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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the
transition period from _____________ to _____________
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 (I.R.S. Employer
incorporation or organization) Identification No.)
4190 Belfort Rd. Suite 200 Jacksonville, FL 32216
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 279-9240
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of exchange
NONE on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting common stock held by
non-affiliates as of May 5, 2003 is $3,347,017 computed by reference to the
closing price for such shares on the OTC Bulletin Board as of such date. The
registrant does not have any authorized or issued non-voting common equity
securities.
The number of shares outstanding of each of the registrant's classes of
common stock as of May 5, 2003 is: 83,675,426 shares of Common Stock, par value
$0.001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the definitive Proxy Statement which the Registrant will file
with the Securities and Exchange Commission in connection with the Registrant's
Annual Meeting of Stockholders.
1
PART I
Item 1. Business
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 23E of the Securities
Act of 1934, as amended. These statements relate to future events or future
financial performance. Any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements. In
some cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expect," "plan," "anticipate," "intend", "believe,"
"estimate," "predict," "potential" or "continue," or the negative of such terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person or entity, assumes responsibility for the accuracy
and completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Form 10-K to conform such statements to actual results or to changes in the
Company's expectations.
General
Tiger Telematics, Inc. ("Tiger Telematics" or "the Company"), incorporated in
Delaware is the parent company of several subsidiaries. The Company is a
designer, developer and marketer of mobile telematics systems and services that
combine global positioning and voice recognition technology to locate and track
vehicles and people down to the street level in countries throughout the world.
The systems are designed to operate on GSM, which is the standard operating
system for wireless carriers in the UK and in Continental Europe. The systems
are currently being developed and marketed to GSM current and potential
subscribers primarily by the Company's UK based subsidiaries.
2
The Company that was previously named Floor Decor, Inc. changed its name in June
of 2003, as it decided to exit the historical flooring business and focus
exclusively on telematics. The first subsidiary, Media Flooring, Inc., (now
dormant) operated through its subsidiary Floor Decor LLC, and operated a
flooring products sales and service business, which represented all of the
business operations of the Company during 2001 and in early 2002. That business
is now reclassified as a discontinued operation. Floor Decor LLC operated a big
box super store offered a wide selection of floor coverings, including carpet,
area rugs, wood, and laminates, at discount prices to both commercial accounts
and consumers. This store, located in Fort Lauderdale, Florida, was over 40,000
sq. ft. and stocked an extensive product line including over 5,000 area rugs and
1,000,000 sq. ft. of other floor coverings. In June 2002, the Company
discontinued this operation and sold the assets of the Floor Decor LLC. and the
right to and use of the LLC. itself and the name Floor Decor LLC. to an
unrelated third party. The operating results for this discontinued segment is
now classified as operating results of discontinued operations in the current
year and in all prior years covered in this Report.
Telematics is an emerging industry that uses a combination of computer, wireless
and satellite technology largely to provide communications between central
source and fleets of vehicles. On February 4, 2002, the Company acquired Eagle
Eye Scandinavia Distribution,LTD, an early stage UK company that distributed
telematics products and services and changed its name to Tiger Telematics Ltd.
("Tiger Telematics"). The consideration paid in this transaction consisted
entirely of shares of Company Common Stock, as was reported in the Company's
Current Report on Form 8-K dated February 19, 2002). Tiger Telematics Ltd. was
the exclusive distributor in Scandinavia and Yugoslavia of the Eagle Eye VCG2, a
vehicle communications gateway that combined telecommunications and Global
Positioning Systems (GPS) technologies to provide security and communications
solutions for fleet vehicle management. This telematics product was manufactured
by an unrelated UK based company Eagle Eye Telematics plc.
This Tiger Telematics, Ltd. business, which focused on customers in Scandinavian
countries was sold on December 17, 2002, primarily to reduce debt and improve
the company's working capital position. This transaction was reported on the
Company's Report on Form 8K dated January 7, 2003.
In 2002, the Company began additional telematics operations in England and
incorporated a new subsidiary, Tiger Telematics Europe, Ltd. Tiger Telematics
developed alternate suppliers of telematics products and services, as a
strategic move to work with a variety of partners that helped the company
provide a variety of telematics products and services to its customers. The
customer base is now focused on England and Western Europe. Despite the sale of
Tiger Ltd. and the loss of it's Scandinavian focus, the UK operations continue
with the Company's subsidiary Tiger Telematics, Europe, Ltd., which provides
telematics products principally to countries in Western Europe. The Company also
operates Tiger Telematics USA, Inc. that was created to acquire the assets of a
US telematics developer of consumer automotive devices in June 2002. This was
reported on Report on Form 8K dated June 8, and June 29, 2002 respectively. This
subsidiary was ultimately unable to successfully launch the Port- IT products
associated with this acquisition and the segment is now dormant. On May 22,
2001, the Company completed a "reverse shell merger" as a result of which it
became a publicly traded company.
3
The Company main focus now is to supply high value telematics units to business
users for fleet management, anti-theft and security applications. The company
has used the combined technology of its various units and acquisitions to
develop highly featured child-tracking devices for a market launch later this
year.
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.
The products Tiger Telematics distributes are vehicle communications gateways,
combining telecommunications and Global Positioning System (GPS) technologies to
provide security and communications solutions for fleet management. In addition
to basic tracking and reporting, these products provide value-added features.
For example, a system can disable a vehicle outside of an authorized boundary;
provide panic buttons and driver down alert, which can alert the base station
and summon the proper emergency services if a driver or vehicle is in trouble;
and GPS-based remote door locks that can be opened by the base station following
verification of a vehicle's location. These features offer companies several
benefits including improved safety for large fleets of commercial vehicles such
as taxis, improved worker productivity and increased customer satisfaction.
Tiger Telematics primarily markets its fleet management products and services to
companies with multiple movable assets and or vehicles. The Company believes
that the products Tiger Telematics distributes will afford customers significant
operating and insurance cost savings.
Tiger fleet management products offer a suite of fleet management services. The
products consist of an integrated GSM/GPS device, which utilize a specialized
firmware to provide fleet management control and an anti-theft facility.
The Company's business strategy is to grow its fleet vehicle business in Europe
and to launch it's developing child tracking products in the middle of 2003
first in England, then Europe and then in the United States. The Company had a
difficult year in 2002 in an extremely challenging industry conditions.
Due to the substantial expenses and negative cash flows from operations that we
have incurred, the Company believes that it's auditors, in their report on our
December 31, 2002 financial statements, will indicate that there is substantial
doubt about our ability to continue as a going concern. The Company has earned
limited revenues and has incurred net losses of $13,696,691 and $1,299,080 for
the years ended 31, 2002 and 2001, respectively. Additionally the company
reported an operating loss in the fourth quarter of 2002. Additionally, the
Company had an accumulated deficit of $15,661,275 at December 31, 2002. Although
the Company's financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business, unless we are able to increase
revenue and raise additional capital from current shareholders and investors, we
will not be able to support our operations.
4
The Company filed its Annual Report on Form 10K for the year ended December 31,
2001 with an audit opinion from its then auditors. The Company has requested
permission to include that opinion in it 2002 Annual Report on Form 10K but has
not received permission. Similarly, the Company's new auditors have not yet
finalized their opinion for the year ended December 31, 2002. The recent events
cited in this report and the Company's critical cash shortage and difficult
working capital position have created this delay. The Company decided to file
this report without those audit opinions and admend subsequently with those
opinions, in the interest of full disclosure and in order to provide the most up
to date and current information to its shareholders and investors. The Company
believes that based on the extent of audit work completed to date, that the
financial statements contained herein will not be materially altered in the
amended Annual Report on Form 10K. The Company anticipates having the amendment
within the next few weeks to incorporate that opinion.
Industry Overview.
The Company believes the telematics industry is still in its early stage of
development having its inception in the U.S. in the mid 1990's. With a total
number of light commercial vehicles in the world exceeding 190 million, there
exists a significant market opportunity for a full service telematics provider.
A November report by the Telematics Research Group Inc., Minnesota research
firm, said that there were 1.2 million "telematics enabled" automobiles in use
worldwide in 2000. That is expected to grow to 8.5 million in 2003 and to 105
million in 20110. The company operations are based in England. There are over 41
million commercial vehicles in the UK and Europe with 3 million in England. Over
90% do not have any telematics device whatsoever. This offers a large potential
market for the companies products.
Growth Strategy.
The company's strategy is to focus on England and Western Europe under a
business model where it has wireless carrier agreements in place including O2 a
unit of British Telecom. The company is focused on large fleet providers in
England including the rental car market. The core strategy is to sign multi-year
agreements with wireless carriers and major fleet operators under our fleet
service partnership program that enables fleet operators to gain the benefits of
telematics products with little or no upfront costs. Fleet operators pay a
monthly fee-per vehicle in the range of $30 to $45 to their wireless carrier,
who in turn shares a major portion of that revenue with Tiger. It is a recurring
revenue model.
