<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Commission File
Earliest event reported): Number:
January 14, 2000 0-26394
LANGUAGEWARE.NET (COMPANY) LTD.
(Exact name of registrant as specified in its charter)
Israel N/A
(State or other jurisdiction of I.R.S (Employer
Incorporation or organization) Identification Number)
102 South Tejon Street
Suite 320
Colorado Springs, Colorado 80903
(Address of principal executive offices)
719-955-3400
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition
On January 14, 2000, LanguageWare.net (Company) Ltd., (the "Company" or
"LanguageWare.net") acquired all of the capital stock of Star+Globe Technologies
Pte. Ltd. ("Star+Globe"), a privately-held Singapore company, for a purchase
price of approximately $6.5 million. As a result of the acquisition, Star+Globe
will operate as a wholly owned subsidiary of LanguageWare.net.
In consideration for the Star+Globe stock, LanguageWare.net issued up to
33,673,361 shares of its common stock valued at $4,734,475. At the closing,
LanguageWare.net issued an aggregate of 30,306,025 shares of its common stock
(the "Closing Consideration"), and will be required to issue up to 3,367,336
additional shares of its common stock (the "Holdback Shares") within ninety (90)
days of January 14, 2000. The Holdback Shares may be reduced by any
indemnification claims pursuant to the provisions of the Agreement.
LanguageWare.net has agreed to use its best efforts to register, in calendar
year 2000, all of the common stock issued as consideration.
In connection with the transaction, LanguageWare.net has also agreed to provide
a non-qualified share option plan for employees and a director of Star+Globe
wherein stock options have been granted to such employees and director to
purchase an aggregate of 2,266,639 shares of LanguageWare.net common stock
valued at $1,735,183. The stock options are exercisable immediately at an
exercise price of $.093 per share and expire on January 15, 2001.
To date, the Company has incurred direct costs, including legal and accounting
fees, totaling $15,509. Additional direct costs of the acquisition are not
anticipated to be material.
The acquisition was recorded using the purchase method of accounting and the
assets acquired have been valued at the estimated fair value in the accompanying
Unaudited Pro Forma Condensed Consolidated Balance Sheet as if the acquisition
occurred on December 31, 1999. The Unaudited Pro Forma Condensed Consolidated
Statement of Operations reflects adjustments for depreciation and amortization
on the assets acquired as if the acquisition occurred on January 1, 1999. Based
upon the contingency related to the Holdback Shares as described above, the
value of the acquisition consideration may decrease up to approximately
$473,000.
Item 7. Financial Statements and Exhibits
Item 7(a). Financial Statements of Business Acquired.
Filed herewith as a part of this report are the financial statements of
Star+Globe, (i) Report of Independent Certified Public Accountants, (ii)
Consolidated Balance Sheets as of December 31, 1999 and 1998, (iii) Consolidated
Statements of Operations and Comprehensive Loss for the years ended December 31,
1999 and 1998, (iv) Consolidated Statements of Changes in Stockholders' Deficit
for the years ended December 31, 1999 and 1998, (v) Consolidated Statements of
Cash Flows for the years ended December 31, 1999 and 1998, (vi) Summary of
Accounting Policies for the years ended December 31, 1999 and 1998 and (vii)
Notes to Consolidated Financial Statements for the years ended December 31, 1999
and 1998.
Item 7(b). Pro Forma Financial Information.
Filed herewith as a part of this report is the Company's Pro Forma Condensed
Consolidated Balance Sheet as of December 31, 1999 (unaudited) and the Company's
Pro Forma Condensed Consolidated Statement of Operations for the year ended
December 31, 1999 (unaudited) and the notes thereto.
<PAGE>
Item 7(c). Exhibits.
The following exhibits were filed with the SEC on January 28, 2000 as part of an
8-K filing with regard to the acquisition of Star+Globe by the Company.
