|
|
|
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|
The accompanying notes are an integral part of these consolidated financial statements
-5-
TRIBEWORKS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
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|
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|
|
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|
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(836,235 |
) |
|
$ |
(26,389 |
) |
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
Depreciation and FX adjustments |
|
|
62,679 |
|
|
|
616 |
|
Changes in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(73,367 |
) |
|
|
879 |
|
Costs and estimate earnings in excess of billings on uncompleted contracts |
|
|
|
|
|
|
(10,379 |
) |
Prepaid expenses |
|
|
14,476 |
|
|
|
16,093 |
|
Accounts payable |
|
|
192,261 |
|
|
|
(23,089 |
) |
Accrued expenses |
|
|
177,001 |
|
|
|
34,354 |
|
Taxes payable |
|
|
|
|
|
|
(19 |
) |
Deferred revenue and billings in excess of costs and estimated earnings on
uncompleted contracts |
|
|
|
|
|
|
(75,594 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
373,031 |
|
|
|
(57,120 |
) |
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
|
(463,204 |
) |
|
|
(83,509 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of equipment |
|
|
(122,607 |
) |
|
|
|
|
Loan advance |
|
|
|
|
|
|
(378,739 |
) |
Capitalization of Development Costs |
|
|
(220,858 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities |
|
|
(343,465 |
) |
|
|
(378,739 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock |
|
|
|
|
|
|
409,000 |
|
Reduction in short term loan |
|
|
(10,572 |
) |
|
|
|
|
Increase in note payable |
|
|
(14,825 |
) |
|
|
60,748 |
|
Proceeds from application monies received and options exercised (net of fees
and costs) |
|
|
1,672,535 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
1,672,535 |
|
|
|
469,748 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
|
865,866 |
|
|
|
7,500 |
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD |
|
|
177,799 |
|
|
|
43,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD |
|
$ |
1,043,665 |
|
|
$ |
51,229 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
-6-
TRIBEWORKS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE A PRINCIPLES OF PRESENTATION AND GOING CONCERN
The accompanying unaudited financial statements of Tribeworks, Inc. (the
Company) have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB. 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 (consisting of normal recurring accruals) necessary for a fair presentation of the
Companys financial position as of June 30, 2006, and its results of operations and cash flows for
the three months ended June 30, 2006 and 2005, have been included. 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, 2006. This report should be read in conjunction with the Companys
financial statements and notes thereto contained in the Companys Annual Report on Form 10-KSB for
the year ended December 31, 2005.
Following the acquisition of Atlas (see Notes B and D below) the Income Statement has been
presented with two extra columns so that the reader can see the contributions and expenses of both
the old Tribeworks business (now held in Tribeworks Development Corporation (TDC) see Note B)
and the newly acquired Atlas business. As the acquisition of Atlas took place on January 20, 2006
all of the 2005 comparative figures relate solely to the old Tribeworks business. It should also
be noted that TDC is in the process of being sold to the former management and staff members of
that company and it is anticipated that this process will be completed in the third quarter of
2006; for further comments about this anticipated sale, see Notes B, C, E and I, below.
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 2005 and 2004, had a working capital
deficiency of $480,072 and $660,073 for 2005 and 2004, respectively, together with equity
deficiencies of $375,673 and $478,381 at December 31, 2005 and 2004, respectively. The Company has
reported a further loss of $543,221 for the second quarter of 2006 and at June 30 2006 it has a
working capital deficiency of $70,315 but an equity surplus of $460,628. The Company was previously
in default on its note payable, but this has been repaid since June 30, 2006. In addition the
Company had deferred payment of certain accounts payable and accrued expenses while further new
equity was raised. $1,425,000 of new equity was raised in June 2006 and since June 30, 2006 a
number of these deferred payables have been paid and others will be dealt with at the time of the
sale of TDC to its former management, which the Company expects will occur during the third quarter
of 2006.