Products and Services
The Company offers two types of products one for vehicle fleet management and a
new device targeted at tracking children.
Telematics
Telematics consists of wireless data communication, remote control and the
tracking of assets and vehicles. By combining information technology and
telecommunications, companies have been developing a wide range of applications
designed to add value in a number of different industries. Some examples of such
applications are listed below:
5
o Stolen Vehicle/Asset/Tracking
o Remote Immobilization
o Vehicle/Asset Diagnostics
o Road Assistance
o Route Planning and Navigation
o Real Time Traffic Alerts
o Fleet Management
o Road Tolling and Other Public Transport
o Concierge Services
o In-car Entertainment
o Remote Server Access
The lists of potential applications are growing, and while some functions may
never enjoy mainstream deployment, they all share one requirement - the need for
a reliable, cost effective and secure mobile data network. While a number of
alternative solutions are available using combinations of GSM, GPS, cellular
mobile voice networks, radio etc, it is the Directors' belief that the Tiger
Telematics system offers the best long term platform for the delivery of many
such services.
Child tracking devices (Gametrac)
Tiger Telematics are currently undertaking the development of a range of child
tracking devices which provide enhanced functionality aimed at children and
teenagers. The product will be available for distribution third quarter of 2003.
Preliminary indications are that the target market could bring about orders of
up to two million units within the first year of trading although no assurance
can be given.
The devices lead by "Gametrac" incorporate state-of-the-art JAVA games and a SMS
texting facility to enable an easy sell from parent to child/teenager. Apart
from intrinsic entertainment value, an integrated GPS device enables the parent
to locate the child with an accuracy of ten metres. Both secondary and tertiary
revenue streams are accessible to Tiger via the downloading of new games and
advertising through MMS.
Tiger's unique firmware and tracking software enables the parent to track the
child via a conventional mobile telephone, the Internet, Digital television
and/or by any mobile telephone. This is currently the only device of this type
on the market today.
Gametrac will be sold with a variety of games aimed at different age groups
ranging from younger children to teenagers. Games will vary in terms of
suitability and complexity depending upon age.
Here are some basic features of the child tracking system
6
o The child's location can be displayed by street name and postcode
using a conventional telephone.
o The child's location can be determined graphically using any MMS
telephone.
o The child can be tracked on the internet using streetmaps created for
A-Z handbooks.
o Using the SKY Digital TV interactive channel a parent can track the
child again using friendly easy to use maps.
o Geofences can be set. For instance we can set a virtual geofence
around a school, building, play area or even a district, town or city.
If at any time the child leaves or is forced outside the assigned
zone, then our product will sent alerts (via SMS) to: Home computers,
Personal Digital assistants (PDA's) or mobile telephones alerting the
parent that the child has left the area.
Relattionship with Major Customers
The Company's customers are primarily fleet operators in Europe. With the sale
of Tiger Ltd. to Nortulls any relationships with customers in Scandinavian
countries was transferred to the acquirer in exchange for a royalty agreement to
pay a percentage of revenue realized over the next 10 years.
In England most of the company's customers are in some stage of trying the
product (a trial), prior to a purchase commitment. In England the company has
completed successful trials with Easy Car, the London based rental car concern.
The trials of the Company's units were successfully completed and would permit
an unmanned rental car operation. EasyCar has publicly announced in a Financial
Times article dated March 3, 2003, the planned deployment of up to 24,000 units
of unmanned rental cars to be deployed in the next 2 years. The Company's
products can provide this feature. The Company has no assurances that it will be
able to obtain an order and commitment from Easycar.
The Company has commenced a sole trialist 90-day trial in England with Hertz,
the worldwide rental car company. Hertz orders approximately 25,000 cars per
year for use in England. This could offer the Company a large potential contract
assuming the successful trial and the accompanying orders, although no assurance
can be given that an order will be placed. In a first of its type for the
Company, it signed an OEM contract with motorcycle manufacturer, Branson to
provide tracking units for all of his motorcycles shipped worldwide. Although
Branson has publicly stated that its plan is to ship up to 15,000 units in the
next year, the contract does not set any minimum purchase requirements and there
can be no assurances that Branson will order this number of units.
As to the child tracking devices the company has no current customers but has
entered into an agency agreement with a UK firm to market the product into UK
based retailers. It has also negotiated the general terms of a representative
agency agreement for marketing the child-tracking product in the U.S.
The Company has also received several expressions of interest in retailing the
product from several major retailers in England.
Suppliers
The Company develops its products internally but the manufacture is completed by
outside parties. The companies TT 7000 model has been produced by Maxon Sewon
the Korean telephone equipment manufacturer in its European subsidiary. The
company has developed a next generation fleet product and has discussions with
Voxon in Australia and others regarding producing this product. Voxon and
Celestica have discussed production of other products including child-tracking
devices with the Company. Key supply arrangements include Pinpointers that
handles mapping software and functions for the company's devices. Although the
Company believes that multiple sources of supply exist for nearly all of the
products and components purchased from outside suppliers, the Company generally
maintains only one supplier for each core product purchased. Therefore
interruptions in supply or price changes in the items purchased by the Company
could have a material adverse effect on the Company's operations.
7
Sales & Marketing
The Company's sales and marketing approach leverages management's extensive
experience in both of its major market segments of commercial and retail buyers
and the use of other distributors. The Company uses a combination of the
following to drive sales:
o an internal employee direct sales team
o Its web site
o Distributors of similar automotive products who are trained to sell
these products by the company.
The Company uses a combination of the following to drive commercial sales in the
Child tracking segment:
o Direct sales via internal commissioned sales force
o Large rep agencies that specialize in mass retail sales and customer
base
Competition
Fleet telmatics products
While there are several aftermarket (equipment installed after vehicle has left
factory) telematics providers in varying stages of development within the
European and American market, there is no single market leading provider of
telematics systems targeted at the commercial vehicle or consumer sector either
in the United States or Europe. Moreover, of the current telematic product
offerings targeted at the automotive fleet sector, none offer the same
flexibility and array of features and services available through the Tiger
Telematics system. Most of the major automotive manufacturers provide vehicle
telematic services. However, these service offerings are generally focused on
individual vehicles owned by retail consumers rather than the large and
relatively unaddressed automotive fleet market.
USA Market leaders in the Fleet Management segment include @Road Communications,
Freightliner LLC and Qualcomm, the market leader with over 400,000 units
shipped.
8
General Motors is currently the global industry leader with its OnStar system
which is used not only with General Motors vehicles but is also licensed to
other automotive manufacturers including Acura, Audi, Lexus and Subaru. As of
September 2001, OnStar reached 1.3 million end users. ATX Technologies is the
industry pioneer and second only to General Motors in sales with 300,000
telematics customers. Delivering the first telematics service for Ford in 1996,
ATX Technologies currently provides telematics services for luxury auto
manufacturers such as Mercedes and BMW.
Companies focusing on the automotive fleet market tend to be smaller and in the
embryonic stage of development. Minorplanet, a UK publicly listed company, is
the most established name in the European automotive telematics market focusing
primarily on the light truck sector with approximately 120,000 units installed.
However, the functionality, array of features and insurance rating offered by
the Tiger Telematics solution makes it one of the most comprehensive product
offerings available in the European automotive telematics market today.
Minorplanet Systems Plc - Minorplanet is the current automatic vehicle location
market leader in fleet management solutions for the light commercial vehicle
sector. Based on GPS Technology, the company's Vehicle Management Information
system records drivers' hours, miles covered and fuel consumption.
Minorplanet reportedly has an installed base of approximately 100,000 units and
is currently in the process of expanding its operations overseas into France,
Germany, Australia, Holland and Spain. It is also attempting to enter the US
markets through its recent acquisition of a 62% interest in US telematics
company @ Track. Minorplanet recently acquired Novcom, which develops fleet
routing and scheduling software, from ITIS Holdings. Novcom was a joint venture
funded by both Minorplanet and ITIS Holdings. Minorplanet has an alliance with
GE Capital Fleet Services which owns 25% of the company.
Trafficmaster Plc - Trafficmaster has a traffic detection network, which covers
more than 8,000 miles of roadway in England, Scotland and Wales using wireless
technology to gather data from roadside sensors and deliver traffic conditions
over car audio systems, cell phones and handheld devices.
Trafficmaster is setting up similar networks in Germany, France and other
European countries and the company is using acquisitions to enter the US market.
Along with its networks, the company offers vehicle tracking, fleet management
and navigation products and services. Automakers such as Mitsubishi and Jaguar
incorporate promoting its Fleetstar monitoring system for fleet cars, which has
led the company to report negative financial results that failed to meet street
estimates for the first half of 2001.
