SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q-SB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended October 31, 2001
[ ] Transition report under Section 13 or 15(d) of the Exchange Act for the
Transition Period from ________ to ________.
Commission file number 0-14026
TRAVLANG, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3174562
- --------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7000 West Palmetto Park Road, Suite 501, Boca Raton, Florida 33433
-------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(561) 620-9202
----------------------
(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
----- ------
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes No
------ ------
Number of common stock outstanding as of December 17, 2001: 14,711,934
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of October 31, 2001
Condensed Consolidated Statements of Operation for the three
-month periods ended October 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows for the three
months ended October 31, 2001 and 2000
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
TRAVLANG, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 31, 2001
(UNAUDITED)
================================================================================
ASSETS
------
October 31,
2001
--------
Current assets:
Cash and cash equivalents $ 6,816
Accounts receivable, net 15,044
Deferred management fees 157,885
Other current assets 17,173
--------
Total current assets 196,919
--------
Property and equipment, net 13,605
--------
Other assets:
Notes receivable, related party 10,000
Investment in common stock 299,278
Deposits 3,000
Goodwill, net 177,750
--------
Total other assets 490,028
--------
Total assets $700,552
========
See accompanying notes to condensed consolidated financial statements.
3
TRAVLANG, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 31, 2001
(UNAUDITED)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
October 31,
2001
------------
Current liabilities:
Accounts payable $ 3,700
Accrued expenses 77,705
Loans payable, related parties 35,000
Notes payable 15,000
------------
Total current liabilities 131,405
------------
Commitments and contingencies --
Stockholders' equity:
Preferred stock, $1.00 par value, 5,000,000 shares authorized,
-0- shares issued and outstanding --
Common stock, $0.01 par value, 50,000,000 shares authorized,
14,711,934 shares issued and outstanding 147,119
Additional paid in capital 15,533,145
Subscription receivable (71,308)
Accumulated deficit (15,039,809)
------------
Total stockholders' equity 569,147
------------
Total liabilities and stockholders' equity $ 700,552
============
See accompanying notes to condensed consolidated financial statements.
4
TRAVLANG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000
(UNAUDITED)
================================================================================
Three Months Ended October 31,
-----------------------------------
2001 2000
------------ ------------
Revenues earned $ 50,406 $ 104,757
Cost of goods sold 15,477 48,500
------------ ------------
Gross profit 34,929 56,257
------------ ------------
Operating expenses:
General and administrative expenses 85,981 204,245
Depreciation and amortization 1,640 83,118
Stock compensation for services 187,125 15,501
------------ ------------
Total operating expenses 274,746 302,864
------------ ------------
Other income (expense):
Interest expense (536) (250)
Interest income -- 2,909
------------ ------------
Total other income (expense) (536) 2,659
------------ ------------
Net loss (240,353) (243,948)
------------ ------------
Net income (loss) applicable to common shareholders $ (240,353) $ (243,948)
============ ============
Basic and diluted loss per share $ (0.02) $ (0.02)
============ ============
Weighted average shares outstanding 14,693,455 10,711,815
============ ============
See accompanying notes to condensed consolidated financial statements.
5
TRAVLANG, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000
(UNAUDITED)
================================================================================
Three Months Ended October 31,
------------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net (loss) $(240,353) $(255,036)
Adjustments to reconcile net (loss) to
net cash used by operating activities:
Depreciation and amortization 1,640 83,118
Common stock and options issued for services 187,125 15,501
Equity in losses of subsidiary -- 11,088
Changes in operating assets and liabilities,
net of effects from acquisitions:
Increase (decrease) in:
Accounts receivables (4,187) (68,424)
Prepaid expenses (200) 463
Increase (decrease) in:
Accounts payable (13,610) 1,965
Accrued expenses 27,922 16,100
--------- ---------
Net cash used in operating activities (41,663) (195,225)
--------- ---------
Cash flows from investing activities:
Change in notes receivable -- (91,000)
Purchases of property and equipment (1,358) (10,446)
--------- ---------
Net cash used in investing activities (1,358) (101,446)
--------- ---------
Cash flows from financing activities:
Common stock issued for cash -- 106,198
Costs of issuance of common stock -- (2,780)
Proceeds from loans payable 35,000 --
Payments on loans payable -- (7,500)
--------- ---------
Net cash provided by financing activities 35,000 95,918
--------- ---------
Net increase (decrease) in cash (8,021) (200,753)
Cash at beginning of period 14,837 276,980
--------- ---------
Cash at end of period $ 6,816 $ 76,227
========= =========
See accompanying notes to condensed consolidated financial statements.
