UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
Commission File Number 001-15977
TIGER TELEMATICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4051167
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
6001 Powerline Road, Ft. Lauderdale, FL 33309
(Address of principal executive offices) (Zip Code)
(954) 351-9833
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class August 15, 2002
- --------------------------- -------------------------
Common Stock, Par 72,269,189
Value $0.001 per share
CONTENTS
Page
Financial Statements
Condensed Consolidated Balance Sheets F-2
Condensed Consolidated Statements of Operations F-3-4
Condensed Consolidated Statement of Stockholders' Deficit F-5
Condensed Consolidated Statements of Cash Flow F-6 - F-8
Notes to Condensed Consolidated Financial Statements F-9- F-15
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
(unaudited)
--------------------------------------------
Assets
Current Assets
Cash $ - $ 20,331
Accounts receivable, less allowance for doubtful
Accounts, June 30, 2002 $0; December
31, 2001$7,406 47,447 93,580
Advances to officers and employees - 26,029
Inventories 517,408 708,293
Prepaid expenses and deferred income 836,811 27,241
Assets of discontinued operations 1,231,823 -
--------------------- ---------------------
Total Current Assets 2,633,489 875,474
Property and Equipment, net 338,596 161,028
Distribution Agreement, less accumulated amortization of $72,350 390,700 -
Order Backlog 2,800,000 -
Deposits and Other Assets 15,470 262,272
--------------------- --------------------
Total Assets $ 6,178,255 $ 1,298,774
===================== ====================
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 1,990,708 $ 764,455
Amounts due stockholders 1,886,555 1,541,053
Notes payable 86,261 130,119
Accrued expenses 828,698 147,451
Customer deposits 0 110,325
Liabilities of discontinued operations 1,506,998 -
---------------------- --------------------
Total current liabilities 6,299,220 2,693,403
---------------------- --------------------
Stockholders' Deficit
Common stock, at par value 72,269 55,887
Authorized 100,000,000 shares, issued June 30, 2002
72,269,189; December 31, 2001 55,886,664 shares
Shares earned but not issued, June 30,2002 10,317,494 shares 10,318
Additional paid in capital 9,061,990 514,104
Subscription receivable (36) (36)
Accumulated deficit (9,265,506) (1,964,584)
--------------------- ---------------------
(120,965) (1,394,629)
--------------------- ---------------------
$ 6,178,255 $ 1,298,774
===================== =====================
F-2
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months ended June 30,
---------------------------------------------
2002 2001
---------------------------------------------
Net sales $ 1,063 $ -
Cost of goods sold 41,625 -
---------------------------------------------
Gross Profit (loss) (40,562) -
---------------------------------------------
Operating expenses
Selling expense 124,758 -
General and administrative expense 2,024,758 149,717
---------------------------------------------
Total Operating Expenses 2,149,516 149,717
---------------------------------------------
Operating loss (2,190,078) (149,717)
---------------------------------------------
Other income (expense)
Impairment of goodwill (3,714,818) -
Currency Translation Adjustment (42,528) -
Interest expense (16,263) (36,879)
---------------------------------------------
(3,773,609) (36,879)
---------------------------------------------
Loss from continuing operations (5,963,687) (186,596)
Loss from discontinued operations (164,040) (193,919)
---------------------------------------------
Net loss $ (6,127,727) $ (380,515)
=============================================
Basic and diluted net loss per
common share $ (0.0889) $ (0.007)
=============================================
Basic and diluted net loss from
Continuing operations per share $ (0.0865) (0.0034)
=============================================
Weighted average shares outstanding
(Basic and diluted) 68,939,255 54,236,664
=============================================
See Notes to Consolidated Financial Statements.
F-3
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months ended June 30,
-------------------------------------------------------
2002 2001
-------------------------------------------------------
Net sales $ 29,583 $ -
Cost of goods sold 72,641 -
-------------------------------------------------------
Gross Profit (Loss) (43,058) -
-------------------------------------------------------
Operating expenses
Selling expense 249,161 -
General and administrative expense 2,853,344 149,717
-------------------------------------------------------
Total Operating Expenses 3,102,505 149,717
-------------------------------------------------------
Operating loss (3,145,563) (149,717)
-------------------------------------------------------
Other income (expense)
Impairment of goodwill (3,801,929) -
Currency Translation Adjustment (48,491) -
Interest expense (38,620) (65,022)
-------------------------------------------------------
(87,111) (65,022)
-------------------------------------------------------
Loss from continuing operations (6,947,492) (214,739)
Loss from discontinued operations (353,430) (460,556)
Net loss $ (7,300,922) $ (675,295)
=======================================================
Basic and diluted net loss per
common share $ (0.1106) $ (0.0125)
=======================================================
Basic and diluted net loss from
continuing operations per share (0.1053) (0.0040)
Weighted average shares outstanding =======================================================
(basic and diluted) 66,000,693 54,236,664
=======================================================
See Notes to Consolidated Financial Statements.