In light of the Companys financial condition, on March 30, 2005, the Company announced a plan
of reorganization. During 2005 the old business was separated into TDC, and approximately $1
million of new equity was raised with the intention of investing in a new business of offsite IT
support. On January 20, 2006, the Company acquired Atlas as the vehicle to develop this new
business. A pro forma balance sheet showing the effect of this acquisition was shown above in Note
D. Additionally, $335,000 of new equity was raised in the first quarter of 2006 in addition to the
$400,000 raised in the fourth quarter of 2005, and an additional $122,000 raised in early April
2006 (a total of $857,000), pursuant to a private placement to various accredited investors. Also
in June 2006 $1,425,000 of new equity (before fees and other expenses) was raised by way of a
private placement of 1,140,000 at $1.25 each together with a two year warrant to purchase a further
share at $1.75 for every two shares.
To fully develop this new business, which is now at the live beta and production testing
stage, further equity will need to be raised to obtain revenues and profitability, the planning for
which is currently under way for the fourth quarter of 2006. In view of the matters described
above, there is still doubt about the Companys ability to continue as a going concern unless the
placement of new equity is successful, although some modest revenue is now being generated. 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 Companys 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 accompanying consolidated financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
-7-
NOTE B NATURE OF BUSINESS
The Companys business activity during 2005 and 2004 was a mixture of consulting services
based on the iShell® technology and the sale of the iShell® technology, which provides tools
for creating and delivering multimedia applications. Internet media developers use the iShell®
technology for creation and deployment of electronic content that utilizes interactive features
combining graphics, video, and audio content. The Company also exploited 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.
On March 30, 2005, the Company announced that it had determined that this business was
insufficient to sustain a viable public company, and that the Company had decided to pursue a plan
of reorganization to attempt to increase its scope and profitability. The plan of reorganization
that the Board of Directors approved included the transfer of most assets and liabilities
(including the accrued salary obligations described in NOTE I) to TDC, one of the Companys
operating subsidiaries, and the possible sale of TDC to certain current and former members of its
management or others. This is an ongoing process, and some of the former business divisions have
been transferred and others wound down, which is reflected in the accompanying consolidated
financial statements.
On January 20, 2006, the Company acquired TakeCareofIT Holdings Limited, a Malta
corporation, and its subsidiaries, who have been collectively doing business as Atlas Technology
Group (collectively, Atlas). Atlas was established in September 2004 to provide external
Information Technology (IT) application support services for organizations with large IT functions.
Atlas plans to become a leading 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 services 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, Atlas can provide a fully outsourced IT capability, 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.
Atlas will offer its services 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.
Atlas has it head office in Malta with a subsidiary office in Wellington, New Zealand and
a data center in Seattle, Washington. Atlas has 11 employees and 3 working directors. The initial
support centers are based in Malta, with another support center in New Zealand, creating a
follow-the-sun 24 hour coverage. As business grows, the Company intends to establish additional
support centers as needed to increase capacity. State of the art VoIP (Voice over Internet
Protocol, which allows telephone calls to be made over the Internet via computers), 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, with on-demand high bandwidth available, as well as onsite backup and hands-on
support services.
This business is still in the development stage and the product development costs have
been written off in the accompanying consolidated financial statements. The Company anticipates
that initial testing with pilot customers will commence in the third quarter of 2006 and that the
first modest levels of revenue will start in the third quarter.
-8-
NOTE C 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, TDC and (since the first quarter of 2006) Atlas, which
consists of TakeCareofIT Holdings Limited, a Malta corporation; TakeCareofIT Limited, a Gibraltar
corporation; TakeCareofIT (NZ) Limited, a New Zealand corporation; and TakeCareofIT (US) Inc., a
United States corporation. Following the acquisition of Atlas the consolidated income statement
has been presented with two extra columns so that the reader can see the contributions and expenses
of both the old Tribeworks business and the newly acquired Atlas business. As the acquisition of
Atlas took place on January 20, 2006 all of the 2005 comparative figures relate solely to the old
Tribeworks business.
A pro forma balance sheet showing the effects of the acquisition of Atlas
on the December 31, 2005 consolidated balance sheet is set out in Note D below. The adjusted
December 31, 2005 balance sheet figures have been shown in the restated comparative figures to
consolidated balance in this Quarterly Report.
