UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
Commission File Number 001-15977
TIGER TELEMATICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4051167
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
10201 Centurion Parkway North Ste. 600 Jacksonville, FL 32255
(Address of principal executive offices) (Zip Code)
904) 279-9240
(Registrant's telephone number, including area code)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class March 31, 2004
------------------------- -------------------------
Common Stock, Par 316,216,415
Value $0.001 per share
CONTENTS
Page
----
Financial Statements
Condensed Consolidated Balance Sheets F-1
Condensed Consolidated Statements of Operations F-2
Condensed Consolidated Statement of Stockholders' Deficit F-3
Condensed Consolidated Statements of Cash Flow F-4 - F-5
Notes to Condensed Consolidated Financial Statements F-6 - F-18
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
2003 December 31,
(unaudited) 2002
--------------- ---------------
Assets
Current Assets
Cash $ 4,264 $ (1,672)
Accounts receivable, less allowance for doubtful
Accounts, Mar 31, 2003 $0; December
31, 2002 $0 30,810 116,648
Advances to officers and employees -- --
Inventories 62,996 195,576
Prepaid expenses and deferred income (724) 83,545
Assets of discontinued operations 250,000 517,210
--------------- ---------------
Total Current Assets 347,346 911,308
Property and Equipment, net 239,009 237,196
Deposits and Other Assets -- --
--------------- ---------------
Total Assets $ 586,355 $ 1,148,504
=============== ===============
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 1,843,487 $ 1,449,326
Amounts due stockholders 1,008,372 1,210,785
Notes payable 77,597 86,262
Accrued expenses 2,732,473 1,961,085
Customer deposits -- --
Liabilities of discontinued operations 668,475 1,572,855
--------------- ---------------
Total current liabilities 6,330,404 6,280,313
--------------- ---------------
Long term debt 165,755 175,736
Stockholders' Deficit
Common stock, at par value 77,767 73,813
Authorized 100,000,000 shares, issued
83,676,426 March 31, 2003 ; 80,186,426 December
31, 2002 shares
Additional paid in capital 10,370,063 10,279,953
Subscription receivable -- (36)
Accumulated deficit (16,777,530) (15,661,275)
--------------- ---------------
(5,909,804) (5,307,545)
--------------- ---------------
$ 586,355 $ 1,148,504
=============== ===============
F-1
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months ended March 31,
--------------------------------
2003 2002
-------------- --------------
Net sales $ 1,050 $ 28,500
Cost of goods sold (3,288) (31,016)
-------------- --------------
Gross Profit (2,238) (2,496)
-------------- --------------
Operating expenses
Selling expense 40,102 124,403
General and administrative expense 504,989 828,586
-------------- --------------
Total Operating Expenses 545,091 952,989
-------------- --------------
Operating loss (547,489) (955,485)
-------------- --------------
Other income (expense)
Impairment of goodwill -- --
Currency Translation Adjustment (20,856) (22,357)
Interest expense (10,760) (5,963)
-------------- --------------
(31,616) (28,320)
Loss from continuing operations (579,105) (983,805)
Loss from discontinued operations -- (189,390)
-------------- --------------
Net loss $ (579,105) $ (1,173,195)
============== ==============
Basic and diluted net loss per
common share $ (0.00545) $ (0.00156)
============== ==============
Basic and diluted net loss from
Continuing operations per share $ (0.00545) $ (0.0156)
============== ==============
Weighted average shares outstanding
(Basic and diluted) 83,676,426 63,062,131
============== ==============
See Notes to Consolidated Financial Statements.
F-2
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(unaudited)
Common Stock Additional
------------ Paid in Subscriptions Accumulated Total
Shares Amount Capital Receivable Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance (deficit) at December 31, 2002 80,186,426 $ 73,813 $ 10,279,953 $ (36) $(15,661,275) $ (5,307,545)
Issuance of common stock and warrants -- -- -- -- -- --
Common Stock issued in satisfaction of
Obligations 2,990,000 2,990 90,110 -- -- 93,100
Net Loss -- -- -- -- (579,105) (579,105)
------------ ------------ ------------ ------------ ------------ ------------
Balance (deficit) at March 31, 2003 83,176,426 76,803 $ 10,370,063 $ (36) $(15,777,530) $ (5,909,805)
============ ============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements.
F-3
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months ended March 31,
------------------------------
2003 2002
------------- -------------
Cash Flows From Operating Activities
Net loss $ (579,105) $ (1,173,195)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and Amortization 16,973 39,701
Currency translation adjustments 20,856 12,977
Changes in assets and liabilities 1,300,608 (153,925)
interest on notes payable and stockholder loans
Capitalized to principal balances -- --
Write down of deposit -- 100,000
Impairment of goodwill on asset acquisition -- --
Obligations paid with common stock 93,100 120,000
------------- -------------
Net cash used in operating activities 852,432 (1,054,442)
Cash Flows From Investing Activities
Cash received from acquisition of Tiger Telematics -- 787
Advances to Comworxx -- --
Proceeds from sale of property and equipment -- --
Purchase of property and equipment -- (54,094)
Collection of advances to officers and employees -- 4,758
(Increase) decrease in deposits and other assets -- (5,000)
------------- -------------
Net cash (used in) provided by investing activities -- 53,549
------------- -------------
Cash Flows From Financing Activities from continuing
operations
Issuance of common stock and warrants 93,100 858,678
Interest on Notes payable -- --
Advances to employees -- --
Loans and advances from stockholders -- 291,289
Increase in excess of outstanding checks and bank balances 5,936 199,474
Repayments to stockholders (202,413) (261,776)
------------- -------------
Net cash provided by used in financing activities (103,367) 1,087,660
------------- -------------
Net change in cash -- --
F-4
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(unaudited)
Three Months ended March 31,
------------------------------
2003 2002
------------- -------------
Cash:
Beginning (1,672) 20,331
============= =============
Ending $ 4,265 $ --
============= =============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 10,760 $ 9,380
============= =============
Supplemental Disclosure of Non-cash Investing and Financing
Activities
Common Stock issued in payment of obligations $ 93,100 $ 120,000
============= =============
Common Stock issued in exchange for subscriptions receivable $ -- $ 18,000
============= =============
Conversion of Notes Payable and Amounts Due
Stockholders into Common Stock $ -- $ 922,723
============= =============
Acquisition of Tiger Telematics:
Working capital acquired, net of cash $787 $ -- 144,917
Distribution Agreement -- 2,800,000
Order Book -- 463,050
Property and Equipment -- 1,463
Amounts due to stockholders -- (610,190)
Common Stock issued -- (2,800,000)
------------- -------------
Cash received $ -- 787
============= =============
F-5
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of March 31, 2003 and the
three months ended March 31, 2003 and 2002 included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the periods
indicated have been included. For further information regarding the company's
accounting policies, refer to the consolidated financial statements and related
notes included in the company's Annual Report on form 10-K for the year ended
December 31, 2002 and 2001. The condensed consolidated financial statements for
the quarter ended March 31, 2003 were reviewed by UK outside independent
accountants and not fully reviewed in consolidation .Upon completion by
accountants the statements will be amended to this Form 10Q will be made as
appropriate.
