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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 September 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)
419 Belfort Rd. Ste. 200 Jacksonville, FL 32216 32216
(Address of principal executive offices) (Zip Code)
904) 279-9240
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class November 21, 2002
- --------------------------- ---------------------
Common Stock, Par 80,836,426
Value $0.001 per share
CONTENTS
Page
----
Financial Statements
Condensed Consolidated Balance Sheets F-2
Condensed Consolidated Statements of Operations F-3 - F-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
September 30, December 31,
2002 2001
(unaudited)
-------------- --------------
Assets
Current Assets
Cash $ -- $ 20,331
Accounts receivable, less allowance for doubtful
Accounts, Sept 30, 2002 $0;
December 31, 2001 $7,406 364,714 93,580
Advances to officers and employees -- 26,029
Inventories 210,659 708,293
Prepaid expenses and deferred income 478,355 27,241
Assets of discontinued operations 983,418 --
-------------- --------------
Total Current Assets 2,037,146 875,474
Property and Equipment, net 176,238 161,028
Distribution Agreement, less accumulated amortization
of $115,760 347,290 --
Order Backlog 1,800,000 --
Deposits and Other Assets 15,470 262,272
-------------- --------------
Total Assets $ 4,376,144 $ 1,298,774
============== ==============
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 2,296,113 $ 764,455
Amounts due stockholders 2,597,960 1,541,053
Notes payable 86,261 130,119
Accrued expenses 1,053,207 147,451
Customer deposits -- 110,325
Liabilities of discontinued operations 983,418 --
-------------- --------------
Total current liabilities 7,016,959 2,693,403
-------------- --------------
Stockholders' Deficit
Common stock, at par value 72,269 55,887
Authorized 100,000,000 shares, issued September 30, 2002
72,769,189; December 31, 2001 55,886,664 shares
Shares earned but not issued, September 30,2002 10,317,494
shares 10,318 --
Additional paid in capital 9,061,990 514,104
Subscription receivable (36) (36)
Accumulated deficit (11,785,356) (1,964,584)
-------------- --------------
(2,640,815) (1,394,629)
-------------- --------------
$ 4,376,144 $ 1,298,774
============== ==============
See Notes to Consolidated Financial Statements.
F-2
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months ended September 30,
--------------------------------
2002 2001
-------------- --------------
Net sales $ 152,080 $ --
Cost of goods sold 222,721 --
-------------- --------------
Gross Profit (70,641) --
-------------- --------------
Operating expenses
Selling expense 203,681 --
General and administrative expense 1,206,935 66,514
-------------- --------------
Total Operating Expenses 1,410,616 66,514
-------------- --------------
Operating loss (1,481,257) (66,514)
-------------- --------------
Other income (expense)
Impairment of goodwill (1,000,000)
Currency Translation Adjustment (24,837) --
Interest expense (1,685) (36,635)
-------------- --------------
(1,026,522) (36,635)
Loss from continuing operations (2,507,779) (103,149)
Loss from discontinued operations -- (178,081)
-------------- --------------
Net loss $ (2,507,779) $ (281,230)
============== ==============
Basic and diluted net loss per
common share $ (0.0345) $ (0.005)
============== ==============
Basic and diluted net loss from
Continuing operations per share $ (0.0345) $ (0.0019)
============== ==============
Weighted average shares outstanding
(Basic and diluted) 72,779,189 54,236,664
============== ==============
See Notes to Consolidated Financial Statements.
F-3
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months ended September 30,
--------------------------------
2002 2001
-------------- --------------
Net sales $ 181,663 $ --
Cost of goods sold 295,362 --
-------------- --------------
Gross Profit (113,699) --
-------------- --------------
Operating expenses
Selling expense 452,842 --
General and administrative expense 4,060,279 216,231
-------------- --------------
Total Operating Expenses 4,513,121 216,231
-------------- --------------
Operating loss (4,626,820) (216,231)
-------------- --------------
Other income (expense)
Impairment of goodwill (4,714,818)
Currency Translation Adjustment (73,328) --
Interest expense (40,305) (103,657)
-------------- --------------
(4,828,451) (103,657)
-------------- --------------
Loss from continuing operations (9,455,271) (319,888)
Loss from discontinued operations (353,430) (636,637)
-------------- --------------
Net loss $ (9,808,701) $ (956,525)
============== ==============
Basic and diluted net loss per
common share $ (0.1437) $ (0.0176)
============== ==============
Basic and diluted net loss from
continuing operations per share (0.1385) (0.0059)
Weighted average shares outstanding
(basic and diluted) 68,260,192 54,236,664
============== ==============
See Notes to Consolidated Financial Statements.