All material intercompany transactions have been eliminated.
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 $67,619 at June
30, 2006. The Company provides an allowance for doubtful accounts and records bad debts based on a
periodic review of accounts receivable to consider the collectability of each account.
Customer Concentrations
For the three months ended June 30, 2006, two customers accounted for 100% of total
revenues as we finalize existing contracts in anticipation of the sale of TDC. For the three months
ended June 30, 2005, three customers accounted for 55%, 10% and 7% of total revenues, respectively.
At June 30, 2006, accounts receivable from these two major customers accounted for $55,520 of the
total accounts receivable of $67,619.
Revenues from international customers were approximately zero% and 66% of total
revenues for the three months ended June 30, 2006 and 2005, respectively. Revenues are paid in U.S.
dollars and some previous revenue in Japanese yen. Approximately 10% and 64% of revenues for the
three months ended June 30, 2006 and 2005, respectively, were generated from Japanese customers.
At June 30, 2006, accounts receivable from all international customers totalled $0.
-9-
NOTE C BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Technology License
The Companys principal business activity in 2005 and prior years was focused on the
commercialization of the iShell® technology, 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 75,758 shares of
common stock at an exercise price of $1.32 per share, valued at $30,000. The $130,000 cost was
fully amortized at December 31, 2002. This license has been sold to a former staff member.
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 for the iShell® products 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 is 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.
Software Development Costs
The Company has in the past expensed all of its software development costs in the period
the costs are incurred. With the new software being developed by Atlas now reaching the live beta
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
development costs that meet the requirements of SFAS 86.
As a result of the adoption of SFAS 86, $64,951 (as compared to $155,907 for the quarter
ended March 31, 2006) of development costs have been capitalized and the result for the quarter has
been reduced by the same amount as if the Company had continued to write off all development costs
in the period in which they were incurred. These capitalized costs will be amortized over three
years from the date on which the new Atlas business goes into full commercialization. Not all of
the development costs for the period meet the requirements of SFAS 86, and $137,455 of development
costs have been expensed in the period.
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 are translated at average exchange
rates during the period, and assets and liabilities are 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).
With the acquisition of Atlas, which does business in Malta, New Zealand and the USA,
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 dealt with through the profit and loss account.
-10-
NOTE C BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Earnings (Loss) Per Common Share
Basic earnings 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. At the Companys annual meeting of stockholders held August 19, 2005, a
one-for-three reverse stock split was approved, which reduced the number of common shares
outstanding 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.
Stock-Based Awards
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).
Financial Accounting Standards Board Statement No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure (SFAS 148), requires the Company to provide pro
forma information regarding net income and earnings per share as if compensation cost for all
awards had been determined in accordance with the fair value based method prescribed in SFAS 123 as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2006 |
|
|
2005 |
|
Net income (loss), as reported |
|
$ |
(543,221 |
) |
|
$ |
(69,199 |
) |
|
|
|
|
|
|
|
|
|
Add: Stock-based compensation expense included
in net income or loss, no tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct: Total stock-based compensation expense
determined under fair value method for all awards,
no tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
(543,221 |
) |
|
$ |
(69,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
We did not grant any options to purchase shares of the Companys Common Stock during
the three months ended June 30, 2006, or during the same period in 2005.
