UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number 001-15977
Tiger Telematics, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 13-4051167
(State of other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
10201 Centurion Parkway N. Ste. 600 Jacksonville, FL 32256
(Address or principal executive offices) (Zip code)
(904) 279-9240
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Exchange Act Rule 12b-2). Yes [ ] No [ X ]
Aggregate market value of common stock held by non-affiliates of the registrant
as of March 1, 2005 was $1,158,780,000.
Number of shares of common stock outstanding as of March 1, 2005 was 46.5
million.
DOCUMENTS INCORPORATED BY REFERENCE
None
Explanatory Note
Tiger Telematics, Inc. (the "Company") is filing this Amendment No.1 to its
Annual Report on Form 10-K for the year ended December 31, 2002 (the "Annual
Report") to include updated financial information in certain sections of Part
II, the information required under Part III and to include audited financial
statements and the notes and schedules thereto in substitution for unaudited
financial statements previously included in the Annual Report. Except to the
extent of the updated financial information in certain sections of Part II and
as required in Part III or in the financial statements or notes thereto, this
Amendment No.1 does not reflect events occurring after the filing of the
original Annual Report, or modify or update the disclosures therein in any way
other than as described above. The Company's financial position and results of
operations reflected in the audited financial statements included in this
Amendment No.1 are materially different from those reported in the original
Annual Report. Total assets increased approximately 44% and net loss declined
approximately 19%. The Company's business, capital structure and prospects,
however, are significantly different from those reflected in the original Annual
Report. For further information concerning these matters see the notes to the
financial statement included in this report.
In July 2004, the Company's shareholder's approved a 1 for 25 reverse common
stock split. Except as otherwise indicated all share amounts included in this
report reflect such reverse split.
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PART II
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data as of and for the year ended December
31, 2002, 2001 and for the period July 3, 2000, date of inception, through
December 31 2000 have been derived from the audited consolidated financial
statements of the Company. The selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (Item 7 of this report) and the audited
consolidated financial statements and related notes thereto included elsewhere
herein.
Year ended December 31, 2002, 2001 and period from July 3, 2000, Date of
Inception, through December 31, 2000.
2002 2001 2000
OPERATING DATA: (IN THOUSANDS,
EXCEPT SHARE AND PER SHARE AMOUNTS)
Net Sales $ 284 $ 0 $ 0
Cost of goods sold 385 0 0
----------- ----------- -----------
Gross loss (101) 0 0
General and administrative 5,172 283 0
Selling and marketing 597 0 0
----------- ----------- -----------
Operating loss (5,870) (283) 0
Other income, (expense) (4,826) 0 3
Interest expense, net (38) (146) (29)
----------- ----------- -----------
Net loss from continuing operations $ (10,734) $ (428) $ (26)
Net loss from discontinued operations (353) (871) (639)
----------- ----------- -----------
Net loss (11,087) (1,299) (665)
=========== =========== ===========
Basic and diluted net loss per
common share $ (3.9278) $ (0.5978) $ (0.3068)
=========== =========== ===========
Weighted average shares of
outstanding 2,822,876 2,173,099 2,169,467
December 31,
2002 2001 2000
BALANCE SHEET DATA: (IN THOUSANDS)
Working capital $ (5,398) $ (1,394) $ (899)
Total assets 647 1,299 830
Total liabilities 5,952 2,693 1,495
Stockholders' deficit 5,305 (1,395) (665)
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Item 7. 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-K 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-K. 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 affecting 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,
Inc. ("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.
The limited operating history of the Company makes its future results of
operations difficult to predict.
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
4
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. ("Tiger USA") and it acquired the assets and certain liabilities of
Comworxx, Inc. ("Comworxx"), a Sarasota, Florida based entity that was
developing telematic products and services to the business to consumer segment
in the United States. That business has suspended operations until the Company
does further evaluation.
On December 17, 2002, the Company sold Tiger Telematics. Ltd. to a Swedish firm
in exchange for a royalty agreement. At the same time, the Company formed Tiger
Telematics Europe, Ltd. ("Tiger Europe") to focus on Western Europe customers,
marketing principally in England and in developing its new generation of
products, developing and launching its child tracking devices.
Flooring - Discontinued Operations.
Floor Decor operated a "big box superstore" in Fort Lauderdale, Florida that
offered a wide selection of floor coverings including carpet, area rugs, wood,
and laminates at discount prices to both commercial accounts and retail
customers. The Company's store is over 40,000 sq. ft. and stocks an extensive
product line including over 5,000 area rugs and 1,000,000 sq. ft. of other floor
coverings. The assets and certain liabilities of the flooring business were sold
on August 9, 2002 effectively eliminating the flooring segment.
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.
Tiger Telematics Ltd. is an early stage company engaged in the development and
distribution of telematics 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. This business was an exclusive distributor of
a telematics product of one manufacturer in Scandinavia. In December 2002, the
shares of this business were sold to a Swedish company.
The Company also started another subsidiary in London, England, Tiger Telematics
Europe, Ltd., which focused on developing new telematics products, on developing
child-tracking devices and on marketing in England and Western Europe primarily
to large fleet suppliers such as rental car companies.
On June 25, 2002, the Company created a wholly owned subsidiary Tiger
Telematics, USA, Inc. that acquired the assets and certain liabilities of
Comworxx as disclosed in the note I to financial statements. That subsidiary is
currently in a dormant state after deciding that it cannot launch the products.
A non-cash provision of $1,152,713 was made in December 2002 for the bankruptcy
and liquidation of MINIME Inc., the buyer of the assets and Floor Decor LLC for
potential contingent liabilities that might arise from that transaction. In
5
first quarter of 2003, the Tiger Telematics Ltd. corporation was placed in
receivership by a certain creditor of the firm. The Company is monitoring this
process to determine if any potential liabilities could arise.
Results of Operations
The Company began operations in July of 2000; as a result it had no operating
results or balance sheet for 1999 with which to compare its results for 2000.
The Company opened its "big box superstore" in Fort Lauderdale, Florida in the
fall of 2000. The Company had very limited operations during the period from its
inception, July 3, 2000 through December 31, 2000 and reported sales of
$298,318.
The Company incurred operating losses in 2000. As of December 31, 2000, the
Company had an accumulated deficit of $665,404.
Twelve months-ended December 31, 2001 compared to the twelve months ended
December 31, 2000.
The Company had a single small retail store opened for business prior to
September 30, 2000 and this store was closed later in the year 2000. This retail
store sold products to customers but did not offer installation services for any
products sold. All products sold from this location were purchased at a
liquidation sale at costs that were lower than market value at the time of
purchase resulting in an unusually high gross margin percentage.
Net Sales: As a result of the classification to discontinued operations sales
for 2001 and 2000 are zero.
Gross Profits: Similarly, gross profit was zero for 2001 and 2000.
Selling Expenses: Selling expenses for 2001 and 2000 are similarly zero.
General and Administrative Expenses: General and administrative expenses for
2001 were $280,000 as compared to zero due to the reclass to discontinued
operations and the start-up of the business in late 2000. The reason for the
general and administrative expenses being high are the costs associated with
being a public company, primarily fees for accounting, legal, and professional
services.
The Company incurred costs during the 4th quarter related to evaluation of
several strategic opportunities. The sale of Eagle Eye in first quarter 2002 was
a result of this evaluation. Other Expenses: Other expenses for 2001 were
$146,000 as compared to $29, for 2002. The increase in other expenses consisted
primarily of interest expense on loans to stockholders.
Net Loss from continuing operations: The Company reported a net loss of $428,000
from continuing operations in 2001 compared to a net loss of $26,000 in 2000.
Setting up the Company's infrastructure and costs associated with being a public
company account for the difference.
Net Loss from discontinued operations: Discontinued operations recorded a net
loss of $871,000 in 2001 as compared to a loss of $639,000 in 2000. The
operation of flooring segment was discontinued in June 2002.
6
Net Loss: Although the Company reported an operating loss for 2001 of
$1,299,000, a substantial portion of the loss consists of expenses incurred in
preparation for anticipated growth of the Company. These expenses relate to
establishing a public company, pursuing strategic growth opportunities, such as
the acquisition of Tiger Telematics completed in February 2002. Similarly the
Company's management staff has been sized and has expertise and infrastructure
to grow.
Twelve months-ended December 31, 2002 compared to the Twelve months ended
December 31, 2001.
Below is a summary of the results of the Company for the twelve months ended
December 31, 2002.
Net Sales: The Company's net sales were $283,730 in of 2002. $102,047 of this
was shipped in fourth quarter. There are no comparables for the prior year since
the telematics unit was not acquired until February 2002. This includes
shipments of its telematics products that are not a part of the Company's
strategic business model. The Company defers income from connection fees from
telecom suppliers until the cancellation period expires on such contracts. This
represents deferred income that will be recorded prorated in future quarters.
The Company's business model is based on deriving its sales and subsequent
income from annual and monthly fees from the telecom providers unlike most of
its competitors who derived most of their income from the sale of hardware. The
Company did experience some returns of product in the 2nd quarter that were
subsequently shipped to other customers in July 2002. Many of these customers
were in Scandinavian countries and will not continue in 2003 as the Tiger
Telematics, Ltd. business, focused mostly in Scandinavian countries was sold in
December 2002. The Company believes that the pricing of its product offering, in
its business model, is less expensive than other competitive offerings.
Gross Loss: Gross loss was $(101,238) for the twelve months of 2002. The
telematics products reported a lower than anticipated gross profits as part of
the initial strategy used to introduce its new product in the marketplace
earlier in 2002. A critical mass of shipments is a key to improving the gross
profit margin. This is evident by results for fourth quarter where the gross
profit was 44,629 or about 40%. It is anticipated that a higher level of
shipments will be reached by the first half of 2003 to further improve the
margin. Similarly, with sunken technology development costs, the gross margin
can rapidly improve as volumes of shipments increase. Although basic telematics
devices are can be built, the accompanying software is much more challenging.
The Company has a substantial expertise in this development, which will improve
gross profit in future quarters. The Company expended funds in hiring and
retaining several new executives and supporting staff with expertise in
technology, telematics, wireless and developing products in the telematics
space. The Company has expended funds in the development of an improved fleet
product scheduled to ship first units now in 2003, as opposed to 2002 as
originally expected due to a shortfall in funding during the current quarter.
The Company has a substantial expertise in software development, which will
improve gross profit in future quarters. The Company has expended funds in the
2002 in the development of an improved fleet product with enhanced features
scheduled to ship units in 2003. The delay in finishing the product was caused
primarily by serious funding shortfalls during the current quarter. The Company
has made an initial investment in a new generation of child tracker products.
Funding shortfalls have delayed their competition also. These are scheduled to
launch in third quarter of 2003.
7
Selling Expenses: Selling and marketing expenses for the 2002 were $597,188.
Most of this cost relates to the establishment of potential customers. The sale
of Telematics products is a difficult and often lengthy process. The Company has
concentrated its marketing effort recently in the UK to large fleet holders
based throughout Europe. The Company enjoys a healthy interest in its products
but still lacks funding for working capital and has experienced some problems at
the manufacturer of the base units on delivery. The Company's Scandinavian order
book was a part of the sale of the Tiger Telematics Ltd. business in December
2002. The Company has expended funds in arranging strategic partnerships with
wireless telecom providers in order to implement its recurring revenue business
model. However, as the operations of the Company' telematic products are
shipping, advertising expense and overall selling expenses as a percentage of
sales is anticipated to decrease.
General and Administrative Expenses: General and administrative expenses for the
twelve months ended December 31, 2002 were $5,171,731. $2,181,747 of this
related to writedowns of intangible assets related to Tiger Telematics Ltd. and
its sale in December 2002. A significant reason for this increase is the costs
associated with being a public company, primarily fees for accounting, legal,
professional and consulting services. These fees were approximately $1,063,820
in the twelve months of 2002 including $180,000 of expenses was incurred in the
costs of an aborted financing effort with Jefferies and Co, Inc. that was not
successful. The Company also incurred costs during 2002 related to the
evaluation of several strategic opportunities. The purchase of Tiger Telematics,
Ltd. and the Comworxx, Inc.'s assets are two of the results of this evaluation.