F4
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Six Months Ended June 30, 2002
(unaudited)
Additional
Common Paid in Subscriptions Accumulated Total
Stock Capital Receivable Deficit Deficit
----- ------- ---------- ------- -------
Shares Amount
------------------------------------------------------------------------------
Balance (deficit) at December 31, 2001 55,886,664 $ 55,887 $514,104 $ (36) $ (1,964,584) $ (1,394,629)
Issuance of common stock and warrants 2,512,450 2,512 874,161 - 876,673
Conversion of notes payable and amounts
Due stockholders into common stock
and Warrants 2,306,809 2,307 920,416 - - 922,723
Common Stock issued in acquisition of
Tiger Telematics, Ltd. 7,000,000 7,000 2,793,000 - - 2,800,000
Common Stock issued in satisfaction of
Obligations 300,000 300 119,700 - - 120,000
Common Stock for acquisition of
assets of Comworxx Inc.by Tiger USA 4,263,266 4,263 3,040,927 - - 3,045,190
(7,917,494 contingent shares
unissued at June 30, 2002)
Shares issuable for consulting agreement (2,400,000) - 810,000 - - -
shares unissued at June 30, 2002
------------------------------------------------------------------------------
Net Loss - - - - (7,300,922) (7,300,922)
------------------------------------------------------------------------------
Balance (deficit) at June 30, 2002 72,269,189 $72,269 $9,072,308 $ (36) $ (9,265,506) $(120,965)
========== ======= ========== ====== ============= ==========
See Notes to Consolidated Financial Statements.
F-5
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months ended June 30,
--------------------------------------------
2002 2001
--------------------------------------------
Cash Flows From Operating Activities
Net loss $ (7,300,922) $ (675,295)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and Amortization 98,798 20,312
Currency translation adjustments 48,491 0
Changes in assets and liabilities. 694,828 379,002
Interest on notes payable and stockholder loans
Capitalized to principal balances 23,144 9,488
Write down of deposit 100,000 -
Impairment of goodwill on Comworxx asset acquisition 3,714,818 -
Obligations paid with common stock 930,000 -
--------------------------------------------
Net cash used in operating activities (1,790,843) (266,493)
Cash Flows From Investing Activities
Cash received from acquisition of Tiger Telematics
787 -
Advances to Comworxx (50,000) -
Proceeds from sale of property and equipment - 9,653
Purchase of property and equipment (68,367) (15,580)
Collection of advances to officers and employees 26,029 -
Decrease in deposits and other assets 20,000 32,853
--------------------------------------------
Net cash (used in) provided by investing activities (72,338) 26,926
--------------------------------------------
Cash Flows From Financing Activities from continuing
operations
Issuance of common stock and warrants 876,673 -
Advances to employees - (16,119)
Loans and advances from stockholders 1,257,810 539,041
Increase in excess of outstanding checks and bank balances 187,880 -
Repayments to stockholders (479,513) (283,325)
--------------------------------------------
Net cash provided by used in financing activities 1,842,850 239,567
--------------------------------------------
Net change in cash (20,331) -
Cash:
Beginning 20,331 -
============================================
Ending $ - -
============================================
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 15,476 $ 54,686
============================================
Supplemental Disclosure of Non-cash Investing and Financing
Activities
Common Stock issued in payment of obligations $ 930,000 $ -
============================================
Common Stock issued in exchange for subscriptions receivable $ - $ 622
============================================
Conversion of Notes Payable and Amounts Due Stockholders into
Common Stock $ 922,723 $ -
============================================
F-6
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(unaudited)
2002 2001
Acquisition of Tiger Telematics:
Working capital acquired, net of cash $787 $ 144,917 $ -
Distribution Agreement 2,800,000 -
Order Book 463,050 -
Property and Equipment 1,436 -
Amounts due to stockholders (610,190) -
Common Stock issued (2,800,000) -
------------------------------ ---------------------
Cash received $ 787 $ -
============================== =====================
Acquisition of Comworxx, Inc.:
Working capital acquired, (957,063) $ -
Property and equipment 280,629 -
Goodwill 3,714,818 -
Other assets 15,470 -
Notes payable assumed (8,664) -
Common Stock issued (3,045,190) -
------------------------------ ---------------------
Cash received $ - $ -
============================== =====================
See Notes to Consolidated Financial Statements.
F-7
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of June 30, 2002 and the
three months and six months ended June 30, 2002 and 2001 included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the periods indicated have been included. For further
information regarding the company's accounting policies, refer to the
consolidated financial statements and related notes included in the company's
Annual Report on form 10-K for the year ended December 31, 2001. The balance
sheet at December 31, 2001 is derived from the audited financial statements.
NOTE B - REVERSE ACQUISITION AND EQUITY TRANSACTIONS
As of December 31, 2000 Floor Decor had 1,000 shares of common stock authorized
and 378 shares issued and outstanding. The Company issued an additional 622
shares of common stock on January 1, 2001 at a cost of $1 per share. As a result
of these additional shares being issued, the Company had 1,000 shares of common
stock authorized and 1,000 shares issued and outstanding as of March 31, 2001
prior to the reverse acquisition (as described below) on May 22, 2001.