F-4
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock Additional
------------ Paid in Subscriptions Accumulated Total
Shares Amount Capital Receivable Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------
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 issued in acquisition of
assets of Comworxx Inc.by Tiger USA
(7,917,494 contingent shares unissued at
September 30 2002) 4,263,266 4,263 3,040,927 -- -- 3,045,190
2,400 shares issuable for consulting
agreement, shares unissued at September
30, 2002 -- -- 810,000 -- -- 810,000
Net Loss -- -- -- -- (9,808,701) (9,808,701)
------------ ------------ ------------ ------------ ------------ ------------
Balance (deficit) at September 30, 2002 72,269,189 $ 72,269 $ 9,061,990 $ (36) $(11,785,356) $ (2,640,815)
============ ============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements.
F-5
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months ended September 30,
--------------------------------
2002 2001
-------------- --------------
Cash Flows From Operating Activities
Net loss $ (9,808,701) $ (956,525)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and Amortization 91,155 27,512
Currency translation adjustments 73,328 --
Changes in assets and liabilities 2,530,067 601,194
Interest on notes payable and stockholder loans
Capitalized to principal balances 23,144 --
Write down of deposit 100,000 --
Impairment of goodwill on asset acquisition 4,714,818 --
Obligations paid with common stock 930,000 --
-------------- --------------
Net cash used in operating activities (1,346,189) (327,819)
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 -- 10,653
Purchase of property and equipment (68,367) (44,980)
Collection of advances to officers and employees 26,029 --
(Increase) decrease in deposits and other assets 146,802 32,853
-------------- --------------
Net cash (used in) provided by investing activities 55,251 (1,474)
-------------- --------------
Cash Flows From Financing Activities from continuing
operations
Issuance of common stock and warrants 876,673 --
Interest on Notes payable -- 16,084
Advances to employees -- (14,933)
Loans and advances from stockholders 1,056,907 645,825
Increase in excess of outstanding checks and bank balances (163,129) --
Repayments to stockholders (479,513) (317,683)
-------------- --------------
Net cash provided by used in financing activities 1,290,938 329,293
-------------- --------------
Net change in cash -- --
F-6
Cash:
Beginning -- --
============== ==============
Ending $ -- --
============== ==============
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 15,476 $ 103,657
============== ==============
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-7
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-8
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of September 30, 2002 and the
three months and six months ended September 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 condensed
consolidated financial statements for three months and nine months ended
September quarter ended September 30, 2002 were not reviewed by outside
independent accounts as is normally done. Upon appointment of new accountants
the statements will be reviewed and an amendment to this Form 10Q will be made
as appropriate. 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 nine months ended June
30, 20001, the 54,236,664 shares outstanding at the date of the reverse
acquisition was assumed to be outstanding since July 3, 2000, the date of
inception of the Company.
Since the Company had a loss for all periods presented, basic and diluted loss
per common share are equal. The Company has not included 7,218,592 potential
common shares relating to outstanding common warrants as of September 30, 2002
in the calculation of the diluted earnings per share for the third 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 a
disputed agreement with an advisor for consulting services. For financial
reporting purposes this was treated as earned but not issued since the shares
have not been issued due to the unresolved dispute. See page F-4 Consolidated
Statements of Stockholder's Deficit.
F-9
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the 1st quarter of 2002, the company sold 2,512,450 shares of its Common
Stock as part of the private placement transaction initiated in December 2001.
These shares were sold at $0.40 per share. For each share of Common Stock
purchased, the investor also received a warrant representing the right to
purchase one additional share of Common Stock at a price of $0.75 per share
exercisable through December 21,2003. Proceeds form these sales, net of advisory
fees totaling $128,307, amounted to $876,673.
The Company had an agreement with an advisor for consulting services. Under the
agreement, the Company was to issue 2,400,000 shares of stock, which were valued
at $810,000. For financial reporting purposes this was treated as earned but not
issued since the shares have not been issued. See page F-5 Consolidated
Statements of Stockholder's Deficit.