1. Stock Purchase Agreement, dated as of January 14, 2000, by and among
LanguageWare.net (Company) Ltd., Star+Globe Technologies Pte. Ltd.,
Technology Fund Pte Ltd., KRDL Holdings Pte Ltd., Technology Fund II
Pte Ltd., Seed Ventures II Limited, Info Tech Ventures Limited, Vertex
Technology Fund Pte Ltd., NIF Asian Pre-IPO Fund Limited, Asia-Pacific
Ventures II Ltd., Virginia Cha, James L. Kelly, Lernout & Hauspie
Investment Co. N.V. and WIIG Global Ventures Pte Ltd.
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Contents
- -------------------------------------------------------------------------------
Report of Independent Certified Public Accountants 2
Consolidated Financial Statements:
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Operations and Comprehensive Loss 5
Consolidated Statements of Shareholders' Equity (Deficit) 6
Consolidated Statements of Cash Flows 7
Summary of Accounting Policies 8 - 11
Notes to Consolidated Financial Statements 12 - 19
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Star + Globe Technologies Pte Ltd and Its Subsidiary
Singapore
We have audited the accompanying consolidated balance sheets as of December 31,
1999 and 1998 of Star + Globe Technologies Pte Ltd and subsidiary (the
"Company") and the related consolidated statements of operations and
comprehensive loss, shareholders' equity (deficit) and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for the years then ended in conformity with
United States generally accepted accounting principles.
/s/ BDO INTERNATIONAL
Certified Public Accountants
March 8, 2000
Singapore
2
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
These accounts are expressed in U.S. Dollars.
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $2,006,513 $2,813,884
Accounts receivable:
Trade (Note 7) 590,990 172,850
Grants (Note 3) 44,377 90,189
Interest 25,579 30,207
Other 71,900 152,164
Inventories - 4,514
- ------------------------------------------------------------------------------------------------------------------
Total current assets 2,739,359 3,263,808
- ------------------------------------------------------------------------------------------------------------------
Property and equipment, net (Note 1) 132,589 150,389
- ------------------------------------------------------------------------------------------------------------------
$2,871,948 $3,414,197
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
3
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
These accounts are expressed in US dollars.
December 31, 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities, Redeemable Preferred Stock and
Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 367,787 $ 95,399
Other payable and accrued expenses 229,975 232,262
Billings in advance 100,891 112,632
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 698,653 440,293
- ---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 2 and 3)
Redeemable convertible series A preferred stock of
S$0.01 par value; 2,500,000 shares authorized;
2,350,000 shares issued and outstanding; redeemable at S$2 per share
(US$1.20) (in the aggregate $2,820,000) 2,820,000 2,820,000
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' equity (deficit) (Note 4):
Common stock of S$1 par value; 6,975,000 shares authorized; 1,901,250 1,867,500
3,168,750 and 3,112,500 shares issued and outstanding
Additional paid-in capital 141,805 -
Unearned compensation (Note 4) (114,691) -
Other accumulated comprehensive loss (754) -
Accumulated deficit (2,574,315) (1,713,596)
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) (646,705) 153,904
- ---------------------------------------------------------------------------------------------------------------------
$ 2,871,948 $ 3,414,197
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
4
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Consolidated Statements of Operations
and Comprehensive Loss
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
These accounts are expressed in US dollars.
Year Ended December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues, net (Note 7) $ 1,868,989 $ 932,890
Cost of revenues 935,290 171,851
- --------------------------------------------------------------------------------------------------------------------
Gross profit 933,699 761,039
Operating expenses:
Selling, general and administrative 1,469,839 818,503
Research and development expenditure 546,411 599,472
Depreciation 100,936 69,021
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,117,186 1,486,996
- --------------------------------------------------------------------------------------------------------------------
Operating loss (1,183,487) (725,957)
Other income (expense):
Interest income, net 124,790 48,212
Exchange gain(loss) 38,569 (5,392)
Grants received 159,409 191,897
- --------------------------------------------------------------------------------------------------------------------
Total other income 322,768 234,717
- --------------------------------------------------------------------------------------------------------------------
Net loss (860,719) (491,240)
Other comprehensive loss -
Foreign currency translation adjustment (754) -
- --------------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (861,473) $ (491,240)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Consolidated Statements of Shareholders' Equity (Deficit)
These accounts are expressed in US dollars.