The balance sheet at December 31, 2002 is derived from the financial statements
in Annual Report on Form 10-K for the year ended December 31, 2002. The Company
decided to file that Form 10K report without those audit opinions and amend
subsequently with those opinions in order to provide the most up to date and
current information to its shareholders and investors. The Company believes that
based on the extent of work completed to date, that the financial statements and
associated balance sheet contained herein will not be materially altered in the
amended Annual Report on Form 10K. The consolidated financial statements include
the accounts of Tiger Telematics, Inc, the public held parent company, Tiger
Telematics, USA, Inc.( a near dormant subsidiary, Tiger Telematics, Europe,
Ltd., beginning December 2002 and the operations of Tiger Telematics, Ltd.
through the December 17, 2002 date of its divesture when sold to an unrelated
third party corporation based in Sweden and the discontinued operations of,
Floor Decor LLC, and Media Flooring, Inc. through the date of their divesture on
August 8, 2003. The Company started Tiger Telematics Europe Ltd. in December
2002 and a related entity Childtracker Ltd. that was a development entity that
existed as a part of Tiger Telematics, Ltd. to focus on developing new
Telematics products including next generation fleet telematic products, the
child tracker products, the gaming products now called Gizmondo and to focus on
marketing principally in the UK. At Tiger Europe Ltd. transactions have been
included for the Childtracker Ltd. subsidiary that were considered a part of
Tiger Europe Ltd. since the transactions were principally entered into and done
for the use and benefit of Tiger Europe Ltd. for financial reporting purposes
but for which the UK company based on advise of outside indepenendent
accountants will need to prepare annual statutory statements for each entity and
Childtracker Ltd. will be dissolved as a separate entity. All material
intercompany accounts and transactions are eliminated in consolidation.
NOTE B - REVERSE ACQUISITION AND EQUITY TRANSACTIONS
As of December 31, 2000 Floor Decor ( the Company's name prior to June 2003) had
1,000 shares of common stock authorized and 378 shares issued and outstanding.
The Company issued an additional 622 shares of common stock on January 1, 2001
at a cost of $1 per share. As a result of these additional shares being issued,
the Company had 1,000 shares of common stock authorized and 1,000 shares issued
and outstanding as of March 31, 2001 prior to the reverse acquisition (as
described below) on May 22, 2001.
F-6
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 22, 2001, a purchasing group led by A.J. Nassar acquired 21,900,000
shares of the common stock of Media Communications Group, Inc. ("MCGI") in
exchange for all of the outstanding common shares of Floor Decor, Inc. to become
the owner of approximately 40% of the issued and outstanding common stock of
MCGI pursuant to an agreement including the merger of Floor Decor into a newly
formed wholly owned subsidiary of the Company. Prior to the acquisition of Floor
Decor, MCGI was a "public shell" company, with no significant operations or
assets. The acquisition of Floor Decor was accounted for as a reverse
acquisition. Under a reverse acquisition, Floor Decor is treated for accounting
purposes as having acquired MCGI and the historical financial statements of
Floor Decor become the historical financial statements of MCGI. In accounting
for the reverse acquisition, the equity of Floor Decor, as the surviving company
is recapitalized. Also, upon the closing of the reverse acquisition an
obligation to an original MCGI vendor for $4,931 was assumed.
To compute the loss per share for the three months and nine months ended June
30, 20001, the 54,236,664 shares outstanding at the date of the reverse
acquisition was assumed to be outstanding since July 3, 2000, the date of
inception of the Company.
Since the Company had a loss for all periods presented, basic and diluted loss
per common share are equal. The Company has not included 7,218,592 potential
common shares relating to outstanding common warrants as of March 31, 2003 in
the calculation of the diluted earnings per share for the first quarter of 2003,
because their effect would be antidilutive.
During the 1st quarter of 2002 the Company sold 2,512,450 shares of its Common
Stock as part of the private placement transaction initiated in December 2001.
These shares were sold at $ 0.40 per share. For each share of Common Stock
purchased, the investor also received a warrant representing the right to
purchase one additional share of Common Stock at a price of $0.75 per share
exercisable through December 31, 2003. Proceeds from these sales, net of
advisory fees totaling $128,307, amounted to $876,673. The Company has a
disputed agreement with an advisor for consulting services. For financial
reporting purposes this was treated as earned but not issued. In May 2003 the
dispute was resolved and the shares issued. See page F-3 Consolidated Statements
of Stockholder's Deficit.
F-7
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the 1st quarter of 2002, the company sold 2,512,450 shares of its Common
Stock as part of the private placement transaction initiated in December 2001.
These shares were sold at $0.40 per share. For each share of Common Stock
purchased, the investor also received a warrant representing the right to
purchase one additional share of Common Stock at a price of $0.75 per share
exercisable through December 21,2003. Proceeds form these sales, net of advisory
fees totaling $128,307, amounted to $876,673. The aforementioned warrants
expired as the end of December 2003.
The Company had an agreement with an advisor for consulting services. Under the
agreement, the Company was to issue 2,400,000 shares of stock, which were valued
at $810,000. For financial reporting purposes this was treated as earned but not
issued. In May 2003, the shares were issued pursuant to a settlement with the
advisor. See page F-3 Consolidated Statements of Stockholder's Deficit.and Note
K. Subsequent Events.
During the 1st quarter of 2002, certain stockholders and others converted
$922,733 of notes payable and amounts due to stockholders into 2,306,809 shares
of Common Stock. For each share of Common Stock purchased, they also received a
warrant representing the right to purchase one additional share of Common Stock
at a price of $.075 per share exercisable through December 31,2003. The company
also agreed to issue warrants to purchase 416,000 shares of Common Stock at a
price of $0.75 per share exercisable through December 2003 as advisory fees in
connection with these stock sales. These warrants were not yet been issued due
to unresolved issues with the advisor. In May 2003 the dispute was resolved in a
settlement where the company did not have to issue the warrants. See also Note K
Subsequent Events.
In October 2002, certain stockholders converted $455,761 of debt to equity at
$.010 per share. See Note C- Related Party Transactions.
During first quarter 2003, the Company issued 2,990,000 common shares for
various goods services rendered by advisors and consultants. The shares were
recorded at the market price of the shares in the public market as of the date
of the individual issuances. The stock was issued in amounts of either $.03 or
$.04 per share to reflect the market price for shares at the time for each
transaction. In aggregate the Company recorded an expense of $93,100 to record
these transactions in first quarter ended March 31, 2003. No commission was paid
or reimbursement of expenses in regards to any share transaction in 1st quarter
2003. Subsequent equity transactions were entered into the following quarters
which are discussed in the Footnote K Subsequent Events.
NOTE C - RELATED PARTY TRANSACTIONS
As of March 31, 2003, the Company had 15% demand notes totaling $77,597, payable
to certain current or previous stockholders (combined ownership less than 1%).
The Company also has non-interest bearing notes and non interest bearing
advances of $1,008,372 payable to the two former Tiger Telematics Ltd.
stockholders (combined ownership over 10% of the Company as discussed in note F,
$610,190 of the advances owed prior to October 2002 were converted into Common
Stock and warrants in October 2002. The warrants expired in December 31, 2003.
A shareholder borrowed some of the funds advanced to the Company (with funds
going to the Tiger Telematics, Ltd. subsidiary) from a private investment bank
London International Mercantile Bank, based in London. The shareholders failed
to repay the note when due. The investment firm made demand on the subsidiary
Tiger Ltd. to repay the funds since Tiger Ltd. was the beneficiary of the funds.
The Company maintained that it was not responsible for that obligation and
responded to the demand accordingly. The Company showed the obligations to its
shareholder on the financial statement. The Tiger Telematics, Ltd. entered into
a settlement agreement Court approved as a Tomblin Order where the demand note
to the shareholder was forgiven by the shareholder in exchange for the company
entering into an installment note to be paid over time directly with the private
investment bank in the same amount as forgiven by the shareholder of 290,000
sterling. The shareholder remained contingently obligated for the sum owed plus
interest in event that the payment was not made timely by tiger Telematics, Ltd.
The Company issued a limited conditional guaranty for the obligation to the
F-8
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
private bank. The settlement agreement called for monthly payments at a variable
interest rate. Tiger Ltd. repaid approximately $80,000 prior to the sale of the
business on December 17, 2002. See Note K. Following the sale of Tiger
Telematics, Ltd. the Company was apprised that the Tiger Ltd. renamed by the
acquirer to Eagle Eye was placed in liquidation insolvency under the laws of the
United Kingdom by LIM for failure to make the payments required under this
arrangement. The private investment firm made demand on the Company as respect
to the guarantee but has made no attempt to collect on the guaranty as it
pursues its direct remedies against the sold Tiger Ltd. company and against the
original borrower of the funds. The private investment bank also has collateral
provided by the original borrower of common stock of the Company in the
aggregate sum of 3,500,000 proved by the original borrower to secure the funds
as well as certain real estate owned by the original borrower. Therefore no
additional provision has been made in the financial statements for any
contingent liability as respect to the guarantee since the Company believes that
the private investment firm will be able to recover such amounts guaranteed by
the company from the exercise of its rights against the respective collateral.