Tracker Network (UK) Limited - Commenced trading in September 1993. The company
was licensed by the USA based Lo Jack Corporation to market a patented stolen
vehicle recovery system. Launched as "Tracker" in the UK, the original device
(now named Tracker Retrieve), was aimed at the vehicle security market.
Tracker has pioneered electronic vehicle tracking in the UK and remains the
leader in stolen vehicle tracking and retrieval systems with more than 356,000
vehicles now equipped with a Tracker system. Worldwide sales of this vehicle
security device now exceed 1 million units.
9
Tracker claim to have recovered, 7,600 stolen vehicles with an insurance value
in excess of (pound)123 million.
Child tracking:
Competition in the childtracking business is basically non-existent with only a
few companies even offering any product of this type currently. The Company's
product will be less costly then the few competitors available and offer an ease
of use factor not available from other units or proposed units.
The Company competes due to its business model that involves signing multi-year
agreements with wireless carriers and major fleet operators. Under the terms of
these agreements, fleet operators will have little up front costs, but rather
pay a monthly fee per vehicle to their wireless carrier who in turn would share
a major portion of the revenue with the company. The initial subsidy from the
wireless carrier allows the company to cover the cost of the unit from the
manufacturer. The Company also competes favorably on quality as the TT 7000 has
been awarded a prestigious Q class Thatchum rating for its GSM based digital
system for tracking, managing, and protecting vehicles and their cargo.
Based in London, Thatcham, Ltd. was established by the British insurance
industry in 1969 and is generally recognized by both insurance companies and by
regulatory bodies around the world as the leading authority on testing vehicle
security devices.
Environmental Matters
The Company believes that the cost of compliance with environmental laws to date
has not been material to the Company. The Company is not currently aware of any
situations requiring remedial or other action which would involve a material
expense to the Company, or expose the Company to material liability under
environmental laws.
Intellectual Property
The Company markets its products under the name Tiger Telematics. The Company
has devoted substantial time, effort and expense to the development of brand
name recognition and goodwill and has not received any notice that its use of
such marks infringes upon the rights of others, and is not aware of any
activities which would appear to constitute infringement of any of its marks.
The Company intends to trademark its name and logo.
Employees
As of May 15, 2003, the Company had 15 employees and contract agents, including
11 administrative , 3 sales and marketing , 1 person responsible for warehouse
and shipping activities. In many instances, the Company utilizes agencies who
actually employee the persons or retains some as consultants on an as needed
basis.
The Company has not experienced any work stoppages and the Company's employees
are not represented by a union. The Company considers its relations with the
employees to be good.
10
Item 2. Properties
The Company currently leases one facility North Florida and one in the United
Kingdom. The following table sets forth certain information concerning The
facilities of the Company.
SQUARE AVERAGE ANNUALIZED LEASE RENEWAL
LOCATION USE FEET COST EXPIRATION OPTION
- --------------------- ----------------- ------ ------------------ ---------- ------
Jacksonville, Florida 1Executive office 100 $7,512 August 2003
Fleet, Hampshire, UK Executive office 500 $57,600 Month to month
1The Company has access to shared space conference rooms on a pay as used
monthly basis.
The Company believes that its existing facilities are adequate to meet its
current needs and those additional facilities can be leased to meet future
needs.
Item 3. Legal Proceedings
The Company is involved in litigation from time to time in the course of its
business. In the opinion of management, no material legal proceedings are
pending to which the Company or any of its property is subject.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of the period covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
Market Price and Dividend Information
The Company's Common Stock trades on the OTC Bulletin Board under the symbol
"TIGR". The OTC Bulletin Board is a quotation system for equity securities not
listed on the national stock exchanges or the Nasdaq Stock Market, whose
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission, and may not necessarily represent actual transactions.
As of December 31, 2002, the Company had issued and outstanding 80,686,426
shares of Common Stock. These shares were held by approximately 1,160
shareholders of record. The Company's Common Stock began trading on the OTC
Bulletin Board on May 22, 2001 as the result of a reverse merger with a public
shell company.
11
Following are the high and low closing stock prices in 2001, 2002 and year to
date 2003 as of May 6:
Fiscal Year Ended December 31,
---------------------------------------------------
2003 2002 2001
---- ---- ----
High Low High Low High Low
---- --- ---- --- ---- ---
First Quarter $.09 $.03 $1.44 $.51 $ - $ -
Second Quarter $.04 $.02 $.54 $.24 $10.00 $4.00
Third Quarter $.28 $.05 $7.50 $.90
Fourth Quarter $.14 $.05 $1.87 $.23
Prior to the reverse shell merger in May 2001, there was no established public
trading for the Company's stock.
The Company has not paid cash dividends and does not intend for the foreseeable
future to declare or pay any cash dividends on its Common Stock and intends to
retain earnings, if any, for the future operation and planned expansion of the
Company's business. Any determination to declare or pay dividends will be at the
discretion of the Company's board of directors and will depend upon the
Company's future earnings, results of operations, financial condition, capital
requirements, considerations imposed by applicable law, and other factors deemed
relevant by the board of directors.
Item 6. Selected Financial Data
The selected consolidated financial data as of and for the year ended December
31, 2002, 2001 and for the period July 3, 2000, date of inception, through
December 31 2000 have been derived from the audited consolidated financial
statements of the Company. The selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (Item 7 of this report) and the audited
consolidated financial statements and related notes thereto included elsewhere
herein.
Year ended December 31, 2002, 2001 and period from July 3, 2000, Date of
Inception, through December 31, 2002
- -------------------------------------------------------------------------------
2002 2001 2000
------------ ------------ ------------
OPERATING DATA:
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Net Sales $ 284 $ 0 $ 0
Cost of goods sold 353 0 0
------------ ------------ ------------
Gross profit (69) 0 0
General and administrative 6,168 283 0
Selling and marketing 597 0 0
------------ ------------ ------------
Operating income (6,834) (283) 0
Other Income (6,634) 0 3
Interest expense, net (38) (146) (29)
------------ ------------ ------------
Net loss from continuing operations (13,344) $ (428) $ (26)
Net loss from discontinued operations (353) (871) (639)
Net Loss (13,697) (1,299) (665)
============ ============ ============
Basic and diluted net loss per common share $ .1946 $ (0.024) $ (0.012)
============ ============ ============
Weighted average shares of outstanding 70,378,346 54,327,486 54,236,664
============ ============ ============
12
December 31,
2002 2001 2000
-------- -------- --------
BALANCE SHEET DATA:
(IN THOUSANDS)
Working capital $ (4,314) $ (1,818) $ (899)
Total assets 394 1,299 830
Total liabilities 6,456 2,693 1,495
Stockholders' deficit 15,661 (1,395) (665)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 23E of the Securities
Act of 1934, as amended. These statements relate to future events or future
financial performance. Any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements. In
some cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expect," "plan," "anticipate," "intend", "believe,"
"estimate," "predict," "potential" or "continue," or the negative of such terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person or entity, assumes responsibility for the accuracy
and completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Form 10-K to conform such statements to actual results or to changes in the
Company's expectations.
The following discussion should be read in conjunction with the Company's
financial statements, related notes and the other financial information
appearing elsewhere in this Form 10-K. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business,
including without limitation, the disclosures made under the caption "Certain
Factors That May Affect Future Performance."
13
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 was developing telematic products and
services to the business to consumer segment in the United States. That business
has suspended operations until the Company does further evaluation.
On December 17, 2002 the company sold Tiger Telematics. Ltd. to a Swedish firm
in exchange for a royalty agreement. The company Tiger Telematics, Europe, Ltd.
is now focused on Western Europe customers, marketing principally in England and
in developing its new generation of products, developing and launching its child
tracking devices.
Flooring- discontinued operations.
Floor Decor, 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.
14
Tiger Telematics Ltd. is an early stage company engaged in the development and
distribution of telematics products. Telematics products allow the wireless
exchange or delivery of communication, information, and other content between a
vehicle and its occupant, and external sources or recipients. The telematics
industry aggregates the functionality and content of various industries
including consumer electronics, cellular and security devices, among others,
into a seamless service offering. This business was an exclusive distributor of
a telematics product of one manufacturer in Scandinavia. In December 2002, the
shares of this business were sold to a Swedish company.
The Company also started another subsidiary in London, England, Tiger Telematics
Europe, Ltd. which focuses on developing new telematics products, on developing
child-tracking devices and on marketing in England and Western Europe primarily
to large fleet suppliers such as rental car companies.
On June 25, 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 after deciding that it cannot launch the products.
A non cash provision of $1,091,878 was made in December 2002 for the bankruptcy
and liquidation of MINIME Inc., the buyer of the assets and Floor Decor LLC for
potential contingent liabilities that might arise from that transaction. In
first quarter of 2003, the Ltd. corporation was placed in receivership by a
certain creditor of the firm. The Company is monitoring this process to
determine if any potential liabilities could arise.