<TABLE>
<CAPTION>
Total
Common Stock Additional Accumulated Shareholders'
--------------------- Paid-in Unearned Comprehensive Accumulated Equity
Shares Par Value Capital Compensation Loss Deficit (Deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 3,000,000 $1,800,000 $ - $ - $ - $(1,222,356) $ 577,644
Issuance of common stock
for services
(Note 4) 112,500 67,500 - - - - 67,500
Net loss - - - - - (491,240) (491,240)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 3,112,500 1,867,500 - - - (1,713,596) 153,904
Issuance of common stock
for services
(Note 4) 56,250 33,750 - - - - 33,750
Issuance of stock options to
employees for services
(Note 4) - - 141,805 (114,691) - - 27,114
Net loss - - - - - (860,719) (860,719)
Foreign currency translation
adjustment - - - - (754) - (754)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 3,168,750 $1,901,250 $141,805 $(114,691) $ (754) $(2,574,315) $ (646,705)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
6
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
These accounts are expressed in US dollars.
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (860,719) $ (491,240)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation 100,936 69,021
Common stock issued for services 33,750 67,500
Stock options issued for services 27,114 -
Fixed assets written off 379 -
Change in operating assets and liabilities:
Accounts receivable and other receivables (287,436) (191,113)
Inventories 4,514 (1,466)
Accounts payable, other payable and accrued expenses 270,101 93,435
Billings in advance (11,741) 78,562
- ----------------------------------------------------------------------------------------------------------
Net cash used in operating activities (723,102) (375,301)
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (91,704) (60,184)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock - 2,820,000
Capital grants received 8,189 1,466
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 8,189 2,821,466
- ----------------------------------------------------------------------------------------------------------
Effect of foreign exchange rates on cash (754) -
Increase (decrease) in cash and cash equivalents (807,371) 2,385,981
Cash and cash equivalents, beginning of year 2,813,884 427,903
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $2,006,513 $2,813,884
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Summary of Accounting Policies
- -------------------------------------------------------------------------------
Nature of Operations Star + Globe Technologies Pte Ltd (the "Company")
was incorporated in the Republic of Singapore on
April 23, 1996. Star + Globe Technologies, Inc., a
wholly owned subsidiary of the Company, was
incorporated on February 28, 1998 in the State of
California, USA.
The principal activities of the Company and the
subsidiary are the development and sale of multi-
lingual end-user and information service software
tools.
Principles of The accompanying consolidated financial statements
Consolidation include the accounts of the Company and its wholly
owned subsidiary. All significant inter-company
accounts and transactions have been eliminated in
consolidation.
Cash and Cash For the purposes of the statement of cash flows,
Equivalents the Company considers all highly liquid
investments including demand deposits with an
original maturity of three months or less to be
cash equivalents.
Revenue Recognition The Company recognizes revenue earned from the
sale of products net of sales returns, trade
allowances and duties and taxes paid. Sales are
recognized upon delivery to customers.
Fees billed in advance for maintenance contracts
are held in the balance sheet as advance billings
and earned over the period of the contract.
Grants for research and development are recognized
in the period in which the related costs are
incurred.
Inventories Inventories consist of packing materials and are
stated at the lower of cost or market value. Cost
is determined on a first-in first-out basis.
8
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Property and Equipment Property and equipment are stated at cost. Upon
retirement, sale or other disposition of property
and equipment, the cost and accumulated
depreciation are eliminated from the accounts and
gain or loss is included in operations.
Depreciation is computed principally using the
straight-line method of accounting over the
estimated useful lives of three years. Leasehold
improvements are amortized over the lesser of the
estimated useful life or over the term of the
lease.
Long-Lived Assets Long-lived assets are reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount may not be
recoverable. If the expected future cash flow from
the use of the asset and its eventual disposition
is less than the carrying amount of the asset, an
impairment loss is recognized and measured using
the asset's fair value.