In addition, the development of Tiger Telematics Ltd. (now sold) and Tiger
Telematics Europe Ltd. also contributed to the increase in the general and
administrative expenses of the Company. Expenditures were made to configure the
TT7000 product 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 the Company's telematics devices. Some costs related to the development
of the infrastructure for the telematics business including product development,
engineering, training of installers, and other administrative efforts to
facilitate anticipated sales. In addition, several companies are now conducting
trials of the product in Europe that costs the Company currently but may result
in the shipment of devices for entire fleets of the customers currently in the
trial stage. Expenditures have been made in developing several new products
including Child Tracker devices. Tiger Telematics, Inc. anticipates a decrease
in its general and administrative expenses in future periods with the sale Tiger
Telematics Ltd. In order to reduce expenditures the Company has downsized and
relocated its corporate office in the U.S. and in England to smaller less
expensive facilities. The Company also incurred costs during the third quarter
of 2002 related to the evaluation and the attempted but failed integration of
the purchase of Comworxx's assets. As discussed in note I to the Consolidated
Financial Statements, the Company wrote down the remaining assets acquired from
Comworxx.
Other Expenses: Other expenses for the twelve months of 2002 were approximately
$5,350,000 as compared to $145,600 in 2001. $4,884,733 of the amount relates to
the non-cash write-down of the impaired goodwill and other intangibles from
acquisitions, principally the assets of Comworxx. The Company took a write-down
in third quarter of the intangible order book asset of $1,000,000 to reflect the
potential loss of orders from the delay in shipping product since the original
acquisition of the product and the impact of the new recurring revenue model on
the accounting for intangible assets. A subsequent write-down in forth quarter
of $2,103,830 relates to the loss on sale of Tiger Telematics Ltd. where the
intangible assets carried on the Company's balance sheet of the order book and
8
Scandinavian distribution agreement were written off with the sale of the unit.
Other expenses consisted of interest expense on loans of $37,712 and a currency
transaction loss of $189,724. The currency transaction adjustment accounted for
virtually all of the change in this category and is due to the drop in the
dollar currency relative to the sterling since the acquisition of Tiger
Telematics Ltd. in February 2002 and the impact of the sale of Tiger Telematics
Ltd. in December 2002. Interest in 2002 of $37,712 is $107,888 or 74% less than
in 2001. This reflects the lower interest charged on shareholder debt as it was
mostly converted into equity in 2002, $77,000 in interest bearing notes remained
on the balance sheet as of December 31, 2002
Net Loss from continuing operations: The Company reported an operating loss of
$10,734,317. $4,884,733 of the loss is the non-cash write down of the impaired
goodwill and other intangibles, principally from of the assets of Comworxx
acquisition. $669,000 is the provision for the non-cash write-down of the
remaining assets from the assets of Comworxx acquisition. A $1,000,000 loss was
taken in third quarter to write-down the order book related to Tiger Telematics
Ltd. to realized value in light of the shipping problems created by the lack of
working capital. Additionally, $2,103,830 relates to the write-down of
intangible assets of remaining value of order book and distribution agreement
with the sale of Tiger Telematics Ltd. $1,152,713 reflected a provision for
potential liabilities related to the April 2003 bankruptcy and subsequent
liquidation of the buyer of Floor Decor LLC and its assets. 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. Management
believes the costs will be lower as a percentage of sales in 2003 since sales
growth is expected to exceed increases in operating expenses.
Net Loss from discontinued operations: The Company reported a loss from
discontinued operations of $353,430. On August 9, 2002, the Company sold the
assets of the flooring segment effectively eliminating that segment going
forward from that date. Included in the number is the actual impact of the sale
including a gain on sale.
Net Loss: The Company incurred a total loss of $11,087,747 for the twelve months
of 2002. $4,884,733 was the non-cash loss from the write down of impaired
goodwill, principally related to the acquisition of the assets of Comworxx and a
related $407,000 write-down of the remaining assets from the Comworxx purchase.
$2,103,830 was the write down of the order book and distribution agreement as a
part of the loss on the sale of Tiger Telematics Ltd. in December 2002.
$1,152,713 reflected a non-cash provision for the potential contingent
liabilities related to the bankruptcy and subsequent liquidation of the buyer of
Floor Decor LLC and its assets, which occurred in April 2003. The Company
anticipates that future net losses per quarter will be lower as shipments get
made in future quarters for revenue to offset the costs associated with the
operation.
Liquidity and Capital Resources
In 2000 the Company funded its operating losses and start-up costs principally
with loans from shareholders or other parties. Without such funding the Company
would not have been able to sustain its operations.
In the twelve months ended December 31, 2001, the Company's working capital
decreased by $919,000. This decrease all in discontinued operations was the
result of increases in current assets, consisting of increases in accounts
9
receivable of $36,000, inventory of $183,000, and prepaid expenses and other
current assets of $13,000, offset by increases in current liabilities,
consisting of increases in accounts payable of $544,000, accrued expenses and
other current liabilities of $112,000, and customer deposits/deferred revenue of
$70,000. Also, in the twelve months ended December 31, 2001 the amounts due
stockholders decreased by $348,000 and the Company received $629,000 in notes
from other stockholders. The Company also raised $574,200 from the first portion
of a private placement of common stock and warrants.
The Company in 2001 had no bank loans to draw upon. Instead, the Company has
obtained loans from stockholders and from private placements of shares as
described in this report and via private placements of shares.
The Company incurred net losses in 2000, in 2001 and in 2002 of $665,000,
$1,299,000 and $11,087,747 respectively. These operating losses caused cash flow
from operations to be ($956,000) and ($713,000) and in the period from July 3,
2000 (inception date) through December 31, 2000 and for the twelve months ended
December 31, 2001, 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. - Refer to note J in the accompanying financial
statements.
In the fourth quarter of 2001, the Company also borrowed approximately $130,000
from Banyan Capital Partners Ltd. In December 2001, the Company initiated a
private placement and raised $574,200 of equity. An additional $1.8 million of
equity (including the conversions of $923,000 of certain debt owed to
stockholders) was raised during January through March 2002. Banyan Capital
Partners Ltd. assisted the Company in this process. This $2.4 million equity
funding was used to provide liquidity to Tiger Telematics, extend the closing
date of the Hamway Flooring transaction (now expired), and to fund operating
losses and negative cash flows including the expenses of operating a public
reporting company.
In the twelve months ended December 31, 2002, the Company's working capital
deteriorated further. This was the result of decreases in current assets,
consisting of increases in accounts receivable of $116,648, inventory of
$163,489, and an increase in prepaid expenses and other current assets of
$129,204, and a decrease in assets of discontinued operations totaling
$1,278,443, offset by increases in current liabilities, consisting of increases
in accounts payable of $1,450,998, accrued expenses of $1,961,644, an increase
in notes payable of $199,565 and an increase in amounts due stockholders of
$204,014. Liabilities of discontinued operations also decreased by $735,408. The
increase in payable relates in part to Tiger USA, and reflects liabilities
assumed in the purchase agreement. These liabilities are of the subsidiary Tiger
USA and may not be the obligations of Tiger Telematics, Inc. As discussed in
Note I and Note K, the Company has hired legal counsel to analyze and advise as
to potential liabilities arising from the purchase of the assets of Comworxx and
associated causes of actions against the seller and its shareholders. The
increase in accrued expenses represents a provision made for contingent
liabilities related to the bankruptcy of the buyer of the assets of the flooring
segment. Also, in the twelve months ended December 31, 2002 the amounts due
10
stockholders reduced as a result of the debt conversions of certain stock
holders to equity offset by continued loans from stockholders. The Company also
raised $877,000 net of advisory fees, from the final portion of a private
placement of common stock and warrants during first quarter 2002.
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. On August 9, 2002, the Company sold the
assets of the flooring division including this inventory, which will improve
liquidity requirements during the balance of 2002. The Company continued to
issue shares of common stock in early 4th quarter to retire certain obligations
due for payment.
The Company incurred net losses in 2001 and in 2002 of $1,299,080 and
$11,087,747 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 December 2001, the Company initiated a private placement of common stock and
warrants and raised $574,200 of equity. An additional $1.8 million of equity
(including the debt to equity conversions of $923,000 of certain stockholders)
was raised during January through March 2002. This $2.4 million equity funding
net of expenses was used to provide liquidity to Tiger Telematics and to fund
operating losses and negative cash flows including the expenses of operating a
public reporting company. In February and March 2002, the Company obtained
approximately $290,000 from stockholders of interest free advances and
promissory notes due upon demand to fund operations of Tiger Telematics Ltd. In
second quarter 2002, the Company sustained operations by obtaining loans from
stockholders. 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 is no longer required to fund the operating losses and
working capital needs of that flooring segment going forward.
The Company is evaluating the business of its acquired assets of Comworxx
(acquired on June 25, by the wholly owned subsidiary Tiger USA). 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. The Company retained legal counsel to review its options under the
purchase agreement that acquired these assets. The Company is in 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. Unless new arrangements can be
negotiated the Company has several available options including but not limited
to litigation. Given the high relative cost of the product relative to the
projected sales price available for such products in the U.S. consumer
marketplace, the Company has decided not to launch the product. The Company
closed the operations of Tiger USA and may sell the assets or attempt to rescind
the original purchase agreement.
The Company's $3 million in secured financing did not materialize. In the fourth
quarter of 2002, the Company executed a subscription agreement with a company to
sell 7,500,000 shares Common Stock of the Company for $0.20 a share to generate
$1,500,000. The investor did not close the transaction reportedly due to the
Company's declining stock price. The Company's effort to raise additional equity
financing for working capital through an arrangement with Jefferies and Company
11
was aborted and was not successful, the Company will continue to seek to raise
additional money and equity through various alternate strategies. 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 not be able to meet its capital needs for
the next twelve months without further equity financing but no assurances can be
given that this will occur. The Company has discontinued and sold its flooring
operations, sold its Tiger Telematics Ltd. business to in part reduce debt,
conserve working capital and to reduce costs going forward to run the remaining
business. Despite incurring a non-cash loss on the sale, the Company sold Tiger
Telematics Ltd. in order to reduce its debt and to focus on the limited
resources available on a more narrowly focused market in England. The Company
believes that the sale was necessary to ensure the continued survival of the
remaining operations. The Company has shrunk its operations and may need to
further shrink its operations to sustain its remaining operations. As the
Company continues to experience negative operating results in 2003, the
Company's liquidity will remain strained.
There can be no assurance that additional capital beyond the amounts forecasted
by the Company will be available on terms acceptable to the Company, if at all,
at such time or times as required by the Company.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations transacted after June 30, 2001. SFAS No. 141 also specifies
criteria that intangible assets acquired in a business combination must meet to
be recognized and reported separately from goodwill. The Company will utilize
SFAS No. 141 to account for business acquisitions completed in 2002 (see Notes I
and J to the financial statements).
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which eliminates amortization of goodwill and intangible assets that
have indefinite useful lives and requires annual tests of impairment of those
assets. The provisions of SFAS No. 142 are required to be applied starting in
2002, and will also be utilized for future business acquisitions.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from acquisition, construction, development and/or normal use of
assets. The Company also records a corresponding asset, which is depreciated
over the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation will be adjusted at the end of each period
to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Company is required to adopt SFAS No. 143 on
January 1, 2003. The Company is currently evaluating the timing of adoption and
the effect that implementation of the new standard may have on its results of
operations and financial position.
12
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs of sale. The Company was required to adopt SFAS
No. 144 on January 1, 2002. The adoption of SFAS No. 144 is not expected to
materially impact the Company's results of operations and financial position.
Forward-Looking Statements
This report contains forward-looking statements that are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995.