Results of Operations
The Company began operations in July of 2000; as a result it had no operating
results or balance sheet for 1999 with which to compare its results for 2000.
The Company opened its "big box superstore" in Fort Lauderdale, Florida in the
fall of 2000. The Company had very limited operations during the period from its
inception, July 3, 2000 through December 31, 2000 and reported sales of
$298,318.
The Company incurred operating losses in 2000. As of December 31, 2000, the
Company had an accumulated deficit of $665,404.
Twelve months-ended December 31, 2001 compared to the twelve months ended
December 31, 2002
The Company had a single small retail store opened for business prior to
September 30, 2000 and this store was closed later in the year 2000. This retail
store sold products to customers but did not offer installation services for any
products sold. All products sold from this location were purchased at a
liquidation sale at costs that were lower than market value at the time of
purchase resulting in an unusually high gross margin percentage.
Net Sales: As a result of the classification to discontinued operations sales
for 2001 and 2002 are zero.
15
Gross Profits: Similarly, gross profit was zero for 2000 and 2001.
Selling Expenses: Selling expenses for 2002 and 2001 are similarly zero.
General and Administrative Expenses: General and administrative expenses for
2001 were $280,000 as compared to zero due to the reclass to discontinued
operations and the start-up of the business in late 2000.The reason for the
general and administrative expenses being a high are the costs associated with
being a public company, primarily fees for accounting, legal, and professional
services.
The Company incurred costs during the 4th quarter related to evaluation of
several strategic opportunities. The sale of Eagle Eye in first quarter 2002 was
a result of this evaluation. Other Expenses: Other expenses for 2001 were
$146,000 as compared to $29, for 2002. The increase in other expenses consisted
primarily of interest expense on loans to stockholders.
Net Loss from continuing operations: The Company reported a net loss of $428,000
from continuing operations in 2001 compared to a net loss of $26,000 in 2000.
Setting up the company's infrastructure and costs associated with being a public
company account for the difference.
Net Loss from discontinued operations: Discontinued operations recorded a net
loss of $871,000 in 2001 as compared to a loss of $639,000 in 2000. The
operation of flooring segment was discontinued in June 2002.
Net Loss: Although the Company reported an operating loss for 2001 of
$1,299,000, a substantial portion of the loss consists of expenses incurred in
preparation for anticipated growth of the Company. These expenses relate to
establishing a public company, pursuing strategic growth opportunities, such as
the acquisition of Tiger Telematics completed in February 2002. Similarly the
Company's management staff has been sized and has expertise and infrastructure
to grow.
Twelve months-ended December 31, 2002 compared to the Twelve months ended
December 31, 2001
Below is a summary of the results of the company for the twelve months ended
December 31, 2002.
Net Sales: The Company's net sales were $283,730 in of 2002. $102,047 of this
was shipped in fourth quarter. There are no comparables for the prior year since
the telematics unit was not acquired until February 2, of 2002. This includes
shipments of its telematics products that are not a part of the company's
strategic business model. The Company defers income from connection fees from
telecom suppliers until the cancellation period expires on such contracts. This
represents deferred income that will be recorded prorated in future quarters.
The company's business model is based on deriving its sales and subsequent
income from annual and monthly fees from the telecom providers unlike most of
its competitors who derived most of their income from the sale of hardware. The
company did experience some returns of product in the 2nd quarter that were
subsequently shipped to other customers in July 2002. Many of these customers
were in Scandinavian countries and will not continue in 2003 as the Tiger
Telematics, Ltd. business, focused mostly in Scandinavian countries was sold in
December 2003. The Company believes that the pricing of its product offering, in
its business model, is less expensive than other competitive offerings.
16
Gross Profits: Gross profits were $(69,150) for the twelve months of 2002. The
telematics products reported a lower than anticipated gross profits as part of
the initial strategy used to introduce its new product in the marketplace
earlier in 2002. A critical mass of shipments is a key to improving the gross
profit margin. This is evident by results for fourth quarter where the gross
profit was 44,629 or about 40%. It is anticipated that a higher level of
shipments will be reached by the first half of 2003 to further improve the
margin. Similarly, with sunken technology development costs, the gross margin
can rapidly improve as volumes of shipments increase. Although basic telematics
devices are can be built, the accompanying software is much more challenging.
The company has a substantial expertise in this development, which will improve
gross profit in future quarters. The company expended funds in hiring and
retaining several new executives and supporting staff with expertise in
technology, telematics, wireless and developing products in the telematics
space. The company has expended funds in the development of an improved fleet
product scheduled to ship first units now in 2003, as opposed to 2002 as
originally expected due to a shortfall in funding during the current quarter.
The company has a substantial expertise in software development, which will
improve gross profit in future quarters. The company has expended funds in the
2002 in the development of an improved fleet product with enhanced features
scheduled to ship units in 2003. The delay in finishing the product was caused
primarily by serious funding shortfalls during the current quarter. The Company
has made an initial investment in a new generation of child tracker products.
Funding shortfalls have delayed their competition also. These are scheduled to
launch in third quarter of 2003.
Selling Expenses: Selling and marketing expenses for the 2002 were $597,188.
Most of this cost relates to the establishment of potential customers. The sale
of Telematics products is a difficult and often lengthy process. The Company has
concentrated its marketing effort recently in the UK to large fleet holders
based throughout Europe. The company enjoys a healthy interest in its products
but still lacks funding for working capital and has experienced some problems at
the manufacturer of the base units on delivery. The company's Scandinavian order
book was a part of the sale of the Tiger Ltd. business in December 2002. The
company has expended funds in arranging strategic partnerships with wireless
telecom providers in order to implement its recurring revenue business model.
However, as the operations of the Company' telematic products are shipping,
advertising expense and overall selling expenses as a percentage of sales is
anticipated to decrease.
General and Administrative Expenses: General and administrative expenses for the
twelve months ended December 31, 2002 were $6,167,130. $2,181,747 of this
related to writedowns of intangible assets related to Tiger Ltd. and its sale in
December 2002. A significant reason for this increase is the costs associated
with being a public company, primarily fees for accounting, legal, professional
and consulting services. These fees were approximately $1,063,820 in the twelve
months of 2002 including $180,000 of expenses was incurred in the costs of an
aborted financing effort with Jefferies and Co, Inc. that was not successful.
The Company also incurred costs during 2002 related to the evaluation of several
strategic opportunities. The purchase of Tiger Telematics, Ltd. and the
Comworxx, Inc,'s assets are two of the result of this evaluation.
17
In addition, the development of Tiger Telematics Ltd.(now sold) and Tiger
Telematics Europe Ltd. also contributed to the increase in the general and
administrative expenses of the Company. Expenditures were made configure the
TT7000 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. Some costs related to the
development of the infrastructure for the telematics business including product
development, engineering, training of installers, and other administrative
efforts to facilitate anticipated sales. In addition, several companies are now
conducting trials of the product in Europe that costs the company currently but
may result in the shipment of devices for entire fleets of the customers
currently in the trial stage. Expenditures have been made in developing several
new products including Child Tracker devices. Tiger Telematics, Inc. anticipates
a decrease in its general and administrative expenses in future periods with the
sale Tiger Ltd. In order to reduce expenditures the Company has downsized and
relocated its corporate office in the U.S. and in England to smaller less
expensive facilities. The Company also incurred costs during the 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 H to the Consolidated
Financial Statements, the Company made a provision for $669,628 to write-down
the remaining assets of Tiger USA from the purchase of the assets of Comworrx.
Other Expenses: Other expenses for the twelve months of 2002 were $6,552,802 as
compared to $145,600 in 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. The company took a write-down in third quarter of the intangible order
book asset of $1,000,000 to reflect the potential loss of orders from the delay
in shipping product since the original acquisition of the product and the impact
of the new recurring revenue model on the accounting for intangible assets. A
subsequent write-down in forth quarter of $2,103,830 relates to the loss on sale
of Tiger Ltd. where the intangible assets carried on the Company's balance sheet
of the order book and Scandinavian distribution agreement were written off with
the sale of the unit. Other expenses consisted of interest expense on loans of
$37,712 and currency translation positive adjustments of $80,721. The currency
translation adjustment accounted for virtually all of the change in this
category and is due to the drop in the dollar currency relative to the sterling
since the acquisition of Tiger Ltd. in February 2002 and the impact of the sale
of Tiger Ltd. in December 2003. Interest in 2002 of $37,712 is $107,888 or 74%
less than in 2001. The reflects the lower interest charged on shareholder debt
as it was mostly converted into equity in 2002. $77,000 in interest bearing
notes remains on the balance sheet as of December 31, 2003.
