UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the quarterly period ended March 31, 2006
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to ___________
Commission File Number: 000-50329
TRACEGUARD TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in Charter)
Nevada 98-0370398
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
330 Madison Avenue, 9th Floor, New York, New York 10017
(Address of Principal Executive Offices)
(866) 401-5969
(Issuer's Telephone Number, Including Area Code)
(Former Address, 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
|_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: As of May 15, 2006 there were
22,578,859 shares of common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Page
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5
Statements of Changes in shareholders' equity (capital deficiency) 6
Notes to Financial Statements 7-8
2
TRACEGUARD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
IN US DOLLAR
March 31, December 31,
2 0 0 6 2 0 0 5
------------ ------------
(Unaudited) (Audited)
------------ ------------
Assets
Current Assets
Cash and cash equivalents 1,720,656 895,693
Other receivables 40,629 24,080
------------ ------------
Total current assets 1,761,285 919,773
------------ ------------
Restricted deposit 15,245 15,355
------------ ------------
Property and equipment, net 245,804 61,261
------------ ------------
License rights 100,000 100,000
------------ ------------
Total Assets 2,122,334 1,096,389
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable- trade and other 79,323 154,053
Other current liabilities 296,819 32,154
------------ ------------
Total current liabilities 376,142 186,207
Commitments and contingencies
------------ ------------
Total liabilities 376,142 186,207
------------ ------------
Shareholders' Equity
Share capital - common shares par value $0.001; 22,579 22,543
Authorized - March 31, 2006 and December 31, 2005 - 150,000,000
Issued and outstanding* - March 31, 2006 and December 31, 2005 -
22,578,859 and 22,542,859 shares, respectively
Additional paid-in capital 1,107,697 648,344
Receipt on account of shares to be allotted 1,768,218 686,900
Deficit accumulated during the development stage (1,152,302) (447,605)
------------ ------------
Total shareholders equity 1,746,192 910,182
------------ ------------
Total liabilities and shareholders equity 2,122,334 1,096,389
============ ============
The accompanying notes are an integral part of these
condensed financial statements.
3
TRACEGUARD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
IN US DOLLAR
Cumulative from
Three Month Ended March 31, March 20, 2002(*)
-------------------------- to March 31
2006 2005 2006
---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited)
---------- ---------- ----------
Research and development expenses 162,628 -- 193,168
General and administrative expenses 543,936 7,287 959,574
---------- ---------- ----------
Operating loss (706,564) (7,287) (1,152,742)
Financing expenses (6,497) -- (8,974)
Financing Income 8,364 -- 9,414
---------- ---------- ----------
Loss for the period (704,697) (7,287) (1,152,302)
========== ========== ==========
Loss per share ("EPS") - basic and diluted (0.03) (0.00) (0.07)
========== ========== ==========
Weighted average number of shares used in computation of
EPS basic and diluted ** 22,576,859 16,440,000 16,762,436
========== ========== ==========
(*) Commencement of operations.
(**) After giving a retroactive effect to a six-to-one stock split in the form
of stock dividend of fully paid dividend shares of $0.001 par value at a rate of
five shares for every one share of $0.001 par value;
The accompanying notes are an integral part of these
condensed financial statements.
4
TRACEGUARD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
IN US DOLLARS
Cumulative from
Three Months Ended March 31, March 20, 2002
------------------------- to March 31,
2006 2005 2006(*)
---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited)
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss for the period (704,697) (7,287) (1,152,302)
Adjustments to reconcile net loss for the period to net cash
used in operating activities:
Income and expenses not involving cash flow:
Depreciation 4,972 -- 5,414
Compensation expenses to service provider 52,200 52,200
Imputed interest on notes payable to shareholders -- -- 2,253
Changes in operating assets and liabilities:
Decrease (increase) in other receivables (16,548) 729 (40,628)
Increase in accounts payable and other current liabilities 189,935 5,095 381,508
Decrease in restricted Deposit 110 -- 110
---------- ---------- ----------
Net cash used in operating activities (474,028) (1,463) (751,443)
---------- ---------- ----------
Cash Flows from Investing Activities
Restricted deposit -- -- (15,355)
Advance on account of license rights -- -- (100,000)
Purchase of property and equipment
(189,516) -- (251,219)
---------- ---------- ----------
Net cash used in investing activities (189,516) -- (366,464)
---------- ---------- ----------
Cash Flows from Financing Activities
Issuance of share capital and warrants, net of issuance expenses 407,189 -- 1,040,386
Receipts on accounts of shares to be allotted 1,081,318 -- 1,768,218
Receipt on account of notes from shareholder 9,001 30,071
---------- ---------- ----------
Net cash provided by financing activities 1,488,507 9,001 2,838,675
---------- ---------- ----------
Increase in cash and cash equivalents 824,963 7,538 1,720,656
Cash and cash equivalents at the beginning of the period 895,693 1,721 --
---------- ---------- ----------
Cash and cash equivalents at the end of the period 1,720,656 9,259 1,720,656
========== ========== ==========
(*) Commencement of operations.