On May 22, 2001, a purchasing group led by A.J. Nassar acquired 21,900,000
shares of the common stock of Media Communications Group, Inc. ("MCGI") in
exchange for all of the outstanding common shares of Floor Decor, Inc. to become
the owner of approximately 40% of the issued and outstanding common stock of
MCGI pursuant to an agreement including the merger of Floor Decor into a newly
formed wholly owned subsidiary of the Company. Prior to the acquisition of Floor
Decor, MCGI was a "public shell" company, with no significant operations or
assets. The acquisition of Floor Decor was accounted for as a reverse
acquisition. Under a reverse acquisition, Floor Decor is treated for accounting
purposes as having acquired MCGI and the historical financial statements of
Floor Decor become the historical financial statements of MCGI. In accounting
for the reverse acquisition, the equity of Floor Decor, as the surviving company
is recapitalized. Also, upon the closing of the reverse acquisition an
obligation to an original MCGI vendor for $4,931 was assumed.
To compute the loss per share for the three months and six months ended June 30,
2001, the 54,236,664 shares outstanding at the date of the reverse acquisition
was assumed to be outstanding since July 3, 2000, the date of inception of the
Company.
Since the Company had a loss for all periods presented, basic and diluted loss
per common share are equal. The Company has not included 7,218,592 potential
common shares relating to outstanding common warrants as of June 30, 2002 in the
calculation of the diluted earnings per share for the 2nd quarter of 2002,
because their effect would be antidilutive.
During the 1st quarter of 2002 the Company sold 2,512,450 shares of its Common
Stock as part of the private placement transaction initiated in December 2001.
These shares were sold at $ 0.40 per share. For each share of Common Stock
purchased, the investor also received a warrant representing the right to
purchase one additional share of Common Stock at a price of $0.75 per share
exercisable through December 31, 2003. Proceeds from these sales, net of
advisory fees totaling $128,307, amounted to $876,673.
The Company has an agreement with an advisor for consulting services. Under
the agreement, the Company was to issue 2,400,00 shares of Common Stock, which
were valued at $810,000. For financial reporting purposes this was treated as
earned but not issued, since the shares have not been issued. See page F-5
Consolidated Statements of Stockholder's Deficit.
F-8
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the 1st quarter of 2002, certain stockholders and others converted
$922,723 of notes payable and amounts due to stockholders into 2,306,809 shares
of Common Stock. For each share of Common Stock purchased, they also received a
warrant representing the right to purchase one additional share of Common Stock
at a price of $0.75 per share, exercisable through December 31, 2003. The
company also agreed to issue warrants to purchase 416,000 shares of Common Stock
at a price of $.075 per share exercisable through December 31, 2003 as advisory
fees in connection with these stock sales. These warrants have not yet been
issued due to unresolved issues with the advisor.
NOTE C - RELATED PARTY TRANSACTIONS
As of June 30, 2002, a 10% demand notes payable to a 26.4% stockholder in the
amount of $174,272. The Company also owed a total of $80,382 to this stockholder
on a non-interest bearing note that is due on demand. The Company also owed a
10% demand note payable in the amount of $76,536 to a stockholder of
approximately 4%.
As of June 30, 2002, the Company had 15% demand notes totaling $76,621, 10%
demand notes totaling $286,660, and 6% demand notes totaling $23,644 payable to
stockholders (combined ownership less than 1%). $325, 671 of this total amount
is reported in liabilities of discontinued operations.
The Company also has non-interest bearing notes of $109,089 and non interest
bearing advances of $1,385,022 payable to the two former Tiger Telematics Ltd.
stockholders (combined ownership over 10% of the Company). As discussed in note
F, $610,190 of these advances was converted into Common Stock and warrants in
August 2002.
Total interest expense on stockholder debt amounted to $37,133 and $17,135 for
the six months and three months ended June 30,2002.
NOTE D - INCOME TAX MATTERS
The Company has net operating loss carryforwards for United States Tax
purposes as of June 30, 2002 for federal income tax purposes of approximately
$3,700,000 expiring in 2021. Any future benefit to be realized from these net
operating loss and contribution carry forwards is dependent upon the Company
earning sufficient future income taxable in the United States during the periods
that the carry forwards are available. The loss carry forwards also contain
restrictions on the type of taxable income that they can be used to offset. Due
to these uncertainties, the Company has fully offset any deferred tax benefits
otherwise relating to the net operating loss carry forward with a valuation
allowance in the amount of $1,258,000. The Company has losses off settable
against future income in the UK of $1,651,397 expiring in 2021. Any future
benefits to be realized from the losses is dependant upon the company earnings
sufficient future taxable income in the UK during the periods that the losses
off settable are available. Due to these uncertainties the Company has fully
offset any deferred tax benefits otherwise relating to the losses off settable
against future income with a valuation allowance in the amount of $330,279.
F-9
NOTE E - NOTES PAYABLE
As of June 30, 2002, the Company had 15% demand notes payable totaling $8,664
from the Comworxx acquisition. The company also has a 10% note payable in the
amount of $77,597.
NOTE F - ACQUISITIONS.
TIGER TELEMATICS, LTD.