Net Loss from continuing operations: The Company reported an operating loss of
$13,342,261. $4,414,818 of the loss is the non-cash write down of the impaired
goodwill, principally from of the assets of Comworxx acquisition. $669,000 is
the provision for the non-cash write-down of the remaining assets from the
assets of Comworrxx acquisition. A $1,000,000 loss was taken in third quarter to
write-down the order book related to Tiger Ltd. to realized value in light of
the shipping problems created by the lack of working capital. Additionally,
$2,103830 relates to the write-down of intangible assets of remaining value of
order book and distribution agreement with the sale of Tiger ltd. $1,091,878
reflected a provision for potential liabilities related to the April 2003
bankruptcy and subsequent liquidation of the buyer of Floor Decor LCC and its
assets. The Company's management staff has been right sized and has expertise
and infrastructure to grow the Company rapidly. Management considers these costs
as an investment in setting the Company in a position to grow rapidly in the
near future. Management believes the costs will be lower as a percentage of
sales in 2003 since sales growth is expected to exceed increases in operating
expenses.
18
Net Loss from discontinued operations: The Company reported a loss from
discontinued operations of $353,430. On August 9, 2002, the company sold the
assets of the flooring segment effectively eliminating that segment going
forward from that date. Included in the number is the actual impact of the sale
including a gain on sale.
Net Loss: The Company incurred a total loss of $13,696,691 for the twelve months
of 2002. $4,714,818 was the non-cash loss from the write down of impaired
goodwill, principally related to the acquisition of the assets of Comworxx and a
related $407,000 write-down of the remaining assets from the Comworrx purchase.
$2,103,830 was the write down of the order book and distribution agreement as a
part of the loss on the sale of Tiger Ltd. in December. $1,091,878 reflected a
non-cash provision for the potential contingent liabilities related to the
bankruptcy and subsequent liquidation of the buyer of Floor Decor LLC and its
assets, which occurred in April 2003. The Company anticipates that future net
losses per quarter will be lower as shipments get made in future quarters for
revenue to offset the costs associated with the operation.
LIQUIDITY AND CAPITAL RESOURCES
In 2000 the Company funded its operating losses and start-up costs principally
with loans from shareholders or other parties. Without such funding the company
would not have been able to sustain its operations.
In the twelve months ended December 31, 2001, the Company's working capital
decreased by $919,000. This decrease all in discontinued operations was the
result of increases in current assets, consisting of increases in accounts
receivable of $36,000, inventory of $183,000, and prepaid expenses and other
current assets of $13,000, offset by increases in current liabilities,
consisting of increases in accounts payable of $544,000, accrued expenses and
other current liabilities of $112,000, and customer deposits/deferred revenue of
$70,000. Also, in the twelve months ended December 31, 2001 the amounts due
stockholders decreased by $348,000 and the Company received $629,000 in notes
from other stockholders. The Company also raised $574,200 from the first portion
of a private placement of common stock and warrants.
The Company in 2001 had no bank loans to draw upon. Instead, the Company has
obtained loans from stockholders and from private placements of shares as
described in this report and via private placements of shares.
The Company incurred net losses in 2000, in 2001 and in 2002 of $665,000,
$1,299,000 and 13,696,691 respectively. These operating losses caused cash flow
from operations to be ($956,000) and ($713,000) and in the period from July 3,
2000 (inception date) through December 31, 2000 and for the twelve months ended
December 31, 2001, respectively. Since the Company was not able to generate
positive net cash flows from operations, additional capital was needed. This
capital has been provided by certain principal stockholders, who have funded the
Company through loans as needed. - Refer to note J in the accompanying financial
statements.
19
In the 4th quarter of 2001 the Company also borrowed approximately $130,000 from
Banyan Capital Partners Ltd. In December 2001, the Company initiated a private
placement and raised $574,200 of equity. An additional $1.8 million of equity
(including the conversions of $923,000 of certain debt owed to stockholders) was
raised during January through March 2002. The Company was assisted in this
process by Banyan Capital Partners Ltd. This $2.4 million equity funding was
used to provide liquidity to Tiger Telematics, extend the closing date of the
Hamway Flooring transaction(now expired), and to fund operating losses and
negative cash flows including the expenses of operating a public reporting
company.
In the twelve months ended December 321, 2002, the Company's working capital
deteriorated further This was the result of decreases in current assets,
consisting of increases in accounts receivable of $116,648, inventory of
$195,576, and an increase in prepaid expenses and other current assets of
$83,545, and a decrease in assets of discontinued operations, offset by
increases in current liabilities, consisting of increases in accounts payable of
$1,449,326, accrued expenses of $1,961,085, an increase in notes payable of
$86,262 and a decrease in amountd due stockholders of $@231,000. Liabilites of
discontinued operations also increased by $426,000. The increase in payable
relates in part to Tiger USA, and reflects liabilities assumed in the purchase
agreement. These liabilities are of the subsidiary Tiger USA and may not be the
obligations of Tiger Telematics, Inc. As discussed in Note H and note M. has
hired a legal counsel to analyze and advice as to potential liabilities arising
from the purchase of the assets of Comworxx and associated causes of actions
against the seller and its shareholders. The increase in accrued expenses
represents a provision made for contingent liabilities related to the bankruptcy
of the buyer of the assets of the flooring segment. Also, in the twelve months
ended December 31, 2002 the amounts due 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.
The Company does not have any bank loans or lending facilities. The Company has
obtained loans from stockholders and raised additional financing through private
placements of shares of common stock. On August 9, 2002 the Company sold the
assets of the flooring division including this inventory, which will improve
liquidity requirements during the balance of 2002. The Company continued to
issue shares of Common Stock in early 4th quarter to retire certain obligations
due for payment.
The Company incurred net losses in 2001 and in 2002 of $1,299,000 and
$13,696,691 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.
20
In December 2001, the Company initiated a private placement of common stock and
warrants and raised $574,200 of equity. An additional $1.8 million of equity
(including the debt to equity conversions of $923,000 of certain stockholders)
was raised during January through March 2002. This $2.4 million equity funding
net of expenses was used to provide liquidity to Tiger Telematics and to fund
operating losses and negative cash flows including the expenses of operating a
public reporting company. In February and March 2002, the Company obtained
approximately $290,000 from stockholders of interest free advances and
promissory notes due upon demand to fund operations of Tiger Telematics Ltd. In
second quarter 2002 the company sustained operations by obtaining loans from
stockholders. In October 2002, certain stockholders converted $455,176 of debt
into Company Common Stock which reduced debt and improved liquidity in the
balance sheet. The Company anticipates further cash assistance in the form of
loans from its stockholders to assist in liquidity while the Company raises
additional capital although no assurances can be given that they will be able or
willing to continue such support. The sale of the assets of the flooring segment
on August 9, 2002 helped liquidity as liabilities assumed were less than assets
sold and the Company is no longer required to fund the operating losses and
working capital needs of that flooring segment going forward.
The Company is evaluating the business of its acquired assets of Comworxx
(acquired on June 25, by the wholly owned subsidiary Tiger USA). Based on a post
acquisition evaluation of the assets and market position of Tiger USA, the
Company determined that the goodwill from the acquisition was impaired wrote it
down in full. The Company retained legal counsel to review its options under the
purchase agreement that acquired these assets. The Company is in discussions
with the shareholders of the seller for modification of the terms of the
purchase agreement due in part to potential misrepresentation in the purchase
agreement that Comworxx was a viable business. Unless new arrangements can be
negotiated the company has several available options including but not limited
to litigation. Given the high relative cost of the product relative to the
projected sales price available for such products in the U.S. consumer
marketplace, the Company has decided not to launch of the product. The Company
closed the operations of Tiger USA and may sell the assets or attempt to rescind
the original purchase agreement.
The Company's $3 million in secured financing did not materialize. In fourth
quarter the company executed a subscription agreement with a company to sell
7,500,000 shares Common Stock of the Company for $0.20 a share to generate
$1,500,000. The investor did not close the transaction reportedly due to the
Company's declining stock price. The Company's effort to raise additional equity
financing for working capital through an arrangement with Jefferies and Company
was aborted and was not successful, the Company will continue to seek to raise
additional money and equity through various alternate strategies. However, there
can be no assurance this additional capital or other form of financing will be
available, or if available on terms reasonably acceptable to the Company.
The Company anticipates that it will not be able its liquidity of capital needs
for the next twelve months without further equity financing but no assurances
can be given that this will occur. The Company has discontinued and sold its
flooring operations, sold its Tiger Ltd. business to in part reduce debt,
conserve working capital and to reduce costs going forward to run the remaining
business. Despite incurring a non-cash loss on the sale, the Company sold Tiger
Ltd. in order to reduce its debt and to focus on the limited resources available
on a more narrowly focused market in England. The Company believes that the sale
was necessary to ensure the continued survival of the remaining operations. The
Company has shrunk its operations and may need to further shrink its operations
to sustain its remaining operations. As the Company continues to experience
negative operating results in 2003, the Company's liquidity will remain
strained.