The Company has received inquiries from persons who maintain that they have made
an investment in the Company for which the Company has no records and which
appear to be private transactions among various shareholders. Legal counsel has
looked into the circumstances surrounding each inquiry in late 2002. Legal
counsel has advised that some transactions may have taken place in the UK
related the Tiger Telematics, Ltd. prior to its acquisition by the company. It
is possible that fund raisers reportedly associated with Tiger Ltd. prior to its
acquisition by the Company on February 4, 2002 may have raised funds through
various private ventures. These transactions did not involve the Company and its
officers or directors the company believes that such transactions should not be
reflected on the financial statements of the Company and therefore no provision
has been made for these alleged investments.
At a special meeting of stockholders on July 31, 2001, the stockholders of the
Company voted in favor of the adoption of the Company's 2001 Employee Stock
Option Plan ("The Plan"). The total number of shares of common stock available
for grant under the Plan is 8,000,000 shares. As of December 31, 2001, no
employees had been granted options under the Plan. As of December 31, 2002
3,600,000 of options have been granted under the plan. All of the options were
issued pursuant to the plan at the prevailing market prices as of the date of
issue of $.06. As of quarter ended March 31, 20023 2,700,000 shares of the
options had vested with a further vesting of 900,000 shares occurring on
February 2004(occurred) and 900,000 in February 2005.
As of December 31, 2002 the company owed an executive officer and director of
the company approximately $50,000 comprised of $38,000 of salary and $12,000 of
reimbursable expenses incurred on behalf of the Company. As of March 31, 2003
the Company owed that same executive officer and a director of the company
approximately $79,000 comprised of approximately $72,000 of salary and
approximately $7,000 of reimbursable expenses incurred on behalf of the Company.
Total interest expense on stockholder debt amounted to $3,000 for the three
months ended March 31,2003. Certain additional related party transactions
occurred in following quarters that are reported in Footnote K Subsequent
events.
NOTE D - INCOME TAX MATTERS
The Company has net operating loss carryforwards for United States Tax purposes
as of March 31, 2003 for federal income tax purposes of approximately $13
million expiring in 2021. Any future benefit to be realized from these net
operating loss and contribution carry forwards is dependent upon the Company
earning sufficient future income taxable in the United States during the periods
that the carry forwards are available. The loss carry forwards also contain
restrictions on the type of taxable income that they can be used to offset. Due
to these uncertainties, the Company has fully offset any deferred tax benefits
otherwise relating to the net operating loss carry forward with a valuation
allowance in the amount of approximately $4 million . The Company has losses off
settable against future income in the UK of $3.5 million expiring in 2021. Any
future benefits to be realized from the losses is dependant upon the company
earnings sufficient future taxable income in the UK during the periods that the
losses off settable are available. Due to these uncertainties the Company has
fully offset any deferred tax benefits otherwise relating to the losses off
settable against future income with a valuation allowance in the amount of
approximately $800,000.
F-9
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - NOTES PAYABLE
As of March 31, 2003, the Company had a 10% note payable in the amount of
$77,597.
NOTE F - ACQUISITIONS.
TIGER TELEMATICS, LTD.
On February 4, 2002, pursuant to a Stock Purchase Agreement between the Company
and Eagle Eye Scandinavian Distribution Limited, an English private limited
company, which name the Company has changed to Tiger Telematics (UK) Ltd.
("Tiger Telematics"), the Company purchased all of the outstanding stock of
Tiger Telematics in exchange for 7,000,000 shares of Floor Decor, Inc. common
stock. Tiger Telematics is an early stage company engaged in the distribution of
telematics product.
The 7,000,000 shares of stock issued were valued at $0.40 per share. This price
is the same price as the private placement transactions with investors that were
entered into from December 2001 through March 2002. This valued the stock issued
at $2,800,000. The negative equity of Tiger
Telematics of $463,050 as of the acquisition date resulted in an excess of
acquisition cost over tangible asset value of $3,263,050.
The excess of the acquisition price over the tangible asset valuation was
assigned to two intangible assets. $2,800,000 was ascribed to an order backlog
of open pending orders for products for future shipments over the next several
years. This amount will be amortized as the orders are shipped on a prorata
basis. The remaining amount of $463,050 was assigned to distribution rights
under a Distribution Agreement with Eagle Eye Telmatics, plc, which was executed
on October 19, 2001(see Form 10-K dated March 31, 2002, exhibit #21.1). This
amount will be amortized quarterly over the 32 month remaining life of the
distribution agreement at the time of acquisition.
In third quarter 2002, the Company determined that the good will relative to the
order book was impaired due to the failure to ship the orders as originally
projected to the customers and due to the change in Tiger Ltd.'s business model
to derive its income from monthly revenue generated by its wireless telecom
providers partnership arrangements as opposed to generating revenue primarily
from the sale of hardwire. The Company wrote-off $1,000,000 of impaired good
will in the quarter ended September 30, 2002.
In connection with this acquisition, the former Tiger Telematics shareholders
agreed to convert $610,190 of their shareholder debt into Common Stock and
warrants to purchase common stock at a price of $0.75 per share exercisable
through December 31, 2003. The conversion rate was one share of common stock and
one warrant for every $0.40 of debt. Although initiated in August, the debt of
$610, 190 was actually converted in October 2002 into 1,525,475 shares of Common
Stock and 1,525,475 Warrants. The warrants expired in December 2003 and were not
exercised. In December 2003 the Company sold the common stock of the Tiger Ltd.
Company to an unrelated third party based in Sweden that is in the business of
selling and installing telephone equipment in vehicle fleets. See Report of Form
8K dated January 2003. The agreement called for the transfer of certain assets
and debt from Tiger Ltd. to Tiger Europe prior to closing. The transaction was
done in exchange for a Royalty Agreement from the buyer and Tiger Ltd. to pay a
percentage of sales over the next 10 years. Due to the uncertainty of the future
payments the Company placed a zero value on the agreement and did not record the
future stream of payments on the balance sheet. In order to record the sale of
Tiger Ltd. transaction the company wrote off its books the remainder value of
the intangible assets of $2,103,830 comprised of the sold order book of
$1,800,000 and the sold distribution agreement of $303,830.
F-10
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company was advised that Eagle Eye Scandinavian Distribution Ltd.)the
renamed Tiger Telematics, Ltd.) was placed in insolvency liquidation during 1st
quarter of 2003 by a certain creditor of the Ltd. company. See note C Related
Party Transactions. No provisions have been made to the financial statements as
a result of this action since the company did not record the receivable on the
balance sheet as noted above.
COMWORXX, INC.
On June 25, 2002, pursuant to a Purchase Agreement between the Company's wholly
owned subsidiary Tiger USA, Inc and Comworxx, Inc., a private Florida
incorporated company, the Company formed a new wholly owned subsidiary Comworxx
Acquisition Corporation which name the Company has changed post closing to Tiger
Telematics USA. ("Tiger USA"). Tiger USA purchased all of the assets of Comworx
in exchange for 4,263,266 shares of Tiger Telematics, Inc. common stock. Tiger
USA is now an early stage company engaged in beginning the distribution of
telematics product to the United States consumer market. Comworxx assets
included license agreements and intellectual properties.