The accompanying notes are an integral part of these
condensed financial statements.
5
TRACEGUARD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREOLDERS' EQUITY
IN US DOLLARS
Deficit
Receipts on Accumulated
Account of Additional During The
Number of Common Stock Shares To Paid In Development
Shares* Amount be Allotted Capital Warrants Stage Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
Issuance of common stock to
founders on inception 15,000,000 2,500 -- -- -- -- 2,500
Issuance of common stock 1,440,000 240 -- 47,760 -- -- 48,000
Net loss for the period -- -- -- -- -- (76,263) (76,263)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance March 31, 2004 (audited) 16,440,000 2,740 -- 47,760 -- (76,263) (25,763)
Net loss for the year -- -- -- -- -- (13,382) (13,382)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance March 31, 2005 (audited) 16,440,000 2,740 -- 47,760 -- (89,645) (39,145)
Issuance of common stock (net of
issuance expense) on
August 24, 2005 5,360,004 893 -- 72,407 -- -- 73,300
Issuance of dividend shares on
September 12, 2005 18,167 -- (18,167) -- -- --
Issuance of common stock and
warrants (net of issuance
expense) on November 6, 2005
and December 5, 2005 642,855 643 -- 275,949 162,805 -- 439,397
Receipt on accounts of shares to
be allotted -- -- 686,900 -- -- -- 686,900
Issuance of shares to service
providers (net of issuance
expense) on August 24, 2005 100,000 100 -- 69,900 -- -- 70,000
Capital surplus on account of
shareholders waiver on notes
payable 37,690 37,690
Net loss for the period -- -- -- -- -- (357,960) (357,960)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 2005 (audited) 22,542,859 22,543 686,900 485,539 162,805 (447,605) 910,182
Issuance of warrants in January,
2006 -- -- -- -- 407,189 407,189
Receipt on accounts of shares to be
allotted in January, 2006 -- -- 1,081,318 -- -- -- 1,081,318
Issuance of shares to service
provider in January, 2006 36,000 36 -- 52,164 -- -- 52,200
Net loss for the period -- -- -- -- -- (704,697) (704,697)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance March 31, 2006 (unaudited) 22,578,859 22,579 1,768,218 537,703 569,994 (1,152,302) 1,746,192
========== ========== ========== ========== ========== ========== ==========
(*) After giving a retroactive effect to a six-to-one stock split in the form of
stock dividend of fully paid dividend shares of $0.001 par value at a rate of
five shares for every one share of $0.001 par value.
The accompanying notes are an integral part of these consolidated
financial statements.
6
TRACEGUARD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
(UNAUDITED)
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
a. TraceGuard Technologies, Inc. (formerly: IBHAS Technologies Inc.)
("the Company") was incorporated in Nevada on March 20, 2002.
Initially the Company's plan was to develop and market an internet
based computer software program known as IBHAS software. The IBHAS
computer software program was intended to automate the process of
submission of Internet web page information in multiple languages to
major internet search engines. Changes in the market place forced
the Company to seek other technologies
b. On February 2, 2006, the Board of Directors of the Company approved
a change in the Company's fiscal year to December 31 from March 31.
c. The interim statements as of March 31, 2006 and for the three months
period then ended (hereafter - the interim statements) were drawn up
in condensed form, in accordance with generally accepted accounting
principles applicable to interim statements. The accounting
principles applied in preparation of the interim statements are
consistent with those applied in the annual financial statements.