-11-
NOTE D PRO FORMA BALANCE SHEET at December 31, 2005
TRIBEWORKS, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
(incorporating Atlas Technology Group acquired assets and liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlas |
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
Pro forma |
|
|
Pro forma |
|
As of December 31, 2005 |
|
Tribeworks |
|
|
Group |
|
|
Adjustments |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
84,527 |
|
|
|
93,272 |
|
|
|
|
|
|
|
177,799 |
|
Accounts receivable, net of allowance for doubtful accounts
of $1,500 |
|
|
12,698 |
|
|
|
22,596 |
|
|
|
|
|
|
|
35,294 |
|
Prepaid Expenses |
|
|
27,145 |
|
|
|
|
|
|
|
|
|
|
|
27,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
124,370 |
|
|
|
115,868 |
|
|
|
|
|
|
|
240,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
and Furniture, net of accumulated depreciation of $51,834 |
|
|
1,912 |
|
|
|
243,991 |
|
|
|
|
|
|
|
245,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
126,282 |
|
|
$ |
359,859 |
|
|
|
|
|
|
$ |
486,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable |
|
|
381,495 |
|
|
|
126,704 |
|
|
|
(61,091 |
) |
|
|
447,108 |
|
Accrued expenses |
|
|
182,108 |
|
|
|
|
|
|
|
|
|
|
|
182,108 |
|
Due to stockholders |
|
|
6,232 |
|
|
|
|
|
|
|
|
|
|
|
6,232 |
|
Income Taxes Payable |
|
|
3,882 |
|
|
|
|
|
|
|
|
|
|
|
3,882 |
|
Note Payable |
|
|
175,175 |
|
|
|
|
|
|
|
|
|
|
|
175,175 |
|
Loan from Tribeworks |
|
|
|
|
|
|
1,101,131 |
|
|
|
(1,101,131 |
) |
|
|
|
|
Other loan |
|
|
|
|
|
|
11,758 |
|
|
|
|
|
|
|
11,758 |
|
Deferred Income |
|
|
35,551 |
|
|
|
|
|
|
|
|
|
|
|
35,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
784,443 |
|
|
|
1,239,593 |
|
|
|
(1,162,222 |
) |
|
|
861,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application Monies for new Stock |
|
|
417,289 |
|
|
|
|
|
|
|
|
|
|
|
417,289 |
|
Preferred Stock: $.0004 par value, 10,000 shares authorized, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 84,000 Series B Preferred Shares issued and
outstanding |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
Common Stock: $.0004 par value, 200,000,000 shares authorized, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 21,697,555 shares issued and outstanding |
|
|
8,635 |
|
|
|
11,880 |
|
|
|
(11,880 |
) |
|
|
8,635 |
|
Additional paid-in capital |
|
|
3,681,613 |
|
|
|
|
|
|
|
|
|
|
|
3,681,613 |
|
Accumulated deficit |
|
|
(4,765,732 |
) |
|
|
(890,668 |
) |
|
|
1,173,156 |
|
|
|
(4,483,244 |
) |
Gain/Loss on Exchange |
|
|
|
|
|
|
(946 |
) |
|
|
946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit |
|
|
(658,161 |
) |
|
|
(879,734 |
) |
|
|
1,162,222 |
|
|
|
(375,673 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Deficit |
|
$ |
126,282 |
|
|
$ |
359,859 |
|
|
$ |
|
|
|
$ |
486,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-12-
NOTE D PRO FORMA BALANCE SHEET at December 31, 2005 (CONTINUED)
Notes showing the Consolidation Adjustments to the Pro Forma Consolidated Balance Sheet
All material inter-company transactions have been eliminated in both the Tribeworks and Atlas
individual consolidated financial statements, and in addition the following eliminations have been
made in preparing the Pro Forma Consolidated Financial Statements:
|
1. |
|
The loan from Tribeworks to Atlas of $1,101,131 has been written off
to Product Development Expenditure to match the treatment in the
Tribeworks financial statements at December 31, 2005. In addition,
this loan has also been written off to Product Development Expenditure
(with the exception of cash and fixed assets acquired) in the Atlas
restated financial statements to match the treatment in the Tribeworks
financial statements at December 31, 2005. |
|
|
2. |
|
An account payable of $98,326 was accrued both in Atlas and in
Tribeworks and therefore the double count has been eliminated. |
|
|
3. |
|
Atlas common shares of Euro 10,000 (US$11,880) have been eliminated. |
|
|
4. |
|
Acquisition cost of Euro 30,000 (US$37,235 actual cost) paid by
Tribeworks has been eliminated and the Goodwill arising of
US$25,355 has been written off and charged to retained
earnings/(losses). |
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5. |
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$946 of Foreign Exchange loss reserve against accumulated deficit has been eliminated. |
NOTE E NOTES PAYABLE
On January 21, 2001, the Company borrowed $100,000 pursuant to a Private Placement
Agreement with a third party lender. 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 lender 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 called 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 made all note payments timely in accordance with the note agreement, the
lender would have forgiven $20,000 of the final payment. In accordance with Statement of Financial
Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings
(SFAS 15), the carrying value of the debt, including accrued interest, is equal to the
total amount of future payments under the new note. 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.