Income Taxes The Company accounts for income taxes under the
liability method, which requires an entity to
recognize deferred tax assets and liabilities.
Temporary differences are differences between the
tax basis of assets and liabilities and their
reported amounts in the financial statements that
will result in taxable or deductible amounts in
future years.
Research and Development Research and development costs are expensed as
incurred. Statement of Financial Accounting
Standards 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise
Marketed", does not materially affect the Company.
Foreign Currency The Company maintained its accounting records in
Singapore dollars as it considers Singapore
dollars to be its functional currency.
The accompanying financial statements have been
translated into the U.S. dollar. Assets and
liabilities are translated at the rate of exchange
in effect on the balance sheet date; income and
expenses are translated at the average rates of
exchange prevailing during the year. The related
translation adjustments are reflected as a
cumulative translation adjustment in consolidated
shareholders' equity (deficit). Foreign currency
gains and losses resulting from transactions are
included in results of operations in the period in
which the transactions occurred.
The exchange rate used for translating the
Singapore dollar denominated financial statements
into US dollars was S$1 = US$.60 as of December
31, 1999 and 1998.
9
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Stock Options The Company applies APB Opinion 25, "Accounting
for Stock Issued to Employees" ("APB Opinion 25")
and related Interpretations in accounting for all
stock option plans. Under APB Opinion 25,
compensation cost is recognized for stock options
issued to employees when the exercise price of the
Company's stock options granted is less than the
market price of the underlying common stock on the
date of grant. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") requires the
Company to provide pro forma information regarding
net income (loss) as if compensation cost for the
Company's employee stock options plans had been
determined in accordance with the fair value based
method prescribed in SFAS No. 123. To provide the
required pro forma information, the Company
estimates the fair value of each stock option at
the date of grant by using the Black-Scholes
option-pricing model. The Company accounts for
options to non-employees using SFAS No. 123.
Comprehensive Loss Comprehensive loss is comprised of net loss and
all changes to the consolidated statement of
shareholders' equity, except those due to
investments by shareholders, changes in paid-in
capital and distributions to shareholders.
10
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Use of Estimate 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, the disclosure of
contingent assets and liabilities at the date of
the financial statements, and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Concentrations of The Company's financial instruments that are
Credit Risk exposed to concentrations of credit risk consist
primarily of cash and accounts receivable.
The Company at times maintains large cash balances
at financial institutions. The Company has not
experienced any losses in its cash accounts. The
Company reviews a customer's credit history before
extending credit and establishes an allowance for
doubtful accounts based upon the credit risk of
specific customers, historical trends and other
information. Management of the Company has
determined that there are no anticipated credit
losses in its accounts receivable at December 31,
1999 and 1998. Generally, the Company does not
require collateral from its customers.
11
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Property and Property and equipment are as follows:
Equipment
December 31, 1999 1998
---------------------------------------------------------------------------
Leasehold improvements $ 82,257 $ 80,893
Furniture and fixtures 27,203 17,119
Office equipment 23,020 22,928
Computer equipment 148,254 87,030
Computer software 35,198 46,117
---------------------------------------------------------------------------
315,932 254,087
Accumulated depreciation and
amortization 183,343 103,698
---------------------------------------------------------------------------
Net property and equipment $ 132,589 $ 150,389
---------------------------------------------------------------------------
2. Lease The Company leases office space under operating leases. Future minimum
Commitments lease payments under such leases follow:
Year Ending December 31, 1999
---------------------------------------------------------------------------
2000 $ 107,608
2001 72,317
2002 60,264
---------------------------------------------------------------------------
$ 240,189
---------------------------------------------------------------------------
Total rent expense for the years ended December 31, 1999 and 1998 was
approximately $107,600 and $99,000.
</TABLE>
12
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
3. Contingencies During 1999, the Company received a research and
development grant from the National Science &
Technology Board ("NSTB") in the amount of
S$168,150 (US$100,890). This project commenced
from March 15, 1999 and ends on September 1, 2000.