On February 4, 2002, pursuant to a Stock Purchase Agreement between the Company
and Eagle Eye Scandinavian Distribution Limited, an English private limited
company, which name the Company has changed to Tiger Telematics (UK) Ltd.
("Tiger Telematics"), the Company purchased all of the outstanding stock of
Tiger Telematics in exchange for 7,000,000 shares of Floor Decor, Inc. common
stock. Tiger Telematics is an early stage company engaged in the distribution of
telematics product.
The 7,000,000 shares of stock issued were valued at $0.40 per share. This price
is the same price as the private placement transactions with investors that were
entered into from December 2001 through March 2002. This valued the stock issued
at $2,800,000. The negative equity of Tiger Telematics of $463,050 as of the
acquisition date resulted in an excess of acquisition cost over tangible asset
value of $3,263,050.
The excess of the acquisition price over the tangible asset valuation was
assigned to two intangible assets. $2,800,000 was ascribed to an order backlog
of open pending orders for products for future shipments over the next several
years. This amount will be amortized as the orders are shipped on a prorata
basis. The remaining amount of $463,050 was assigned to distribution rights
under a Distribution Agreement with Eagle Eye Telmatics, plc, which was executed
on October 19, 2001(see Form 10-K dated March 31, 2002, exhibit #21.1). This
amount will be amortized quarterly over the 32 month remaining life of the
distribution agreement.
In connection with this acquisition, the former Tiger Telematics shareholders
agreed to convert $610,190 of their shareholder debt into Common Stock and
warrants to purchase common stock at a price of $0.75 per share exercisable
through December 31, 2003. The conversion rate will be one share of common stock
and one warrant for every $0.40 of debt. This amount was converted in August
2002 into 1,525,475 shares of Common Stock and Warrants.
COMWORXX, INC.
On June 25, 2002, pursuant to a Purchase Agreement between the Company's wholly
owned subsidiary Tiger USA, Inc and Comworx, Inc., a private Florida
incorporated company, the Company formed a new wholly owned subsidiary Comworxx
Acquisition Corporation which name the Company has changed post closing to Tiger
Telematics USA. ("Tiger USA"). Tiger USA purchased all of the assets of Comworx
in exchange for 4,263,266 shares of Tiger Telematics, Inc. common stock. Tiger
USA is now an early stage company engaged in beginning the distribution of
telematics product to the United States consumer market. Comworxx assets
included license agreements and intellectual properties.
F-10
Pursuant to the terms of the purchase agreement the 4,263,266 shares of
stock issued were valued at $1.00 per share; provided however that if the price
per share of Tiger Common Stock sold in the next equity financing in which Tiger
raises gross proceeds of at least $3 million is less than $1.00 per share the
assumed purchase price shall be reduced to the price per share used in that 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 $.035 per share. If the purchase price is reduced to less than $1.00
per share, of Tiger Common Stock, Tiger will have to issue such additional
shares as necessary so that the total number of shares of Tiger Common Stock
issued pursuant to this provision, is equal to the quotient, rounded to the
nearest whole number, of $4,263,266 divided by the final assumed purchase price.
The maximum number of shares that would be issued under this formula would be
12,180,760. The Company recorded this transaction as if the maximum number of
shares will be issued, resulting in the recording of 7,917,494 contingent
shares. The Company valued the shares at $.25 per share, which was the trading
price at the date if purchase, giving a purchase price of $3,045,190. Based on a
post acquisition review of assets reserves were made to inventory, receivables
and property plant and equipment to equal the current estimated value as of the
acquisition date. The reserves created an additional excess of liabilities over
tangible assets. The total excess of liabilities over tangible assets of
Comworxx acquired resulted in an additional good will of $669,628.
The excess of the acquisition price over the tangible asset valuation was
assigned to three intangible assets. Although the acquisition included
intellectual property and license agreements due to the position in the
marketplace and funding issues associated with the acquisition, agreements The
Company believes that the good will is impaired as of June 30, 2002. The company
wrote off all of the goodwill of $3,714,818 in the quarter ended June 30, 2002.
Proforma information: The following proforma information reflects the net sales,
net loss, and per share amounts for the six months ended June 30, 2002 and
2001as if the Tiger Telematics, Ltd and Conworxx acquisitions had been completed
on January 1, 2001:
Six months ended:
=================================
2002 2001
=================================
Proforma net sales $ 64,038 $ 0
=================================
Performa net loss $ (8,804,634) $ (1,968,641)
=================================
Proforma basic and diluted net loss
per common share $ (0.1109) $ (0.0268)
=================================
Weighted average shares outstanding
(basic and diluted) 79,349,119 73,417,424
=================================
NOTE G. LEASE IN THE UK
On April 26, 2002 the company entered into a Lease Agreement with Christian and
Timbers UK Ltd. for office premises for its subsidiary Tiger Telematics Ltd. in
London, United Kingdom. The lease has a term of five years. The Company will
satisfy its obligation to pay rent for the first year of the term of the lease
by issuing 500,000 shares of Floor Decor's Common Stock. If the Landlord
liquidates the Shares in the first year of the term of the Lease and the
aggregate net proceeds of sale arising from such sale or sales is less than
(pound)126,018.75 (or the US Dollar equivalent using the mid range exchange rate
prevailing on the date of actual receipt of the said proceeds of sale by the
Landlord) the Tenant shall forthwith pay to the Landlord the difference between
(pound)126,018.75 and the said proceeds in cash. The second and subsequent years
of the term of the lease shall be paid in cash. The company has recorded the
full amount due for the first year of the lease as a liability of $182,636 based
on the conversion rate the date the lease was consummated. The 500,000 shares
issued to them are not considered issued for financial reporting purposes until
such time as they are actually sold into the market by the landlord or until the
liquidation guarantee is expired.
