SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended June 30, 2002
--------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from _______________ to _______________
Commission file number 0-30474
Travlang, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3174562
- ---------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2 Hashiloach Street
Petach Tikva 49170 Israel
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area
code 011 972 397 10548
--------------------------
- N/A -
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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TABLE OF CONTENTS
<BTB>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Deficit Accumulated During Development Stage 3
Consolidated Statement of Earnings 4
Consolidated Statement of Changes in Shareholders' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis of Financial Condition and 12
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Proceeds 14
Item 3. Default Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
TRAVLANG, INC.
Development Stage Enterprise
Consolidated Balance Sheet
June 30, 2002
Unaudited
Audited
June 30, June 30, Dec 31,
2002 2001 2001
In thousands of dollars
------------------------------
ASSETS
Current
Cash and cash equivalents $ - $ 107 $ 102
Other receivables and prepaid expenses 56 60 41
------------------------------
56 167 143
Capital Assets 160 260 206
Goodwill 625 - -
------------------------------
$ 841 $ 427 $ 349
==============================
LIABILITIES
Current
Short term bank credits $ 113 $ 12 $ -
Convertible loan 1,715 1,000 1,585
Accounts payable 176 93 156
Other current liabilities 1,156 1,067 1,152
------------------------------
3,160 2,172 2,893
Severance Pay 73 66 71
Convertible Loan 250 - -
------------------------------
3,483 2,238 2,964
------------------------------
SHAREHOLDERS' DEFICIENCY
Capital Stock 12 12 12
Paid in Capital 2,450 1,572 1,817
Deferred Compensation (43) (31) (59)
Deficit Accumulated during Development Stage (5,061) (3,364) (4,385)
------------------------------
(2,642) (1,811) (2,615)
------------------------------
$ 841 $ 427 $ 349
==============================
2
TRAVLANG, INC.
Development Stage Enterprise
Consolidated Statement of Deficit Accumulated During Development Stage
Six Month Period Ended June 30, 2002
Unaudited
Audited
June 30, June 30, Dec 31,
2002 2001 2001
In thousands of dollars
-----------------------------
Deficit Accumulated during Development Stage
- beginning of period $(4,385) $(1,554) $(1,554)
Net loss (676) (1,810) (2,831)
-----------------------------
Deficit Accumulated during Development Stage
- end of period $(5,061) $(3,364) $(4,385)
=============================
3
TRAVLANG, INC.
DEVELOPMENT STAGE ENTERPRISE
Consolidated Statement of Earnings
Six Month Period Ended June 30, 2002
Unaudited
Audited
Year Ended
June 30, June 30, Dec 31,
2002 2001 2001
In thousands of dollars
--------------------------------
Expenses
Research and development $ 332 $ 882 $ 1,374
Marketing 147 463 547
General and administrative 202 464 826
Financial expense 105 7 90
--------------------------------
786 1,816 2,837
Financial Income (110) (6) (6)
Net Loss $ (676) $(1,810) $(2,831)
================================
Basic and diluted net loss per share (0.05) (0.15) (0.23)
4
TRAVLANG, INC.