Pursuant to the terms of the purchase agreement the 4,263,266 shares of stock
issued were valued at $1.00 per share; provided however that if the price per
share of Tiger Common Stock sold in the next equity financing in Tiger Raises
gross proceeds of at least $3 million is less than $1.00 per share the assumed
purchase price shall be reduced to the price per share in the next equity
financing and provided further however that is the new equity financing is not
consummated by September 1, 2002 the assumed price shall be reduced to $.035. If
the purchase price is reduced to less than $1.00 per share of Tiger Inc. common
stock. Tiger will have to issue such additional shares as necessary so that the
total number of shares of Tiger Common Stock issued pursuant to this provision,
is equal to the quotient, rounded to the nearest whole number, of $4,263,266
divided by the final assumed purchase price. The maximum number of shares that
would be issued under this formula would be 12,180,760. The Company recorded
this transaction as if the maximum number of shares will be issued, resulting in
the recording of 7,917,494 contingent shares. The Company valued the shares at
$.25 per share, which was the trading price at the date if purchase, giving a
purchase price of $3,045,190. Based on a post acquisition review of assets
reserves were made to inventory, receivables and property plant and equipment to
equal the current estimated value as of the acquisition date. The reserves
created an additional excess of liabilities over tangible assets. The total
excess of liabilities over tangible assets of Comworxx acquired resulted in an
additional good will of $669,628.
The excess of the acquisition price over the tangible asset valuation was
assigned to three intangible assets. Although the acquisition included
intellectual property and license agreements due to the position in the
marketplace and funding issues associated with the acquisition, agreements the
Company believes that the good will is impaired as of June 30, 2002. The company
wrote off all of the goodwill of $3,714,818 in the quarter ended June 30, 2002.
The Company believes that the seller of the assets may have misrepresented the
nature of the assets and the viability of the associated business at the time of
the transaction. As a result the Company has retained independent legal counsel
to advice it of its rights against the shareholders of the seller to recover
certain sums or to rescind the entire transaction. The Company does not intend
to issue the contingent shares referred to above until a final determination has
been made as to the potential causes of action against the seller. The company
has entered into substantial discussions with ComRoad from time to time as
respect to a settlement of all outstanding obligations claims and counter claims
as noted in Note K Subsequent Events.
F-11
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G. LEASE IN THE UK
On April 26, 2002 the company entered into a Lease Agreement with Christian and
Timbers UK Ltd. for office premises for its subsidiary Tiger Telematics Ltd. in
London, United Kingdom. The lease has a term of five years. The Company will
satisfy its obligation to pay rent for the first year of the term of the lease
by issuing 500,000 shares of Floor Decor's Common Stock. If the Landlord
liquidates the Shares in the first year of the term of the Lease and the
aggregate net proceeds of sale arising from such sale or sales is less than
(pound)126,018.75 (or the US Dollar equivalent using the mid range exchange rate
prevailing on the date of actual receipt of the said proceeds of sale by the
Landlord) the Tenant shall forthwith pay to the Landlord the difference between
(pound)126,018.75 and the said proceeds in cash. The second and subsequent years
of the term of the lease shall be paid in cash. The company has recorded the
full amount due for the first year of the lease as a liability of $182,636 based
on the conversion rate the date the lease was consummated. The 500,000 shares
issued to them are not considered issued for financial reporting purposes until
such time as they are actually sold into the market by the landlord or until the
liquidation guarantee is expired. These shares of commons stock have not been
sold as of the date of this report have not been sold. In December 2002 the
Company sold the Tiger Ltd. company. The sold company Tiger Ltd. subsequently
defaulted on the lease arrangement with Christian and Timbers who sued the
Company pursuant to the guarantee in the summer of 2003. The Company retained a
provision on the balance sheet as of March 31, 2003 for $300,000 to reflect its
best estimate of the obligation.
In October 2003 the company entered into a judgment stipulation for $300,000 to
settle all obligations under the guarantee. The Company has made payments under
the obligation in 2004
NOTE H - SEGMENT INFORMATION
During the first nine months of 2002 the Company operated in the flooring
business in Florida, (including the period of first quarter 2002), now a
discontinued operation and in the telematics product development and
distribution business in Europe.
o Flooring Retail and Installation- now a discontinued operation
o Telematic product development and distribution
The accounting policies of the reportable segments are the same as those
referred to in Notes A. In June 6, 2002, the company announced the
discontinuation of the flooring segment and sold the assets of the flooring
business on August 9, 2002. As a result the company is not disclosing segment
information as it has only one segment in Telematics product development and
distribution.
NOTE I - DISCONTINUED OPERATIONS:
In June 2002 the Company entered into a plan to dispose of its flooring
business. The flooring business was subsequently sold on August 9, 2002. As of
June 30, 2002, the Company accounted for the flooring segment as a discontinued
segment. Assets of $250,000 and liabilities of $668,475 relating to the flooring
business as of March 31, 2003 have been aggregated on the condensed consolidated
balance sheet.
F-12
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the assets and liabilities as of December 31, 2002 is as follows:
March 31, 2003 December 31, 2002
Assets: ----------------- -----------------
Accounts receivable $ 250,000 $ 517,210
----------------- -----------------
Total assets $ 250,000 $ 517,210
================= =================
Liabilities:
Notes payable $ 273,763 $ 273,763
Accounts payable -- 575,000
Other accruals 394,712 724,092
----------------- -----------------
$ 668,475 $ 1,572,855
================= =================
Revenue included in loss from discontinued operations amounted to $2,163,158 and
$3,777,000 and $298,000 for the twelve months ended December 31, 2002, 2001 and
2000 respectively.
On August 9, 2002, the Company sold its flooring business to a purchasing group
headed up by a former officer of the Company. The Company sold assets
aggregating $1,152,698, and had the buyer assume liabilities totaling
$1,243,135. The Company will remain theoretically contingently liable on the
liabilities until such time as the acquirers pay them off. In addition, the
purchaser has assumed two non balance sheet operating leases for buildings with
annual rents of approximately $459,480 a year that were assumed without landlord
consents. These leases expire August 31, 2005 and September 30, 2005
respectively. Should the purchaser not meet these obligations they might become
the obligations of the company. A shareholder of the company who has since filed
a personal Chapter 11 bankruptcy personally guarantees these leases. As of
December 31, 2003 the accounts receivable $633,475 represents the obligation of
the acquirer to pay the remaining liabilities of discontinued obligations that
were assumed and for which the company is contingently liable. Due to the
bankruptcy of the buyer of the assets, the Company made a provision for $383,475
for the write-down of the receivable from MINIME that represented payments to
creditors for which the Company may be contingently liable. The company also
made a provision for $376,292 and for $295,879 for the two leases that were
assumed by MINIME. The total provision was for $1,055,745 The Company is
uncertain as to its liability since one of the leases and most of the
outstanding obligations for payables are to a subsidiary of a subsidiary of the
Company. In June 2002 the bankruptcy court dismissed the proceeding of MINIME.
The Company is carrying the contingencies until such time it can settle with the
parties or pass the time for which it obligations remain owed contingently. In
See note K Subsequent Events.
Revenue included in loss from discontinued operations amounted to $0 and
$1,144,695 for the three months ended March 31, 2003 and 2002 respectively.
NOTE J - BUSINESS CONSIDERATIONS
For the year ended December 31, 2002, the Company incurred net losses of over
$13 million . For the first three months of 200, the losses were $579,105.
Although approximately $7 million of the loss in 2002 was from the non-cash
write-down of impaired good will, the Company had negative cash flows from
operating activities of approximately $x for the year ended December 31, 2002
and negative cash flows from the operations although the cash flow from
operating activities for the first three months of 2003 was positive due to a
reduction in assets and an increase in liabilities..
The negative cash flows from operations, as well as the costs associated with
the Tiger Telematics Ltd. acquisition and the acquisition of assets of Comworxx
has further strained the Company's cash flow in 2002. Since the Company was not
able to generate positive net cash flows from operations, additional capital was
needed. During 2002 the Company entered into private placement transactions with
individual investors. In these private placement transactions, the Company sold
shares of its common stock and warrants to raise approximately $876,000 of
equity, as disclosed in note C. During the same period, stockholders converted
approximately $923,000 of debt into equity of the Company. Stockholders of the
company continued to support the operation with substantial loans to sustain
operations as reported and note C.