F-11
Management still intends to raise up to $7.0 to $10 million in equity for
working capital, and to fund the cost of pursuing strategic growth
opportunities.
NOTE H - SEGMENT INFORMATION
During the first half of 2002 the Company operated in the flooring business in
Florida, now a discontinued operation and in the telematics distribution
business in Europe.
o Flooring Retail and Installation- now a discontinued operation
o Telematics distribution
The accounting policies of the reportable segments are the same as those
referred to in Notes A. In June 6, 2002, the company announced the
discontinuation of the flooring segment and sold the assets of the flooring
business on August 9, 2002. As a result the company is not disclosing segment
information.
NOTE I -DISCONTINUED OPERATIONS:
In June 2002 the Company entered into a plan to dispose of its flooring
business. The flooring business was subsequently sold on August 9, 2002. As of
June 30, 2002, the Company has accounted for the flooring segment as a
discontinued segment. Assets of $1,231,823 and liabilities of $1,506,998
relating to the flooring business as of June 30, 2002 have been aggregated on
the condensed consolidated balance sheet. The Company has estimated that the net
loss on the discontinued operations from June 30, 2002 through August 9, 2002 to
be $35,000, and has included that amount in the liabilities of the discontinued
segment. A summary of the assets and liabilities as of June 30, 2002 is as
follows:
- ------------------------------------- ------------
Assets:
- ------------------------------------- ------------
Accounts receivable $ 87,509
- ------------------------------------- ------------
Inventories 820,989
- ------------------------------------- ------------
Prepaid expenses 37,123
- ------------------------------------- ------------
Property and equipment 143,930
- ------------------------------------- ------------
Deposits and other assets 142,272
- ------------------------------------- ------------
Total assets $ 1,231,823
- ------------------------------------- ------------
Liabilities:
- ------------------------------------- ------------
Notes payable $ 310,304
- ------------------------------------- ------------
Accounts payable 1,030,256
- ------------------------------------- ------------
Other accruals 166,438
- ------------------------------------- ------------
$ 1,506,998
- ------------------------------------- ------------
F-12
Revenue included in loss from discontinued operations amounted to $1,815,056 and
$1,351,501 for the six months ended June 30, 2002 and 2001 respectively, and $
908,978 and $744,360 for the three months ended June 30, 2002 and 2001,
respectively.
On August 9, 2002, the Company sold its flooring business to a purchasing group
headed up by a former officer of the Company. The Company sold assets
aggregating $1,152,698, and had the buyer assume liabilities totaling
$1,243,135. The Company will remain contingently liable on the liabilities until
such time as the acquirers pay them off.
NOTE J - BUSINESS CONSIDERATIONS
For the year ended December 31, 2001, the Company incurred net losses of
approximately $1,299,000. For the first six months of 2002, the losses
$7,300,922. The Company had negative cash flows from operating activities of
approximately $713,000 for the year ended December 31, 2001 and negative cash
flows from operating activities for the first six months of 2002.
The negative cash flows from operations, as well as the costs associated with
the Tiger Telematics Ltd. acquisition and the acquisition of assets of Comworx
has strained the Company's cash flow. Since the Company was not able to generate
positive net cash flows from operations, additional capital was needed. During
the first six months of 2002 the Company entered into private placement
transactions with individual investors. In these private placement transactions,
the Company sold shares of its common stock and warrants to raise approximately
$876,000 of equity, as disclosed in note B. During the same period, stockholders
converted approximately $923,000 of debt into equity of the Company.
Stockholders of the company continue to support the operation with substantial
loans to sustain operations as reported and note C and note I.
The Company continually monitors operating costs and will take steps to reduce
these costs to improve cash flow from operations if necessary. The Company is
continually seeking sources of new capital to aid the implementation of its
business plan. The company believes it will have access to $3 million of new
financing available in several tranches between now and year-end. This amount
will bill a part of a total fund raising of $10 million that the company is
seeking. However, there can be no assurance that additional financing, capital
or other form of debt financing will be available, or if available on terms
reasonably acceptable to the Company.