Development Stage Enterprise
Statement of Changes in Shareholders' Equity
Six Month Period Ended June 30, 2002
Unaudited
Additional Total
Paid in Deferred Accumulated Shareholders'
Common Shares Preferred Shares Capital Compensation Deficit Equity
-------------------------------------------------------------------------------------------
Number of Share Number of Share
Shares Capital Shares Capital
-------------------------------------------------------------------------------------------
For the year ended December 31, 2001:
(Audited)
Balance as at January 1, 2001 10,000,000 10 1,512,513 2 1,611 (50) (1,554) 19
Common shares issued 475,338 - - - 163 - - 163
Preferred shares issued - - - - - - - -
Deferred compensation - - 907,678 - 58 (58) - -
Amortization of deferred compensation - - - - (15) 49 - 34
Net loss for the period - - - - - - (2,831) (2,831)
-------------------------------------------------------------------------------------------
Balance at December 31, 2001 10,475,338 10 2,420,191 2 1,817 (59) (4,385) (2,615)
For the six month period ended June, 30, 2002
Balance at January 1, 2002 10,475,338 10 2,420,191 2 1,817 (59) (4,385) (2,615)
Common shares issued 1,520,891 - - - 633 - - 633
Conversion of preferred shares to
common shares 2,420,191 2 (2,420,191) (2) - - - -
Amortization of deferred compensation - - - - - 16 - 16
Net loss for the period - - - - - - (676) (676)
-------------------------------------------------------------------------------------------
Balance as at June 30, 2002 14,416,420 12 - - 2,450 (43) (5,061) (2,642)
===========================================================================================
For the six month period ended June 30, 2001
Balance at January 1, 2001 10,000,000 10 1,512,513 2 1,611 (50) (1,554) 19
Deferred compensation - - - - 5 (5) - -
Amortization of deferred compensation - - - - - 24 - 24
Issuance costs - - - - (44) - - (44)
Net loss for the period - - - - - - (1,810) (1,810)
-------------------------------------------------------------------------------------------
Balance as at June 30, 2001 10,000,000 10 1,512,513 2 1,572 (31) (3,364) (1,811)
===========================================================================================
5
TRAVLANG, INC.
Development Stage Enterprise
Consolidated Statement of Cash Flows
Six Month Period Ended June 30, 2002
Unaudited
Audited
Year Ended
June 30, June 30, Dec 31,
2002 2001 2001
In thousands of dollars
------------------------------
Cash Flows from Operating Activities
Net loss $(676) $(1,810) $(2,831)
Adjustments for non-cash working capital:
Amortization 47 59 115
Amortization of deferred compensation 16 19 49
------------------------------
(613) (1,732) (2,667)
Changes in non cash working capital
Other receivables and prepaid expenses (15) 25 44
Accounts payable (30) (149) (86)
Other current liabilities 4 471 560
Provisions for severance pay 2 48 49
------------------------------
(652) (1,337) (2,100)
Cash Flows from Investing Activities
Additions of capital assets (1) (29) (31)
------------------------------
Cash Flows from Financing Activities
Short term bank credits 113 12 -
Convertible long term loan received 250 - -
Issuance of shares 58 (39) 148
Convertible loan received 130 1,000 1,585
------------------------------
551 973 1,733
------------------------------
Net Decrease in Cash (102) (393) (398)
Cash - beginning of period 102 500 500
------------------------------
Cash - end of period $ - $ 107 $ 102
6
TRAVLANG, INC.
Development Stage Enterprise
Notes to Consolidated Financial Statements
June 30, 2002
Unaudited
1. Going Concern Assumption
The financial statements have been prepared on a going concern basis, which
contemplates the satisfaction of the liabilities in the normal course of
business. As shown in the financial statements the Company has incurred net
loses and negative cash flows from operations since its inception. Working
capital deficiency as at June 30, 2002 and losses for the period then
ended, amounting to approximately $3,104,000 and $ 676,000, respectively.
The Company requires additional funding to cover working capital
requirements and debt repayments. To address these funding requirements,
the Company continues to raise capital through private share placings.
There is uncertainty associated with the ability of the Company to raise
funds as described above. The Company faces a number of business risks,
including uncertainties regarding demand and market acceptance of the
Company's product, the effect of technological changes, competition,
dependence on proprietary technology and the continued development of the
products. Accordingly, these consolidated financial statements have been
prepared using generally accepted accounting principles applicable to a
going concern. If the going concern assumption were not appropriate,
adjustments would be necessary to the carrying values of assets and
liabilities, the expenses, and the balance sheet classifications used, and
such adjustments could be material.