6
TRAVLANG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Description of Company
- ----------------------
Travlang, Inc. (formerly iiGroup, Inc.) is a publicly traded technology company
whose core business is in its wholly owned subsidiary, Travlang.com.
Travlang.com, a foreign language and travel website, was acquired by iiGroup,
Inc. in January 2000. Travlang.com offers foreign language and travel
information, products and services through the Internet. Travlang, Inc. also
holds equity positions in several other companies. The name of the Company was
changed on April 23, 2001 to reflect the Company's decision to focus on
Travlang.com.
When we use the terms "Travlang", the "Company", "we" or "us" or other similar
terms, we mean Travlang, Inc., and any predecessor company, and each of our
subsidiaries and affiliated companies unless otherwise specified or described.
Significant Accounting Policies
- -------------------------------
The accounting policies followed by the Company are set forth in Note 3 to the
Company's financial statements included in its Annual Report on Form 10-KSB for
the fiscal year ended July 31, 2001.
New Accounting Pronouncements
- -----------------------------
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 143, Accounting for Asset Retirement
Obligations, was issued by the Financial Accounting Standards Board and is
effective for companies with fiscal years beginning after June 15, 2002. The
statement requires entities to recognize asset retirement obligations at their
fair value--the amount at which an informed willing party would agree to assume
the obligation. The Company expects to adopt SFAS No. 143 effective August 1,
2002. The Company does not expect SFAS No. 143 will have a material effect on
the consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 144 also supercedes the accounting and reporting provisions of
Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 is intended to establish one accounting model for long-lived assets to
be disposed of by sale and to address significant implementation issues of SFAS
No. 121. The Company expects to adopt SFAS No. 144 effective October 1, 2001.
The Company does not expect SFAS No. 144 will have a material effect on the
consolidated financial statements.
NOTE 2: INTERIM FINANCIAL STATEMENTS
- -------------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-QSB of the Securities
and Exchange Commission rules and do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (which are of a normal recurring nature) considered
necessary for a fair presentation, have been included. Operating results for any
quarter are not necessarily indicative of the results for any other quarter or
for the full year. All significant intercompany accounts and transactions have
been eliminated. These interim financial statements should be read in
conjunction with the Company's audited financial statements and accompanying
footnotes included on Form 10-KSB for the fiscal year ended July 31, 2001.
7
TRAVLANG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3: GOING CONCERN - UNCERTAINTY
- ------------------------------------
As shown in the accompanying condensed consolidated financial statements, the
Company has incurred recurring losses and negative cash flows from operating
activities. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
There can be no assurance that the Company will be able to successfully
implement its plans, or if such plans are successfully implemented, that the
Company will achieve its goals. The accompanying condensed consolidated
financial statements have been prepared assuming that the Company will continue
as a going concern and do not include any adjustments to reflect the possible
future effects of the recoverability and classification of assets or the amounts
and classification of liabilities that might result from the outcome of this
uncertainty.
NOTE 4: NOTES PAYABLE
- ----------------------
On August 1, 2001, the Company signed a convertible revolving credit agreement
with MCG Partners, Inc., a related party, for up to $100,000. Interest will be
equal to the prime rate and both principal and interest are due in full on
December 31, 2001. The Company issued 1,500,000 shares of common stock to
execute the agreement. The principal balance is convertible into common stock
based on 75% of the five-day average closing bid on the five days preceding the
conversion. As of October 31, 2001, the Company received $35,000 from the
revolving credit.