F-13
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additional shares were issued in first quarter of 2003 to sustain operations and
in the remaining quarters since, see Note K Subsequent Events. The issuance of
the shares permitted raised funds and obtained goods and services that continued
the operations of the Company. The Company continually monitors operating costs
and will take steps to reduce these costs to improve cash flow from operations
if necessary. The Company is continually seeking sources of new capital to aid
the implementation of its business plan. The fund raising of $10 million that
the company was seeking via Jefferies in late 2002 was not successful. The
Company has raised funds in 2003 from the issuance of common stock shares see
not K Subsequent Events. The Company continues to seek equity and bank financing
from various sources. However, there can be no assurance that additional
financing, capital or other form of debt financing will be available, or if
available on terms reasonably acceptable to the Company. The company continued
to issue shares of Common Stock in first quarter 2003 to settle obligations due
for payment and to secure necessary services.
The Company plans to continue the product development and distribution business
in the UK. This is going forward as planned but slower than anticipated due to a
lack of funding. The Company is concluding development of its next generation
fleet product and its new GPS products including Gametrac recently renamed
Gizmondo. The company has mothballed and then disposed of the assets and
business of its acquired assets of Comworxx (acquired on June 25, 2002 by the
wholly owned subsidiary Tiger USA. It no longer plans to launch these products
due to the high related cost of the product relative to the projected sales
price available for such products in the U.S. consumer retail marketplace. The
Company wrote off its entire investment in the purchase agreement in 2002. The
Company hired legal counsel to advise its rights and causes of action against
the seller of the assets and its shareholders possible misrepresentations in the
purchase agreement that a viable business existed. The Company has entered into
substantial negotiations with the sellers and continues actively in such
discussions.
The Company's ability to continue as a going concern is totally dependent upon
its ability to raise sufficient equity or debt capital to accomplish these
objectives and to offset any future operating losses that may be incurred until
positive cash flows can be generated from operations. In the current economic
environment this has not been easy task. Management intends to raise capital by
issuing shares as required to fund working capital needs although there are no
assurances of success.
NOTE K. - SUBSEQUENT EVENTS.
1. Bankruptcy of acquirer of Flooring Floor Decor LLC.
On April 9, 2003 the buyer of the flooring assets MINIME doing business as Floor
Decor LLC. Filed a Chapter 11 bankruptcy. On April 17, 2003 they conducted a
Bankruptcy Court authorized liquidation sale of the assets of the business. As
of April 30, 2003 they ceased operation and are no longer in business. In June
2003 the bankruptcy court dismissed the case since all assets of the entity had
been disposed of pursuant to bankruptcy court order. The Company made a
provision as of December 31, 2002 for $383,475 for the write-down of the
receivable from MINIME that represented payments to creditors for which the
Company may be contingently liable. The company also made a provision for
$376,292 and for $295,879 for contingent liability for the two leases that were
assumed by MINIME. The total provision was for $1,055,745. The provision
represents the remaining amounts due under the lease agreements for which the
company may be contingently liable despite the protections from liability
provided in the Asset Purchase Agreement. As a result of the dismissal of the
bankruptcy case the company believes that it has no further liability for the
accrued leases but continues to maintain the reserve until such time as it can
obtain a legal opinion as to the same.
F-14
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Equity transactions. Common shares issued for goods and services and for
financing the company's working capital needs.
In second quarter 2003, in order to obtain various goods and services including
consulting services, the Company issued 450,000 shares for services valued at
the then market rate of $.03 per share and expensed $15,000. All of the shares
issued were restricted stock subject to Rule 144 of the Securities Act. The
Company settled its dispute with an equity advisor and issued 2,400,000 as
discussed in Note C Equity Transactions. The transaction included a release of
all indebtedness actual or alleged by the advisor as respect to the Company. The
Company issued 8,046,221 in shares to raise (pound)175,000 converted at $290,309
for use in its UK subsidiary for working capital and product development
expenses. The shares were issued in private placement transactions to qualified
investors or strategic partners or providers of services and goods to the
Company. pursuant to subscription agreements to sophisticated or accredited or
foreign investors or corporations at per share prices ranging from $.02 to $.04
per share recorded as the market price of the stock at the time of the
transaction or at the rate agreed to in the respective agreements if
appropriate.
In third quarter, 2003, the Company issued 1,700,000 shares for goods and
services at the market rate of $.02 per share at the time issued and expensed
$34,000 for the services. The Company issued 22,940,327 in common shares in
private placement transactions to qualified investors of strategic partners or
providers of services and goods to the Company to rise as converted into dollars
from sterling $600,889 for use primarily in its UK subsidiary for working
capital and product development expenses. The shares were issued pursuant to
subscription agreements to sophisticated or accredited or foreign investors or
foreign corporations at per share prices ranging from $.01 to $.04 per share.
The shares were recorded as the market price of the stock at the time of the
transaction or at the rate agreed to in the respective agreement if appropriate.
In some instances due to the timing of the receipt of funds and the associated
bank confirmations required from the subsidiary prior to issuing the shares, the
shares may be issued in a quarter following the actual receipt of funds as shown
on the financial statements.
In fourth quarter, 2003, the Company issued 4,537,500 shares for goods and
services at the market rate of $.02 to $.05 per share at the time issued and
expensed $142,875 for the services. $100,000 of the services related to advisory
services in the UK related to some of the share subscription agreements issued
below. The Company issued 29,514,300 in common shares in private placement
transactions to qualified investors of strategic partners or providers of
services and goods to the Company to raise cash as converted into dollars from
sterling $1,503,997 for use primarily in its UK subsidiary for working capital
and product development expenses. In some instances due to the timing of the
receipt of funds and the associated bank confirmations required from the
subsidiary prior to issuing the shares, the shares may be issued in a quarter
following the actual receipt of funds as shown on the financial statements. The
Company raised an additional $1,600,000 in late 4th quarter for which shares
were not issued until after year end 2003. The shares were issued pursuant to
subscription agreements to sophisticated or accredited or foreign investors or
foreign corporations at per share prices ranging from $.01 to $.05 per share.
The shares were recorded as the market price of the stock at the time of the
transaction or at the rate agreed to in the respective agreement if appropriate.
The company converted debt to holders unrelated to the Company in any way in
separate agreements with the respective parties for 851,300 shares or $36,027 of
debt at a rate ranging from$.02 to $.05 as negotiated with the respective
parties who were represented by independent counsel.
F-15
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1st quarter, 2004, the Company issued 10,585,000shares for goods and services
at the market rate of $.02 to $.05 per share at the time issued and expensed
$305.383 for the services. Five million of the shares were issued to an employee
of the Gametrac subsidiary. $125,000 of the services related to advisory
services in the UK related to some of the share subscription agreements issued
below and were issued to a stockholder who is currently a consultant to the
Gametrac Europe Ltd subsidiary. The Company issued 58,053,778 in common shares
in private placement transactions to qualified investors of strategic partners
or providers of services and goods to the Company to raise cash as converted
into dollars from sterling $2,977,833 for use primarily in its UK subsidiary for
working capital and product development expenses. The shares were issued
pursuant to subscription agreements to sophisticated or accredited or foreign
investors or foreign corporations at per share prices ranging from $.03 to $.20
per share. The shares were recorded as the market price of the stock at the time
of the transaction or at the rate agreed to in the respective agreement if
appropriate. There was also a debt conversion of $45,000 greed to in 4th quarter
2003 and completed in January 2004 for the issuance of 1,125,000 shares at a
negotiated sum of $.04 per share. The Company raised an additional $1,500,000 in
first quarter 2004 which was contributed to the Company by two large
shareholders who sold their share position in private transactions for which the
Company entered into an to replace the shares at the same per share price that
the firms sold their shares of the Company to various unrelated private
investors.