During the 1st quarter of 2002, certain stockholders and others converted
$922,733 of notes payable and amounts due to stockholders into 2,306,809 shares
of Common Stock. For each share of Common Stock purchased, they also received a
warrant representing the right to purchase one additional share of Common Stock
at a price of $.075 per share exercisable through December 31,2003. The company
also agreed to issue warrants to purchase 416,000 shares pf Common Stock at a
price of $0.75 per share exercisable through December 2003 as advisory fees in
connection with these stock sales. These warrants have not yet been issued due
to unresolved issues with the advisor.
In October, certain stockholders converted $455,761 of debt to equity at $.010
per share. See Note C- Related Party Transactions.
NOTE C - RELATED PARTY TRANSACTIONS
As of September 30, 2002, a 10% demand notes payable to a 21.% stockholder in
the amount of $231,375. 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 $80,6878. to a stockholder
of approximately 4%. Interest ceased on these obligations as of August 9, 2002,
when the Company sold the flooring assets. The Company also owed these two
shareholders a combined total of $62,732 for deferred payroll and other
obligations. In October 2002 all of these amounts were converted into equity
with 4,551,761 in shares of Common Stock issued.
As of September 30, 2002, the Company had 15% demand notes totaling $77,597,
payable to stockholders (combined ownership less than 1%).
The Company also has non-interest bearing notes of $1,070,629 and non interest
bearing advances of $818,555 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
October 2002.
F-10
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A shareholder borrowed some of the funds advanced to the Company from a private
investment bank based in London. The shareholders failed to repay the note when
due. The investment firm has made demand on the subsidiary Tiger Ltd. to repay
the funds since Tiger Ltd. was the beneficiary of the funds. The Company
believes it is not responsible for that obligation and responded to the demand
accordingly. The Company shows the obligations to its shareholder on the
financial statement. Therefore no provision has been made for this alleged
obligation. The Company has been in settlement negotiations where the demand
note to the shareholder is forgiven by the shareholder in exchange for the
company entering into an installment note to be paid over time directly with the
private investment bank in the same amount as forgiven by the shareholder.
The Company has received inquiries from persons who maintain that they have made
an investment in the Company for which the Company has no records and which
appear to be private transactions among various shareholders. Legal counsel is
looking into the circumstances surrounding each inquiry.
Total interest expense on stockholder debt amounted to $40,079 and $2,946. for
the nine months and three months ended September 30,2002.
NOTE D - INCOME TAX MATTERS
The Company has net operating loss carryforwards for United States Tax purposes
as of September 30, 2002 for federal income tax purposes of approximately
$4,150,000 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 approximately $1,340,000. The Company has losses off
settable against future income in the UK of $2,585,611 expiring in 2021. Any
future benefits to be realized from the losses is dependant upon the company
earnings sufficient future taxable income in the UK during the periods that the
losses off settable are available. Due to these uncertainties the Company has
fully offset any deferred tax benefits otherwise relating to the losses off
settable against future income with a valuation allowance in the amount of
approximately $645,125.
NOTE E - NOTES PAYABLE
As of September 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
F-11
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Telematics of $463,050 as of the acquisition date resulted in an excess of
acquisition cost over tangible asset value of $3,263,050.
The excess of the acquisition price over the tangible asset valuation was
assigned to two intangible assets. $2,800,000 was ascribed to an order backlog
of open pending orders for products for future shipments over the next several
years. This amount will be amortized as the orders are shipped on a prorata
basis. The remaining amount of $463,050 was assigned to distribution rights
under a Distribution Agreement with Eagle Eye Telmatics, plc, which was executed
on October 19, 2001(see Form 10-K dated March 31, 2002, exhibit #21.1). This
amount will be amortized quarterly over the 32 month remaining life of the
distribution agreement at the time of acquisition.
In third quarter 2002, the Company determined that the good will relative to the
order book was impaired due to the failure to ship the orders as originally
projected to the customers and due to the change in Tiger Ltd.'s business model
to derive its income from monthly revenue generated by its wireless telecom
providers partnership arrangements as opposed to generating revenue primarily
from the sale of hardwire. The Company wrote-off $1,000,000 of impaired good
will in the quarter ended September 30, 2002.
In connection with this acquisition, the former Tiger Telematics shareholders
agreed to convert $610,190 of their shareholder debt into Common Stock and
warrants to purchase common stock at a price of $0.75 per share exercisable
through December 31, 2003. The conversion rate was one share of common stock and
one warrant for every $0.40 of debt. Although initiated in August, the debt of
$610, 190 was actually converted in October 2002 into 1,525,475 shares of Common
Stock and 1,525,475 Warrants.