The Company has three 6% notes payable, which are reflected in the balance sheet
line item Notes payable for an aggregate amount of $15,000. Accrued interest
payable as of October 31, 2001 is $1,125. The notes were due on September 30,
2001. Subsequent to October 31, 2001, the note holders agreed to convert their
notes into an aggregate of 337,000 shares of common stock at a conversion rate
of $.05 per share.
NOTE 5: SHAREHOLDERS' EQUITY
- ----------------------------
During the quarter ended October 31, 2001, the Company issued 1,550,000 shares
of common stock for services. As of October 31, 2001, the Company recorded
approximately $153,000 of stock compensation expense related to these issuances.
Subscriptions receivable consists of prepaid consulting fees and prepaid legal
fees. Consulting services received for stock are capitalized and amortized over
the term of the agreement, not to exceed one year, on a straight-line basis. The
value of the consulting services is determined based on the Company's stock
price on the effective date of the agreement. At October 31, 2001, the Company
had $67,211 of unamortized subscriptions receivable.
The Company executed a consulting agreement on August 1, 2001 with a third party
for a two-year term. The Company issued 100,000 stock options and will pay $100
per month for the services rendered. The options were valued using the Black
Scholes option-pricing model for a fair value of $9,000, of which $7,875 of
deferred compensation expense was recorded in the subscription receivable line
of shareholders' equity. The deferred compensation is being amortized over the
life of the agreement.
NOTE 6: DEFERRED MANAGEMENT FEES
- --------------------------------
Effective January 1, 2001, Travlang entered into an agreement with TargitMail to
provide deferred management fees for the period from January 1, 2001
through April 30, 2001 for a fee of $300,000. These services primarily were
management services provided by Travlang employees while assuming interim
executive roles at TargitMail. Payment for the services is to be in the form of
email marketing/ advertising to be provided to the Company through
August 31, 2002.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Forward-Looking Statements. When used in this report, press releases
and elsewhere by our management, we describe important factors, among others,
that could cause actual results to differ from those indicated in
forward-looking statements made in this document. Certain of our statements
contain some forward-looking statements made in this document. Forward-looking
statements give our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. They use words such as anticipate, estimate,
expect, project, intend, plan, believe, and other words and terms of similar
meaning in connection with any discussion of future operating or financial
performance. In particular these include statements relating to our anticipated
operating results and our anticipated cash flow and to future actions, future
performance or results of current and anticipate sales and marketing efforts,
expenses, the outcome of contingencies, and other financial results. From time
to time, we may also provide oral or written forward-looking statements in other
materials we release to the public. Any or all of our forward-looking statements
in this document and in any other public statements we make may turn out to be
wrong. They can be affected by inaccurate assumptions we might make or by known
or unknown risks and uncertainties. Among the factors that could cause actual
results to differ materially include the ability of the Company to meet its
working capital and liquidity needs, the status of relations between the
Company, its primary customers and distributors, the availability of funding,
unanticipated changes in the U.S. and international economies, business
conditions and growth in e-commerce and the timely development and acceptance of
new products, the impact of competitive products and pricing, and other risks
detailed from time to time in the Company's SEC reports. Certain of these
factors mentioned in the discussion below will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed and
readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Actual future results may
vary materially. We undertake no obligations to publicly update any
forward-looking statements, whether as a result of new information, future
events, or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects in our future filings with the SEC.
Going Concern.
The accompanying condensed consolidated financial statements and
financial information were prepared assuming that the Company will continue as a
going concern. We have negative cash flows from our operations and an
accumulated deficit that raise substantial doubt about our ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. Additionally, our liquidity
needs could exceed the amount of the Company's future ability to obtain equity
financing. See "Liquidity and Capital Resources."