As to all recent sales of unregistered securities at the time of each issuance,
each investor or recipient of unregistered securities was either an accredited
investor or a sophisticated investor or a foreign investor exempt from the
Securities Acts requirements. Each had access to financial information available
in public markets and was offered the opportunity to review any documents that
they requested prior to making said investment.
3. Conversion of debt to equity
No debt was converted to equity in first quarter ended March 31, 2003. See #4
below and #2 above for further conversions of debt.
4. Tiger Telematics - Loans from stockholders.
The Company borrowed approximately $187,000 from a shareholder of the Company
who is associated with Tiger Telematics, Europe, Ltd. The loan is evidenced by
non-interest bearing promissory notes.
In May 2003 the company borrowed $10,000 in a convertible demand loan with
interest of $500. for 20 days in order to meet working capital needs. The loan
provides that it in event it is not timely repaid as due it can be converted
into restricted 144 Rule common stock of the company at the lowest quoted price
for the Company's shares or the lowest conversion price or shares issuance by
the Company at the discretion of the creditor. In June 2003 the loan was
converted into common stock of the Company at the rate of $.01 per share.
During the fourth quarter of 2003 the company converted the then outstanding
debt to stockholders of the UK Ltd. company to common stock at the rate of $.02
which was the market price of the common stock as of the date that the
agreements were entered into in August 2004 with the numerous debt holders for
debt of (pound)886,000 at the time converted at 1.58 to $1,400,000. The Company
issued 70 million shares of common stock in the conversion of this debt to
common stock. The debt conversion negotiated based on arms length transaction
did involve certain officer and directors of the Company and or its Gametrac
Europe Ltd subsidiary. In addition the Company converted certain additional debt
owed to a non-officer non director shareholder whom the Company was indebted to
for (pound)143,500 converted at 1.58 to $226,730 and issued at $.02 per share
11,336,500 million shares of its common stock. That person became affiliated
with the Company in April 2004 as a Head of Investor Relations in an agreement
unrelated to the above transactions.
F-16
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.Shareholder approval of increase in authorized share capitalization.
At a stockholders meeting as (properly adjourned) on May 9, 2003 shareholders of
the company approved an increase in authorized shares authorized by an
additional 150,000 shares from 100,000 shares to a new total authorized of 250
million shares effective as of that date.
At a stockholders meeting as (properly adjourned) on January 16, 2004
shareholders of the company approved an increase in authorized shares authorized
by an additional 250,000 shares from 250,000 shares to a new total authorized of
500 million shares effective as of that date.
7. Press releases on product development progress and strategic partners of the
Company.
In order to accomplish the difficult task of converting the Gametrac idea into
an actual product, the Company over the past seven months, has entered into
several strategic partnerships with some of the most reputable design,
engineering, software, manufacturing, and public relations companies in the
world. Below is a compilation of strategic relationships that the company
announced in various public press releases since second quarter 2003 to date.
In the third quarter 2003 the Company entered into a joint venture with Plextek,
one of the largest independent electrical design and consulting firms in the UK.
Within weeks, a strategic partnership was formed with Synergenix Interactive AB,
regarding the use of Morphum games on Gametrac's mobile gaming platform.
The Company entered into a strategic partnership with Intrinsyc Software
International, a Microsoft Gold Level Windows Embedded Partner, and elected to
utilize Windows CE.NET as Gametrac's operating system.
Working together with Xilinx, another huge firm that's widely respected
throughout the electronics industry, Plextek and Intrinsyc produced for the
Company the initial Gametrac units that were displayed at the 2004 Consumer
Electronics Show in Las Vegas in January 2004.
The Company announced collaboration with Fathammer Alliance, a leading supplier
of advanced 3D graphics and game technologies for mobile platforms, a move that
that the Company believes will assure that the quality of the games is
consistent with the quality of the device.
A strategic partnership between the Company and MINICK was announced. MINICK has
already built one of the largest premium messaging networks in Europe, and
operates its own SMS & MMS centers that connect directly to mobile networks.
This partnership sets the stage for Gametrac units serving as a platform that
allows the Company's Smart Advertising (Smart Adds) service.
Then in late February 2004 it was announced that Gametrac will be using
Samsung's world-class S3C2440 Mobile Applications Processor. The Company
believes that Samsung, known for its distinguished multimedia and gaming
experience, was an excellent addition to the team and will help assure that
Gametrac's performance remains one of the fastest on the market.
In early March the Company announced its plans to use a cutting-edge audio IC, a
single chip MIDI synthesizer, that's made by respected audio specialist
Micronas, a move that will provide Gametrac units with notably superior audio
quality.
The Company announced its attendance at industry shows where the new handheld
device has been displayed including CeBit in Hanover Germany in March 2004 and
the yet to be held E-3 in Los Angeles in May 2004.
In March 2004 the Company created a new wholly owned Delaware subsidiary
Gametrac USA Inc. to handle future marketing and potential distribution if and
when the Company determines to launch the product in the United States. The unit
has not been made operational to date.
F-17
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On the production front, the Company announced in mid-December that Celestica, a
huge and respected worldwide leader in delivering innovative electronics
manufacturing services (EMS), will be providing Gametrac with manufacturing
services.
In late March 2004 the Company signed an agreement with CATIC, a giant State-Run
Chinese conglomerate, which involved "... sales, distribution, technical
support, and numerous other joint ventures for all Chinese regions,"
In early April the Company announced that it had selected Ogilvy Public
Relations Worldwide as its Agency of Record. Ogilvy currently represents some of
the most reputable companies in the consumer-oriented electronics industry,
including but not limited to Cisco, Dell, HP, Microsoft, NCR, Oracle and Xilinx.
The Company has some funds expended in developing several related concepts
associated with marketing its Gizmondo device related to game development, music
and film. The Company has also negotiated for potential acquisitions of related
entities involving game development and modeling but no definitive arrangements
have been agreed to. The Company has entered into an agreement to sponsor a
formula one driver as a part of marketing the Gizmondo, which will be announced
in the near future when all aspects of the agreement are concluded and
finalized.
5. Litigation.
In March 2004 Jordan Grand Prix Ltd. filed suit against the Company in the UK
alleging violation of the Sponsorship Agreement entered into between the Company
and Jordan Racing in July 17, 2003 and a related Letter Agreement dated in July
2003. The sponsorship agreement was meant to assist in marketing the companies
new hand held gaming device and to correspond with its launch. The launch was
delayed from its anticipated time frame. Jordan sued the Company for $3 million
and alleges that the Company defaulted in a payment due on January 1, 2003 of
$500,000 under the sponsorship agreement and a payment for $250,000 due on the
same date under a separate letter agreement. On February 26, 2004 Jordan sent
the Company a letter where they formally and officially terminated both
agreements for the aforementioned alleged defaults. The Company believes that it
has good defenses to the suit and has filed a defense in UK courts and is
considering filing a countersuit against Jordan Racing in the matter in the
upcoming months. As no amounts were due as of the date of these financial
statements, no provision has been made on the financial statements for this
litigation.
In March 2004, the Company and it's Gametrac Europe Ltd. subsidiary were sued in
the UK in a trademark infringement suit by IN 2 Games Ltd. to recover over
(pound)150,000 alleging that the use of the project name Gametrac for its
multi-entertainment handheld device that is in development and the use of
Gametrac in the name of the subsidiary was an infringement on their registered
trademark in the UK "Gmetrak". The company contested the suit and anticipates a
speedy resolution as it agreed to a trial in May 24, 2004 in an agreement
between it and In2 Games Ltd. approved by the court. The Company had previously
planned to announce the name of its new device in May at E-3 show in LA but went
forward and announced the new name Gizmondo in April 2004. The company has also
taken steps to remain the Gametrac Europe Ltd. subsidiary to Gizmondo Europe
Ltd. The company anticipates that with the new product name change announcement
and its step to rename the subsidiary in the UK that it will be able to resolve
the litigation on an amicable basis although no assurances can be given. No
provision has been made on the financial statements for the litigation.