Nevertheless, the interim statements do not include all the
information and explanations required for the annual financial
statements.
NOTE 2 - License Rights
a. On February 15, 2006, the company's fully owned Subsidiary,
TraceGuard Technologies Ltd (the "Subsidiary") entered into a
License Agreement (the "Agreement") with TraceTrack Technology Ltd
("TraceTrack"), an Israeli based company. Pursuant to the Agreement,
the Subsidiary, under certain terms and conditions as set forth
within the Agreement, acquired an exclusive, worldwide, perpetual
license to the patents and related know-how owned by TraceTrack,
which involves technology being developed to be used for the
collection of explosive traces. In consideration for the license
granted to the Subsidiary, TraceTrack will receive royalty payments
of 3% of net sales until the earlier of: five years from the first
commercial sale of a product, or at the time that the aggregate
total royalty payment equal $2,500,000. This is in addition to a
previous payment of $100,000 made as a down payment for the license
and is as license rights. As a result of the agreement, the Company
is considered the successor entity of TraceTrack.
NOTE 3 - Shareholders Equity
a. On January 19, 2006, the Company completed a private placement
offering of 1,607,836 units, each "unit" comprising one share of
Common share, one warrants to purchase one Common share with an
exercise price of $1.5 and contractual life of one year and one
warrant to purchase one Common share with an exercise price of $2.5
and contractual life of three years. Units were issued for an
aggregate purchase price of $1,125,487. Warrants were valued
according to Black-Scholes valuation model at $407,189 using a risk
free interest rate of 4.35%, their contractual life, an annual
volatility of 100% and no expected dividend.
b. In January 2005, the Company entered into a service agreement upon
which the service provider shall provide the Company services in
consideration for 36,000 shares of the Company's common stock.
According to the service agreement in the event that the aggregate
fair value of the shares at the end of the term of the agreement
shall be at less than $25,000 the Company shall issue additional
shares to compensate for such difference in value. The market value
of these shares as of March 31, 2006 was $52,200.
7
NOTE 3 - Shareholders' Equity (Continued)
c. Effective January 1, 2006 the Company adopted SFAS No. 123 (Revised
2004) "Share-Based Payment" ("SFAS No. 123R") using the Modified
Prospective Approach. SFAS No. 123R revises SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123) and
requires the measurement and recognition of compensation of all
share-based payments including grants of employee stock options, to
be based on their estimated fair values at grant date, or the date
of later modification, over the requisite service period. Under SFAS
No. 123R, the Company required to select a valuation technique that
meets the criteria as stated in the standard. Allowable valuation
models includes a binomial model and the Black-Scholes model. At the
present time the Company uses the Black-Scholes model with the
following assumptions: expected volatility is based on historical
volatility of comparable companies; the expected term is based on
the contractual life of the warrant granted and the risk-free rate
is based on the U.S Treasury yield cure in effect at the time of
grant.
NOTE 4 - Transactions with Related Parties
d. On February 15, 2006 the Subsidiary entered into a consulting
agreement with M.S. Materials Ltd. ("M.S.") for a term of thirty six
months. The services to be provided to the Subsidiary by M.S. shall
be provided solely by Dr. Ornath, who will be engaged as the Chief
Scientist of the Subsidiary. In consideration for Dr. Ornath
services the Subsidiary will pay a monthly fee of $12,000 to M.S. In
addition, the Company will grant M.S. options to purchase of Common
shares (par value $0.001) as follows:
1) Options to purchase of 1,200,000 shares at an exercise price
of at least $0.70 or based on terms to be resolved by the
Company's Board of Directors.
2) M.S. shall receive additional options for the purchase of
1,200,000 Common shares at an exercise price of $1.00 upon the
receipt of an approval of the Israeli Security Agency or the
US Transportation Security Administration to a Company's
product.
3) M.S. shall receive additional options for the purchase of
1,200,000 Common shares at an exercise price of $1.50 upon the
receipt of a purchase order for equipment in an aggregate
amount of $1,000,000 during one calendar year or entering into
a strategic agreement.
4) As none of the conditions set forth within the consulting
agreement have yet to materialize, none of the above options
were issued to date.