The Company plans to develop the Tiger Telematics distribution business in
the UK. This is going forward as planned. The company is evaluating the business
of its recently acquired assets of Comworxx(acquired on June 25, by the wholly
owned subsidiary Tiger USA), to determine the appropriate time to launch these
products full scale in the U.S. Based on a post acquisition evaluation of the
assets and market position of Tiger USA, the company determined that the
goodwill from the acquisition was impaired wrote it down in full. The company is
now specifically addressing the issues of the need for funding for working
capital in order to e the launch, the need to formulate payment arrangements
with holders of certain obligations that Tiger USA assumed and the high related
cost of the product relative to the projected sales price available for such
products in the U.S. consumer retail marketplace. For these factors the company
has postponed a full launch of the product until this evaluation can be
completed
F-13
The Company's ability to continue as a going concern is dependent upon its
ability to raise sufficient equity or debt capital to accomplish these
objectives and to offset any future operating losses that may be incurred until
positive cash flows can be generated from operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 23E of the Securities
Act of 1934, as amended. These statements relate to future events or future
financial performance. Any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements. In
some cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expect," "plan," "anticipate," "intend", "believe,"
"estimate," "predict," "potential" or "continue," or the negative of such terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person or entity, assumes responsibility for the accuracy
and completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Form 10-Q to conform such statements to actual results or to changes in the
Company's expectations.
The following discussion should be read in conjunction with the Company's
financial statements, related notes and the other financial information
appearing elsewhere in this Form 10-Q. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business.
General
Overview
In May of 2001 the Company completed a reverse shell merger with Media
Communications Group, Inc. ("MCGI"). Prior to the acquisition of Floor Decor,
MCGI was a "public shell" company, with no significant operations or assets. The
acquisition of Floor Decor was accounted for as a reverse acquisition. Under a
reverse acquisition, Floor Decor is treated for accounting purposes as having
acquired MCGI and the historical financial statements of Floor Decor become the
historical financial statements of MCGI. Therefore, all references to the
historical activities of the Company refer to the historical activities of Floor
Decor. Floor Decor changed its name to Tiger Telematics, Inc. on June 6, 2002.
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. On February 4,
2002, the Company acquired its second subsidiary, Tiger Telematics LTD, a UK
company, which provides telematics products and services to the
business-to-business segment in Europe. On June 29, 2002 the company set up its
third subsidiary Tiger Telematics USA, Inc. and it acquired the assets and
certain liabilities of Comworxx, Inc. a Sarasota, Florida based entity that
provides telematic products and services to the business to consumer segment in
the United States. On August 9, 2002 the company sold the assets of its
discontinued flooring segment.
F-14
Flooring- discontinued operations.
Floor Decor, Inc. 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 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.
On June 29, the company created a wholly owned subsidiary Tiger Telematics,
USA, Inc. that acquired the assets and certain liabilities of Comworxx Inc. as
disclosed in the note G to financial statements. I
Results of Operations
Three months-ended June 30, 2002 compared to the three months ended June 30,
2001
Net Sales: The Company's net sales increased to $1,063 in the 2nd quarter 2002
from $0 in the second quarter 2001. The Company did not acquire the telematics
division until February 2002 so there are no comparisons for the prior year. The
Company deferred income from $41,625 of connection fees from telecom suppliers
associated with shipments during the quarter, until the cancellation period
expires on such contracts. This represents deferred income that will be recorded
prorata 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 derive most of their income from
the sale of hardware. The company did experience some returns of product in June
that were shipped originally earlier in the 2nd quarter, that were subsequently
shipped to other customers in July 2002. The original customers are now waiting
for shipments of the company's next generation of product, with additional
enhanced features, scheduled to ship in September 2002. The company continues to
develop its product offering. The Company believes that the pricing of its
product offering, in its business model, is less expensive to customers than
other competitive offerings.
F-15
Gross Profits: Gross profits in this division were ($41,625) as the company must
ship a certain number of units to receive the lower cost price rebate level
anticipated in its business model. A critical mass of shipments is a key to
improving the gross profit margin. It is anticipated that this level of
shipments will be reached by 4th quarter 2002. 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 has expended funds in the development of an improved product scheduled
to ship first units in September of 2002.
Selling Expenses: Selling and marketing expenses for the 2nd quarter 2002 were
$124,758 or approximately the amount incurred in first quarter 2002. Most of
this cost relates to the establishment and maintenance of an order book pending
the shipments of product later this year and in 2003. 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 order book but lacks funding for working
capital and has experienced problems at the manufacturer of the base units on
delivery. The company believes that these delivery issues have now been
resolved.
General and Administrative Expenses: General and administrative expenses
for the 2nd quarter 2002 were $2,024,758. $543,839 of this related to Tiger Ltd
in the UK. As in first quarter, this was incurred in the development of the
infrastructure for the telematics business including engineering, training of
installers, and other administrative efforts to facilitate anticipated sales.
However, the Company still anticipates that its sales will increase at a faster
rate than its general and administrative expenses, resulting in these expenses
decreasing as a percentage of sales in future periods. The costs associated with
being a public company, primarily fees for accounting, legal, and professional
services were also high for the period at $144,000. The Company also incurred
costs during the 2nd quarter of 2002 related to the evaluation of several
strategic opportunities. The purchase of Comworxx, Inc,'s assets was one result
of this evaluation.