F-18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 23E of the Securities
Act of 1934, as amended. These statements relate to future events or future
financial performance. Any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements. In
some cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expect," "plan," "anticipate," "intend", "believe,"
"estimate," "predict," "potential" or "continue," or the negative of such terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person or entity, assumes responsibility for the accuracy
and completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Form 10-Q to conform such statements to actual results or to changes in the
Company's expectations.
The following discussion should be read in conjunction with the Company's
financial statements, related notes and the other financial information
appearing elsewhere in this Form 10-Q. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business.
General
Overview
In May of 2001 the Company completed a reverse shell merger with Media
Communications Group, Inc. ("MCGI"). Prior to the acquisition of Floor Decor,
MCGI was a "public shell" company, with no significant operations or assets. The
acquisition of Floor Decor was accounted for as a reverse acquisition. Under a
reverse acquisition, Floor Decor is treated for accounting purposes as having
acquired MCGI and the historical financial statements of Floor Decor become the
historical financial statements of MCGI. Therefore, all references to the
historical activities of the Company refer to the historical activities of Floor
Decor. Floor Decor changed its name to Tiger Telematics, Inc. on June 6, 2002.
Tiger Telematics, Inc. ("Tiger Telematics" or "the Company" previously named
Floor Decor, Inc.) is the parent company of three subsidiaries. The first
subsidiary, Media Flooring, Inc., operating through its subsidiary Floor Decor
LLC, operates a flooring products sales and service business, which represented
all of the business operations of the Company during 2001. The company announced
the discontinuation of the flooring segment on June 6, 2002 and sold the assets
on August 9, 2002. On February 4, 2002, the Company acquired its second
subsidiary, Tiger Telematics LTD, a UK company, which develops and provides
telematics products and services to the business-to-business segment in Europe.
On June 29, 2002 the company set up its third subsidiary Tiger Telematics USA,
Inc. and it acquired the assets and certain liabilities of Comworxx, Inc. a
Sarasota, Florida based entity that provides telematic products and services to
the business to consumer segment in the United States. That business suspended
operations and disposed of its assets in 2nd quarter of 2003. . In December 2003
the Company sold Tiger Ltd. And started Tiger Europe Ltd. to develop Telematics
and related products using the GPS function.
Telematics
On February 4, 2002, the Company acquired Eagle Eye Scandinavia Distribution,
Ltd, and changed its name to Tiger Telematics Ltd. The consideration paid in
this transaction consisted entirely of shares of the Company Common Stock, as
was reported in the Company's Current Report on Form 8-K dated February 19,
2002. The business was sold in December 2002 but the company set up another
Company Tiger Europe Telematics, Ltd (rename Gametrac Europe Ltd. to continue to
develop and market telematic products.
Gametrac Europe Ltd. is an early stage company engaged in the development and
distribution of telematics and related products. Telematics products allow the
wireless exchange or delivery of communication, information, and other content
between a vehicle and its occupant, and external sources or recipients. The
telematics industry aggregates the functionality and content of various
industries including consumer electronics, cellular and security devices, among
others, into a seamless service offering.
On June 25, the company created a wholly owned subsidiary Tiger Telematics, USA,
Inc. that acquired the assets and certain liabilities of Comworxx Inc. as
disclosed in the note G to financial statements. That subsidiary is currently in
a dormant state having disposed of the business and assets of the unit.
The Company's primary focus beginning in third quarter 2003 has been on the
development of a new handheld wireless product project name gametrac that was
recently renamed gizmondo. In additional to being an exceptional gaming device,
Gizmondo also performs the following functions: It serves as a movie player,
allowing users to view full-feature videos using the unit's built-in SD Card
slot; it functions as an MP3 player permitting users to download, store, and
listen to select audio files; it's an SMS & MMS messaging facility that lets
users easily send text, image, and music files; and it sports a neat,
high-resolution digital camera.
Gizmondo's also equipped with a unique global positioning system; it's wired for
GSM tri-band networks so it can be used in 5 continents; it supports Bluetooth
wireless capabilities, which allows not only multi-player competition, but also
makes connecting to any enabled device a snap; it has UBS capabilities; and with
its removable memory cards, it provides users with unlimited storage.
In addition to having more features than any competing units, Gizmondo's also
equipped with a 400 MHz Samsung processor and a built-in 64-bit graphics
accelerator and, it's the only mobile gaming unit that uses Microsoft Windows
(CE.NET) as its operating system.
The Company anticipates bringing the Gizmondo product to the market in the
summer of 2004 although assurances can be given. The coming is focused on the
rapidly growing mobile gaming industry, at this point it's impossible to
reference any industry averages or trend rates because it's such a new industry.
At present, it appears Gizmondo's primary competition will come from Sony's new
PSP and Nintendo's new dual screen unit called DS. Another smaller but
noteworthy industry member is Tapwave, with its PDA-like Zodiac models, which
have mobile gaming capabilities. And Nokia with its gaming cell called N-Gage,
which Nokia is reportedly to re-design and eventually re-introduce.
And while Sony and Nintendo remain as truly formidable competitors with much
more assets and capital then the Company, the Company anticipates for a much
earlier launch date than either one of them.
Three months-ended March 31, 2003 compared to the three months ended March 31,
2002
Below is a summary of the results of the company for the nine months ended March
31, 2003.
Net Sales: The Company's net sales were $1,050 in the first three months of
2003.compared to $28,520 for the same period in 2002 from continuing operations.
This is principally due to not having unit sales from the sold entity of Tiger
Ltd.(sold in December 2002) that reported sales in the comparable period of the
first three months of 2002. With the new start up Tiger Europe Ltd. the company
was focused in first quarter 2003 on building its next generation of product
with enhanced features and in developing accounts and doing trails in the rental
car business areas. In first quarter 2003 trials were under way at a rental car
a concern. Those trials were concluded successfully in second quarter 2003 but a
contract was not received from the enterprise.
Gross Profits: Gross profits were $(2,238) for the first three months of 2003
compared to $(2,496) for the first three months of 2003. The telematics products
reported negative gross profits as part of the initial strategy used to
introduce its new product in the marketplace. A critical mass of shipments is a
key to improving the gross profit margin. Similarly, with sunken technology
development costs, the gross margin can rapidly improve as volumes of shipments
increase. The company has a substantial expertise in software development, which
will improve gross profit in future quarters. The company expended funds in the
first three months in the development of an improved fleet product with enhanced
features. The Company has made an initial investment in a new child tracker
product that was abandoned later in 2003 when the focus switched to gaming
handheld entertainment device.
Selling Expenses: Selling and marketing expenses for the first three months of
2003 were $40,102 compared with $124,403 for the same time period in 2002. Much
of the $84,000 reduction can be attributed from not having the costs of the
divested Tiger Ltd. which was in the first quarter of 2002 and the
transformation of the company into a development concern with a focus on selling
to rental car concerns. Most of this actual cost related to the establishment of
potential orders for rental car Telematics products and a UK based motor bike
company that produced motor bikes in China.
General and Administrative Expenses: General and administrative expenses for the
first three months of 2003 were $504,988.67 compared to $828,586 or down over
$300,000. This decrease came from the lower costs with the divestiture of Tiger
ltd. in December 2002 and the associated staff reductions from the sale. In
order to further reduce expenditures the Company downsized and relocated its
corporate office in late 2002 and continued to operate at a reduce cost rate in
2003 first quarter as compared to the same time period in 2002. A significant
reason for actual costs incurred in 2003 to date of being a public company,
primarily fees for accounting, legal, and professional services. These fees were
approximately $181,475 in the first three months of 2003 although some of the
expenses were normal fees of running any business. Expenditures were made
configure the product to obtain to obtain the coveted Thatcham Q class rating
for the product. This rating may allow insurance companies to provide a discount
in costs to users of Tiger's telematics devices. Expenditures have been made in
developing several new products including Child Tracker devices(since
terminated) and gaming handheld devices. All of these costs are expensed as
incurred and are not capitalized for financial reporting purposes. Tiger
Telematics, Inc. anticipates an increase in its general and administrative
expenses in future periods as part of its product development strategy.