NOTE 5 - SUBSEQUENT EVENTS
a. On May 7, 2006, TraceGuard Technologies Ltd. entered into an
agreement with Dr. Ehud Ganani pursuant to which Dr. Ganani will
serve as Chief Executive Officer of TraceGuard Technologies Ltd.,
effective February 1, 2006. Dr. Ganani shall receive a monthly
salary of $15,000 and an annual bonus of up to $120,000 upon
achieving certain objectives. Dr. Ganani will be granted up to
2,790,000 stock options of the Company, at an exercise price of
$0.70 per share, subject to and in accordance with the Company's
employee stock option plan to be adopted by the Company.
b. On May 7, 2006, the Company completed a private placement offering
of 2,108,662 units, each "unit" comprising one share of the Company
common stock and two common share purchases warrants each for a
share of the Company common stock for an aggregate purchase price of
$1,476,064.
8
Tracetrack Technologies Ltd.
Table Of Contents
- --------------------------------------------------------------------------------
Page
TRACETRACK TECHNOLOGY Ltd. FINANCIAL STATEMENTS:
Balance Sheets 10
Statements of Operations 11
Statements of Cash Flows 12
Notes to Financial Statements 13
9
Tracetrack Technologies Ltd.
in US dollars
Balance Sheet
- --------------------------------------------------------------------------------
December 31,
2005
------------
Audited
------------
Assets
Current assets:
Cash and cash equivalents 10,889
Other receivables 4,685
------------
Total current assets 15,574
------------
Non-current assets:
Fixed assets, net 4,208
------------
Total non-current assets 4,208
------------
Total assets 19,782
============
Liabilities net of capital deficiency
Current liabilities:
Credit from bank --
Trade payables 2,453
Other payables 378,917
------------
Total current liabilities 381,370
------------
Long-term liabilities:
Loans from related parties 758,875
------------
Total long-term liabilities 758,875
------------
Total liabilities 1,140,245
------------
Capital deficiency
Share capital - Ordinary shares of NIS 1 par value
(authorized - December 31, 2005, December 31, 2004
and 2003- 10,000 shares; issued and outstanding -
December 31, 2005, December 31, 2004 and 2003-
10,000 shares) 2,111
Accumulated other comprehensive income (loss) 1,476
Accumulated deficit (1,124,050)
------------
Total capital deficiency (1,120,463)
------------
Total liabilities net of capital deficiency 19,782
============
The accompanying notes are an integral part of these financial statements
10
Tracetrack Technologies Ltd.
in US dollars
Statements of Operation
- --------------------------------------------------------------------------------
Period from
January 1, 2006 Three month
to February 15, ended March 31,
--------------- ---------------
2006 2005
--------------- ---------------
Unaudited Unaudited
--------------- ---------------
Operating expenses:
Research and development expenses, net 19,351 25,784
General and administrative expenses 2,301 5,128
---------- ----------
Operating loss (21,652) (30,912)
Financial income (expenses), net 135 (45)
---------- ----------
Net loss for the period (21,517) (30,957)
========== ==========
Loss per Ordinary share, basic and diluted (2.15) (3.1)
========== ==========
Weighted average number of shares used in computation of
loss per share, basic and diluted 10,000 10,000
========== ==========
The accompanying notes are an integral part of these financial statements
11
Tracetrack Technologies Ltd.
in US dollars
Statements of Cash Flows
- --------------------------------------------------------------------------------
Period from
January 1,
2006 to Three month
February 15, ended March 31,
------------ ------------
2006 2005
------------ ------------
Unaudited Unaudited
------------ ------------
Cash flows from operating activities
Net loss for the period (21,517) (30,957)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 316 689
Changes in operating assets and liabilities:
Decrease in other receivables 2,326 2,403
Decrease in accounts payables and accruals (6,302) (9,554)
------------ ------------
Net cash used in operating activities (25,177) (37,419)
------------ ------------
Cash flows from financing activities
Increase of short term bank credit, net 916 798
Receipt of long term loans from related partie 13,649 36,621
------------ ------------
Net cash provided by financing operations 14,565 37,419
------------ ------------
Translation differences on cash balances (277) --
Net decrease of cash and cash equivalents (10,889) --
------------ ------------
Cash and cash equivalents at the beginning of the period 10,889 --
------------ ------------
Cash and cash equivalents at the end of the period -- --
============ ============
The accompanying notes are an integral part of these financial statements.