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.
Pursuant to the terms of the purchase agreement the 4,263,266 shares of stock
issued were valued at $1.00 per share; provided however that if the price per
share of Tiger Common Stock sold in the next equity financing in Tiger Raises
gross proceeds of at least $3 million is less than $1.00 per share the assumed
purchase price shall be reduced to the price per share in the next equity
financing and provided further however that is the new equity financing is not
consummated by September 1, 2002 the assumed price shall be reduced to $.035. If
the purchase price is reduced to less than $1.00 per share of Tiger Inc. common
stock. Tiger will have to issue such additional shares as necessary so that the
total number of shares of Tiger Common Stock issued pursuant to this provision,
is equal to the quotient, rounded to the nearest whole number, of $4,263,266
divided by the final assumed purchase price. The maximum number of shares that
would be issued under this formula would be 12,180,760. The Company recorded
this transaction as if the maximum number of shares will be issued, resulting in
the recording of 7,917,494 contingent shares. The Company valued the shares at
$.25 per share, which was the trading price at the date if purchase, giving a
purchase price of $3,045,190. Based on a post acquisition review of assets
reserves were made to inventory, receivables and property plant and equipment to
equal the current estimated value as of the acquisition date. The reserves
created an additional excess of liabilities over tangible assets. The total
excess of liabilities over tangible assets of Comworxx acquired resulted in an
additional good will of $669,628.
F-12
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The excess of the acquisition price over the tangible asset valuation was
assigned to three intangible assets. Although the acquisition included
intellectual property and license agreements due to the position in the
marketplace and funding issues associated with the acquisition, agreements the
Company believes that the good will is impaired as of June 30, 2002. The company
wrote off all of the goodwill of $3,714,818 in the quarter ended June 30, 2002.
The Company believes that the seller of the assets may have misrepresented the
nature of the assets and the viability of the associated business at the time of
the transaction. As a result the Company has retained independent legal counsel
to advice it of its rights against the shareholders of the seller to recover
certain sums or to rescind the entire transaction. The Company does not intend
to issue the contingent shares referred to above until a final determination has
been made as to the potential causes of action against the seller.
Proforma information: The following proforma information reflects the net sales,
net loss, and per share amounts for the nine months and three months ended
September 30, 2002 and 2001as if the Tiger Telematics, Ltd and Conworxx
acquisitions had been completed on January 1, 2001:
Nine months ended: Three months ended:
============================= =============================
2002 2001 2002 2001
============= ============= ============= =============
Proforma net sales $ 216,118 $ 0 $ 152,080 $ 0
============= ============= ============= =============
Performa net loss $ (11,312,414) $ (2,613,314) $ (2,507,779) $ ( 927,903)
============= ============= ============= =============
Proforma basic and
diluted net loss
per common share $ (0.1426) $ (0.0356) $ (0.0309) $ (0.0126)
============= ============= ============= =============
Weighted average shares
outstanding 79,349,119 73,417,424 81,120,015 73,417,424
(basic and diluted)
============= ============= ============= =============
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-13
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management still intends to raise up to $7.0 to $10 million in equity for
working capital.
NOTE H - SEGMENT INFORMATION
During the first nine months of 2002 the Company operated in the flooring
business in Florida, now a discontinued operation and in the telematics product
development and distribution business in Europe.
o Flooring Retail and Installation- now a discontinued operation
o Telematic product development and distribution
The accounting policies of the reportable segments are the same as those
referred to in Notes A. In June 6, 2002, the company announced the
discontinuation of the flooring segment and sold the assets of the flooring
business on August 9, 2002. As a result the company is not disclosing segment
information.
NOTE I -DISCONTINUED OPERATIONS:
In June 2002 the Company entered into a plan to dispose of its flooring
business. The flooring business was subsequently sold on August 9, 2002. As of
June 30, 2002, the Company accounted for the flooring segment as a discontinued
segment. Assets of $983,418 and liabilities of $983,418. relating to the
flooring business as of September 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 the estimated gain on sale and included that amount in the liabilities of
the discontinued segment. No adjustment to that amount was required in third
quarter based on actual sale results. A summary of the assets and liabilities as
of September 30, 2002 is as follows:
Assets:
Accounts receivable $983,418
--------
Total assets $983,418
========
Liabilities:
Notes payable $273,763
Accounts payable 664,819
Other accruals 44,837
--------
$983,418
========
Revenue included in loss from discontinued operations amounted to $2,163,158 and
$2,649.056 for the nine months ended September 30, 2002 and 2001 respectively,
and $ 348,102 and $1,297,555 for the three months ended September 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. In addition, the purchaser has assumed
two non balance sheet operating leases for buildings with annual rents of
approximately $459,480 a year that were assumed without landlord consents. These
leases expire August 31, 2005 and September 30, 2005 respectively. Should the
purchaser not meet these obligations they become the obligations of the company.