Overview
The Company's primary operating business is Travlang.com, an Internet
foreign language and travel website. Travlang.com is a foreign language and
travel website that has existed for nearly six years. Travlang is a World Wide
Web presence offering foreign language and travel information, products and
services. With no advertising, Travlang has become a leading portal on the World
Wide Web, serving over 9,000,000 pages per month and hosting 2.500,000 visitors
per month, of which over 1,000,000 are unique. Travlang draws visitors from all
over the world and from all walks of life. Travlang has achieved these high
levels of traffic and diversity of audience due to the uniqueness of its
content. The four main language content offerings are Travlang's Foreign
Languages for Travelers in 74 languages. Travlang's Translating Dictionaries,
Travlang's Word of the Day e-mail, and Travlang's downloadable
vocabulary/dictionary files.
9
Travlang.com's main sources of revenue are from banner advertising and
e-mail advertising; licensing/syndication; commission based travel services;
product sales; affiliate relationships; Travlang website and e-mail services;
storefronts; databases; catalog and other e-Distribution; and online immersion
courses.
Travlang's commission based travel related services consist of airline
information, reservations and booking; hotel information, reservations and
booking; automobile rental information, reservations and booking; railway
information, reservations and booking; cruise information, reservations and
booking; Travlang Travel Concierge; country specific hotels; discount hotels;
adventure travel and specialty travel.
The Travlang store sells travel aids and foreign language translation
products. Products available in the store are: travel/health aids; discounted
luggage, software, phone calling cards, credit cards and textbooks. In addition,
the Travlang store has a comprehensive offering of foreign language products.
These include the following: dictionaries, keyboards, spell checkers,
encyclopedias, children's products, translations, movies and videos, localized
products, transliterations, fonts, OCR, tutorials, electronic translators,
computer operating systems, tutorials in ESL, Internet, religious studies, word
processing, phrase books and K-12 materials in over 900 foreign languages.
Page views for Travlang have increased from 4.5 million in 1996 to over
100 million (estimated) in 2001. Total visitors have increased from 2.4 million
in 1996 to a projected 28 million in 2001. One-quarter to one-third of the
visitors are unique. Total requests (hits) are projected to be over 500 million
in 2001, up from 41 million in 1996 and 350 million in 2000.
To date Travlang, Inc. has
- purchased Travlang.com,
- invested in TargitInteractive, Inc, a former website for the sale
of gourmet food, wine and cookware that now operates as an
interactive marketing company,
- acquired an interest in SBN.com, an Internet Yellow Pages company
that caters to traditional as well as pure Internet companies,
and
- acquired an interest in Nucell Wireless Corporation, a
traditional wholesale supplier of wireless telephones and
accessories and wireless access through AT&T.
On March 7, 2001, the Company announced that it received approval to
change its name to Travlang, Inc. to better indicate the Company's intention to
focus its attention on its wholly owned subsidiary. On April 23, 2001 the
Company amended its Certificate of Incorporation to change its name. The ticker
symbol was changed from IIGR to TRVL.
In August 2001, Travlang signed a letter of intent to acquire
TraveLink, Inc., a national travel agency selling travel via telephone and
Internet. This letter of intent expired subsequent to due diligence conducted by
Travlang's management.
Financial Condition
The Company decreased its allowance for doubtful accounts from
$9,224 to zero due to the write off of certain receivables. The Company believes
that the current accounts receivable balance is fully collectible.
10
The net change in accounts payable and accrued expenses of approximately $14,500
is primarily due to the accrual for monthly consulting fees of MCG Partners of
$22,500, less the reduction in office expense invoices of approximately $13,600
due to the assumption of the majority of shared office expenses by MCG Partners.
The Company has an agreement with MCG to pay $2,500 per month for their portion
of the shared expense.
Additionally, the Company has executed a revolving credit loan with MCG for up
to $100,000, which is due December 2001. As of October 31, 2001, MCG has loaned
the Company $35,000.