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 TDC,
and the possible sale of TDC to certain current and former members of management or others. A note
in an amount of up to $100,000 was entered into as of March 29, 2005 to help cover reorganization
costs.
As of December 31, 2005, the Company had borrowed $91,474 against this note, increasing
the total amount owing under this note to $175,175. No further borrowings against this note were
made in the quarter ended June 30, 2006, but a settlement was reached in July 2006 and the sum of
$190,000 was paid as full and final settlement. The additional cost of $14,825 has been charged as
an expense in the second quarter financial statements.
-13-
NOTE F FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companys financial instruments include cash, receivables due to stockholders, loans
payable and income taxes payable for which the Company believes that the fair value approximates
their carrying amounts.
NOTE G REVERSE STOCK SPLIT
At the Companys annual meeting of stockholders held August 19, 2005, a one-for-three
reverse stock split was approved, which reduced the number of common shares outstanding 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 H COMMON STOCK AND WARRANT ISSUANCE
During the quarter ended June 30, 2006, the Company made two issuances of shares:
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a) |
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1,714,000 shares of Common Stock at a price of $0.50 per share. This was in exchange
for $735,000 of subscription monies held as at March 31, 2006 and $122,000 of subscriptions
received in April 2006. |
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b) |
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An additional 1,140,000 shares of Common Stock were sold during the quarter ended
June 30, 2006 to five European investment funds at a price of $1.25 per share. Along with
these shares, the Company also issued one warrant for every two new shares of Common Stock
purchased. The warrants have an exercise price of $1.75 per share. The warrants have a two
year term and expire on May 31, 2008. Each investor represented in writing to the Company
that it was an accredited investor as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended. |
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c) |
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In addition to brokerage and commission fees of $85,500 for raising the funds in b)
above Westmount Capital was issued 85,500 warrants with an exercise price of $1.75 per
share. These warrants have a two year term and expire on June 16, 2008. |
As a result of these issues the total number of shares of Common Stock issued and outstanding
increased to 24,467,805. Once the Series B Preferred Stock is converted the fully diluted capital
of the Company will consist of 24,551,805 shares of Common Stock.
-14-
NOTE I DEFERRED COMPENSATION ARRANGEMENT AND DISPUTE WITH FORMER EMPLOYEE
Effective July 1, 2004, the Company entered into one-year compensation arrangements with
two of its then executive officers. The arrangements provide for annualized salaries of $120,000
and $110,000 for the Companys Chief Executive Officer and Chief Financial Officer, respectively.
As part of the arrangement, any of this compensation accrued but not paid can be converted, at the
option of the applicable executive officer, 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 Companys common stock for the 20 trading days previous to the election date. 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 causes the issued stock to be forfeited and
returned to the Company and, as such, the outstanding salary underlying the forfeited stock is no
longer owed. At June 30, 2006, the Company had recorded accrued but unpaid salary related to this
arrangement of $142,795. On March 29, 2005, the accrued salary under this arrangement, along with
all of the Companys material assets and other material liabilities, excluding liabilities
totalling approximately $136,000, were assigned to TDC.
On April 12, 2006, Robert Davidorf, a former director and officer of the Company, and on
that date a director and officer of TDC, resigned. In his letter of resignation, Mr. Davidorf made
certain claims for payment of approximately $130,000 in accrued salaries (including $95,388
relating to the above deferred compensation arrangement) and expenses allegedly owed to him. 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 as one of the potential purchasers of TDC. The current negotiations contemplate
that all claims by Mr Davidorf will be settled for a sum substantially less than the amount claimed
and the amount accrued in the books of the Company for deferred compensation., and that Mr.
Davidorf will release the Company with respect to these claims.