21
There can be no assurance that additional capital beyond the amounts forecasted
by the Company will be available on terms acceptable to the Company, if at all,
at such time or times as required by the Company.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations transacted after June 30, 2001. SFAS No. 141 also specifies
criteria that intangible assets acquired in a business combination must meet to
be recognized and reported separately from goodwill. The Company will utilize
SFAS No. 141 to account for business acquisitions completed in 2002 (see Notes I
and J to the financial statements).
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which eliminates amortization of goodwill and intangible assets that
have indefinite useful lives and requires annual tests of impairment of those
assets. The provisions of SFAS No. 142 are required to be applied starting in
2002, and will also be utilized for future business acquisitions.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No 143 requires the Company to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from acquisition, construction, development and/or normal use of
assets. The Company also records a corresponding asset which is depreciated over
the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation will be adjusted at the end of each period
to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Company is required to adopt SFAS No. 143 on
January 1, 2003. The Company is currently evaluating the timing of adoption and
the effect that implementation of the new standard may have on its results of
operations and financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This Statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
No. 144 requires companies to separately report discontinued operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, abandonment, or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs of sale. The Company was required to adopt SFAS
No. 144 on January 1, 2002. The adoption of SFAS No. 144 is not expected to
materially impact the Company's results of operations and financial position.
22
Forward-Looking Statements
This report contains forward-looking statements which are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of
1995.Statements as to what the Company "believes," "intends," "expects," or
"anticipates" and other similar anticipatory expressions, are generally
forward-looking and are made only as of the date of this report. Additionally,
the report is subject to risks and uncertainties which could cause actual
results to differ materially from those discussed in the forward-looking
statements and from historical results of operations. Among the risks and
uncertainties which could cause such a difference are the assumptions upon which
the Company bases its assessments of its future working capital and capital
expenditure requirements and those relating to the Company's ability to satisfy
its working capital needs and to finance it's anticipated capital expenditures,
which could prove to be different than expected, the Company's reliance on
outside sources of equity capital to continue to fund its operations, the
Company's reliance upon suppliers for the purchase of finished products which
are then resold by it, the level of demand for the Company's products among
existing and potential new customers, the Company's ability to successfully
manage and integrate the business and operations of newly acquired entities, the
Company's dependence upon certain key personnel and its ability to successfully
integrate new management personnel into the Company, the Company's ability to
accurately predict the number and type of employees required to conduct its
European operations and the compensation required to be paid to such personnel,
its ability to manage its growth, the risk of economic and market factors
affecting the Company or its customers and other risks and uncertainties
described elsewhere herein.
Item 7a Quantitative and Qualitative Disclosures About Market Risk
No market risk sensitive instruments
Item 8. Financial Statements and Supplementary Financial Data
The response to this item is submitted on pages F1 - F18 of this Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement to be filed by the
Company for the Annual Meeting of Stockholders.
23
Item 11. Executive Compensation
Information required by this item regarding compensation of officers and
directors is incorporated by reference from the definitive Proxy Statement to be
filed by the Company for the Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference from the
definitive Proxy Statement to be filed by the Company for the Annual Meeting of
Stockholders.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated by reference from the
definitive Proxy Statement to be filed by the Company for the Annual Meeting of
Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of the report:
1. and 2. The financial statements filed as part of this report are
listed separately in the index to Financial Statements beginning on
page F-1 of this report.
(b) Reports on form 8-K
Report on Form 8-K dated 1--30-03, item 4.
(c) List of Exhibits:
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Articles of Merger, Plan of Merger, Share sale and
Merger Agreement Floor Decor Inc and Media Communications Group
Corporation*
2.2 Stock Purchase Agreement among Floor Decor, Inc.,Eagle Eye
Scandinavian Distribution Ltd. and the stockholders of Eagle Eye dated
December 2001 as amended by an Amendment to Stock Purchase Agreement
attached hereto******
2.3 The Asset Purchase Agreement among Tiger Telematics, Inc., Comworxx,
Inc. and the stockholders of Comworxx dated June 13, 2002.********
2.4 Asset Purchase Agreement dated August 9, 2002 between the Company and
MINIME Inc. and related Assignment and Assumption, Security Agreement
and 2 Lease Assignment and Assumption Agreements.
2.5 Stock Purchase Agreement dated December 20, 2002 between Norrtulls
Mobileextra Akliebolag and Tiger Telematics, Inc. and Tiger
Telematics, Ltd. and related Royalty Agreement.**********
3.1.1 Certificate of Incorporation of the Company****
24
3.1.2 Bylaws of the Company****
3.2.3 The Certificate of Amendment amending the Certificate of Incorporation
of the Company. Name change to Tiger Telematics, Inc.*******
4.1 Form of specimen certificate for Common Stock of the Company*****
4.1 Form of Subscription Agreement******
4.2 Form of Registration Rights Agreement******
4.3 Form of Warrant Agreement******
4.4 Risk Factors******
5.1 Stock Option Plan***
10.1 Building Lease Agreement for the Company's "big box superstore"
located at 6001 Powerline Road, Ft. Lauderdale, FL. **
10.2 Building Lease Agreement for 700 S. Military trail, Lake Worth, FL
33163 **
21 Subsidiaries of the Company +
21.1 Eagle Eye exclusive distributor Agreement - Scandinavia and
Yugoslavia.*****
21.2 Automotive Software Agreement - Tiger Telematics Subsidiary *****
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 +
- --------------------------------------------------------------------------------
+ Filed herewith
* Incorporated by reference to Exhibit of the same number filed with
the Company's Form 8K dated June 25, 2000.
** Incorporated by reference to Form 10Q second quarter June 30, 2001
filed on August 14, 2001.
*** Incorporated by reference to Proxy Statement - July 11, 2001.
**** Incorporated by reference to Form 10SB12 B/A filed on October 19,
2000.
***** Incorporated by reference to Company's Annual Report on Form 10-KSB
for the year ended December 31, 2001.
****** Incorporated by reference to Form 8K dated February 19,2002.
******* Incorporated by reference to Form 8K dated June 6, 2002.
******** Incorporated by reference to Form 8K dated June 27,2002.
********* Incorporated by reference to Form 8K dated August 9, 2002.
********** Incorporated by reference to Form 8K dated January 20, 2003.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Jacksonville, State of Florida, on May 23, 2003.
Tiger Telematics, Inc.
By: /S/ Michael W. Carrender
- ------------------------------------
Michael W. Carrender
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Michael Carrender his true and lawful attorney-in-fact
and agents, with full power of substitution and resubstitution for him in his
name, place and stead, in any and all capacities, to sign all amendments to this
report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorneys-in-fact
or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/S/ MICHAEL W. CARRENDER Chief Executive Officer May 23, 2003
- ------------------------- and Director (Principal Executive
Michael W. Carrender Officer)
/S/ MICHAEL CARRENDER Chief May 23, 2003
- ------------------------- Financial Officer (Principal
Michael Carrender Financial and Accounting Officer)
26
CONTENTS
Page
----
Financial Statements
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Deficit F-4
Consolidated Statements of Cash Flow F-5
Notes to Consolidated Financial Statements F-8 - F-17
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
2002 2001
------------ ------------
Assets
Current Assets
Cash $ (1,672) $ --
Accounts receivable, less allowance for doubtful
accounts - 2002 $0 ; 2001 $0 116,648 --
Advances to officers and employees -- --
Inventories 195,576 --
Prepaid expenses 83,545 --
------------ ------------
Assets of discontinued
operations 517,210 1,298,774
------------
Total current assets 911,308 1,298,774
Property and Equipment, net 237,196 --
Deposits and Other Assets -- --
------------ ------------
$ 1,148,504 $ 1,298,774
============ ============
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable $ 1,449,326 $ --
Amounts due stockholders 1,210,785 1,541,053
Notes payable 86,262 --
Accrued expenses 1,961,085 --
Customer deposits -- --
------------ ------------
Liabilities of discontinued
operations 1,572,855 1,152,350
------------
Total current liabilities 6,280,313 2,693,403
------------ ------------
Long term debt 175,736 --
Stockholders' Deficit
Common stock, at par value 73,813 55,887
Authorized 100,000,000 shares, issued 2002
80,186,426, 2001, 55,886,664 shares
Additional paid in capital 10,279,953 514,104
Subscription receivable (36) (36)
Accumulated deficit (15,661,275) (1,964,584)
------------ ------------
(5,307,545) (1,394,629)
------------ ------------
$ 1,148,504 $ 1,298,774
============ ============
See Notes to Consolidated Financial Statements.