Statements as to what the Company "believes," "intends," "expects," or
"anticipates" and other similar anticipatory expressions, are generally
forward-looking and are made only as of the date of this report. Additionally,
the report is subject to risks and uncertainties, which could cause actual
results to differ materially from those discussed in the forward-looking
statements and from historical results of operations. Among the risks and
uncertainties which could cause such a difference are the assumptions upon which
the Company bases its assessments of its future working capital and capital
expenditure requirements and those relating to the Company's ability to satisfy
its working capital needs and to finance it's anticipated capital expenditures,
which could prove to be different than expected, the Company's reliance on
outside sources of equity capital to continue to fund its operations, the
Company's reliance upon suppliers for the purchase of finished products which
are then resold by it, the level of demand for the Company's products among
existing and potential new customers, the Company's ability to successfully
manage and integrate the business and operations of newly acquired entities, the
Company's dependence upon certain key personnel and its ability to successfully
integrate new management personnel into the Company, the Company's ability to
accurately predict the number and type of employees required to conduct its
European operations and the compensation required to be paid to such personnel,
its ability to manage its growth, the risk of economic and market factors
affecting the Company or its customers and other risks and uncertainties
described elsewhere herein.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information on the directors of the Company as of March 1, 2005 is provided
below. All executive officers of the Company are also directors of the Company
whose terms expire May 30, 2006.
Michael Carrender
Director since 2002
Mr. Carrender, age 51, has been the Chief Executive Officer and Chief Financial
Officer of the Company since August 2003 and was previously Executive Vice
President and Chief Financial Officer of the Company since February 2002. Mr.
Carrender served as President and Chief Executive Officer of Crowe Rope, a unit
of JPBE, Inc., a manufacturer of cordage products, from January 1999 until he
joined the Company in February 2002. He was an independent consultant for
various companies prior to joining Crowe. He was Vice President and General
Manager of Mail Well Inc., a New York Stock Exchange printing Company, from 1997
to 1998. Before he became a consultant, he was with Consolidated Packaging, a
publicly traded multi-plant paper converting company, for seventeen years during
which he held positions of Treasurer (1979-1983), Chief Financial Officer
(1984-1989), Chief Operating Officer (1988-1989), and President and Chief
Executive Officer (1989-1996). Mr. Carrender holds a BA and an MBA in Finance.
Carl Freer
Director since August 2004
Mr. Freer, age 34, has served as Chairman since August 2004 and has been
Managing director of the Company's Gizmondo Europe Ltd. subsidiary based in the
UK since summer of 2003. He was the founder in 1999 of Eagle Eye Scandinavian
Ltd. that was acquired by the Company in February 2002. He founded and served as
Sales Director of ARE Media AB, a private media sales company in Stockholm, a
Director of Performance Films SA, a film production company in Malaga, Spain and
a Director of Rivera Auto Forum, a specialty auto dealership in Cannes, France.
He was a co-founder of software company Vxtreme that pioneered the highly
successful video compression lab technique. Mr. Freer is a director of WEG
Entertainment and a trustee of several charities, including Kings Medical
Research Trust.
Steve Carroll
Director since August 2004
Mr. Carroll, age 47, has served as Chief Technology Officer and as a Director
since August 2004. He has also been the Chief Technology Director of the
Company's Gizmondo Europe Ltd., since its inception in December 2002. He has
been with the Company or its subsidiaries since September 2002. He was formerly
Director of Maxon, a Korean high volume telecommunications equipment
manufacturer from 1996 to 2002. He was previously employed at Marconi/MOD/GEC,
telecommunications equipment manufacturers in various positions from 1981 to
1996. He has a Masters Degree MSc from Cambridge in the UK.
14
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than 10% of the outstanding shares of the Company's common stock, to file
initial reports of beneficial ownership and reports of changes in beneficial
ownership of shares of common stock with the Securities and Exchange Commission
(the "Commission"). Such persons are required by regulations promulgated under
the Exchange Act to furnish the Company with copies of all Section 16(a) forms
filed with the Commission.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Company during the year ended December 31, 2002, and upon a review of Forms
5 and amendments thereto furnished to the Company with respect to the year ended
December 31, 2002, or upon written representations received by the Company from
certain reporting persons that such persons were not required to file Forms 5,
the Company believes that no director, executive officer or holder of more than
10% of the outstanding shares of common stock failed to file on a timely basis
the reports required by Section 16(a) of the Exchange Act during, or with
respect to, the year ended December 31, 2002.
Code of Ethics
As of the date of this filing, the Company has adopted a code of ethics that
applies to the Company's executive officers.
Audit Committee Financial Expert
The Company's board of directors has determined that the Company did not have an
audit committee financial expert serving on its audit committee during the time
period covered by this filing. The Company did not have an audit financial
expert serving on its audit committee because it was not a requirement for the
time period covered by this filing.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation
The following table provides information on the total compensation paid or
accrued during the fiscal years indicated below to the Company's chief executive
officer. The table also lists the former chief executive officer of the Company
who would have been included had he remained an executive officer of the Company
at December 31, 2001 and a former Chief Executive Officer who resigned as CEO on
June 28, 2002 and resigned as a Director in August 2002.
15
Summary Compensation Table
Annual Compensation (1)
Securities
Name and Principal Other Annual Restricted Underlying LTIP All Other
Position Year Salary Bonus Compensation Stock Awards Options/Shares Payouts Compensation
-------- ---- ------ ----- ------------ ------------ -------------- ------- ------------
Michael W. 2002 $78,565 (2) $0 144,000 (3)
Carrender
Chief Executive 2001 $0 $0 0
Officer
A. J. Nassar 2002 $50,000 $0 0
Former Chief 2001 $37,266 (4) $0 0
Executive Officer
and Chairman of the
Board until July
2003
Jonathan Landers (5) 2002 $0 $0 0
Former President 2001 $0 $0 0
and Chief Executive
Officer
____________________
(1) No officer received perquisites in an amount greater than the lesser of (a)
$50,000 or (b) 10% of such officer's total salary plus bonus.
(2) Mr. Carrender joined the Company in February 2002. Represents salary earned
by Mr. Carrender, $38,008.12, which was accrued and unpaid as of December
31, 2002.
(3) 144,000 shares granted in August 2002 at market price on date of issuance
and vest per schedule below.
(4) Represents salary earned by Mr. Nassar from May 22, 2001 through December
31, 2001, $35,343 of which was accrued and unpaid as of December 31, 2001.
The salary level at the time of resignation was at $100,000 per annum. Mr.
Nassar resigned as CEO on June 28, 2002.
(5) Mr. Landers resigned as President and Chief Executive Officer on May
22,2001.
Option Grants
As of December 31, 2001, there were no stock options granted pursuant to the
Company's stock option plan. Options were granted in 2002. The following table
sets forth certain information concerning options granted during the year ended
December 31, 2002 to the individuals listed in the Summary Compensation Table
pursuant to the Company's 2001 Stock Option Plan (the "2001 Plan").
Option Grants in Last Fiscal Year
Individual grants
-----------------
Number of Percent of total
securities options/ shares Potential realizable value at
underlying granted to Exercise of assumed annual rates of stock
option/shares employees in base price Expiration price appreciation for option
Name Granted fiscal year ($/Sh) Date term
---- -------- ----------- ------ ---- ----
5% 10%
Michael W.
Carrender 144,000(1) 100.00% $1.50 8/17/12 $552,960 $1,009,440
(1) Options issued on August 17, 2002, pursuant to the 2001 Plan which vested
as follows: 36,000 upon issue, 36,000 in February 2003, 36,000 in February
2004, and 36,000 in February 2005.
16
The following table sets forth certain information concerning the exercise of
options and the value of unexercised options held under the 2001 Plan and
outside of the 2001 Plan at December 31, 2002, by the individuals listed in the
Summary Compensation Table.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of unexercised
Shares Options/Shares Fiscal In-the-Money Options Shares at
Acquired on Value Year-End(%)Exercisable/ Fiscal Year-End($) Acquired on
Name Exercise Realized($)(1) Unexercisable Exercisable / Unexercisable (2)
---- -------- -------------- ------------- -------------------------------
Michael W. -0- -0- 36,000/108,000 $19,080/$57,240
Carrender
____________________
(1) Represents the difference between the last reported sale price of the
common stock on December 31, 2002 ($2.03) and the per share exercise price
of the options at $1.50 multiplied by the number of options exercised.
(2) Represents the difference between the exercise price and the closing price
on December 31, 2002, multiplied by the number of securities.
Compensation of Directors
The directors of the Company are not compensated for serving as members of the
Company's Board of Directors.
Stock Option Plan
The Company adopted its stock option plan (the "2001 Plan") on July 31, 2001.
The stock incentive plan provides for the granting of incentive stock related
awards to officers, employees and other individuals so that the Company will be
able to attract and retain the services of highly qualified individuals. The
essential features of the 2001 Plan are set forth below.
Shares Authorized for Grant. Subject to the anti-dilution provisions discussed
below, there are 8,000,000 shares of common stock reserved for issuance upon the
exercise of options (now 320,000 following the 25 for 1 reverse split of July
30, 2004). Such shares may be authorized, but unissued shares of common stock,
or reacquired shares. Shares subject to options granted under the 2001 Plan that
have lapsed or terminated may again be subject to options under the 2001 Plan.
No options to purchase shares of common stock have been granted under the 2001
Plan as of December 31, 2001 but 144,000 were granted in 2002 as shown below.
Administration of the 2001 Plan. The 2001 Plan is administered by the Board of
Directors or by a committee consisting of two (2) or more outside directors who
are appointed by the Board (the "Committee"). Subject to the express provisions
of the 2001 Plan, the Board or such Committee has the authority to interpret the
2001 Plan, to prescribe, amend and rescind rules and regulations relating to the
2001 Plan, to determine the terms and provisions of option agreements and to
17
make all other determinations necessary or advisable for the administration of
the 2001 Plan. Any controversy or claim arising out of or related to the 2001
Plan, or the options granted thereunder, is determined unilaterally by, and at
the sole discretion of, the Committee.
Option Grants to Eligible Individuals. All employees and other individuals who
provide services to the Company are eligible to receive options under the 2001
Plan. Employees are eligible to receive either "incentive" stock options,
subject to the limitations of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or "non-statutory" stock options. The 2001 Plan confers
discretion on the Committee to select employees or other individuals that the
Committee determines to receive options, to determine the number of shares
subject to each option, the term of each option and the exercise price of the
options granted, except that the exercise price may not be less than 100% of the
fair market value of the underlying common stock for an incentive stock option
as of the date of grant. In addition, the exercise price may not be less than
110% of the fair market value of the common stock for an incentive stock option
granted to a person who owns more than 10% of the total combined voting power or
value of all classes of stock of the Company. No option may have a term in
excess of ten (10) years from the date of grant.
The Committee has the authority to determine the vesting requirements and the
permissible methods of payment of the exercise price. The Committee may also
make such other provisions in the options, consistent with the terms of the 2001
Plan, as it may deem desirable. Options granted under the 2001 Plan are not
exercisable until six (6) months after grant.
To the extent that such an option is an incentive stock option, upon termination
of an optionee's employment with the Company for any reason, such optionee's
options shall immediately terminate, except that upon termination, the Committee
in its discretion may allow the optionee to exercise any vested options owned by
the optionee within ninety (90) days after termination. In no event are options
exercisable beyond their stated term.
Change in Control. All options granted under the 2001 Plan become fully vested
and immediately exercisable upon the occurrence of a "Change of Control." The
2001 Plan defines Change of Control to mean the occurrence of any of the
following: (i) the acquisition (other than from the Company directly) by any
"person" group or entity within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) of beneficial ownership of thirty-five (35%)
percent or more of the outstanding common stock of the Company; (ii) if the
individuals who serve on the Board as of the date of stockholder approval of the
2001 Plan, no longer constitute a majority of the members of the Board of
Directors; provided, however, any person who becomes a director subsequent to
such date, who was elected to fill a vacancy by a majority of the directors then
serving on the Board of directors shall be considered a member prior to such
date; (iii) the stockholders of the Company approve a merger reorganization or
consolidation of the Company whereby the stockholders of the Company immediately
prior to such approval do not, immediately after consummation of such
reorganization, merger or consolidation, own more than 50% of the voting stock
of the surviving entity; or (iv) a liquidation or dissolution of the Company, or
the sale of all or substantially all of the Company's assets.