The Company will be reimbursed as costs are
incurred. Under the terms of the grant, the grant
is subject to termination, as subsequent to year
end, the Company's ownership and control has
changed (see Note 6). The Company may not be
entitled to future reimbursement of funds under
the grant. As of December 31, 1999, the Company
has an amount receivable under the grant of
S$73,962 (US$44,377).
The Company is currently in discussions with its
largest customer (see Note 7) with respect to a
number of issues arising from a Globalization
Service Agreement (the "Agreement") dated November
23, 1998. The customer is asserting that certain
deliverables under the Agreement may have not met
the acceptable standards as well as the
determination of independent bench-markers. Also,
there is an issue as to whether the customer
provided proper notification and description of
errors and accuracies in the deliverables in
accordance with the terms of the Agreement. As
this matter involves questions of fact which have
not yet been ascertained, the Company and its
legal counsel are unable to render an opinion on
the extent of potential liability of the Company,
if any, with respect to this matter. As such, the
Company has not recorded a liability as of
December 31, 1999.
4. Shareholders' Redeemable Convertible Series A Preferred Stock
Equity
During the latter part of 1998, the Company issued
a total of 2,350,000 shares of redeemable
convertible Series A preferred stock of S$0.01
(US$0.006) each at S$2 (US$1.20) per share. The
preferred stock provides for an annual dividend of
S$0.16 (US$0.096) per share and are redeemable at
the option of the holders at any time for cash at
S$2 (US$1.20) per share plus unpaid dividends or
convertible into common stock at a conversion
price of S$2 (US$1.20) per share.
Common Stock Issued for Services
For the years ended December 31, 1999 and 1998,
the Company issued 56,250 and 112,500 shares of
common stock of S$1 (US$0.60) valued at $33,750
and $67,500 to a Director.
Employee Stock Option Plan
On July 22, 1998, the stockholders of the Company
approved The Employee Share Option Plan (the
"Plan"). On February 12, 1999, the Company
approved and increased its share allocation under
the Plan from 400,000 common stock to 657,350
common stock of S$1 each.
13
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Exercise Price and
Weighted Average
Number of Exercise Price per Expiration
Shares Share $ Dates
-----------------------------------------------------------------------
January 1, 1998 - - -
Granted 162,000 .60 2000 - 2002
-----------------------------------------------------------------------
December 31, 1998 162,000 .60 2000 - 2002
Granted 246,616 .60 2004 - 2008
-----------------------------------------------------------------------
December 31, 1999 408,616 .60 2000 - 2008
-----------------------------------------------------------------------
Options
-----------------------------------------------------------------------
Weighted average fair value of options $.72
granted during 1999
Weighted average fair value of options
granted during 1998 $.11
-----------------------------------------------------------------------
14
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The Company applies APB Opinion 25, "Accounting
for Stock Issued to Employees", and related
Interpretations in accounting for the plans. Under
APB Opinion 25, when the exercise price of the
Company's employee stock options is less than the
market price of the underlying stock on the date
of grant, compensation cost is recognized.
During 1999, the Company granted stock options to
its employees at an exercise price that was less
than the market price at the date of the grant.
These options vest over a five to ten year period.
During 1999, the Company recognized $27,114 in
compensation expense, and as of December 31, 1999,
the Company has recorded $114,691 as unearned
compensation.
FASB Statement 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires the
Company to provide pro forma information regarding
net loss and net loss per share as if compensation
costs for the Company's stock option plans and
other stock awards had been determined in
accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates
the fair value of each stock award at the grant
date by using the Black-Scholes option-pricing
model with the following weighted-average
assumptions used for grants in 1999 and 1998:
dividend yield of 0 percent for both years;
expected volatility of 0 percent for both years;
risk-free interest rates of 4.18% and 5.94% and
expected lives of 5 to 10 years.
Under the accounting provisions for SFAS No. 123,
the Company's net loss and net loss per share
would have been increased by the pro forma amounts
indicated below:
Year Ended December 31, 1999 1998
---------------------------------------------------
Net loss:
As reported $(860,719) $(491,240)
Pro forma $(872,023) $(495,668)
15
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The following information summarizes stock options outstanding and
exercisable at December 31, 1999.