Settlement of this claim is still not certain and if not settled and should Mr Davidorf file
such a suit, we anticipate that we will raise a number of affirmative defenses and file
counterclaims against Mr. Davidorf. We are unable at this time to make an assessment of the likely
outcome of this dispute.
NOTE J SUBSEQUENT EVENTS
As described in Note E above, in July 2006 the note referred to in Note E above was repaid in
full and final settlement and as a result there is no further default.
NOTE K CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 20, 2006 the Company acquired Atlas, which over the past 18 months has been
developing its new software system for providing external IT application support services for
organizations with large IT functions. This work is being carried out by both Atlas employees and
specialist consultants engaged to prepare modules of this new system. Some of these consultants are
engaged through WebConsult, a registered Microsoft vendor, and they continue to carry out such work
on normal commercial terms. Robert Altinger, a director of the Company, was formerly a consultant
to and was associated with WebConsult, Inc. and WebConsult Ltd.
During the second quarter the three executive directors of the Company were paid fees of $10k
per month in lieu of salary as compensation for their time until contracts are negotiated.
-15-
Item 2. Managements 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 managements
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:
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Whether or not our products are accepted by the marketplace and the pace of any such acceptance, |
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our ability to attract customers for our new business, |
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improvements in the technologies of our competitors, |
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changing economic conditions, and |
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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
Quarterly Report. You should refer to and carefully review the information in future documents we
file with the SEC.
-16-
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We experienced a net loss of $543,221 for the quarter ended June 30, 2006, an increase of
$250,206, or 85%, from the loss of $293,015 reported for the first quarter of 2006, making a total
loss year to date of $836,236. This is further discussed below, but is a reflection of the
transition and changeover between the previous business of Tribeworks and the new Atlas business
being developed.
On March 30, 2005, as previously reported in our Current Report on Form 8-K filed with
the SEC on March 31, 2005, which report is incorporated herein by reference, we announced that we
had determined that our business based on the iShell® technology was insufficient to sustain a
viable public company, and we decided to pursue a plan of reorganization to attempt to increase our
scope and profitability. The plan of reorganization that our board approved included the transfer
of most assets and liabilities (including the accrued salary obligations described in NOTE I to the
accompanying consolidated financial statements) to our operating subsidiary, Tribeworks Development
Corporation (TDC), and the possible sale of TDC to certain current and former members of
management or other staff. This is an ongoing process, and some of the former business divisions
have been transferred and others wound down, which is reflected in the consolidated financial
statements that are included as part of this Quarterly Report.
On January 20, 2006, as previously reported in our Current Report on Form 8-K filed with
the SEC on January 26, 2006, which report is incorporated herein by reference, we acquired
TakeCareofIT Holdings Limited, a Malta corporation, and its subsidiaries, who have been
collectively doing business as Atlas Technology Group (collectively, Atlas). Atlas was
established in September 2004 to provide external Information Technology (IT) application support
services for organizations with large IT functions.
As our old business continues to be wound down and we continue to develop the Atlas
business, there will be a period of some months when there will be little or no revenue coming into
the Company. We cannot predict when substantial revenue and breakeven will occur, but during the
third quarter we expect that the new Atlas business will begin generating modest amounts of
revenue.
In the review below and in the accompanying income statement we have separated the revenue and
expenses between the old Tribeworks business and the new Atlas business.
Revenues
Total revenues were $61,885 for the three months ended June 30, 2006, a decrease of 66%
compared to total revenues of $182,501for the three months ended June 30, 2005. For the six months
ended June 30, 2006 total revenues were $122,370 compared to $401,614 for the first six months of
2005. All of this revenue relates to the old Tribeworks business and reflects that this business
is being run down. The revenue includes sales of some iShell products (and this business has now
been sold to a former staff member) with the majority of the revenue coming from the finalization
of the remaining contracts for custom built products.