12
Tracetrack Technologies Ltd.
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - GENERAL
a. Tracetrack Technologies Ltd. a wholly-own subsidiary of Matterial
System Ltd. (hereafter the Parent Company) is an Israeli corporation
(hereinafter the "Company") which was established and commenced
operation on January 6, 2002.
Through February 15, 2006 the company was engaged in developing and
marketing systems for detection of explosives in luggage of air traffic
passengers.
On February 15, 2006 the Company entered into an agreement under which it
shall grant to TraceGuard Technologies Inc. (Nasdaq TCGD.OB or its
affiliates (hereinafter- TraceGuard) an exclusive, worldwide, perpetual
license (hereinafter the "License") to make any and all uses of the
Company's technology, under the terms stipulated as defined in this
agreement. Pursuant to this agreement TraceGuard paid the Company $
100,000 for these rights and will pay the Company, on quarterly basis,
payment of three percent (3%) of sales, until the earlier of the lapse of
five years from the first commercial sale of products, as defined in the
agreement, or at the time that the aggregate amount of such payments equal
$ 2.5 million. Commencing February 15, 2006 the Company ceased to be a
development stage company, as it ceased operating and will benefit from
future royalties from TraceGuard.
b. The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As of December 31,
2005 the Company has a working capital deficiency of approximately $
366,000 and capital deficiency of approximately $ 1,120,000 and a
net loss of approximately $ 57,000 for the year ending December 31,
2005. These raise substantial doubt about its ability to continue as
a going concern. The Company's existence is dependent on the ongoing
financing from its shareholders. Or profitability from future
royalties upon its license agreement with TraceGuard.
These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The interim statements at March 31, 2006 and for the three month periods
then ended (hereafter - the interim statements) were drawn up in condensed
form, in accordance with accounting principles accepted in the United
States of America applicable to interim statements. The accounting
principles applied in preparation of the interim statements are consistent
with those applied in the annual financial statements nevertheless, the
interim statements do not include all the information and explanations
required for annual financial statements.
13
Item 2. Management's Discussion and Analysis or Plan of Operation.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our financial statements are stated in United States Dollars (US$) and are
prepared in conformity with generally accepted accounting principles in the
United States of America for interim financial statements. The following
discussion should be read in conjunction with our financial statements and the
related notes that appear elsewhere in this quarterly report.
As used in this quarterly report, the terms "we", "us", "our company", "the
Company" and "TraceGuard Technologies" mean TraceGuard Technologies Inc., unless
otherwise indicated. All dollar amounts refer to US dollars unless otherwise
indicated.
THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION WHICH OUR MANAGEMENT
BELIEVES IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF OUR COMPANY'S RESULTS
OF OPERATIONS AND FINANCIAL CONDITION. THIS DISCUSSION SHOULD BE READ TOGETHER
WITH OUR FINANCIAL STATEMENTS AND THE NOTES TO FINANCIAL STATEMENTS WHICH ARE
INCLUDED IN THIS REPORT, AND WITH OUR COMPANY'S FORM 10-KSB.
General
Up until June 29, 2005 our business plan was to develop and market an Internet
computer software program that was designed to automate the process of
submission of Internet web page information in multiple languages to major
Internet search engines. Currently, our business plan strategy is now focusing
on developing technologies for homeland security applications. This new focus is
based on an exclusive technology licensing agreement with Tracetrack
Technologies Ltd., ("TraceTrack"), which was finalized in a licensing agreement
between our wholly owned subsidiary, TraceGuard Technologies Ltd. (the
"Subsidiary") and Tracetrack on February 15, 2006. Since inception, Tracetrack
has focused on developing technologies for homeland security applications.
Accordingly, since we intend to continue the business of TraceTrack, we consider
TraceTrack to be a "predecessor entity" and have included the financial
statement of TraceTrack as of February 15, 2006 in this Quaterly Report on Form
10-QSB. In addition discussions of TraceTrack's results of operations are
included below.