Outstanding
------------------------------------
Weighted Average Exercisable
---------------------- ----------------------
Remaining
Range of Contractual Number Weighted
Exercise Number Life in Exercise Exercis- Average
Prices $ Outstanding Years Price $ able Exercise $
-------------------------------------------------------------------------
.60 408,616 7 .60 131,654 .60
5. Supplemental No payments for income taxes were made in 1999 or 1998.
Disclosures of Cash payments for interest amounted to $10 and $134 in
Cash Flow 1999 and 1998.
Information
6. Subsequent On January 14, 2000, LanguageWare.net (Company) Ltd.
Events ("LanguageWare.net") acquired all of the issued and
outstanding common stock and redeemable convertible
Series A preferred stock of the Company.
Upon the acquisition of the Company by LanguageWare.net,
the 1997 Employee Share Option Plan was modified so that
any stock option granted up to that date under the Plan
became immediately exercisable by each grantee. 86,618
shares under the Plan were exercised on January 12, 2000.
7. Significant As of December 31, 1999, one customer represented 98% of
Customers trade accounts receivable. As of December 31, 1998, one
customer represented 40% of trade accounts receivable.
For the year ended December 31, 1999, one customer
represented 82% of total revenues. For the year ended
December 31, 1998, two customers represented 38% and 11%
of total revenues.
16
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
8. Income Taxes At December 31, 1999, the Company has tax losses
of approximately US$2,266,133 available for offset
against future taxable income subject to
confirmation by the Singapore tax authorities and
also subject to the provisions of Section 37 of
the Singapore Income Tax Act.
At December 31, 1999, the Company had available
U.S. net operating loss carryforwards of
approximately $154,000 for tax reporting purposes.
These U.S. net operating loss carryforwards expire
through 2020. These carryforwards are subject to
various limitations imposed by the rules and
regulations of the Internal Revenue Service.
Under Section 37 (5) of the Singapore Income Tax
Act, a Company utilizing the unabsorbed losses
against its chargeable income is required to
satisfy the Tax Comptroller that there has been no
substantial change in the Company's shareholders
in the relevant periods.
In the event that there is a substantial change in
the Company's shareholders, the Company can apply
under Section 37 (8) of the Singapore Income Tax
Act for a waiver from the requirement to meet the
continuity of ownership test as set out in Section
37 (5). In this respect, the Company would have to
prove to the Comptroller's satisfaction that the
change in shareholders was not motivated by any
tax advantage or benefit.
Due to a substantial change of shareholders in the
relevant dates, the Company applied for a waiver
of substantial shareholders test for financial
years 1997 and 1998 but to date has not received a
reply.
17
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
There has been a further substantial change in
shareholders in January 2000. The Company has not
yet applied for a waiver in respect of this
change. If no waiver is applied for by the Company
or if applied for but not granted, none of the
accumulated unabsorbed tax losses will be
available for offset against the future profit.
There were no tax credits established in the
statements of operations since the Company has a
100 percent valuation allowance for the tax
benefit of net deductible temporary differences
and operating loss carryforwards. Management is
not able to determine if it is more likely than
not that the deferred tax assets will be realized.
The Company has deferred tax assets with a 100
percent valuation allowance at December 31, 1999
and 1998. The tax effect on the components is as
follows:
December 31, 1999 1998
-------------------------------------------------
Singapore net operating loss
carryforwards $ 589,000 $ 411,000
Basis difference in current
liabilities - (14,000)
U.S. net operating loss
carryforwards 58,000 26,000
-------------------------------------------------
647,000 423,000
Valuation allowance (647,000) (423,000)
-------------------------------------------------
$ - $ -
-------------------------------------------------
18
<PAGE>
Star + Globe Technologies Pte Ltd
and Its Subsidiary
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
A reconciliation of the income taxes at the federal statutory
rate to the effective tax rate is as follows:
Year Ended December 31, 1999 1998
-------------------------------------------------------------
Income tax benefit computed at the
statutory rate $ (292,000) $ (167,000)
Singapore tax statutory rate
differences 72,000 48,000
State income tax benefit net of U.S.