Results of Operations
The discussion and analysis set forth below is for the three months
ended October 31, 2001 and October 31, 2000. It should be read in conjunction
with our Financial Statements and the related Notes thereto appearing elsewhere
in this quarterly report.
Net sales for the three months ended October 31, 2001 decreased by
$54,352 to $50,406 from $104,758 for the three months ended October 31, 2000.
The decrease is primarily due to terminated contracts to provide management fees
to third parties ($45,000) and a decrease in advertising rates and revenues of
$9,352.
Cost of goods sold for the three months ended October 31, 2001
decreased by $33,023 to $15,477 from $48,500 for the three months ended October
31, 2000. The decrease in cost of sales was primarily due to a decrease in and
elimination of advertising commissions.
Gross profit for the three months ended October 31, 2001 was $34,929 or
69% of net sales, compared to $56,257 or 54% of net sales for the three months
ended October 31, 2000.
Depreciation and amortization for the three months ended October 31,
2001 was $1,640 compared to $83,118 for the three months ended October 31, 2000.
The decrease was due to the early adoption of FAS 142, Goodwill and Other
Intangible Assets, which discontinues the amortization of goodwill and instead
requires periodic analysis for impairment . At October 31, 2001, the Company did
not find the goodwill to be impaired.
General and administrative expenses were $85,981 for the three months
ended October 31, 2001, compared with $204,245 for the three months ended
October 31, 2000. The decrease in the general and administrative expenses was
due to the assumption of substantially all of the general overhead expenses by
MCG Partners, a related party that shares office space with the Company. An
agreement was executed on August 1, 2001between the two parties, whereby
Travlang will reimburse MCG $2,500 per month for a portion of the shared office
expenses. In the three months ended October 31, 2001, the Company had a non-cash
charge of $187,125 for issuance of stock for compensation.
The Company's interest expense was $536 as compared with $250 for the
three months ended October 31, 2000. The increase in interest expenses was
primarily due to loans by related parties.
As a result of the foregoing, the Company's net loss for the three
months ended October 31, 2001 was $240,353 compared to a net loss of $243,948
for the three months ended October 31, 2000.
11
Liquidity and Capital Resources
The Company has limited expenditures in many areas, including
discretionary expenditures, in order to focus our resources in what we believe
are the most promising areas of the Company's business. However, there can be no
assurance that we will have sufficient funds to carry out these plans or to
remain in business. Although Travlang has sufficient resources to carry out its
business plan for the remainder of this fiscal year, there can be no assurance
that Travlang will be successful in meeting its long-term liquidity
requirements. Resources available to Travlang include monies from the MCG Loan,
and monies from sale of TargitInteractive and company stock.The Company
experienced a loss from operations in fiscal 2001 and the first three months of
fiscal 2002. Our liquidity needs could exceed the amount of equity or debt
financing that the Company may be able to obtain.
For the three months ended October 31, 2001, the Company used $41,663 in
operations, which was primarily funded by the revolving credit line from MCG
Partners.
The Company is actively seeking business opportunities that will expand
its business lines and revenues and is focusing on increasing its current core
business. Specifically in the area of foreign language, the company is looking
for opportunities in the areas of translation services, publication of
educational and reference materials, educational products and services and
language-related software.
In addition to the foreign language area, the company is seeking to
expand its lines of business by providing www and e-commerce services, acquiring
www content and content providers.
The Company may utilize cash derived from the sales of equity securities,
debt securities or bank or other borrowings or a combination thereof as
consideration in effecting future acquisitions, joint ventures or investments.
The Company expects that if market conditions permit, it will be able to sell
some of its TargitInteractive, Inc. stock, which has a current market value of
approximately $200,000. Also, Travlang will, in all likelihood, issue additional
shares in connection with the consummation of transactions. To the extent that
such additional shares are issued, dilution of the interests of the Company's
shareholders will occur.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
None.
12
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 17, 2001 Travlang, Inc.
By: /s/ Howard Brummer
---------------------------------
Howard Brummer, President and
Chief Executive Officer
13