Cost of Sales
Cost of sales includes royalties paid to third parties for licensed technology, costs
associated with order fulfilment, credit card fees, web hosting fees, and costs associated with
consulting services, including salaries, subcontractor fees, and out-of-pocket expenses. All of the
final costs of completing these contracts have been accounted for in the cost of sales and hence
the result for the three months ended June 30, 2006 is a negative gross margin of $3,844, as all
final costs have been taken into account. The gross margin for the six months ended June 30, 2006
was $34,836 compared to $272,045 for the same period last year. However, calculation of gross
margins is irrelevant as the old Tribeworks business is wound down.
-17-
Operating Expenses
The operating expenses associated with the old Tribeworks business amounted to $8,711 for
the June 30, 2006 quarter and comprised mainly the final rent payments of our former office space,
which has now been transferred to a former staff member with the former iShell business. For the
six months ended June 30, 2006 there was also some product development expenditure related to the
final contracts. As at June 30, 2006 the old Tribeworks business is now effectively closed and we
are currently negotiating to sell the residual assets and liabilities of TDC to its former
management and therefore comparisons to former periods would be irrelevant.
With the development of the new Atlas business, the main operating cost is product development
costs, which are now being incurred with Atlas with a second quarter cost of $270,117 compared with
the first quarter cost of $137,455. The increase in the second quarter is due to a reduced amount
of product development expenditure being capitalized: $64,951 in the quarter ended June 30, 2006 as
compared to $155,907 of product development expenditure capitalized in the quarter ended March 31,
2006. The combined cost (capitalized and expensed) of product development in the quarter ended
June 30, 2006 was $335,068 compared to $265,886 in the quarter ended March 31, 2006. The Company
is now getting to the end of the product development phase and is now beginning the product testing
phase. Capitalization of product development expenditure is a change of accounting policy for
Tribeworks compared to prior years and in the full 2005 year the entire cost of product development
expenditure of $1,141,031 was expensed, including the full amount of advances of $1,101,031 made by
Tribeworks to Atlas for use in development costs during 2005, which was written off at year end
resulting in an average quarterly development cost of $275,258.
Sales and marketing expenses consist primarily of compensation and benefits and other
public relations and marketing costs. Sales and marketing expenses were $32,292 for the quarter
ended June 30, 2006 ($12,232 in the first quarter of 2006) and related totally to the new Atlas
business. There are no comparatives for 2005 as Atlas was not acquired until January 20, 2006.
General and administrative expenses consist primarily of compensation and benefits, fees
for professional services, and overhead. General and administrative expenses for the Atlas business
stream were $227,297 for the quarter ended June 30, 2006 compared with $149,074 for the quarter
ended March 31, 2006. This increase is primarily due to an increase in outside services, including
accounting fees and legal fees, but also included the combined salaries to the three executive
directors of $60,000, who were not fully compensated in the quarter ended March 31, 2006.
Interest and Other Expense
Interest expense was $179 for the quarter ended June 30, 2006, compared to interest
expense of $696 for the quarter ended June 30, 2005. Net interest was an income item in the first
quarter of 2006 and therefore the six months ended June 30, 2006 interest shows a net income of
$966.
Other expense of $756 relates primarily to foreign exchange differences in the quarter ended
June 30, 2006, compared to income of $850 for the same period in 2005.
Provision for Income Taxes
We recorded no tax provision for the quarter ended June 30, 2006, but had tax deducted
from an interest receipt that was netted against interest expense. In the quarter ended June 30,
2005 we had a tax payment of $1,201 which related to California taxes. We have net operating loss
carryforwards from prior year losses.
Net Income (Loss)
The net loss for the quarter ended June 30, 2006 was $543,221 compared to $293,015 for
the quarter ended March 31, 2006 (a loss for the six months to June $836,236) compared to a net
loss of $69,998 for the quarter ended June 30, 2005 and $25,342 for the six months ended June 30,
2005. As can be seen from the analysis in the consolidated income statement, $530,666 of the loss
for the three months ended June 30, 2006 ($793,459 for the six months ended June 30, 2006) relates
to the new Atlas business and this reflects the costs of the transition from our prior business
divisions of Tribeworks to the new Atlas business.