Nontransferability of Options. Options granted under the 2001 Plan are not
transferable other than by will or the laws of descent and distribution, and may
be exercised during the optionee's lifetime only by the optionee. Upon such
18
optionee's death, the beneficiary of the optionee's estate shall have the lesser
of (a) the remaining term of such option or (b) one year for the optionee's
death within which to exercise such options.
Anti-dilution Provisions. In the event of a change, such as a stock split or
stock dividend, in the Company's capitalization, which results in a change in
the number of outstanding shares of common stock, without receipt of
consideration, an appropriate adjustment will be made in the exercise price of,
and the number of shares subject to, all outstanding options. An appropriate
adjustment will also be made in the total number of shares authorized for
issuance under the 2001 Plan.
Dissolution or Liquidation. Upon the dissolution or liquidation of the Company,
or upon a reorganization, merger or consolidation of the Company with one (1) or
more corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all the property or more than fifty
(50%) percent of the then outstanding shares of common stock of the Company to
another corporation, the Company shall either: (a) provide for the assumption by
the successor corporation of the options theretofore granted or the substitution
by such corporation for such options of new options covering the stock of the
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; or (b) give to each
optionee at the time of adoption of the plan of liquidation, dissolution, merger
or sale, notice of the adoption of the plan of liquidation, merger or sale (i) a
reasonable time thereafter within which to exercise all such options owned by
such individuals prior to the effective date of such liquidation, dissolution,
merger or sale; or (ii) the right to exercise the option as to an equivalent
number of shares of common stock of the successor corporation by reason of such
liquidation, dissolution, merger, consolidation or reorganization.
Tax Consequences to Grantees. Under present tax law, the Federal income tax
treatment of options granted under the 2001 Plan is as generally described
below.
Incentive Stock Options. With respect to options which qualify as incentive
stock options, an optionee will not recognize income for federal income tax
purposes at the time options are granted or exercised. If the optionee disposes
of shares of common stock acquired upon exercise of the options before the
expiration of two years from the date the options are granted, or within one
year after the issuance of shares upon exercise of the options, the optionee
will recognize, in the year of disposition (a) ordinary income, to the extent
that the lesser of either (i) the fair market value of the shares on the date of
option exercise or (ii) the amount realized on disposition, exceeds the option
price; and (b) capital gain (or loss), to the extent that the amount realized on
disposition differs from the fair market value of the shares on the date of
option exercise. If the shares are sold after expiration of these holding
periods, the optionee will realize capital gain or loss (assuming the shares are
held as capital assets) equal to the difference between the amount realized on
disposition and the option price.
Non-Qualified Stock Options. Non-qualified stock options are all options, which
do not qualify for incentive stock option treatment under Section 422 of the
Code. If a non-qualified stock option has a readily ascertainable fair market
value at the time of grant, the optionee realizes ordinary income either (a)
when his rights in the option becomes transferable; or (b) when the right to an
option is not subject to a substantial risk of forfeiture. Ordinary income will
be equal to the fair market value of the option less any amount paid by the
optionee. If the option does not have an ascertainable fair market value at the
time of grant, income is realized at the time the option is exercised. Such
19
income would be the positive difference between the fair market value of the
common stock received at the time of exercise and the exercise price paid. Upon
the sale of the common stock received upon exercise, the difference between the
sale price and the fair market value on the date of exercise will be treated as
capital gain or loss.
Tax Consequences to the Company. The Company will be entitled to a deduction for
federal income tax purposes at the same time and in the same amount as an
optionee is required to recognize ordinary income as described above. To the
extent an optionee realizes capital gains as described above, the Company will
not be entitled to any deduction for Federal income tax purposes.
Accounting Considerations. Currently, there is no charge to the Company's
operations in connection with the grant or exercise of an option under the 2001
Plan, unless the fair market value of the shares at the date of grant exceeds
the exercise price of the option, in which case there will be a charge to
operations in the amount of such excess. Earnings per share may be affected by
the 2001 Plan by the effect on the calculation, as prescribed under generally
accepted accounting principles, of the number of outstanding shares of common
stock of the Company. This calculation reflects the potential dilutive effect,
using the treasury stock method, of outstanding stock options anticipated to be
exercised even though shares have not yet been issued upon exercise of these
options. When shares are actually issued as a result of the exercise of stock
options, additional dilution of earnings per share may result.
Reload Options. The 2001 Plan provides for the automatic grant of reload options
to an optionee who would pay all, or part of, an option exercise price by the
delivery of shares of common stock already owned by such optionee. Reload
options would be granted for each share so tendered. The exercise price of such
reload option is the fair market value of the common stock on the date the
original option is exercised. All other terms of the reload options are
identical to the terms of the original option.
Employment Contracts and Termination and Change-In-Control Arrangements
As of December 31, 2002, the Company has not entered into any employment,
termination or change-in-control agreement with any of its executive officers.
Mr. Carrender's employment agreement requires a salary increase in February 2003
to $200,000.
In 2002, the obligations under the employment contract of then President and COO
Robert Francis were settled in November 2002 in an agreement whereby the Company
issued 1 million (pre reverse split) shares of its common stock in full
satisfaction of all obligations.
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee. The individuals who served as members of the Compensation, Stock
Option and Benefits Committee during the year ended December 31, 2002 were Paul
Renn and Frank Habib.
20
Shareholder Return Performance
This graph compares the Company's total stockholder returns and the Standard and
Poor's 500 Composite Stock Index. The graph assumes $100 invested at the per
share closing price of the common stock of the Company on the other over the
counter market from December 31, 2001 forward. Prior to the reverse merger in
May 2001, there was no established public trading market for the Company's
stock.
12/31/2001 12/31/2002
---------- ----------
TGTL 100.00 63.13
S&P 500 173.12 130.53
Comparison of initial $100 investment in the Standard and Poor's 500 Composite
Stock Index versus the common stock of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of March 1, 2005 for (a)
the chief executive officer, (b) each of the Company's directors, (c) all of the
Company's current directors and executive officers as a group and (d) each
stockholder known by us to own beneficially more than 5% of the Company's common
stock. Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting or investment power with respect to the
securities.
Shares of common stock that may be acquired by an individual or group within 60
days of March 1, 2005, pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in the
table. Except as indicated in footnotes to this table, the Company believes that
the stockholders named in this table have sole voting and investment power with
respect to all shares of common stock shown to be beneficially owned by them
based on information provided to us by such stockholders. Percentage of
ownership is based on 46.5 million shares of common stock outstanding on March
1, 2005.
21
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Owner of Class
------------------------ ------------------- --------
Directors and Executive Michael W. Carrender (1) 1,924,036 4.0%
Officers:
Carl Freer (2) 2,729,500 6.0%
Steve Carroll (3) 565,000 *
All directors and executive
officers as a group (3 persons)
5,218,536 11.0%
________________
* Less than one percent (1%).
(1) Includes 144,000 shares of common stock issuable upon exercise of incentive
stock options, shares held jointly with spouse and shares held
individually. The address of Mr. Carrender is 10201 Centurion Parkway N.
Suite 600 Jacksonville, FL 32256.
(2) Includes shares held by spouse and in the names of three dependent
children. The address of Mr. Freer is One Meadow Gate Park, Farnborough
Business Park, Farnborough, Hampshire, UK GU14 6FG.
(3) Mr. Carroll's address is One Meadow Gate Park, Farnborough Business Park,
Farnborough, Hampshire, UK GU14 6FG.
EQUITY COMPENSATION PLAN INFORMATION
The following table reflects the number of shares of the Company's common stock
that, as of March 1, 2005, were outstanding and available for issuance under
equity compensation plans that have previously been approved by the Company's
stockholders. The Company has no equity compensation plans that have not been
approved by stockholders.
Number of Securities Remaining
Number of Securities to be Weighted-Average Available for Future Issuance
Issued Upon Exercise of Exercise Price of Under Equity Compensation Plans
Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Previously Issued)
------------- ------------------- -------------------- -----------------
Equity Compensation Plans
Approved by Security
Holders (1) 144,000 $1.50 216,000
Equity Compensation Plans
not Approved by Security
Holders 0 0 0
Total 144,000 $1.50 216,000
____________________________
(1) Consists of options issuable under the 2001 Plan to purchase a total of
144,000 shares issued to Mr. Carrender in August 2002.
22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had a 10% demand note payable to Alvin J. Nassar, its former
Chairman and Chief Executive Officer, in the amount of $852,789 and $841,064 as
of December 31, 2001 and 2000, respectively. Interest expense related to this
note amounted to $86,337 and $19,499 for the periods ended December 31, 2001 and
2000, respectively. Also, as of December 31, 2001 and 2000, the Company owed a
total of $180,382 to Mr. Nassar on a non-interest bearing demand note. The
amount of $554,500 of this debt was converted to equity subsequent to December
31, 2001 for a total of 1,386,250 (pre reverse split) shares of common stock and
warrants exercisable for 1,250,000 (pre reverse split) of common stock at a
price of $.75. The warrants expired in December 2003 and were not exercised. In
the fourth quarter of 2002, the Company issued 182,070 (pre reverse split)
shares to two shareholders, Mr. Nassar and Mr. Ed Kinney, the Company's
President until May 2002, to convert $455,761 of debt to equity at $2.50 per
share. No warrants were issued in this transaction.
Prior to the merger in 2001, Mr. Nassar the Company's former Chief Executive
Officer and Director purchased shares of common stock of Floor Decor for $448.88
(including $270.00 from the Alvin Nassar Family Limited Partnership). Upon the
merger of such company into the Company he received 15,415,000 pre reverse split
shares of common stock, 5,915,000 (pre reverse split) of which were issued to
the Alvin Nassar Family Limited Partnership.
In 2002, the obligations under the employment contract of then President and COO
Robert Francis was settled in November 2002 in an agreement whereby the Company
issued 1 million (pre reverse split) shares of its common stock in full
satisfaction of all obligations.
As of December 31, 2002 the Company owed Michael W. Carrender $38,008.12 in
salary and $12,000 in reimbursable expenses. As of December 31, 2003 the Company
owed Mr. Carrender $136,570.98 in accrued salary.
During the fourth quarter of 2003, the Company converted $1,400,000 of debt to
Carl Freer, a stockholder of the Company and an officer of a subsidiary of the
Company, to 2,800,000 shares of common stock at the rate of $.50 per share, the
market price of the common stock as of the date that the agreements were entered
into. Mr. Freer later became a director and Chairman of Board of the Company. In
addition, during the fourth quarter the Company converted $226,730 of debt owed
to a shareholder into 453,460 shares of common stock valued at $.50 per share
and issued 800,000 shares to such shareholder for services rendered to the
Company. That person became affiliated with the Company in April 2004 as a Head
of Investor Relations in an agreement unrelated to the above transactions.
In January 2004, prior to becoming a director, the Company issued 200,000 shares
of common stock to Steve Carroll as a performance bonus. In October 2004, the
Company issued an additional 200,000 shares of common stock to Mr. Carroll as a
performance bonus for completing the Gizmondo.
For additional information regarding related party transactions, see Note J to
the Company's financial statements.
23
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
For the fiscal years ended December 31, 2002 and 2001, the fees were $75,000 and
$60,778 respectively, for professional services rendered for the audit of the
Company's financial statements. There was a change of the Company's auditors in
November 2002.
Audit Related Services
The Company was billed $60,000 and $32,782 for the years ended December 31, 2002
and 2001, respectively, for the review of financial statements included in
periodic and other reports filed with the Securities and Exchange Commission.
Tax Fees
The Company was also billed $13,323 and $11,115 for the years ended December 31,
2002 and 2001, respectively, for various income tax returns although additional
amounts will be required to file the 2002 tax return.
Additional Fees
The Company was not billed any fees of the years ended 2002 and 2001 for any
products and fees relating to accounting services, including financial
information systems design and implementation.
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of the report:
1. and 2. The financial statements filed as part of this report are
listed separately in the index to Financial Statements beginning on page F-1 of
this report.