These leases are personally guaranteed by a shareholder of the company. As of
September 30, the accounts receivable $983,418 represents the obligation of the
acquirer to pay the remaining liabilities of discontinued obligations that were
assumed and for which the company is contingently liable.
F-14
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - BUSINESS CONSIDERATIONS
For the year ended December 31, 2001, the Company incurred net losses of
approximately $1,299,000. For the first nine months of 2002, the losses
$9,808,701. Although approximately $407,000 of the loss in 2002 was from the
non-cash write-down of impaired good will, the Company had negative cash flows
from operating activities of approximately $713,000 for the year ended December
31, 2001 and negative cash flows from operating activities for the first nine
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 nine 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's private bank financing has been delayed due in part
to the need to resolve open issue related to potential liabilities related to
its acquisition of the assets of Comworrx, to the satisfaction of the lender. As
a part of funding efforts, the Company has executed a subscription agreement
with a private company to sell 7,500,000 shares of Company Common Stock at $0.20
per share. The Company anticipates having the proceeds of this stock sale within
the next few weeks although no assurance can be given that the investor will
fund. This amount will be 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 continued
to issue shares of Common Stock in October and November to settle obligations
due for payment.
The Company plans to develop the Tiger Telematics Ltd. product development and
distribution business in the UK. This is going forward as planned but slower
than anticipated due to a lack of funding. The Company is concluding development
of its next generation fleet product and its new tracker products including
child tracker devices. The company is still evaluating the business of its
acquired assets of Comworxx (acquired on June 25, by the wholly owned subsidiary
Tiger USA, to determine the appropriate time, if ever to launch these products
full scale in the U.S. Based on a post acquisition evaluation of the assets and
market position of Tiger USA, the company determined that the goodwill from the
acquisition was impaired wrote it down in full in second quarter of 2002. In
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. The company is addressing the issues of
the need for funding for working capital in order to effect 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.
The Company has postponed a launch of the product indefinitely and effectively
mothballed the Tiger USA operations indefinitely. The Company plans to attempt
to restructure the business with a lower cost operation at a new site and with a
different pricing model. The Company is exploring disposing of the assets and
associated business opportunities to third parties. The Company has also hired
legal counsel to advise its rights and causes of action against the seller of
the assets and its shareholders possible misrepresentations in the purchase
agreement that a viable business existed. The Company has determined that the
business was not viable and cannot be without a major restructuring and
concessions from shareholders of Comworrx. The Company is in preliminary
discussions with shareholders of the seller and hopes for a resolution of
issues.
The Company's ability to continue as a going concern is totally dependent upon
its ability to raise sufficient equity or debt capital to accomplish these
objectives and to offset any future operating losses that may be incurred until
positive cash flows can be generated from operations.
F-15
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 and sold the assets
on August 9, 2002. On February 4, 2002, the Company acquired its second
subsidiary, Tiger Telematics LTD, a UK company, which develops and provides
telematics products and services to the business-to-business segment in Europe.
On June 29, 2002 the company set up its third subsidiary Tiger Telematics USA,
Inc. and it acquired the assets and certain liabilities of Comworxx, Inc. a
Sarasota, Florida based entity that provides telematic products and services to
the business to consumer segment in the United States. That business has
suspended operations until the Company does further evaluation.
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 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.
On June 25, the company created a wholly owned subsidiary Tiger Telematics, USA,
Inc. that acquired the assets and certain liabilities of Comworxx Inc. as
disclosed in the note G to financial statements. That subsidiary is currently in
a dormant state pending future decisions to relaunch the products.