F-2
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2002, 2001 and Period July 3, 2000,
Date of Inception, Through December 31, 2000
2002 2001 2000
------------ ------------ ------------
Net sales $ 283,730 $ -- $ --
Cost of goods sold 352,880 -- --
------------ ------------ ------------
Gross Profit (69,150) -- --
------------ ------------ ------------
Operating expenses
Selling expense 597,188 -- --
General and administrative expense 6,167,130 282,745 --
------------ ------------ ------------
Total Operating Expenses 6,764,318 282,745 --
------------ ------------ ------------
Operating Loss (6,833,468) (282,745) --
------------ ------------ ------------
Other income (expense)
Impairment of goodwill (6,552,802) -- --
Other income 80,721 -- 2,568
Interest expense (37,712) (145,607) (28,825)
------------ ------------ ------------
(6,509,793) (145,607) (26,257)
------------ ------------ ------------
Loss from continuing operations (13,343,261) $ (428,352) $ (26,257)
Loss from discontinued discontinued (353,430) (870,728) (639,247)
Net Loss $(13,696,691) (1,299,080) (665,504)
============ ============ ============
Basic and diluted net loss per
common share $ (0.1946) $ (0.024) $ (0.012)
============ ============ ============
Basic and diluted net loss from
continuing operations per common share $ (0.1896) $ (0.0079) $ (0.0005)
Weighted average shares outstanding
(basic and diluted) 70,378,346 54,327,486 54,236,664
============ ============ ============
See Notes to Consolidated Financial Statements.
F-3
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 2002, 2001 and Period July 3, 2000,
Date of Inception, Through December 31, 2000
Common Stock Additional
------------ Paid in Subscriptions Accumulated Total
Shares Amount Capital Receivable Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance July 3, 2000 date of inception -- $ -- $ -- $ -- $ -- $ --
Issuance of Common Stock 378 100 -- -- -- 100
Net Loss -- -- -- -- (665,504) (665,504)
------------ ------------ ------------ ------------ ------------ ------------
Balance (deficit) at December 31, 2000 378 100 -- -- (665,504) (665,404)
Issuance of common stock, January 1, 2001 622 622 -- (36) -- 586
Recapitalization of common stock upon
reverse acquisition on May 22, 2001 54,235,664 53,515 (58,446) -- -- (4,931)
Issuance of Common Stock and Warrants 1,650,000 1,650 572,550 -- -- 574,200
Net Loss -- -- -- -- (1,299,080) (1,299,080)
------------ ------------ ------------ ------------ ------------ ------------
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 December 31 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
Shares issued for services, debt
conversions and settlements 7,917,237 1,544 1,217,963 -- -- 1,219,507
Net Loss -- -- -- -- (13,696,691) (15,696,691)
Balance (deficit) at December 31, 2002 80,186,426 $ 73,813 $ 10,279,953 $ (36) $(15,661,275) $ (5,307,545)
============ ============ ============ ============ ============ ============
F-4
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001 and Period July 3, 2000,
Date of Inception Through December 31, 2000
2002 2001 2000
----------- ----------- -----------
Cash Flows From Operating Activities
Net loss (13,696,691) $(1,299,080) (665,504)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amaortization 63,924 35,071 16,816
Currency translation adjustments (80,721) -- --
Changes in assets and liabilities:
Assets of discontinued operations 387,467 (231,790) (597,324)
Write down of deposit 100,000 -- --
Impairment of goodwill on asset acquisisition 6,149,020 -- --
Obligations paid with common stock 1,084,170 -- --
Gain on sales of property and equipment -- -- (870)
Interest on notes payable and stockholder loans
capitalized to principal balances 33,189 56,001 --
(Increases) decrease in:
Accounts Receivable (116,648) -- --
Inventories (195,576) -- --
Prepaid Expenses
(83,545) -- --
Increase (decrease) in:
Accounts payable 1,449,326 -- --
Accrued expenses 1,961,085 -- --
Liabilities of discontinued operations 420,505 726,409 290,891
----------- ----------- -----------
Net cash used in operating activities (2,524,495) (713,389) (955,991)
----------- ----------- -----------
Cash Flows From Investing Activities
Proceeds from sale of property and equipment -- 10,653 32,924
Purchase of property and equipment
Advances to officers and employees (237,196) (68,728) (186,894)
26,029 (26,029) --
----------- ----------- -----------
Net cash used in investing activities (211,167) (84,104) (153,970)
----------- ----------- -----------
Cash Flows From Financing Activities
Issuance of common stock and warrants 876,673 574,786 100
Conversion of debt to stockholders to common stock 1,988,089 -- --
Proceeds of long term debt 175,276 -- --
Loans and advances from stockholders -- 629,421 1,321,794
Proceeds from notes payable (43,859) 129,000 --
Miscellaneous 48,249 -- --
Repayments to stockholders (330,768) (348,236) (116,808)
----------- ----------- -----------
Net cash provided by financing activities 2,713,660 984,971 1,205,086
Net change in cash (22,002) 20,331 --
Cash:
Beginning
20,331 -- --
----------- ----------- -----------
Ending (1,671) $ 20,331 $ --
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest 4,522 $ 96,540 $ 21,891
=========== =========== ===========
Supplemental Disclosure of Non-cash Investing and
Financing Activities
Common stock issued in paymentof obligations 1,084,170 -- --
=========== =========== ===========
Common stock issued in exchange for subscriptions receivable -- $ 36 $ --
=========== =========== ===========
Conversion of notes payable and amounts due stockholders into
common stock 1,988,089 -- --
=========== =========== ===========
Accounts payable assumed in recapitalization -- $ 4,931 $ --
=========== =========== ===========
See Notes to Consolidated Financial Statements.
F-5
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Twelve Months ended December 31,
--------------------------------
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 0
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 -- --
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-6
TIGER TELEMATICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
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 - DESCRIPTION OF BUSINESS
Tiger Telematics,Inc. and its wholly owned subsidiaries, Tiger Telematics USA,
Inc. and Tiger Telematics Europe, Ltd. are developers and marketers of
telematics products principally in Western Europe. The Company's whole business
as of year-end 2002 is in telematics products. Prior to its dale in August of
2002 and its classification as a discontinued operation in second quarter of
2002 the Company was engaged in the retail floor covering business. In June of
2002 the company changed its name from Floor Decor. Inc. to Tiger Telematics,
Inc. In, 2000 and 2001, Floor Decor, Inc. and its wholly owned subsidiaries,
Media Flooring, Inc. and Floor Decor LLC own and operate retail stores in
Florida. The Company offers a wide selection of floor coverings including
carpet, area rugs, wood, and laminates at discount prices to both commercial
accounts and consumers. The Company also provides installation of flooring.
The Company opened its "big box superstore" in Fort Lauderdale, Florida in the
fall of 2000 and in May of 2001 completed a reverse acquisition with Media
Communications Group, Inc. (MCGI). Prior to the acquisition of Floor Decor,
Media Communications Group 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.
In February 2002 the company acquired a Telematics developer and distributor of
telematics products and services to the business-to-business segment in Europe
and changed the name of the name of the Company in June 2002 to Tiger
Telematics, Inc. On June 9, 2002 the Company discontinued the flooring segment
and sold the assets on August 9, 2002. On June 29, the Company set up its third
subsidiary Tiger Telematics, USA, Inc. and it acquired the assets and certain
liabilities of Comworxx, Inc. a 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. The Company started Tiger Telematics, Europe Ltd. in late 2002 to
focus on developing new Telematics products including next generation fleet
telematic products, the child tracker products and to focus on marketing
principally in the UK. On December 17, 2002 the company sold Tiger Telematics,
Ltd. to an unrelated third party corporation based in Sweden.
The Company filed its Annual Report on Form 10K for the year ended December 31,
2001 with an audit opinion from its then auditors. The Company has requested
permission to include that opinion in it 2002 Annual Report on Form 10K but has
not received permission. Similarly, the Company's new auditors have not yet
finalized their opinion for the year ended December 31, 2002. The recent events
cited in this report and the Company's critical cash shortage and difficult
working capital position have created this delay. The Company decided to file
this report without those audit opinions and amend subsequently with those
opinions in order to provide the most up to date and current information to its
shareholders and investors. The Company believes that based on the extent of
audit work completed to date, that the financial statements contained herein
will not be materially altered in the amended Annual Report on Form 10K. The
Company anticipates having the amendment within the next few weeks to
incorporate that opinion.
F-8
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of Tiger
Telematics, Inc, Tiger Telematics, USA, Inc. Tiger Telematics, Europe,
Ltd., the operations of Tiger Telematics, Ltd. through the December 17,
2002 date of its divesture and the discontinued operations of, Floor Decor
LLC, and Media Flooring, Inc.through the date of their divesture. All
material intercompany accounts and transactions are eliminated in
consolidation.
2. Inventories
Inventories are stated at the lower of cost (specific identification basis)
or market, and consist of flooring materials.
3. Property and Equipment
Property and equipment is stated at cost. Depreciation is provided by
straight-line methods in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Leasehold improvements are amortized over the shorter of the term of the
lease or their expected useful life.