3. List of Exhibits:
Exhibit
No. Description
31 Rule 13a-14(a) Certifications Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32 Section 1350 Certifications
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment No. 1 to the Annual
Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly
authorized.
TIGER TELEMATICS, INC.
Dated March 25, 2005 By: /s/ Michael W. Carrender
-------- --------------------------
Michael W. Carrender
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on March 25, 2005.
Signature Title
--------- -----
/s/ Michael W. Carrender Chief Executive Officer, Chief Financial
--------------------------- Officer and Director (Principal Executive
Michael W. Carrender Officer, Principal Financial Officer and
Principal Accounting Officer)
/s/ Carl Freer Chairman and Director
---------------------------
Carl Freer
/s/ Steve Carroll Director
---------------------------
Steve Carroll
25
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
Accountant's Report F-2
Accountant's Report F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Deficiency F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Tiger Telematics, Inc. and Subsidiaries, Inc.
We have audited the accompanying consolidated balance sheets of Tiger
Telematics, Inc. and Subsidiaries, Inc. as of December 31, 2002 and the related
consolidated statements of operations, stockholder's deficiency, and cash flows
for year then ended. These consolidated 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 also 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tiger Telematics,
Inc. and Subsidiaries, Inc. as of December 31, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 21, 2005, except for the last paragraph of Note K,
as to which the date is March 22, 2005
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Tiger Telematics, Inc.
Jacksonville, Florida
We have audited the accompanying consolidated balance sheet of Tiger Telematics,
Inc. (formerly Floor Decor, Inc. and Subsidiaries) as of December 31, 2001and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the year ended December 31, 2001 and the period July 3, 2000,
date of inception, through December 31, 2000. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 financial position of Floor Decor, Inc.
and Subsidiaries as of December 31, 2001, and the results of their operations
and their cash flows for the year ended December 31, 2001 and the period July 3,
2000, date of inception, through December 31, 2000 then in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as going concern. The Company has suffered losses
from operations since inception, and will need to raise additional equity or
debt in order to accomplish its business plan. This raises substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
McGladrey & Pullen, LLP
Fort Lauderdale, Florida
February 25, 2002
F-3
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
2002 2001
------------ ------------
ASSETS
Current Assets
Cash $ 0 $ 20,331
Accounts receivable 116,648 0
Inventories 163,489 0
Prepaid expenses 129,204 0
------------ ------------
409,341 20,331
Assets of discontinued operations 0 1,278,443
------------ ------------
Total current assets 409,341 1,298,774
Property and Equipment, net 237,196 0
------------ ------------
$ 646,537 $ 1,298,774
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable $ 1,450,998 0
Amounts due stockholders 1,210,785 1,541,053
Notes payable - current portion 30,602 0
Accrued expenses 1,961,644 0
Liabilities of discontinued operations 1,152,713 1,152,350
------------ ------------
Total current liabilities 5,806,742 2,693,403
Notes payable less current portion 145,134 0
------------ ------------
Total Liabilities 5,951,876 2,693,403
------------ ------------
Stockholders' Deficiency
Common stock - 0.001 par value
authorized 100,000,000 shares; issued
2002: 3,227,457; 2001: 2,235,467 shares 3,227 2,235
Additional paid-in-capital 7,743,765 567,720
Accumulated deficit (13,052,331) (1,964,584)
------------ ------------
Stockholders' deficiency (5,305,339) (1,394,629)
------------ ------------
$ 646,537 $ 1,298,774
============ ============
See Notes to Consolidated Financial Statements
F-4
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2002 and 2001
and the Period from July 3, 2000 (Inception) through December 31, 2000
2002 2001 2000
------------ ------------ ------------
Net sales $ 283,730 $ -- $ --
Cost of goods sold 384,968 -- --
------------ ------------ ------------
Gross Loss (101,238) -- --
------------ ------------ ------------
Operating expenses
Selling expense 597,188 -- --
General and administrative 5,171,731 282,745 --
------------ ------------ ------------
Total Operating Expenses 5,768,919 282,745 --
------------ ------------ ------------
Operating Loss (5,870,157) (282,745) --
------------ ------------ ------------
Other income (expense)
Impairment of goodwill and other intangibles (4,884,733) -- --
Gain on sale of Subsidiaries 248,009 -- --
Loss on currency transactions (189,724) -- --
Other income -- -- 2,568
Interest expense (37,712) (145,607) (28,825)
------------ ------------ ------------
(4,864,160) (145,607) (26,257)
------------ ------------ ------------
Loss from continuing operations (10,734,317) (428,352) (26,257)
Loss from discontinued operations (353,430) (870,728) (639,247)
------------ ------------ ------------
Net Loss $(11,087,747) $ (1,299,080) $ (665,504)
============ ============ ============
Basic and diluted loss per common share:
Continuing operations $ (3.8026) $ (0.1971) $ (0.0121)
============ ============ ============
Discontinued operations $ (0.1252) $ (0.4007) $ (0.2947)
============ ============ ============
Net loss per share $ (3.9278) $ (0.5978) $ (0.3068)
============ ============ ============
Weighted average shares outstanding
(basic and diluted) 2,822,876 2,173,099 2,169,467
============ ============ ============
See Notes to Consolidated Financial Statements
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
For the years ended December 31, 2002 and 2001
and the Period from July 3, 2000 (Inception) through December 31, 2000
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficiency Deficiency
------------ ------------ ------------ ------------ ------------
Balance at inception, July 3, 2000 -- $ -- $ -- $ -- $ 0
Issuance of common stock 15 -- 100 -- 100
Net loss for the period -- -- -- (665,504) (665,504)
------------ ------------ ------------ ------------ ------------
Balance (deficiency) at December 31, 2000 15 -- 100 (665,504) (665,404)
Issuance of common stock, January 1, 2001 25 -- 586 -- 586
Recapitalization of common stock upon reverse
acquisition on May 22, 2001 2,169,427 2,169 (7,100) -- (4,931)
Issuance of common stock and warrants 66,000 66 574,134 -- 574,200
Net Loss -- -- -- (1,299,080) (1,299,080)
------------ ------------ ------------ ------------ ------------
Balance (deficiency) December 31, 2001 2,235,467 2,235 567,720 (1,964,584) (1,394,629)
Issuance of common stock and warrants:
Private Placement 100,498 100 876,573 -- 876,673
Conversion of notes payable and amounts due
stockholders 335,361 335 1,987,754 -- 1,988,089
Acquisition of Tiger Telematics Limited 280,000 280 2,799,720 -- 2,800,000
Acquisition of Comworxx, Inc. 170,531 171 1,065,646 -- 1,065,817
Services 105,600 106 446,352 -- 446,458
Net Loss -- -- -- (11,087,747) (11,087,747)
------------ ------------ ------------ ------------ ------------
Balance (deficiency) December 31, 2002 3,227,457 $ 3,227 $ 7,743,765 $(13,052,331) $ (5,305,339)
============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements
F-6
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2002 and 2001
and the Period from July 3, 2000 (Inception) through December 31, 2000
2002 2001 2000
------------ ------------ ------------
Cash Flows for Operating Activities:
Loss from continuing operations $(10,734,317) $ (428,352) $ (26,257)
Loss from discontinued operations (353,430) (870,728) (639,247)
------------ ------------ ------------
Net Loss (11,087,747) (1,299,080) (665,504)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities:
Depreciation 63,924 -- --
Amortization of intangible assets 115,762 -- --
Loss on currency transactions 189,724 -- --
Expenses paid with common stock 446,458 -- --
Gain on sale of subsidiary (248,009) -- --
Write down of assets of acquired company 407,000 -- --
Impairment of goodwill and other intangibles 4,884,733 -- --
Changes in assets and liabilities:
Decrease (increase) in assets of discontinued operations 1,278,443 (447,970) (830,473)
Increase (decrease) in liabilities of discontinued operations (735,408) 861,359 290,991
(Increase) decrease in assets:
Accounts receivables (116,648) -- --
Inventories (163,489) -- --
Prepaid expenses (129,204) -- --
Increase (decrease) in liabilities:
Accounts payable 1,450,998 -- --
Accrued expenses 1,961,644 -- --
Net liabilities related to sold operations 1,152,713 -- --
------------ ------------ ------------
Net cash used in operating activities (529,106) (885,691) (1,204,986)
------------ ------------ ------------
Cash Flows From Investing Activities:
Purchase of property and equipment (237,196) -- --
------------ ------------ ------------
Net cash used in investing activities (237,196) -- --
------------ ------------ ------------
Cash Flows From Financing Activities:
Issuance of common stock and warrants 876,673 569,855 100
Loans and advances from stockholders 204,014 629,421 1,321,794
Repayment to stockholders (534,281) (349,255) (116,908)
Interest on notes payable and stockholder loans
capitalized to principal balance 23,829 56,001 --
Proceeds from notes payable 184,400 -- --
Payments on debt (8,664) -- --
------------ ------------ ------------
Cash provided by financing activity 745,971 906,022 1,204,986
------------ ------------ ------------
Net change in cash (20,331) 20,331 --
See Notes to Consolidated Financial Statements
F-7
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued
Cash:
Beginning of year 20,331 -- --
----------- ------------ -----------
End of year $ -- $ 20,331 $ --
=========== ============ ===========
Supplemental disclosure of Cash Flow Information:
Cash paid for interest $ 19,489 $ 96,541 $ 21,890
=========== ============ ===========
Supplemental Disclosure of Non-cash Investing and
Operating Activities:
Stock issued for operating expenses $ 446,458 $ -- $ --
----------- ------------ -----------
Investing Activities:
Acquisition of subsidiaries:
Common stock issued $ 3,865,817 $ -- $ --
Liabilities in excess of assets acquired 1,132,679 -- --
----------- ------------ -----------
$ 4,998,496 $ -- $ --
=========== ============ ===========
Financing Activities:
Conversion of stockholder debt to common stock $ 1,571,148 $ -- $ --
=========== ============ ===========
Debt of discontinued operations converted to common
stock $ 416,941 $ -- $ --
=========== ============ ===========
Acquisition of Tiger Telematics:
Intangibles:
Order book $ 2,800,000 $ -- $ --
Distribution agreement 463,050 -- --
Property and equipment 1,436 -- --
Amounts due stockholders (610,190) -- --
Accounts payable (235,949) -- --
Notes payable (98,822) -- --
Accounts receivable 479,688 -- --
Common stock issued (2,800,000) -- --
----------- ------------ -----------
Cash received $ 787 $ -- $ --
=========== ============ ===========
Acquisition of Comworxx, Inc.
Property and equipment $ 280,629 $ -- $ --
Accounts receivable 27,619 -- --
Goodwill 1,735,445 -- --
Inventory 105,472 -- --
Prepaid expenses 9,368 -- --
Other assets 15,470 -- --
Notes payable (8,664) -- --
Accounts payable (882,968) -- --
Accrued expenses (216,554) -- --
Common stock issued (1,065,817) -- --
----------- ------------ -----------
Cash received $ -- $ -- $ --
=========== ============ ===========
See Notes to Consolidated Financial Statements
F-8
NOTE A - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Tiger Telematics, Inc. (the Company or Tiger) and its wholly owned subsidiaries,
Tiger Telematics USA, Inc. (Tiger USA) and Gizmondo Europe, Ltd. (Gizmondo) are
principally engaged in the business of developing and marketing the Gizmondo
wireless handheld multi-entertainment gaming device. During 2002 the Company's
principal business was developing and marketing telematics products principally
in Western Europe.
Prior to its sale in August of 2002 and its classification as a discontinued
operation, the Company's primary business was retail floor covering. The Company
(which was previously known as Floor Decor, Inc.) and its then wholly owned
subsidiaries, Media Flooring, Inc. and Floor Decor LLC, owned and operated
retail stores in Florida. The Company offered a wide selection of floor
coverings including carpet, area rugs, wood, and laminates at discount prices to
both commercial accounts and retail customers. The Company also provided
installation of flooring. In June 2002, the Company discontinued these
operations (see Note L) and changed its name from Floor Decor, Inc. to Tiger
Telematics, Inc.