2. Summary of Significant Accounting Policies
General
The Company is a development stage enterprise which operates in the United
States and in Israel through its wholly owned subsidiary, Sec2Wireless
Israel Ltd. The principle business activities of the Company are research
and development in the field of wireless security technologies of software
products and initiating commercial relations with potential customers. The
Company has not yet commenced its production and sales activities.
Accordingly, the financial statements of the Company are prepared in
conformity with the reporting standards set by FAS No. 7 "Accounting and
Reporting by Development Stage Enterprises".
7
TRAVLANG, INC.
Development Stage Enterprise
Notes to Consolidated Financial Statements
June 30, 2002
Unaudited
2. Summary of Significant Accounting Policies (Cont'd.)
Interim Financial Information
The accompanying unaudited consolidated financial statements have been
prepared by the Company, in accordance with generally accepted accounting
principles pursuant to Regulation S-B promulgated by the Securities and
Exchanges Commission. Certain information and footnote disclosures normally
included in audited financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
Accordingly, these interim financial statements should be read in
conjunction with the Company's financial statements and related notes as
contained in Form 10-KSB for the year ended December 31, 2001. In the
opinion of management, the interim financial statements reflect all
adjustments, including normal recurring adjustments, necessary for fair
presentation of the interim periods presented. The results of operations
for the six months ended June 30, 2002 are not necessarily indicative of
results of operations to be expected for the full year.
Basis of Consolidation
These consolidated financial statements include the accounts of the
Company, its wholly owned subsidiary, Sec2wireless Inc., and its wholly
owned subsidiary, Sec2Wireless Israel Ltd., after elimination of all
intercompany transactions and balances.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly-liquid investments with
original maturities of 90 days or less.
Capital Assets and Amortization
Capital assets are stated at cost. Amortization, based on the estimated
useful lives of the assets, is provided using the undernoted annual rates
and methods:
Computer equipment and software 33% Straight-line
Electronic equipment 15% Straight-line
Office furniture 6% Straight-line
Leasehold improvements Lease term Straight-line
Additions during the year are amortized at the normal rate prorated to
reflect the period of use during the year.
Research and Development
The Company expenses research and development costs as incurred.
8
TRAVLANG, INC.
Development Stage Enterprise
Notes to Consolidated Financial Statements
June 30, 2002
Unaudited
2. Summary of Significant Accounting Policies (Cont'd.)
Stock-based Compensation
The Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", in October 1995. This accounting standard
permits the use of either a fair value based method of accounting or the
method prescribed in Accounting Principles Board Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees" to account for stock-based
compensation arrangements. In accordance with APB 25 deferred compensation
is recorded if there is a difference between the exercise price and the
fair market value of the ordinary share on the date of the grant. Companies
that elect to employ the method prescribed by APB 25 are required to
disclose the pro forma net loss that would have resulted from the use of
the fair value based method. The Company has elected to account for its
share-based compensation arrangements under the provisions of APB 25, and
accordingly, has included in Note 8 the pro forma disclosures required
under SFAS No. 123.
Options granted to non-employees are recognized at their fair market value
at date of grant in accordance with SFAS No. 123.
Foreign Currency Translation
Monetary assets and liabilities denominated in currencies other than US
dollars are translated at rates in effect at the balance sheet dates. The
resulting translation gains and losses are included in the consolidated
statement of operations.
The Company's Israeli subsidiary is classified as integrated for accounting
purposes. Monetary assets and liabilities of the subsidiary are translated
into US dollars at exchange rates in effect at the balance sheet dates.
Non-monetary items in foreign currency are translated at historical rates
of exchange. Revenues and expenses are translated at the average rate of
exchange for the period, except for amortization and depreciation, which
are translated at historic rates. Translation gains and losses arising are
included in the consolidated statement of operations.
9
TRAVLANG, INC.
Development Stage Enterprise
Notes to Consolidated Financial Statements
June 30, 2002
Unaudited
2. Summary of Significant Accounting Policies (Cont'd.)
Earnings Per Share
Basic and diluted earnings per share is computed pursuant to SFAS No. 128.