Other Expenses: $3,714,818 was a non-cash write-off of impaired goodwill
from the acquisition of Comworxx. The company determined that, based on a post
acquisition evaluation of the assets and market position of the product, that
the goodwill from the acquisition was impaired and therefore wrote it down in
full. As an early stage operation, the company also believed it important to
record the purchase so as to not hinder the future earnings of the
operation.Other expenses for the 2nd quarter 2002 were $58,791. Other expenses
consisted of interest expense on loans of $16,263 and currency translation
adjustments of $42,528. Second quarter of 2001 interest of $16,263 was lower by
20,616 or 56% less than the $36,879 reported in the second quarter of 2001. This
decrease was due to lower interest bearing debt primarily due to the debt
conversions that occurred in the first quarter of 2002.
Net Loss from Continuing Operations: Although the company reported an operating
loss from discontinued operations in 2nd quarter 2002 of $5,963,687 a
substantial portion of the loss is the $3,714,818 write-off of goodwill from the
acquisition of the assets of Comworrx. A substantial portion of the remaining
loss consists of expenses incurred in preparation for future shipments of
product and the anticipated growth of the telematics segment.
Net Loss from discontinued Operations: The net loss from discontinued
operations was $(164,040). Included in the number is a provision for the
anticipated loss through the date of disposition as well as an estimate of the
gain from sale. The assets of the flooring unit were sold on August 9, 2002.
F-16
Net Loss: The Company incurred a loss of $6,127,727 for the second quarter of
2002. The largest component was from the aforementioned goodwill write-down from
the acquisition of the assets of Comworxx, results from discontinued operations
and expenses incurred in the preparation for its anticipated growth. These
expenses relate to maintaining a public company, as the pursuit of strategic
growth opportunities such as the acquisition of Comworxx completed on June 29,
2002. Similarly the Company's management staff has been 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 2002 since sales growth is expected to exceed increases in operating
expenses.
Six months-ended June 30, 2002 compared to the six months ended June 30, 2001
Below is a summary of the results of the company for the six months ended June
30, 2002.
Net Sales: The Company's net sales were $29,593 in the first six months of 2002.
There are no comparables for the prior year. This includes the initial shipments
of its telematics products. The Company deferred income from $41,625 of
connection fees from telecom suppliers until the cancellation period expires on
such contracts. This represents deferred income that will be recorded prorata 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 June that were
shipped originally earlier in the 2nd quarter, that were subsequently shipped to
other customers in July 2002. The original customers are now waiting for
shipments of the company's next generation of product, with additional enhanced
features, scheduled to ship in September 2002. The Company believes that the
pricing of its product offering, in its business model, is less expensive than
other competitive offerings.
Gross Profits: Gross profits in the flooring division were $(43,058) for the
first six months of 2002. The telematics products reported negative gross
profits as part of the initial strategy used to introduce its new product in the
marketplace. A critical mass of shipments is a key to improving the gross profit
margin. It is anticipated that a higher level of shipments will be reached by
4th quarter 2002 to improve the margin. Similarly, with sunken technology
development costs, the gross margin can rapidly improve as volumes of shipments
increase. The company has a substantial expertise in software development, which
will improve gross profit in future quarters. The company has expended funds in
the first six months in the development of an improved product with enhanced
features scheduled to ship units in September of 2002.
Selling Expenses: Selling and marketing expenses for the first six months of
2002 were $249,161. Most of this cost relates to the establishment and
maintenance of an order book pending the shipments of product later this year
and in 2003. The company enjoys a healthy order book that it has expended
marketing funds to develop but is hindered in shipping by needed funding for
working capital. 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 first six months of 2002 were $2,853,344. A significant reason for this
increase is the costs associated with being a public company, primarily fees for
accounting, legal, and professional services. These fees were approximately
$352,815 in the first six months of 2002. An additional $150,000 of expenses was
incurred in the upfront costs of a financing effort with Jefferies and Co, Inc.
that has not been realized as of this date. The Company also incurred costs
during the first six months of 2002 related to the evaluation of several
strategic opportunities. The purchase of Tiger Telematics, Inc. and the
Comworxx, Inc,'s assets are two of the result of this evaluation. In addition,
the development of Tiger Telematics Ltd. also contributed to the increase in the
general and administrative expenses of the Company. Tiger Telematics, Inc.
anticipates an increase in its general and administrative expenses in future
periods as part of its growth strategy. However, the Company anticipates that
its sales will increase at a faster rate than its general and administrative
expenses, resulting in these expenses decreasing as a percentage of sales in
future periods.
F-17
Other Expenses: 3,714,000 of the amount relates to the wirte down of the
impaired goodwill from the acquisition of the assets of Comworxxx. Other
expenses for the first six months of 2002 were $87,111 as compared to $65,022
for the first six months of 2001. Other expenses consisted of interest expense
on loans of $38,620 and currency translation adjustments of $48,491. The
currency translation adjustments accounted for virtually all of the increase in
this category. Interest in 2002 of $38,620 is $26,402 or 41% less than in the
first six months of 2001. Currency translation adjustments accounted for 56% of
the total category for the first six months of 2002.