In February 2002, the Company acquired Eagle Eye Scandinavian Distributions,
Ltd., a developer and distributor of telematics products and services to the
business-to-business segment in Europe and changed its name to Tiger Telematics,
Ltd. During most of 2002, the Company's principal business was developing and
selling telematics products and services, conducted through Tiger Telematics,
Ltd. This subsidiary was sold on December 17, 2002.
The Company started Tiger Telematics Europe, Ltd. (now known as Gizmondo Europe,
Ltd.) in late 2002 to develop new telematics products including next generation
fleet telematics products and the Gizmondo electronic game product, and to
market these products principally in the UK.
In early 2003 the Company began developing a new multi-entertainment wireless
handheld gaming device that is now referred to as Gizmondo. Since then the
Company's primary business strategy has been to develop and market Gizmondo. The
Company initially launched a limited production version of the Gizmondo in the
UK on October 29, 2004, and expects to launch the full-scale production of
Gizmondo in 2005. The Gizmondo is powered by a Microsoft Windows CE.net
platform, has a 2.8-inch TFT color screen and a Samsung ARM9 400Mhz processor
and incorporates the GoForce 3D 4500 NVIDIA graphics accelerator. Gizmondo
provides cutting-edge gaming, multimedia messaging, an MP3 music player, Mpeg4
movie playing capability, a digital camera and a GPRS network link to allow
wide-area network gaming. Additionally, Gizmondo contains a GPS chip for
location based services, is equipped with Bluetooth for use in multi-player
gaming and accepts MMC card accessories.
F-9
Significant Accounting Policies
Liquidity
The Company has sustained net losses over the past three years and at December
31, 2002 had a net working capital deficit of $5,397,401.
Management has sold off its unprofitable flooring business and is pursuing its
telematics business, of which it entered via an acquisition in February 2002.
The Company anticipates issuing equity securities to meet working capital
requirements and to fund development costs incurred in connection with
developing Telematics related products that the Company believes will enhance
its operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Tiger Telematics,
Inc. (Company), and its subsidiaries, Tiger Telematics USA, Inc. (USA), and
Tiger Telematics Europe Ltd. (Tiger Europe). Tiger Telematics Ltd (Tiger Ltd) is
included through December 17, 2002 (date of divestiture) and the discontinued
operations of Floor Decor Inc. and its subsidiaries through the date of their
divestiture. All intercompany transactions are eliminated in consolidation.
Except as otherwise noted, all amounts and disclosures only include continuing
operations.
Prior to June of 2002, the Company was named Floor Decor, Inc. The name was
changed when the Company exited the flooring business. See Note L DISCONTINUED
OPERATIONS.
Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of the 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.
Foreign Currency Translation
Results of operations and cash flows are translated at average exchange rates
and assets and liabilities are translated at end-of-period exchange rates for
operations outside the United States that prepare financial statements in other
than the US dollar (generally in the UK). Translation adjustments are included
in other comprehensive income until such time as the entity that generated the
adjustments is sold. At December 31,2002, the Company did not have any
translation adjustments considered to be other comprehensive income. Gains and
losses from foreign currency transactions are reflected in other income (loss),
net.
Inventories
Inventories are stated at the lower of cost (specific identification basis) or
market, and consist of electronic components.
F-10
Accounts Receivable
Accounts receivable consists of amounts due from customers, none of whom are
considered to be major customers.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided by
straight-line methods in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives. Leasehold improvements
are amortized over the shorter of the term of the lease or their expected useful
life. Vehicles and furniture, fixtures and equipment are depreciated over
periods of from 3 to 7 years.
Goodwill and Other Intangible Assets
Goodwill is recorded as the difference, if any, between the aggregate
consideration paid for an acquisition and the fair value of the net tangible and
intangible assets acquired. The Company adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets as of January 1, 2002.
SFAS 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and all intangible assets be reviewed for impairment.
The Company tests goodwill for impairment on an annual basis or more frequently
if the Company believes indicators of impairment exist. The performance of the
test involves a two-step process. The first step involves comparing the fair
values of the applicable reporting units with their aggregate carrying value,
including goodwill. The Company generally determines the fair value of its
reporting units using the income approach methodology of valuation that includes
the discounted cash flow method. If the carrying amount of a reporting unit
exceeds the reporting unit's fair value, the Company performs the second step.
The second test involves comparing the implied fair value of the affected
reporting unit's goodwill with the carrying value of that goodwill. If the
carrying amount of the reporting unit goodwill exceeds the implied fair value of
that goodwill, an impairment loss is recorded.
Circumstances that could trigger an impairment test include but are not limited
to: a significant adverse change in the business climate or legal factors; an
adverse action or assessment by a regulator; unanticipated competition; loss of
key personnel; the likelihood that a reporting unit or significant portion of a
reporting unit will be sold or otherwise disposed of; results of testing for
recoverability of a significant asset group within a reporting unit and
recognition of a goodwill impairment loss in the financial statements of a
subsidiary that is a component of a reporting unit.
F-11
Impairment
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets,"
provides a single accounting model for long-lived assets to be disposed of,
changes the criteria for classifying an asset as held for sale, broadens the
scope of businesses to be disposed of that qualify for reporting as discontinued
operations and changes the timing of recognizing losses on such operations. The
Company adopted SFAS 144 on January 1, 2002.
In accordance with SFAS No. 144, the Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
held and used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds their
fair value. Assets to be disposed of are separately presented on the balance
sheet and reported at the lower of their carrying amount or fair value less
costs to sell, and are no longer depreciated.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carry forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some or all of the deferred tax assets will not
be realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and dates on the date of enactment.
For periods prior to January 1, 2001, the Company, with the consent of its
stockholders, had elected to be taxed under sections of federal income tax law
which provide that, in lieu of corporation income taxes, the stockholders
separately account for their pro-rata share of the Company's items of income,
losses, and credits. This election was terminated effective January 1, 2001.
Stock-Based Compensation
On July 1, 2001, the stockholders approved the adoption of the Company's 2001
Employee Stock Option Plan (the Plan). Stock options are granted at a price
equal to the market value of the Common Stock at the date of grant, generally
expire 10 years from the date of the grant and vest equally over a three-year
service period.
2002 2001
---------- ----------
Total common shares available for grant
at the beginning of the year 320,000 320,000
Options to purchase common shares granted at
$1.50 per share 144,000 -0-
Options exercised -0- -0-
Options forfeited/expired -0- -0-
Options available for grant 176,000 320,000
Shares vested during the year 36,000 -0-
Shares granted but unvested 108,000 -0-
F-12
The 144,000 stock options awarded in 2002 were all to one person at an
exercise price of 2002 $1.50 per share.
The Company uses the intrinsic-value method of accounting for the Plan.
Under this method, compensation cost is the excess, if any, of the quoted
market price over the amount an employee must pay to acquire the stock at
the date of the grant. The Company generally grants options with an
exercise price equal to the market value of the common stock at the date
of grant.
The Black-Scholes option price model was used to estimate the fair value
as of the date of grant using the following assumptions:
2002
------------
Dividend yield 0%
Risk-free interest rates 4.35%
Volatility 163.00%
Expected option term (years) 9.61
Weighted-average fair value of options granted during
the year $1.50
If the Company had determined compensation expense for the Plan based on the
fair value at the grant dates consistent with the method of SFAS No. 123 and
SFAS No. 148, the Company's pro-forma net loss and basic loss per share would
have been as follows:
2002
------------
Net loss as reported $(11,087,747)
Stock based compensation expense under the fair value
based method, net of tax ($0) $ (54,000)
Pro forma net loss $(11,141,747)
Basic and diluted net loss per share, as reported $ (3.9278)
Pro forma basic and diluted net loss per share $ (3.9469)
Earnings (Loss) per Share
Basic earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per share
is computed using the weighted average number of common shares and potential
common shares outstanding during the period. Potential common shares, including
stock options and warrants, are excluded from the computation since their effect
is anti-dilutive.
Revenue Recognition
Sales are recognized when merchandise is delivered and accepted by the customer,
net of estimated sales returns, discounts and allowances.
F-13
Advertising Cost
Advertising costs are included in selling expense and are expensed in the period
incurred. Such costs were $18,489 for 2002. For 2001, and 2000 the amounts were
$506,921 and $43,098 and are included in discontinued operations.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No.107, "Disclosures about
Fair Value of Financial Statements" requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS No 107
excludes certain financial instruments and all non-financial assets and
liabilities from its disclosure requirements. The fair value of financial
instruments recorded on the balance sheet approximate the carrying amounts. The
Company has no off balance sheet financial instruments.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations". SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations transacted after June 30, 2001. SFAS No. 141 also specifies
criteria that intangible assets acquired in a business combination must meet to
be recognized and reported separately from goodwill. The Company utilized SFAS
No. 141 to account for business acquisitions completed in 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from acquisition, construction, development and/or normal use of
assets. The Company also records a corresponding asset, which is depreciated
over the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation will be adjusted at the end of each period
to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Company is required to adopt SFAS No. 143 on
January 1, 2003, and is currently evaluating the effect that implementation of
the new standard may have on its results of operations and financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
F-14
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs of sale. The Company adopted SFAS No. 144 on
January 1, 2002.
FAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." FAS No. 146 was effective for disposal activities initiated
after December 31, 2002.
FAS 148 amends FASB Statement No. 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. FAS No. 148 became effective
after December 31, 2002.
FAS 149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The Company believes it has no derivative instruments. FAS No. 149
became effective for hedging arrangements entered into after June 30, 2003.
FAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Some of the provisions of this Statement
are consistent with the current definition of liabilities in FASB Concepts
Statement No. 6, Elements of Financial Statements. The remaining provisions of
this Statement are consistent with the Board's proposal to revise that
definition to encompass certain obligations that a reporting entity can or must
settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. For public
companies, FAS No. 150 became effective after June 15, 2003. The Company
believes that, at the present time, it has no instruments that fall within the
scope of this pronouncement.
NOTE B - REVERSE STOCK SPLIT AND INCREASE IN AUTHORIZED SHARES
In July 2004, the Company's shareholders approved a 1 for 25 reverse stock
split. The number of authorized shares and par value were unchanged. All common
stock amounts have been adjusted to reflect this change for all periods
presented.
In May 2003, the Company's shareholders approved an increase in the number of
authorized shares from 100 million shares to 250 million shares. In January
2004, the authorized shares were increased to 500 million shares.
F-15
NOTE C - REVERSE ACQUISITION
On May 22, 2001, a purchasing group acquired 2,169,467 shares of Media Flooring
Inc. (MCGI) in exchange for all of the outstanding common shares of the Company
to become the owner of approximately 40% of the issued and outstanding common
stock of MCGI. The agreement included the merger of the Company into a newly
formed wholly owned subsidiary. Prior to the acquisition, MCGI was a "Public
Shell" Company with no significant operations or assets.
The acquisition of the Company was accounted for as a reverse acquisition and
the Company was treated for accounting purposes as the acquiring entity. The
historical financial statements of the Company became the historical financial
statements of MCGI.
Additional paid in capital was adjusted on May 22, 2001 as follows:
Common Stock - 2,169,467 shares at par value of $0.001 $ (2,169)
Common Stock prior to reverse acquisition - 40 shares 0
Vendor obligation assumed (4,931)
----------
Recapitalization to additional paid-in capital $ (7,100)
==========
NOTE D - EQUITY TRANSACTIONS
The Company entered into private placement transactions with individual
investors and sold 100,498 and 66,000 shares of its common stock during the
first quarter of 2002 and December 2001, respectively, for $10.00 per share. For
each share of common stock purchased, each investor received a warrant
representing the right to purchase one additional share of common stock for
$18.75 per share. The warrants expired unexercised on December 31, 2003. Net
proceeds from these sales were $876,673 and $574,200 in 2002 and 2001,
respectively.