Federal income tax benefit (14,000) (8,000)
Other - permanent differences 10,000 -
Change in valuation allowance 224,000 127,000
-------------------------------------------------------------
Income tax benefit $ - $ -
-------------------------------------------------------------
19
<PAGE>
LanguageWare.net (Company) Ltd.
Unaudited Pro Forma Condensed Consolidated Financial Statements
The following Unaudited Pro Forma Condensed Consolidated Financial Statements
give effect to the acquisition by the Company of Star+Globe and are based on the
estimates and assumptions set forth herein and in the notes to such financial
statements. This pro forma presentation has been prepared utilizing historical
financial statements and notes thereto, certain of which are included herein as
well as pro forma adjustments as described in the Notes to the unaudited Pro
Forma Condensed Consolidated Financial Statements. The pro forma financial data
does not purport to be indicative of the results which actually would have been
obtained had the acquisition been effected on the date indicated or the results
which may be obtained in the future.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31,
1999 assumes the acquisition of Star+Globe was consummated at such date. The
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1999 includes the operating results of the Company and
Star+Globe assuming the acquisition occurred on January 1, 1999.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
presented for illustrative purposes only and do not purport to represent what
the Company's results of operations or financial position would have been had
the acquisition described herein occurred on the date indicated for any future
period or at any future date, and are therefore qualified in their entirety by
reference to and should be read in conjunction with the historical consolidated
financial statements of the Company to be filed on Form 10-K for the year ended
December 31, 1999 and the historical financial statements of Star+Globe
contained elsewhere herein.
Acquisition
On January 14, 2000, LanguageWare.net acquired all of the capital stock of
Star+Globe, a privately-held Singapore company, for an aggregate purchase price
of approximately $6.5 million.
Star+Globe provides proprietary Asian character processing technology for the
Internet. It is located in Singapore. The assets of Star+Globe consist
primarily of cash, accounts receivables, property and equipment and certain
intangible assets. The Company intends to continue the business of Star+Globe
substantially in accordance with past practices, with modification to fit the
Company's systems and procedures.
20
<PAGE>
LanguageWare.net (Company) Ltd.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LanguageWare.net Star + Globe Adjustments Pro Forma
------------------------------------------------------------------------------------
ASSETS
Current
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 248,808 $ 2,006,513 $ - $ 2,255,321
Accounts receivable, net 459,590 590,990 (324,873) (1) 725,707
Other current assets 130,463 141,856 - 272,319
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 838,861 2,739,359 (324,873) 3,253,347
Property and equipment, net 54,114 132,589 - 186,703
Goodwill and other intangible assets
Completed technology - - 3,350,000 (2) 3,350,000
Other intangible assets - - 800,000 (2) 800,000
Goodwill - - 161,872 (2) 161,872
Other assets 15,509 - (15,509) (2) -
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 908,484 $ 2,871,948 $ 3,971,490 $ 7,751,922
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 282,273 $ 367,787 $ (324,873) (1) $ 325,187
Accrued liabilities and other 138,541 330,866 - 469,407
Line of credit 58,657 - - 58,657
Convertible debenture, related
party 964,654 - - 964,654
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,444,125 698,653 (324,873) 1,817,905
- -------------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock - 2,820,000 (2,820,000) (2) -
Stockholders' Equity (Deficit)
Preferred stock 7,032 - - 7,032
Common stock 85,143 1,901,250 (1,901,250) (2) 166,905
81,762 (4)
Additional paid-in capital 52,815,942 141,805 6,387,896 (4) 59,203,838
(141,805) (2)
Unearned compensation - (114,691) 114,691 (2) -
Accumulated deficit (53,443,758) (2,574,315) 2,574,315 (2) (53,443,758)
Accumulated other comprehensive
loss - (754) 754 (2) -
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (535,641) (646,705) 7,116,363 5,934,017
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity (deficit) $ 908,484 $ 2,871,948 $ 3,971,490 $ 7,751,922
- -------------------------------------------------------------------------------------------------------------------------------
See notes to the unaudited pro forma condensed consolidated financial statements.