Results of Operations
Three months-ended September 30, 2002 compared to the three months ended
September 30, 2001
Net Sales: The Company's net sales increased to $152,080 in the 3rd quarter 2002
from $0 in the third quarter 2001. The Company did not acquire the telematics
division until February 2002 so there are no comparisons for the prior year. 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 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 now in January 2003. This is a delay from the originally
projected date of September 2002 for the new product to be in a ship ready
state. The delay was caused primarily by funding shortfalls during the current
quarter. The company continues to develop its product offering including several
new products that will come to the market next year. The Company believes that
the pricing of its product offering, in its business model, is less expensive to
customers than other competitive offerings. The company also announced the
development of a new child tracker device, a related park tracker and related
products.
Gross Profits: Gross profits were ($70,641) 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 or in the first quarter of 2003. 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 third quarter 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 January 2003, as opposed to September of
2002 as originally expected due to a shortfall in funding during the current
quarter.
Selling Expenses: Selling and marketing expenses for the quarter 2002 were
$203,681 or 63% greater than the amount $124,758 incurred in second quarter of
2002. Much 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 still 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 partly resolved. The Company is negotiating for a back-up supplier for
its primary product fleet telematics product to ensure that this does not occur
in the future. The company has expended funds in arranging strategic
partnerships with wireless telecom providers in order to implement its recurring
revenue business model.
General and Administrative Expenses: General and administrative expenses for the
3nd quarter 2002 were $1,206,935. $580,708 of this related to Tiger Ltd in the
UK. As in prior quarters, this was incurred in the development of the
infrastructure for the telematics business including product development,
engineering, training of installers, and other administrative efforts to
facilitate anticipated sales. The company also expended funds to obtain a
Thatcham Q class rating for its telematics fleet device. This rating may allow
insurance companies to offer potential discounts to Tiger customers who install
Tiger's telematics devices. 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. 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 $322,573 including
expenses at Tiger Ltd. The Company also incurred costs during the 3nd quarter of
2002 related to the evaluation and the attempted but failed integration of the
purchase of Comworxx, Inc,'s assets. As discussed in note J to the Consolidated
Financial Statements, the Company made a provision for $407,000 to write-down
the remaining assets of Tiger USA from the purchase of the assets of Comworrx.
In order to conserve funds, the Company has relocated its corporate office and
down sized the staff.
Other Expenses: Other expenses for the 3rd quarter 2002 were $1,026,522. Other
expenses consisted of a non-cash write-down of impaired good will from the
acquisition of Tiger Telematics, Ltd., interest expense on loans of $1,685 and
currency translation adjustments of $24,837. The company took a write-down 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. The company retains a solid order book but reflected the
impairment generated from delayed shipments and the change in the Company's
business model to a recurring revenue model. Third quarter of 2002 interest of
$1,685 was lower by 34,950 or 95%% less than the $36,635 reported in the third
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 and the
use of interest free promissory notes from shareholders to finance in the second
quarter of 2002.
Net Loss from Continuing Operations: Although the company reported an operating
loss from discontinued operations in 3rd quarter 2002 of $2,507,779 a
substantial portion of the loss is the $1,000,000 non-cash write-off of goodwill
from the acquisition of Tiger Ltd. An additional $407,000 is the non-cash
write-down of the remaining assets from the purchase 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 development of new products
to meet anticipated growth of the telematics.
Net Loss from discontinued Operations: The net loss from discontinued
operations was zero. The provision for the anticipated loss through the date of
disposition as well as an estimate of the gain from sale was as estimated in the
second quarter of 2002 when the final accounting was done for the assets of the
flooring unit that were sold on August 9, 2002.
Net Loss: The Company incurred a loss of $2,507,779 for the third quarter of
2002. The largest component was from the aforementioned $1,000,000 goodwill
write-down from the acquisition of Tiger Ltd. the $407,000 non-cash provision to
write-down the remaining assets from the purchase of the assets of Comworrx and
expenses incurred in the preparation for its anticipated growth. These expenses
relate to maintaining a public company, as well as the development of new
products. 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.
Nine months-ended September 30, 2002 compared to the six months ended September
30, 2001
Below is a summary of the results of the company for the nine months ended
September 30, 2002.
Net Sales: The Company's net sales were $181,663 in the first six months of
2002. There are no comparables for the prior year. 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 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 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 January 2003. 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 were $(113,699) for the first nine 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 first quarter 2003 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 nine
months in the development of an improved fleet product with enhanced features
scheduled to ship units in January 2003. The Company has made an initial
investment in a new generation of child tracker products.