Shares issued for services (none in 2001):
Shares Amount
-------- --------
During the first quarter of 2002 the Company purchased
consulting services 12,000 $120,000
During the second quarter of 2002 the Company paid rental
expenses in the UK for a subsidiary 20,000 182,635
During the fourth quarter of 2002 the Company purchased
services from six vendors 73,600 143,823
-------- --------
Total 105,600 $446,458
======== ========
During May 2002, the Company entered into an agreement with an advisor for
consulting services under which the Company agreed to issue 96,000 shares of
Common Stock for services rendered. The Company originally recorded consulting
expense of $736,000, representing the market value of the stock at the date of
the agreement. Because the shares were not issued until May 2003, the Company
revalued the liability at the end of each quarter, based on the market value of
the stock at those dates, as follows:
F-16
Per Share
Value Liability Decrease
--------- --------- ---------
September 2002 $ 2.88 $ 276,000 $ 460,000
December 2002 2.03 194,400 81,600
March 2003 .95 91,200 103,200
May 19, 2003 (date issued) .75 72,000 19,200
During the 1st quarter of 2002, certain stockholders and others converted
$922,723 of notes payable and amounts due to stockholders into 92,272 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 $18.75 per share exercisable through December 31, 2003. The
warrants expired unissued at December 31, 2003.
In October 2002, certain stockholders converted $455,176 of debt to 182,070
shares of common stock. The conversion of these stockholders was done at the
prevailing market price as of the date of the conversion.
In October 2002, several former Tiger Telematics Ltd. shareholders agreed to
convert $610,190 of their shareholder debt into common stock and warrants to
purchase common stock at a price of $18.75 per share. The conversion rate was
one share of common stock and one warrant for every $10.00 of debt. The debt of
was converted in October 2002 into 61,019 shares of common stock and 61,019
warrants. The warrants expired unissued on December 31, 2003.
To recap, during 2002 shareholders converted $1,988,089 of debt into 335,361
shares of common stock.
See NOTE Q - SUBSEQUENT EVENTS for a description of equity transactions
occurring after 2002.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2002, was as follows:
2002
----------
Vehicles $ 188,837
Furniture, fixtures and equipment 48,359
----------
237,196
Less accumulated depreciation -
----------
$ 237,196
==========
Property and equipment was placed into service during 2003.
Property and equipment reclassified to discontinued operations in 2002 and 2001
are described in NOTE L - DISCONTINUED OPERATIONS
F-17
NOTE F - INCOME TAX MATTERS
The Company has net operating loss carry forwards for United States Tax purposes
as of December 31, 2002 for federal income tax purposes of approximately
$15,600,000, expiring in 2022. 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 of approximately $5,040,000. The Company also has undetermined losses
that may be off set against future income in the UK, expiring in 2021, due to
the sale of Tiger Telematics Ltd. Any future benefits to be realized from the
losses is dependent 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
relating to the losses.
2002 2001
----------- -----------
Income Tax Provision
Tax provision at statutory rates $ 4,600,000 $ 455,000
State income taxes - net 420,000 42,000
Effect of lower tax brackets (13,000) (13,000)
Other (407,000) (44,000)
----------- -----------
4,600,000 440,000
Balance at beginning of year 440,000 --
----------- -----------
Balance at end of year $ 5,040,000 $ 440,000
=========== ===========
Valuation allowance:
Balance at beginning of year $ 440,000 $ --
Current year provision 4,600,000 440,000
----------- -----------
Balance at end of year $ 5,040,000 $ 440,000
=========== ===========
NOTE G - OPERATING LEASES
The Company leases office space in Jacksonville, Florida and in London, England
on a month-to-month basis. Rent expense for 2002 was $295,779. This was after
reclassification of $241,280 of flooring rental expenses to discontinued
operations. Rent expenses for 2001 and 2000 was $526,196 and $173,668,
respectively, but is now reclassified as discontinued operations.
F-18
NOTE H - NOTES PAYABLE
2002
The notes are payable to a bank in 36 equal monthly
installments, with interest ranging from 10.4% to 11%
and are collateralized by two automobiles. $ 175,736
Less amount due within one year 30,602
============
Long term portion of notes payable $ 145,134
===========
Principal payments for the next three years are as follows: 2003 $30,602, 2004
$37,140, 2005 $44,504 and 2006 $63,490. See NOTE L - DISCONTINUED OPERATIONS for
description of 2001 notes payable.
NOTE I - ACQUISITIONS
Tiger Telematics (UK) Ltd. ("Tiger Ltd")
On February 4, 2002, the Company purchased Eagle Eye Scandinavian Distribution
Limited, an English private limited Company, and changed its name to Tiger
Telematics (UK) Ltd. The Company purchased all of the outstanding stock of Eagle
Eye in exchange for 280,000 shares of the Company's common stock valued at
$2,800,000. Tiger Telematics is an early stage Company engaged in the
distribution of telematics products.
The 280,000 shares of stock issued were valued at $10.00 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. The negative equity of Tiger
Ltd 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 by allocating $2,800,000 to an order backlog of pending orders for
product to be shipped over future periods and $463,050 to distribution rights to
be amortized quarterly over the remaining life of the distribution agreement.
During the quarter ended September 30, 2002, the Company, after determining that
the value of the order book was impaired, wrote-off $1,000,000. The impairment
was based on the failure to ship orders as originally projected and the change
in Tiger Ltd.'s business model to derive its income from monthly revenue
generated by its wireless telecom provider's partnership arrangements as opposed
to generating revenue primarily from the sale of hardware. In the fourth quarter
of 2002, the Company wrote off the remainder of the intangible assets of
$2,147,288 (net of $115,762 of accumulated amortization).
In the fourth quarter the Company sold the common stock of Tiger Ltd. to an
unrelated third party. 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. The Company recorded a $
248,009 gain of the sale representing the excess of liabilities over assets
transferred to the buyer. In early 2003, the buyer ceased operations and
liquidated Tiger Ltd.
F-19
Comworxx, Inc.
On June 25, 2002, pursuant to a Purchase Agreement between the Company's wholly
owned subsidiary, Tiger USA and Comworxx, Inc., a private Florida Company, Tiger
USA purchased all of the assets of Comworxx in exchange for 170,531 shares of
the Company's common stock valued at $6.25 per share or $1,065,819.
The purchase agreement provided however, that if the price per share of Tiger
Common Stock sold in the next equity financing raising gross proceeds of at
least $3 million, is less than $25.00 per share, the assumed purchase price
shall be reduced to the price per share in the next equity financing and
provided further however, that if the new equity financing is not consummated by
September 1, 2002 the assumed price shall be reduced to $.875. If the purchase
price is reduced to less than $25.00 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 487,230. Accordingly, 316,700 shares were subject to
this contingency.
In 2004, the Company entered into a settlement agreement by which 160,000 shares
plus 80,000 shares held in escrow would be issued in satisfaction of the full
contingent share issuance.
Based on a post acquisition review of assets, inventory, receivables and
property plant and equipment were written down to the current estimated value as
of the acquisition date. The write-downs created an additional excess of
liabilities over tangible assets of $669,628.
The acquisition price over the tangible asset valuation included three
intangible assets. Although the acquisition included other intellectual property
and license agreements, due to the position in the marketplace and funding
issues associated with the acquisition, the Company believed that the goodwill
was impaired as of June 30, 2002 and wrote off all of the goodwill of $1,735,445
in the quarter ended June 30, 2002.
In the third quarter, based on its evaluation, the Company took a further
write-down of the remaining assets purchased of $407,000, effectively writing
off its entire investment in the purchase agreement.
F-20
Assets (net of reserves) and liabilities acquired consisted of the following:
Accounts receivable $ 27,619
Inventory 105,472
Prepaid items 9,368
Computer equipment 280,629
Security deposits 15,470
------------
438,558
------------
Note payable 8,664
Accounts payable 882,968
Other accruals 216,554
------------
1,108,186
------------
Excess of liabilities over assets $ 669,628
Goodwill 1,065,817
------------
Total goodwill (all written off on June 30) $ 1,735,445
============
Net assets written off in the third quarter of 2002 $ 407,000
============
The Company believes that the seller 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 legal counsel to advise it of
its rights against the shareholders of the seller to recover certain sums or to
rescind the entire transaction. As mentioned above, in June of 2004 the Company
issued 160,000 of the contingent shares in settlement of this matter.
Pro forma information: The following pro forma information reflects the net
sales, net loss, and per share amounts for the year ended December 31, 2002 and
2001 as if the Tiger Telematics, Ltd. and Comworxx acquisitions had been
completed on January 1, 2001:
Year Ended
----------------------------
2002 2001
------------ ------------
Pro forma net sales $ 319,613 $ 0
Pro forma net loss $(13,453,091) $ (3,980,321)
Pro forma basic and diluted net
loss per common share $ (4.6201) $ (1.5096)
Weighted average shares
outstanding - basic and diluted 2,911,298 2,636,630
See NOTE Q - SUBSEQUENT EVENTS for descriptions of acquisitions and pending
acquisitions after 2002.
F-21
NOTE J - RELATED PARTY TRANSACTIONS
Notes Payable to Stockholders are as follows:
2002 2001
------------ ------------
Stockholder notes, unsecured, due on demand:
A) 10% $ -- $ 272,847
B) 15% -- 335,034
C) 10% -- 852,789
Without interest -- 80,382
------------ ------------
$ -- $ 1,541,052
D) Without interest $ 1,210,785 --
------------ ------------
Total $ 1,210,785 $ 1,541,052
============ ============
A) The two shareholders had a combined ownership of 0.18%. The note was
paid in 2002. Interest expense was $13,812 and $22,847 for 2002 and
2001, respectively.
B) Eight shareholders, none of whom owned more than 0.6% of the Company,
converted to 32,171 shares of the Company's common stock. Interest
expense for these notes was $8,801 and $32,034 in 202 and 2001,
respectively.
C) This note was owed to a 28.4% stockholder. The note, accrued interest
and the advance, with a combined balance of $829,796 at the conversion
date, were converted to 187,249 common shares and warrants. The
warrants expired unissued at December 31, 2003. Interest expense
related to this note was $15,000, $86,337 and $19,499 for 2002, 2001
and 2000, respectively.
D) These demand notes are due to stockholders who were the prior owners
of Eagle Eye Scandinavian (See Note I Acquisitions).
Total interest expense related to stockholder debt was $37,712 in 2002. The
weighted average interest rate on amounts due stockholder was 10%, 10.6% and
10.0% in 2002, 2001 and 2000, respectively.
To recap, the Company issued 280,439 shares of common stock to convert debt owed
shareholders of $1,775,020 in 2002. Additionally the Company issued 54,922
shares to convert $213,069 of notes payable to others.
In 2001, the Company included a property owned by one of its stockholders in its
property insurance policy. A portion of the insurance premium totaling $21,259
was deducted from the amount owed to the stockholder. Subsequent to December 31,
2001, separate insurance policies were written for each property.
As of December 31, 2001 the Company was owed a total of $26,029 from employees
and officers. The Company from time to time advances nominal amounts of money to
its employees for personal reasons. The advances do not bear interest and are
due on demand. The above amounts were included in discontinued operations for
the respective years.
In 2001, the Company sold $20,107 of flooring products to a company owned by an
officer of the Company.
F-22
As of December 31, 2002, the Company owed an executive officer and director
approximately $50,000 for back salary and reimbursable expenses incurred on
behalf of the Company.
In the fourth quarter of 2002 the Company issued 182,070 shares to certain
shareholders to convert $455,761 of debt to equity at $2.50 per share.
During the third and fourth quarter of 2003, the Company (i) at the request of
certain stockholder of Tiger Europe, Ltd., issued 148,000 shares at a rate of
$.50 per share to reduce $75,000 of indebtedness owed by the Company to such
stockholders and (ii) converted $1,400,000 of debt to a stockholder to 2,800,000
shares of common stock at the rate of $.50 per share, the market price of the
common stock as of the date that the agreements were entered into. The debt
conversion involved certain officers and directors of the Company and or its
Gizmondo subsidiary. In addition, during the fourth quarter the Company
converted $226,730 of debt owed to another shareholder into 453,460 shares of
common stock valued at $.50 per share and issued 800,000 shares to such
shareholder for services rendered to the Company. That person subsequently
became an employee of a subsidiary of the Company in April 2004 as Head of
Investor Relations.