-18-
Liquidity and Capital Resources
At June 30, 2006, we had cash of $1,043,665 compared to $51,229 at June 30, 2005 and
$177,799 at December 31, 2005. The increase is primarily due to a private placement of 1,140,000
new shares of Common Stock at $1.25 per share which took place in June 2006. The funds from this
private placement will be used to repay the creditors owing at that date and to meet our working
capital requirements over the coming months.
Based on our projected cash flow requirements, taking into account our cash balance,
anticipated revenues from our ongoing business and some very modest levels of revenue from Atlas
starting in the third quarter, and projected expenditures, we believe we will be required to raise
additional equity financing within the next 12 months and our Board of Directors is addressing this
need for additional capital.
Cash used by operating activities was $463,204 for the six months ended June 30, 2006,
compared to $198,925 for the quarter ended March 31, 2006 and compared to $83,509 for the six
months ended June 30, 2005. The increase is the result of our increased development costs
associated with the Atlas business.
Cash used in investing activities for the six months ended June 30, 2006 was $343,465
compared to $162,110 for the quarter ended March 31, 2006 and $378,739 for the six months ended
June 30, 2005. The cash invested in the six months ended June 30, 2006 has been for the development
of new software and purchase of computers and software for the new Atlas business. The $378,739 of
advances made in the six months ended June 30, 2005 were made to Atlas for the purchase of
computers and the development of software. During the quarter ended June 30, 2006 additional
servers were purchased to further strengthen and upgrade our data center in preparation for going
into the production phase of the new business and this should give enough capacity through the
testing phase and into full operations beginning in 2007.
Cash provided by financing activities for the six months ended June 30, 2006 was
$1,672,535, consisting primarily of new equity raised, being the balance of a private placement
started prior to December 31, 2005 and a further private placement of 1,140,000 new shares of
Common Stock at $1.25 per share made in June 2006.
We do not expect to be profitable during 2006, but some modest revenue is expected to be
generated during the third quarter, but not sufficient to reach a breakeven point. Our Board of
Directors will be seeking additional capital to finance our operations in the form of additional
equity or debt, but there is no assurance that this additional financing will be available to us
or, if it is available, that it will be on commercially reasonable terms. We do not expect to
devote substantial capital resources to hiring additional personnel if more funds do not become
available to us. In addition, the inability to obtain sufficient funds from operations and external
sources will have a material adverse effect on our business, results of operations, and financial
condition.
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.
Related Party Transactions
As of June 30, 2006, we have not entered into any contractual arrangements with related
parties other than as shown in Note K of the consolidated financial statements above. 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% stockholder or any member of the immediate family of any of the foregoing
persons have or will have a direct or indirect material interest.
-19-
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, 2006,
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 December 31, 2005, 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, 2006 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings pending against Company and the only threat of legal proceedings is
disclosed in Note I above.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ended June 30, 2006, we sold an aggregate of 1,140,000 shares of
our common stock to various accredited investors pursuant to a private placement at a price of
$1.25 per share, for an aggregate offering price of $1,425,000 before fees and costs. This
offering was exempt from registration pursuant to Rule 506 promulgated under the Securities Act.
Each of the investors executed a subscription agreement and represented in writing that it was an
accredited investor, as defined in Rule 501 of Regulation D promulgated under the Securities Act
of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
-20-
Item 6. Exhibits.
(a) The following exhibits are included in this report or incorporated by reference into this
report:
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EXHIBIT |
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NUMBER |
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DESCRIPTION OF EXHIBITS |
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31.1
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Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a). |
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31.2
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a). |
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32.1
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Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
-21-
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.
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TRIBEWORKS, INC.,
a Delaware corporation |
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Date: August 14, 2006
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By:
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/s/ Peter B Jacobson
Peter B Jacobson
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Chief Executive Officer |
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Date: August 14, 2006
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By:
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/s/ B. S. P. Marra
B. S. P. Marra
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Chief Financial Officer |
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-22-
Index to Exhibits
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EXHIBIT |
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NUMBER |
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DESCRIPTION OF EXHIBITS |
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31.1
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Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a). |
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31.2
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a). |
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32.1
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Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
-23-