Selling Expenses: Selling and marketing expenses for the first nine months of
2002 were $452,842. 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 nine months of 2002 were $4,060,279. 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
$910,593 in the first nine months of 2002 including $180,000 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 nine months of 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 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. Expenditures were made
configure the product to obtain to obtain the coveted Thatcham Q class rating
for the product. This rating may allow insurance companies to provide a discount
in costs to users of Tiger's telematics devices. Expenditures have been made in
developing several new products including Child Tracker devices. 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. In order to reduce expenditures the Company has
downsized and relocated its corporate office.
Other Expenses: Other expenses for the first nine months of 2002 were $4,828,451
as compared to $103,657 for the first nine months of 2001. $4,714,818 of the
amount relates to the non-cash write-down of the impaired goodwill from
acquisitions, principally the assets of Comworrx. Other expenses consisted of
interest expense on loans of $40,305 and currency translation adjustments of
$73,328. The currency translation adjustment accounted for virtually all of the
increase in this category and is due to the drop in the dollar currency relative
to the sterling since the acquisition of Tiger Ltd. in February 2002. Interest
in 2002 of $40,305 is $63,352 or 60% less than in the first nine months of 2001.
Net Loss from continuing operations: The Company reported an operating loss of
$9,455,271. $4,414,818 of the loss is the non-cash write down of the impaired
goodwill, principally from of the assets of Comworxx acquisition. $407,000 is
the provision for the non-cash write-down of the remaining assets from the
assets of Comworrxx 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 maintaining a public company and pursuing
strategic growth opportunities. Similarly 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 $3,534,430. 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 $9,808,701 for the first nine
months of 2002. $4,714,818 was the non-cash loss from the write down of impaired
goodwill, principally from the acquisition of the assets of Comworxx and a
related $407,000 write-down of the remaining assets from the Comworrx purchase.
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 nine months ended September 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 $497,634, and an
increase in prepaid expenses and other current assets of $451,114, offset by
increases in current liabilities, consisting of increases in accounts payable of
$1,531,658, accrued expenses of 905,756 and a reduction customer deposits of
$110,325. The increase in payable relates 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 J. Business Considerations to the Consolidated Financial Statements the
Company has hired a legal counsel to analyze and advice as to potential
liabilities arising from the purchase of the assets of Comworrx and associated
causes of actions against the seller and its shareholders. Also, in the nine
months ended September 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.
Certain creditors of the company's Tiger Ltd. have made formal demands on the
Company for repayment of indebtedness for services or products ordered by the
company. To date, the company has been able to meet those demands or enter into
acceptable payment arrangements but without additional funding these demands can
not be met in the future.
The Company does not have any bank loans or lending facilities. The Company has
obtained loans from stockholders and raised additional financing through private
placements of shares of common stock. 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 operating losses in 2001 and in the first nine months of
2002 of $1,299,000 and $9,808,701 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 loaned the company a total of
$1,269,994 since the acquisition of Tiger Ltd. In February 2002. 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 recently acquired assets of
Comworxx (acquired on June 25, by the wholly owned subsidiary Tiger USA), to
determine the appropriate time if ever to launch these products full scale in
the U.S. Based on a post acquisition evaluation of the assets and market
position of Tiger USA, the Company determined that the goodwill from the
acquisition was impaired wrote it down in full. The Company's recently 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. 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. The Company has
postponed a launch of the product indefinitely if not permanently. The Company
effectively mothballed the operations of Tiger USA and may discontinue those
operations, or sell the assets or attempt to rescind the original purchase
agreement.
The Company's $3 million in secured financing has been delayed due in part to
the need to resolve open issues, including potential liabilities, related to its
acquisition of the assets of Comworxx, to the satisfaction of the lender. The
company has recently 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 closing is pending and the company anticipates that most of the
proceeds will be used to fund the operations of Tiger Ltd. The Company can offer
no assurances that the investor will actually close the transaction. 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.
The Company anticipates that it will meet its liquidity of capital needs for the
next twelve months through equity financing but no assurances can be given that
this will occur. 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 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
Not Applicable
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Form 8K dated September 16, 2002
Form 8K dated October 30, 2002
Exhibit 99.1 Certification Section 906 of Sarbanes-Oxley Act
of 2002 Form 302 Certification.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TIGER TELEMATICS, INC.
/S/ Michael W. Carrender Chief Executive Officer, Director November 22,2002
- ------------------------ and Chief Financial Officer
Michael W. Carrender For the Registrant