NOTE K - CONTINGENCIES
A shareholder borrowed some of the funds advanced to the Company (with funds
going to the Tiger Ltd subsidiary) from a private investment bank, London
International Mercantile Bank (LIM), based in London. The shareholder failed to
repay the note when due and LIM 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. Tiger Ltd. entered into a settlement agreement the Court
approved as a Tomblin Order where the demand note payable to the shareholder was
forgiven in exchange for the Company entering into an installment note for
approximately $475,000, to be paid over time directly to LIM. The shareholder
remained contingently obligated for the sum owed plus interest in event that the
payment was not made timely by Tiger Ltd. The Company issued a limited guaranty
for the obligation to LIM.
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. Following the sale of Tiger Ltd., the Company was apprised
that Tiger Ltd. was placed in liquidation insolvency under the laws of the
United Kingdom for failure to make the payments required under this arrangement.
LIM made demand on the Company for approximately $450,000, under the guarantee
but has made no attempt to collect on the guaranty as it pursues its direct
remedies against the original borrower of the funds. LIM also holds 140,000
shares of the Company's common stock and certain real estate provided by the
original borrower as collateral. The Company does not believe that any possible
losses with respect to this issue will have a material effect on the financial
statements.
On April 26, 2002 the Company entered into a Lease Agreement with Christian and
Timbers UK Ltd (C&T) for office premises for its subsidiary for a term of five
years. The Company paid the first year's rent by issuing 20,000 shares of common
stock. The subsidiary subsequently defaulted on the lease arrangement. In the
summer of 2003, C&T sued the Company pursuant to the Company's guarantee. In
October 2003, the Company entered into a judgment stipulation for $300,000 to
settle all obligations under the guarantee. The Company has issued shares of
common stock to C&T that it believes will satisfy the amount of the outstanding
judgment.
F-23
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 Company's
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 alleged that the Company defaulted on a payment of $500,000, due on January
1, 2004, 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 defenses to the suit and has filed a defense in UK courts.
The Company is considering filing a counter suit against both the plaintiff and
Jordan Racing. The plaintiff filed a motion for summary judgment against the
Company. The Court denied the plaintiff's motion and the Company was permitted
to defend the lawsuit on the condition that it makes a substantial payment to be
held by the Court. In January 2005, the Court reduced the amount of the payment
and allowed the Company to deposit 70,000 shares of its stock in escrow to
satisfy this requirement. Prior to commencement of the trial, the Company is to
substitute $1.5 million in exchange for the escrowed shares. While the Company
is unable to predict the outcome of this litigation, it intends to vigorously
defend the plaintiff's claims.
In January 2005, the Company filed a lawsuit against a former investment advisor
of the Company, based on a breach of the agreement between the advisor and the
Company. As payment for investment advisory services, the Company originally
issued 40,000 (1,000,000 pre reverse split) shares of common stock in 2002 and
2003. The advisor subsequently alleged in December 2004 that the Company owed
him an additional 960,000 shares of common stock to maintain his ownership in
the Company at 1,000,000 shares. The Company is seeking a declaratory judgment
from the court that it is not required to issue additional shares to the
advisor, as well as damages, fees and costs as a result of the advisor's breach
including the return of the previously issued shares.
In October 2004, Gizmondo Europe Ltd, (Gizmondo), subsidiary of the Company
signed a contract with SCi Entertainment Group Plc (SCi), a leading games
publisher, under which Gizmondo has licensed the right to develop and publish
twelve SCi products for the Gizmondo platform. The agreement covers both
currently released titles as well as those in the pipeline, and establishes the
structure for continuing collaboration between the two companies.
The agreement has Gizmondo paying a minimum guarantee of approximately
$1,250,000 allocated by and among 12 products. The guarantee, which has been
paid, is non-refundable but fully recoverable against earned royalties of each
product. An earned royalty of 50% of net receipts is to be paid on each product.
On March 22, 2005, the Board of Regents of the University of Texas System filed
an action against the Company and one of its subsidiaries, Gizmondo Europe, Ltd.
in the United States District Court for the Western District of Texas, Austin
Division, alleging that predictive text software used in the Company's Gizmondo
gaming device infringes a patent held by the Board of Regents. The Company
believes that its software does not infringe the Board of Regents' patent. The
Company licenses this software from another company, which under the license
agreement, has indemnified the Company for infringement claims. The Company and
its licensor intend to vigorously defend the infringement claims against the
Company and Gizmondo Europe, Ltd.
NOTE L - DISCONTINUED OPERATIONS
In June 2002 the Company entered into a plan to dispose of its flooring business
and, as of June 30, 2002, accounted for the flooring segment as a discontinued
operation. The Company has estimated that the net loss on the discontinued
operations from June 30, 2002 through the date of the sale, August 9, 2002, to
be $35,000, and the estimated gain on sale and included that amount in the
liabilities of the discontinued segment.
F-24
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, in consideration for the assumption by the buyer of
liabilities totaling $1,243,135. The Company will remain contingently liable on
the liabilities until such time as the buyers pay them off. In addition, the
buyer has assumed operating leases described above.
Revenue included in loss from discontinued operations amounted to $2,163,158,
$3,777,000 and $298,000 for the period ended December 31, 2002, 2001 and 2000
respectively.
The amounts held in discontinued operations have been reclassified on the
financial statements of prior years. Shown below are the categories of assets
and liabilities reclassified to discontinued operations as previously shown in
the specific notes from the year ended 2001.
On April 2003, the buyer of the flooring assets filed a Chapter 11 bankruptcy
proceeding and was liquidated as of April 30, 2003. As of December 31, 2002, the
Company has made a provision for loss of approximately $1,153,000.
A summary of the liabilities the Company may be obligated to pay, as of December
31, 2002 is as follows:
Liabilities - Leases and various payables and
accruals related to failure of Floor Decor, and
other dispositions $ 1.152.713
=============
NOTE M - WARRANTS
The Company issued warrants to purchase 253,789 and 66,000 shares of the
Company's common stock at $18.75 per share in 2002 and 2001 respectively. The
warrants were exercisable at any time until December 31, 2003. None of the
warrants were exercised or cancelled. All expired, unexercised, at December 31,
2003. At December 31, 2002 and 2001 there were 319,789 and 66,000 warrants
issued and outstanding, respectively.
In 2004 the Company also issued warrants to purchase 495,525 shares of the
Company's common stock at an exercise prices ranging from $5.00 to $11.25 per
share.
NOTE N - PREPAYMENTS
Prepaid expenses at 2002 are as follows:
Rent $ 117,080
Insurance 12,124
-----------
TOTAL $ 129,204
===========
F-25
NOTE O - ACCRUED EXPENSES
2002
-----------
Payroll and related taxes $ 40,832
Consulting 194,000
Amounts accrued related to acquisitions, bankruptcy of acquiring
companies and rent and advisor fees related to events described
in NOTE K - CONTINGENCIES 1,726,812
-----------
$ 1,961,644
===========
NOTE P - SEGMENT INFORMATION
The Company now focuses all of its business in one segment, the telematics
product development and distribution business in Europe.
NOTE Q - SUBSEQUENT EVENTS
ISIS Models, Ltd.
In May 2004 Gizmondo Europe, Ltd. acquired 75% interest in ISIS Models Ltd. for
$310,000 settled by the issue of common stock of the Company of 40,000 shares
valued at $7.75 per agreement. The transaction resulted in $310,000 of goodwill
to reflect the intangible order book.
Warthog Plc
The Company executed an Asset Purchase Agreement contract dated November 3, 2004
and closed the transaction on that date, for the acquisition of Warthog Plc's
subsidiaries, intellectual properties and assets, in a move to further expand
the Company's games development agenda and management infrastructure. Within two
days of closing, the Company injected approximately $1.3 million into the
Warthog subsidiaries for working capital purposes.
As a result the Company paid $1,113,000 in cash and issued 497,866 shares of
restricted common stock on November 3, 2004. The shares were valued at $14.06
per share pursuant to the terms of the agreement ($7,000,000), which was the
average closing price in the 14 days prior to closing. For financial statement
purposes, the company recorded approximately $850,000 in goodwill to reflect the
excess purchase price over tangible assets acquired.
Indie Studios
On August 2, 2004, Gizmondo Europe, Ltd. purchased Indie Studios on a
transaction agreed to on May 20, 2004 Purchase Agreement, following an April 29,
2004 Letter of Intent, for one million shares of common stock of the Company
valued at $7.50. There are 600,000 contingent shares reserved. For financial
statement purposes the Company assumed the shares issued and recorded $12
million in goodwill to reflect the excess of purchase price over tangible
assets.
F-26
Integra SP
The Company executed a share Purchase Agreement contract dated October 29, 2004
to buy the shares of Integra SP (Integra), which owns several UK subsidiaries
that provide software for process management and integration of real-time
systems. Integra's domain expertise and Altio product set enable businesses to
provide integration to various financial services institutions supporting a wide
range of formats and protocols. For the fiscal year ended June 30, 2004, Integra
had unaudited revenues of $4.1 million.
The transaction has not closed. When approved, the Company will issue 625,250
shares at closing and escrow 2,794,785 shares for payouts over two years, based
on an earn out formula. The maximum number of shares to be issued under the
two-year payout is 1,984,469 and under the earn-out is 3,420,035.
Equity Transactions
During 2003, the Company issued 6,270,648 shares as follows:
Shares Dollars
Private placements 2,372,034 $ 1,745,090
Conversion of debt to equity (primarily
Shareholder debt) 3,471,514 3,274,488
Payment for services 427,100 294,475
----------- -----------
Totals 6,270,648 $ 5,314,053
=========== ===========
At December 31, 2002, 3,227,457 shares of common stock were issued and
outstanding. Since that date, the Company has issued an additional approximately
43.2 million shares (including the shares described above for 2003) in numerous
private transactions (a) for cash, (b) upon conversion of debt, accounts payable
or other liabilities, (c) for goods or services provided by vendors, strategic
partners, professionals, consultants and employees and (d) in connection with
the acquisition of assets. In each case the Company recorded capital surplus
based upon the price of the Company's common stock at the time of issuance or
agreement to issue, discounted in some cases due to restrictions on sale by
recipients. The aggregate amount recorded was approximately $177 million,
including the above described shares. During such periods the Company also
issued warrants to purchase and aggregate of 495,525 shares of common stock at
exercise prices ranging from $5.00 to $11.25 per share.
F-27
NOTE R - QUARTERLY DATA (UNAUDITED)
(in thousands, except per share data)
Year Ended December 31, 2002
----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Net sales $ 130 $ 152 $ 1 $ 1
Cost of goods sold 117 223 42 3
---------- ---------- ---------- ----------
Gross profit 13 (71) (41) (2)
Selling, general and Administrative 1,256 1,410 2,149 954
Other income (expense) (521) (1,027) (3,288) (28)
---------- ---------- ---------- ----------
Loss from continuing Operations (1,764) (2,508) (5,478) (984)
Loss from discontinued Operations -- -- (164) (189)
---------- ---------- ---------- ----------
Net loss (1,764) (2,508) (5,642) (1,173)
========== ========== ========== ==========
Net loss per share $ (0.6249) $ (0.8885) $ (1.9986) $ (0.4155)
========== ========== ========== ==========
Year Ended December 31, 2001
----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
Net sales $ -- $ -- $ -- $ --
Cost of goods sold -- -- -- --
---------- ---------- ---------- ----------
Gross profit -- -- -- --
Selling, general and Administrative 69 66 148 --
Other income (expense) (44) (37) (37) (28)
---------- ---------- ---------- ----------
Loss from continuing Operations (113) (103) (185) (28)
Loss from discontinued Operations (230) (178) (194) (267)
---------- ---------- ---------- ----------
Net loss (343) (281) (379) (295)
========== ========== ========== ==========
Net loss per share $ (0.1744) $ (0.1244) $ (0.1744) $ (0.1246)
========== ========== ========== ==========
F-28
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