Basic earnings per share are computed by dividing net earnings by the
weighted average shares outstanding during the reporting period. Diluted
earnings per share are computed similar to basic earnings per share except
that the weighed average shares outstanding are increased to include
additional shares from the assumed exercise of stock options, if dilutive.
The number of additional shares is calculated by assuming that outstanding
stock options were exercised and that the proceeds from such exercises were
used to acquire shares of common stock at the option price during the
reporting period.
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
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. The most significant estimates for the Company
include: the fair values of identifiable assets acquired in business
combinations; provisions for the credit risk exposure in amounts of capital
assets, goodwill and product development costs; and valuation allowances
against future income tax assets. Actual results could differ from those
estimates.
3. Organization
On March 12, 2002, all outstanding Preferred shares of Sec2wireless Inc.
were converted to Common shares at a 1:1 ratio.
On March 12, 2002 the merger with Travlang, Inc. and Sec2wireless Inc. was
completed. Travlang, Inc. issued 80,380 class B convertible preferred
shares (each share is convertible into 1,000 common shares) in exchange for
all the 12,936,420 outstanding common shares of Sec2Wireless
Inc.("Sec2Wireless").
10
TRAVLANG, INC.
Development Stage Enterprise
Notes to Consolidated Financial Statements
June 30, 2002
Unaudited
3. Organization (Cont'd.)
As a result of this transaction, the former shareholders of Sec2Wireless
Inc. received approximately 80% ownership of Travlang, Inc. The transaction
was accounted as a reverse takeover in which the Company is the acquirer
parent and Travlang, Inc. is the acquiree subsidiary. As a result, the
Company recognized goodwill of $625,000 representing the fair value of the
common shares of Travlang, Inc. (the accounting subsidiary) immediately
prior to the transaction in excess of the net assets of the Company. In
calculating goodwill, the 25,000,000 outstanding Travlang, Inc. common
shares prior to the transaction were valued at $0.025 per share and there
were no net assets of Travlang, Inc. which resulted in goodwill of
$625,000.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General.
--------
The following discussion relates to the results of our operations as
of June 30, 2002 and our financial condition. This document contains
forward looking statements relating to our future economic performance,
plans and objectives of management for future operations, projections of
revenue mix and other financial items that are based on the beliefs of, as
well as assumptions made by and information currently known to, our
management. The words "expects, intends, believes, anticipates, may, could,
should" and similar expressions and variations thereof are intended to
identify forward-looking statements. The cautionary statements set forth in
this section are intended to emphasize that actual results may differ
materially from those contained in any forward-looking statement.
Going Concern.
---------------
The accompanying consolidated financial statements and financial
information were prepared assuming that we will continue as a going concern
and that our loss from operations, shareholders' deficiency and working
capital deficiency raise substantial doubt about our ability to continue as
a going concern. As shown in the financial statements, we have incurred net
losses and negative cash flows from operations since inception. Working
capital deficiency as of June 30, 2002, and losses for the period then
ended, amounted to approximately $3,104,000 and $676,000, respectively. 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 our future ability to obtain equity financing. See
"Liquidity and Capital Resources."
Overview.
---------
We are a development stage enterprise, which operates in the United
States and in Israel, through our wholly owned subsidiary, Sec2Wireless
Israel Ltd. Our principal business activities are research and development
in the field of wireless security technologies for software products and
initiating commercial relations with potential customers for such products.
We have not yet commenced production and sales activities.
During the quarter ended June 30, 2002, the Research Committee of
Israel's Office of the Chief Scientist approved a $300,000 grant to us for
the development of a major communications security product. Subsequent to
June 30, 2002, we successfully completed our first major sale and
installation of our technology to a leading Israeli financial institution
for a price of $70,000. Result of Operations.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001.