14
Cash Requirements
Our plan of operations for 2006 requires financing of $3,500,000 to initiate the
development of our products, based on the licensed technology, through our
Subsidiary, registered in Israel, and for marketing efforts, as follows:
Estimated funding required during 2006:
Development and Engineering $ 2,200,000
Marketing and business development $ 300,000
General and Administrative $ 1,000,000
-----------
Total $ 3,500,000
-----------
As of March 31, 2006, we had a working capital and shareholders' equity of
$1,385,142 and $1,746,192 respectively. Since April 1, 2006 we have raised
additional sum of approximately $1,476,064 in private placements. We plan to
raise additional cash of approximately $1,500,000 by June 30, 2006, primarily
through private placements. We plan to raise additional funding through public
offering of our securities by the end of 2006. This will allow us to continue
with the development of our product, There can be no assurance that additional
financing will be available to us when needed or, if available, that it can be
obtained on commercially reasonable terms.
The issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current stockholders.
Product Research and Development
We anticipate that our Subsidiary, TraceGuard Technologies Ltd registered in
Israel will continue recruiting several professional employees over the next few
months as part of the establishment of an R&D center in Israel.
Lease agreements & investments
The Company and our wholly owned subsidiary, entered into agreements to lease
office space in Arlington VA, Manhattan NY and Petach-Tikva (Israel). Total
expected fees for the next 12 months are approximately $92,500.
For the three months period ended March 31, 2006 the Company its subsidiary have
invested approximately $213,000 in leasehold improvements and furniture for its
new facilities.
In addition, as of March 31, 2006 , a sum of approximately $40,000 has been
invested in equipment, computer hardware and computer software for the
Subsidiary's development group. Additional $450,000 are planned to be invested
in 2006 for this purpose.
Employees
As of May 15, 2006 there are 18 employees, other than and its directors, being
employed by our Subsidiary. We expect to further recruit number of part time and
full time employees in the field of engineering, R&D, administrative and
business development over the next 12-month period.
15
Recently Issued Accounting Standards
The Company does not expect that the adoption of recently issued accounting
pronouncements will have a significant impact on our results of operations,
financial position or cash flows.
ACCOUNTING POLICIES
The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
Not all of the accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, the following policies
could be deemed to be critical within the SEC definition. We have historically
incurred losses, and through March 31, 2006 have incurred losses of $1,152,302.
On February 2, 2006, the Board of Directors of the Company approved a change in
its fiscal year so it will end December 31, rather than end at March 31. As a
result, the Company reported on the Form 10-KSB, the results of its activities
for the transition period between April 1, 2005 and December 31, 2005.
Effective January 1, 2006 the Company adopted SFAS No. 123 (Revised 2004)
"Share-Based Payment" ("SFAS No. 123R") using the Modified Prospective Approach.
SFAS No. 123R revises SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123) and requires the measurement and recognition of compensation of
all share-based payments including grants of employee stock options, to be based
on their estimated fair values at grant date, or the date of later modification,
over the requisite service period. Under SFAS No. 123R, the Company required to
select a valuation technique that meets the criteria as stated in the standard.
Allowable valuation models includes a binomial model and the Black-Scholes
model. At the present time the Company uses the Black-Scholes model.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. These
estimates and assumptions relate to recording net revenue, collectibility of
accounts receivable, and the realizability of other intangible assets, accruals,
income taxes, inventory realization and other factors. Management has exercised
reasonable judgment in deriving these estimates; however, actual results could
differ from these estimates. Consequently, change in conditions could affect our
estimates.
Fair Value of Financial Instruments
The Company considers all highly liquid interest-earning investments with a
maturity of three months or less at the date of purchase to be cash equivalents
The financial instruments of the Company consist mainly of non-derivative
current assets and current liabilities. In view of their nature, the fair value
of financial instruments included in working capital of the Company is usually
identical or close to their carrying value.
Results of Operations
Three months ended March 31, 2006 and 2005
Our Company recorded losses of $704,697 and $7,287 for the three months ended
March 31, 2006 and 2005, respectively, and losses of $1,152,302 since March 20,
2002 (commencement of operations). The principal components of the losses were
for R&D and general and administrative expenses.
16
TraceTrack recorded in 2006 over the period ended February 15, 2006 losses of
$21,517 over, for the three months ended March 31, 2005 were $30,957 and total
losses of $1,145,567 since inception.