</TABLE>
21
<PAGE>
LanguageWare.net (Company) Ltd.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
LanguageWare.net Star + Globe Adjustments Pro Forma
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,714,462 $ 1,868,989 $ (760,739) (3) $ 2,822,712
Cost of sales 1,163,093 935,290 (760,739) (3) 1,337,644
- ----------------------------------------------------------------------------------------------------------------
Gross profit 551,369 933,699 - 1,485,068
- ----------------------------------------------------------------------------------------------------------------
Costs and expenses
Product development costs 283,182 546,411 - 829,593
Marketing expenses 722,305 - - 722,305
General and administrative
expenses 1,148,501 1,570,775 1,411,541 (2) 4,130,817
- ----------------------------------------------------------------------------------------------------------------
Total costs and expenses 2,153,988 2,117,186 1,411,541 5,682,715
- ----------------------------------------------------------------------------------------------------------------
Loss from operations (1,602,619) (1,183,487) (1,411,541) (4,197,647)
- ----------------------------------------------------------------------------------------------------------------
Interest and other
Interest expense (679,615) - - (679,615)
Interest income - 124,790 - 124,790
Exchange gain - 38,569 - 38,569
Grants earned - 159,409 - 159,409
- ----------------------------------------------------------------------------------------------------------------
Total interest and other (679,615) 322,768 - (356,847)
- ----------------------------------------------------------------------------------------------------------------
Loss before extraordinary
item $(2,282,234) $ (860,719) $(1,411,541) $(4,554,494)
- ----------------------------------------------------------------------------------------------------------------
Net loss per share before
extraordinary item
Basic and diluted $ (0.08) $ (0.07)
Basic and diluted weighted
average number of shares
outstanding 30,406,700 - 33,673,361 (4) 64,080,061
- ----------------------------------------------------------------------------------------------------------------
See notes to the unaudited pro forma condensed consolidated financial statements.
</TABLE>
22
<PAGE>
LanguageWare.net (Company) Ltd.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Note 1 To eliminate intercompany receivable and payable.
Note 2 To reflect the acquisition of Star + Globe.
The following is the preliminary allocation of the purchase price based on the
fair value of the assets acquired and the liabilities assumed.
<TABLE>
<CAPTION>
Annual
Estimated Life Purchase Price Depreciation and
Years Allocation Amortization
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allocation of purchase price:
Cash N/A $ 2,006,513
Accounts receivable, net N/A 590,990
Other current assets N/A 141,856
Property and equipment N/A 132,589*
Completed technology 3 3,350,000 $1,116,667
Other intangible assets 3 to 4 800,000 262,500
Goodwill 5 161,872 32,374
- -------------------------------------------------------------------------------------------------------------
7,183,820 $1,411,541
Less:
Accounts payable 367,787
Other current liabilities 330,866
- -------------------------------------------------------------------------------------------------------------
Total purchase price 6,485,167
Purchase consideration:
Value of common stock (4,734,475)
Value of options (1,735,183)
Direct costs of the acquisition (15,509)
- -------------------------------------------------------------------------------------------------------------
$ -
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*Depreciation expense of Star + Globe included in the historical statements of
operations totaled $100,936 and is reflective of the proforma depreciation
expense.
Note 3 To eliminate intercompany revenues and expenses.
Note 4 To reflect the 33,673,361 shares of LanguageWare.net common stock issued
in the acquisition of Star + Globe.
23
<PAGE>
Signatures
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed in its
behalf by the undersigned, thereunto duly authorized.
LanguageWare.net (Company) Ltd. (Registrant)
Date: March 29, 2000
By: /s/THOMAS B. FOSTER
Thomas B. Foster
Chief Financial Officer
24