The discussion and analysis set forth below is for the six months
ended June 30, 2002 and June 30, 2001. It should be read in conjunction
with our Financial Statements and the related notes thereto appearing in
this quarterly report. As of June 30, 2002, we generated no revenues and
will not generate any meaningful revenues until we fully develop our
products and expand our marketing
12
offerings. Since inception we incurred a net loss of $5,061,000. We are
subject to all of the risks, expenses, delays, problems and difficulties
frequently encountered in the establishment of a development stage
enterprise.
Research and Development Expenses.
-------------------------------------
Research and development expenses for the six months ended June 30,
2002 were $332,000, compared to $882,000 for the six months ended June 30,
2001. The decrease in research and development expenses is due
substantially to the reduction of non-essential employees in the research
and development department in order to reduce the rate in which available
funds are being used.
Marketing Expenses.
--------------------
Marketing expenses were $147,000 for the six months ended June 30,
2002 compared to $463,000 for the six months ended June 30, 2001. We
decreased our marketing costs in order to reduce the rate in which
available funds are being used and are focusing only on essential marketing
plans.
General and Administrative Expenses.
---------------------------------------
General and administrative expenses for the six months ended June 30,
2002 were $202,000 compared to $464,000 for the six months ended June 30,
2001. The decrease in general and administrative expenses is attributable
to a reduction in administrative staff and corresponding employee overhead.
In addition, we reduced all discretionary expenditures.
Financial expense for the six months ended June 30, 2002 was $105,000
compared to $7,000 for the six months ended June 30, 2001. This increase
was due to the substantial increase in borrowing incurred to finance
operating costs.
Liquidity and Capital Resources.
-----------------------------------
We limited expenditures in many areas, including research and
development and discretionary expenditures, in order to focus our available
resources in what we believe is the most productive manner. However, there
can be no assurance that we will have sufficient funds to carry out these
plans or to remain in business. Although we have sufficient resources to
carry out our business plan for the remainder of this fiscal year, there
can be no assurance that we will be successful in meeting our long-term
liquidity requirements.
We require substantial additional funding to cover working capital
requirements, debt repayments and to execute our business plan. To address
these funding requirements, we are negotiating for additional financing
although we have no current arrangement with respect to, or sources of,
additional financing, and there can be no assurance that any such
additional financing will be available to us on commercially reasonable
terms, or at all. Any inability to obtain additional financing will have a
material adverse effect on us. If we raise additional capital through the
sale of equity, including preferred stock or convertible debt securities,
the percentage ownership of our then existing stockholders will be diluted.
During the quarter ended June 30, 2002, we raised $290,000 through private
investment.
Net Loss.
----------
As a result of the foregoing, our net loss for the six months ended
June 30, 2002 was $676,000 compared to a net loss of $1,810,000 for the six
months ended June 30, 2001.
13
PART II
---------
OTHER INFORMATION
-------------------
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
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.
(a) Exhibits:
99: Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter
ended June 30, 2002
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 19, 2002 TRAVLANG, INC.
By: /s/ Lucien Geldzahler
---------------------------
Name: Lucien Geldzahler
Title: President
15
EXHIBIT 99
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Shmuel Weiss, Lucien Geldzahler, hereby jointly certify as
follows:
(a) They are the Chief Executive Officer and the Chief Financial Officer,
respectively, of Travlang, Inc. (the "Company");
(b) To the best of their knowledge, the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2002 (the "Report") complies in all
material respects with the requirements of Section 13(a) of the Securities
Exchange Act of 1934, as amended; and
(c) To the best of their knowledge, based upon a review of the Report, the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company for the period
certified.
Dated: August 19, 2002 By: /s/ Shmuel Weiss
-------------------------------------
Shmuel Weiss
(Chief Executive Officer)
By: /s/ Lucien Geldzahler
-------------------------------------
Lucien Geldzahler
(Chief Financial Officer)
16