The Company's operating expenses for the three months ended March 31, 2006 and
March 31, 2005, respectively , were $706,563 and $7,287, respectively. The
principal components of the losses were for R&D and general and administrative
expenses, mainly consisting of payroll cost and consulting expenses.
TraceTrack's operating expenses in 2006, over the period ended February 15, 2006
were $21,652 and for the three months ended March 31, 2005 were $30,912. The
principal components of the losses were for R&D and general and administrative
expenses, mainly consisting of payroll cost and consulting expenses.
Liquidity and Capital Resources
At March 31, 2006, the Company had positive working capital of $ 1,385,142.
At March 31, 2006, the Company's total assets were $ 2,122,334 which consisted
of cash, other receivables, restricted deposit, property and equipment And
license rights.
At March 31, 2006, the Company's total liabilities were $ 376,142.
The Company has had no revenues since inception.
As of March 31, 2006, the Company had working capital of $1.4 million and $1.7
million in cash and cash equivalents. Net cash of $1.5 million was provided
during the three months period ended March 31, 2006. Net cash of $474 thousand
was used in operating activities during the three months period ended March 31,
2006. The net loss for the three months period ended March 31, 2006 was $705
thousand, and was primarily due to research and development activities of $163
thousand, general and administrative activities of $544 thousand, which were
partially offset by financial incomes of $1.8 thousand. The Company's used cash
of $189 thousand in investment activities during the three months period ended
March 31, 2006 primarily due to investing in, property and equipment. Net cash
of $1.5 million provided by financing activities was from receipt on account of
shares to be allotted.
Based on the Company's expectations and contingency plans described above, all
of the above are expected to provide more than sufficient liquidity for the
foreseeable future and the next 12 months in particular. The Company cannot be
certain that funding will be available on acceptable terms, or at all.
The Company has no long-term debt and does not regard long-term borrowing as a
good, prospective source of financing.
17
Item 3. Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this report, being March 31, 2006, we have carried out an evaluation
of the effectiveness of the design and operation of our Company's disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of our management, including our principal executive
and principal financial officer. Based upon that evaluation, our principal
executive and principal financial officer concluded that our disclosure controls
and procedures are effective as of the end of the period covered by this report.
There have been no significant changes in our internal controls over financial
reporting that occurred during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect our internal
controls over financial reporting.
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in our Company's reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our president and chief executive officer as appropriate,
to allow timely decisions regarding required disclosure.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On January 19, 2006, the Company completed a private placement offering of
1,607,836 units, each "unit" comprising one share of our common stock and two
warrants to purchase two Common shares for an aggregate purchase price of
$1,125,487 out of which the value of the warrants, according to the
Black-Scholes model, was calculated as $407,189.
On May 7, 2006, the Company completed a private placement offering of 2,108,662
units, each "unit" comprising one share of the Company common stock and two
common share purchases warrants each for a share of the Company common stock for
an aggregate purchase price of $1,476,064.
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.
Item
Number Exhibit
3.1 Certificate of Incorporation (incorporated by reference to the
Company's Registration Statement on Form SB-2, filed on June 18,
2002)
3.2 Certificate of Amendment to Certificate of Incorporation
(incorporated by reference to the Company's Form 8-K, filed on
September 12, 2005)
3.3 Bylaws (incorporated by reference from our Registration Statement on
Form SB-2, filed on June 18, 2002).
10.1 License Agreement with TraceTrack dated February 15, 2006
(incorporated by reference to the Company's Form 8-K, filed on
February 15, 2006)
10.2 Consulting Agreement with M.S. Materials Ltd dated February 15, 2006
(incorporated by reference to the Company's Form 8-K, filed on
February 16, 2006)
10.3 Agreement, effective as of February 1, 2006, by and between
TraceGuard Technologies Ltd. and Dr. Ehud (Udi) Ganani.
(incorporated by reference to the Company's Form 8-K, filed on May
10, 2006)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
19
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.
TraceGuard Technologies, Inc.
By:
/s/Dr. Ehud Ganani
- ----------------------------------------
Dr. Ehud Ganani, President, Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2005
/s/ David Ben-Yair
- ----------------------------------------
David Ben-Yair, Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 2005
20