Other Expenses: Other expenses for the first three months of 2003 were $31,616
as compared to $28,320 for the first three months of 2002. Other expenses
consisted of interest expense on loans of $10,760 and currency translation
adjustments of $20,856. The currency translation adjustment accounted for
virtually all of the increase in this category and is due to the drop in the
dollar currency relative to the sterling since the acquisition of Tiger Ltd. in
February 2002 and carrying foreign based assets on the balance sheet. Interest
in 2003 of $10,760 is $11,596 lower or about 100% less than in the first three
months of 2002 as the company converted certain interest bearing debt to common
stock during the 4th quarter of 2002.
Net Loss from continuing operations: The Company reported an operating loss of
$547,489. in first quarter of 2003 compared to $955,485 for the same time period
in 2002. The loss was lower due to the costs associated with the divested Tiger
Ltd. No longer included in operations since it was sold and the cost reductions
undertaken in late 2003. Management does anticipate that its losses in future
quarters will grow materially as it expenses trial costs for its Telematics
products into the rental car industry and it expenses development cost for its
new products of GPS and gaming device Gizmondo. The Company's management staff
has been right sized and has expertise and infrastructure to grow the Company
rapidly. Management considers these costs as an investment in setting the
Company in a position to grow rapidly in the near future.
Net Loss from discontinued operations: The Company reported a loss from
discontinued operations of $0 in the first three months of 2003 as compared to a
$189,390 loss in the same time period in 2002. On August 9, 2002, the company
sold the assets of the flooring segment effectively eliminating that segment
going forward from that date.
Net Loss: The Company incurred a total loss of $579,105 for the first three
months of 2003 as compared to a loss of $1,173,195 for the first three months of
2002. The difference of nearly $600,000 reduction is attributed the divestiture
of Tiger Ltd. and not having its losses in 1st quarter 2003 results and the cost
reductions taken in late 2002 that helped results for the first quarter of 2003.
There will be no discontinued operation impacting 2003 going forward. The UK
subsidiary will incur costs in the development of its new products and in
marketing its Telematics products. The anticipates that future net losses per
quarter will be considerable higher then in first quarter as the company
increases the expenditures in product development for Gizmondo and marketing in
moving products to the market.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that are material to investors.
In 2002 and during 2003 the Company funded its operating losses and start-up
costs principally with loans from stockholders or other parties and through the
issuance of shares of commons stock. Without such equity funding the Company
would not have been able to sustain its operations.
In the three months ended March 30, 2002, the Company's working capital improved
slightly This was the result of in current assets, consisting of decreases in
accounts receivable of $86,567, inventory of $132,580, prepaid expenses and
other current assets of $82,821, and assets of discontinued operations of
267,210, offset by increases in current liabilities, consisting of increases in
accounts payable of $394,161, accrued expenses of $695,050, and increased by a
reduction of liabilities to stockholders of $202,413 and liabilities of
discontinued operations of $904,380. $1,062,794 of the payables relates to Tiger
USA, and reflects contingent liabilities allegedly assumed in the purchase
agreement. These liabilities are of the subsidiary Tiger USA and may not be the
obligations of Tiger Telematics, Inc although they are carried as Accounts
Payable on the Consolidated Balance Sheet. As discussed in Note J. Business
Considerations to the Consolidated Financial Statements the Company has hired a
legal counsel to analyze and advice as to potential liabilities arising from the
purchase of the assets of Comworrx and associated causes of actions against the
seller and its shareholders. The Company has been in continued recent discussion
with the seller regarding a settlement of the obligations. Also, in the three
months ended March 31, 2003 the amounts due stockholders reduced as a result of
the debt conversions of certain stock holders to equity not fully offset by
continued loans from stockholders. The Company also retired $93,100 of
obligations in first quarter by issuing shares of commons stock.
Certain creditors of the company's Tiger Ltd. have made formal demands on the
Company for repayment of indebtedness for services or products ordered by the
company. To date, the company has been able to meet those demands with payments
or enter into acceptable payment arrangements but without additional funding
these demands can not be met in the future.
The Company does not have any bank loans or lending facilities. The Company has
obtained loans from stockholders and raised additional financing through private
placements of shares of common stock principally from accredited foreign
investors. Se also Note K Subsequent Events. On August 9, 2002 the Company sold
the assets of the flooring division including this inventory, which improved
liquidity requirements during the balance of 2002 and in its quarter of 2003 as
the purchaser retired certain obligations which were removed from the Company's
balance sheet. The Company continued to issue shares of Common Stock in the
first quarter and subsequent quarters of quarters of 2003 to retire certain
obligations due for payment.
The Company incurred operating losses in 2000 and in the first three months of
2003 of $13,500,00 and $579,000 respectively. Since the Company was not able to
generate positive net cash flows from operations, additional capital was needed.
This capital has been provided by certain principal stockholders, who have
funded the Company through loans as needed, and from the sale of Common Stock
and warrants through private placement transactions.
In October 2002, certain stockholders converted $455,176 of debt into Company
Common Stock which reduced debt and improved liquidity in the balance sheet. The
Company anticipates further cash assistance in the form of loans from its
stockholders to assist in liquidity while the Company raises additional capital
although no assurances can be given that they will be able or willing to
continue such support. The sale of the assets of the flooring segment on August
9, 2002 helped liquidity as liabilities assumed were less than assets sold and
the Company no longer required to fund the operating losses and working capital
needs of that flooring segment going forward.
The Company evaluated the business of its acquired assets of Comworxx (acquired
on June 25, 2002 by the wholly owned subsidiary Tiger USA, Inc), to determine
the appropriate time if ever to launch these products full scale in the U.S.
Based on a post acquisition evaluation of the assets and market position of
Tiger USA, the Company determined that the goodwill from the acquisition was
impaired wrote it down in full in Second Quarter 2002. The Company retained
legal counsel to review its options under the purchase agreement that acquired
these assets. Although over a year has gone by the Company is in recent serious
discussions with the shareholders of the seller for modification of the terms of
the purchase agreement due in part to potential misrepresentation in the
purchase agreement that Comworxx was a viable business. They want certain
payments they allege are called for under the Purchase Agreement the Company has
had numerous discussions with the sellers in regards to a settlement agreement
and such discussions are being continued. The Company cancelled the launch of
the product permanently. The Company effectively mothballed the operations of
Tiger USA and discontinued those operations, and sold the assets in partial
payment to the landlord of the facility used by the business assets bought by
Tiger USA.
The Company will seek to raise additional equity financing as needed to fund the
development and the launch of the Gizmondo product as needed. However, there can
be no assurance this additional capital or other form of financing will be
available, or if available on terms reasonably acceptable to the Company.
The Company anticipates that it will meet its liquidity of capital needs for the
next twelve months through equity financing but no assurances can be given that
this will occur. As the company continues to experience negative operating
results in 2003 and 2004, the Company's liquidity will remain strained. The
Company is dependent upon financing from its shareholders and from the sale of
common stock of the company. There can be no assurances that the Company will be
able to continue to obtain this funding from external sources. There can be no
assurance that additional capital beyond the amounts forecasted by the Company
will not be required or that any such required capital will be available on
terms acceptable to the Company, if at all, at such time or times as required by
the Company.
Part II.
TIGER TELEMATICS, INC.
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Items 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Form 8K dated January 4, 2003
Form 8K dated January 22, 2003
Exhibit 31.1 Form 302 Certification.
Exhibit 32.1 Certification Section 906 of Sarbanes-Oxley Act of 2002
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.
TIGER TELEMATICS, INC.
/S/ Michael W. Carrender Chief Executive Officer, Director April 23,2004
------------------------ and Chief Financial Officer
Michael W. Carrender For the Registrant