Net Loss from continuing operations: The Company reported an operating loss of
$6,947,492. $3,714,818 of the loss is the non-cash write down of the impaired
goodwill of the assets of Comworxx acquisition. In addition a substantial
portion of the loss in 2002 is related to expenses incurred in the preparation
for its anticipated growth. These expenses relate to establishing a public
company and pursuing strategic growth opportunities, such as the acquisition of
the assets of Comworxx, Inc. by Tiger USA completed on June 29, 2002. Similarly
the Company's management staff has been 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
later quarters of 2002 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 those losses from that
segment going forward from that date. Included in the number is a provision for
the anticipated loss through the date of disposition as well as an estimate of
the gain from sale.
Net Loss: The Company incurred a total loss of $7,300,922 for the first six
months of 2002. $3,714,818 was the non-cash loss from the write down of goodwill
from the acquisition of the assets of Comworxx and $353,430 represented
discontinued operations that were sold as of August 9, 2002. The 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 2001 the Company funded its operating losses and start-up costs principally
with loans from stockholders or other parties. Without such funding the Company
would not have been able to sustain its operations.
In the six months ended June 30, 2002, the Company's working capital
deteriorated. . This was the result of increases in current assets, consisting
of decreases in accounts receivable of $46,133, inventory of $190,885, and
increase in prepaid expenses and other current assets of $809,570, offset by
increases in current liabilities, consisting of increases in accounts payable of
$1,226,253, accrued expenses of 681,247 and a reduction customer deposits of
$110,325. Also, in the six months ended June 30, 2002 the amounts due
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. A good portion
of the changes related to the addition of assets of Comworxx acquisition in June
2002 and the Tiger Ltd acquisition during first quarter 2002.
F-18
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 tithe Company sold the
assets of the flooring division including this inventory, which will improve
liquidity requirements during third quarter of 2002.
The Company incurred operating losses in 2001 and in the first six months of
2002 of $1,299,000 and $7,300,922 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. The same two stockholders have loan the company a total of
$883,921 since the acquisition of Tiger Ltd. In February 2002. The Company
anticipates further cash assistance in the form of loans from its stockholders
to assist in liquidity while the Company raises additional capital. Liquidity
should be provided from the sale of the assets of the flooring segment on August
9, 2002. Liabilities assumed were less than assets sold and the Company will no
longer be required to fund the operating losses and working capital needs of
that flooring segment going forward.
The Company is evaluating the business of its recently acquired assets of
Comworxx(acquired on June 25, by the wholly owned subsidiary Tiger USA), to
determine the appropriate time to launch these products full scale in the U.S.
Based on a post acquisition evaluation of the assets and market position of
Tiger USA, the Company determined that the goodwill from the acquisition was
impaired wrote it down in full. The Company is reviewing its options under the
purchase agreement that acquired these assets. The Company is addressing the
issues of the need for funding for working capital in order to launch; the need
to formulate payment arrangements with certain obligations assumed by Tiger USA;
and the high relative cost of the product relative to the projected sales price
available for such products in the U.S. consumer marketplace. For these factors
the Company has postponed a launch of the product until this evaluation can be
completed In June, the Company announced the goal to raise $500,000, 109,000
that was already raised at that time. The Company raised additional sums but has
struggled in obtaining the amount of the desired funding. Depending upon the
outcome of the review and the status of funding, the Company may choose not to
sustain the operations of Tiger USA and may need to discontinue those operations
accordingly.
The Company believes that it has a tentative agreement for approximately $3
million in financing in the third quarter of 2002. The Company will also seek to
raise additional equity financing of about $7.0 to $10 million for working
capital through an arrangement with Jefferies and Company, and to fund the costs
of pursuing strategic growth opportunities. 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.
F-19
The Company anticipates that it will meet its liquidity of capital needs for the
next twelve months through equity financing. The Company may need to further
shrink its operations to sustain its remaining operations. As the Company
continues to experience negative operating results in 2002, while at the same
time pursuing strategic opportunities, the Company's liquidity will remain
strained.
The Company currently evaluates and will continue to evaluate strategic
acquisitions. If the Company pursues one or more acquisitions the Company will
likely require additional sources of liquidity such as debt or equity financing
for such acquisitions or to meet working capital needs. There can be no
assurance that additional capital beyond the amounts forecasted by the Company
will not be required or that any such required capital will be available on
terms acceptable to the Company, if at all, at such time or times as required by
the Company.
Part II.
TIGER TELEMATICS, INC.
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Items 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
See Form 8K dated June 18, 2002
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Form 8K dated June 18, 2002
Form 8K dated July 24, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TIGER TELEMATICS, INC.
/s/ Michael W. Carrender
- ------------------------
Interim Chief Executive Officer, August 22, 2002
Director and Chief Financial Officer
Michael W. Carrender For the Registrant
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Tiger Telematics, Inc. (the
"Company") on Form [10-Q] for the period ending June 30 , 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned Chief Executive Officer and Chief Financial officer of the Company
hereby certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002 that based on their knowledge and belief: 1) the
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, and 2) the information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operations of the Company as of and for the periods covered in the Report.
/s/ Michael W. Carrender
- -----------------------------------------------------
Michael W. Carrender Interim Chief Executive Officer
/s/ Michael W. Carrender
- -----------------------------------------------------
Michael W. Carrender, Chief Financial Officer
June 23, 2002