The following are the estimated useful lives of the Company's property and
equipment:
Years
-----
Vehicles 5
Furniture, fixtures and equipment 3 to 7
Leasehold improvements 5 to 15
F-9
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Income Taxes.
Deferred taxes are provided on a liability method, whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some or
all of the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
For periods prior to January 1, 2001, the Company, with the consent of its
stockholders, had elected to be taxed under sections of federal income tax
law which provide that, in lieu of corporation income taxes, the
stockholders separately account for their prorata shares of the Company's
items of income, deductions, losses, and credits. This election was
terminated effective January 1, 2001.
5. Stock-Based Compensation
At a special meeting of stockholders on July 31, 2001, the stockholders of
the Company voted in favor of the adoption of the Company's 2001 Employee
Stock Option Plan ("The Plan"). The total number of shares of common stock
available for grant under the Plan is 8,000,000 shares. As of December 31,
2001, no employees had been granted options under the Plan. As of December
31, 2002 3,600,000 of options have been granted under the plan. All of the
options were issued pursuant to the plan at the prevailing market prices as
of the date of issue of $.06. As of year-end December 30, 2002, 900,000
shares of the options had vested with a further vesting of 900,000 shares
occurring on February 18, 2003. A further 900,000 vest on February 2004 and
900,000 in February 2005.
6. Earnings (Loss) per Share
Basic earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings
(loss) per share is computed using the weighted average number of common
shares and potential common shares outstanding during the period. Potential
common shares are excluded from the computation since their effect is
antidilutive.
7. Revenue Recognition
In 2002, the Company generated revenues from the sales of telematic
products. Sales are recognized when merchandise is delivered. In 2002,
2001, and 2000 he Company generated revenues summarized as results of
discontinued operations from the sale of its floor covering products upon
shipment and installation of the product. Sales of floor coverings
including carpet, area rugs, wood, and laminates. Sales were recognized
when merchandise is delivered and such revenue is recorded net of estimated
sales returns, discounts and allowances.
8. Advertising Cost
Advertising costs are expensed in the period incurred. Total advertising
costs amounted to $18,489, $0 and $0 for 2002, and 2001 and 2000,
respectively.
F-10
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to make certain estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
10. Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No.107, "Disclosures
about Fair Value of Financial Statements" requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No 107 excludes certain financial
instruments and all non-financial assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company. The fair
value of financial instruments recorded on the balance sheet approximate
the carrying amounts. The Company has no off balance sheet financial
instruments.
11. Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations transacted after June 30, 2001. SFAS
No. 141 also specifies criteria that intangible assets acquired in a
business combination must meet to be recognized and reported separately
from goodwill. The Company will utilize SFAS No. 141 to account for
business acquisitions completed in 2002 (see Notes I and J to the financial
statements).
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which eliminates amortization of goodwill and
intangible assets that have indefinite useful lives and requires annual
tests of impairment of those assets. The provisions of SFAS No. 142 are
required to be applied starting in 2002, and will also be utilized for
future business acquisitions.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period
in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from acquisition, construction,
development and/or normal use of assets. The Company also records a
corresponding asset which is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation,
the obligation will be adjusted at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying
the obligation. The Company is required to adopt SFAS No. 143 on January 1,
2003. The Company is currently evaluating the timing of adoption and the
effect that implementation of the new standard may have on its results of
operations and financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the fair value of
the asset. SFAS No. 144 requires companies to separately report
discontinued operations and extends that reporting to a component of an
entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. Assets to be
disposed of are reported at the lower of carrying amount or fair value less
costs of sale. The Company was required to adopt SFAS No. 144 on January 1,
2002. The adoption of SFAS No. 144 is not expected to materially impact the
Company's results of operations and financial position.
F-11
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - REVERSE ACQUISITION AND EQUITY TRANSACTIONS
From the date of inception, July 3, 2000, through 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 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 recapitalize Floor Decor as a result of the reverse acquisition with only an
exchange of shares, additional paid in capital was adjusted on May 22, 2001 as
follows:
Calculation of Floor Decor additional paid in capital:
May 22, 2001 common stock of 54,236,664
At a par value of $0.001 $ (54,237)
Common stock of 1,000 shares prior to
Reverse acquisition 722
Vendor obligation (4,931)
-------------
Recapitalization to additional paid-in capital $ (58,446)
=============
To compute the loss per share, 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.
F-12
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During December 2001 the Company entered into private placement transactions
with individual investors. In these private placement transactions, the Company
sold 1,650,000 shares of its Common Stock at a price of $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. Each Warrant may be exercised at any time until
December 31, 2003. Proceeds from these sales, net of commissions totaling
$85,800, amounted to $574,200.
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.
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 as of December 31, 2002. See page
F-4 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 2002, certain stockholders converted $455,761 of debt to equity at
$.010 per share. The conversion of these stockholders was done at the prevailing
market price as of the date of the conversion. See Note J- Related Party
Transactions.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2002, 2001 and 2000 consisted of the
following:
2002 2001 2000
---- ---- ----
Vehicles $188,837 - $ -
Leasehold Improvements - - -
Furniture, Fixtures, and Equipment 48,684 - -
-------- -------- --------
237,521 - -
Less accumulated depreciation and amortization - - -
-------- -------- --------
$237,521 - $ -
======== ======== ========
See Note K Discontinued Operations
NOTE E - INCOME TAX MATTERS
The Company has net operating loss carryforwards as of December 31, 2001 for
federal income tax purposes of approximately $1,290,000 expiring in 2021. Any
future benefit to be realized from these net operating loss carryforward is
dependent upon the Company earning sufficient future taxable income during the
periods that the carryforwards are available. Due to this uncertainty, the
Company has fully offset any deferred tax benefits otherwise relating to the net
operating loss carryforward with a valuation allowance in the amount of
$440,000.
The Company has net operating loss carryforwards for United States Tax purposes
as of December 31, 2002 for federal income tax purposes of approximately
$12,067,638 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 $3,620,000. The Company has an
undeterminable losses off settable against future income in the UK expiring in
2021 due to the sale of Tiger Ltd. 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 $0.
F-13
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - OPERATING LEASES
In 2001 and 2000 the Company leased its retail stores under non-cancelable
agreements, which expire through September 2005, and required monthly rental
payments. This flooring business was discontinued and sold. See Note K
Discontinued Operations. As of December 31, 2002 the company leases its office
in Jacksonville, FL under a one year lease expiring August 2003 and the office
in Fleet Hampshire UK under a month to month. The Company is contingently liable
for the first 9 months of 2003 for a lease of the Picadilly Street 0ffice in
London, UK for Tiger Telematics, Ltd. that was sold in December 2002. The total
minimum rental commitment as of December 31, 2002 is due as follows:
Year Ending
December 31, Amount
------------------------------------------------------------------------
2002 $ 222,208
2003 -
2004 -
2005 -
----------
$1,739,125
Rent expenses for the period ended December 31, 2002 was $295,779. This was
after reclassification of $241,280 of flooring rental expenses to discontinued
operations. See Note K Discontinued Operations. Rent expense for the period
ended December 31, 2001 and 2000 totaled $526,195 and $173,668 respectively but
are now reclassified as discontinued operations. The flooring leases contained
fixed rent escalations over the term of the lease. Rent expenses on the leases
are being recognized on a straight-line basis over the terms of the leases.
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
satisfied its obligation to pay rent for the first year of the term of the lease
by issuing 500,000 shares of Tiger Telematic, Inc.'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. Following the sale of Tiger Ltd.
in December 2002 the Company continued to use the facility during part of first
quarter pursuant to the terms of the sale agreement. The Company is contingently
liable for the lease payments if not made by Tiger Ltd. The Company intends
elect an option for early termination of the lease on September 30, 2003. 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. The
Company may have to pay an additional amount depending on the proceeds of the
share sale at the time of the share sale. These shares of commons stock have not
been sold as of the date of this report have not been sold. The sold company
Tiger Telematics, Ltd. failed to make payments to the landlord following the
expiration of the time period convered in the leases for shares. The landlord
has filed suit against the Company in second quarter 2003 alleging amounts owed
pursuant to the Company's guarantee of Tiger Ltd.'s lease obligation.
NOTE G - NOTE PAYABLE
At December 31, 2001, the Company had 6% unsecured demand Notes payable totaling
$130,005 to Banyan Capital Partners, Inc., the investment bankers engaged by the
Company in October 2001. Interest expense relating to these notes amounted to
$1,119 for the year ended December 31, 2001. The amount of $101,021 of this debt
was converted to equity in 2002 in exchange for 252,553 shares and warrants-
As of December 31, 2002, the Company had a demand notes payable totaling $8,664
from the Comworxx acquisition for which it may be contingently liable. The
company also has a 10% note payable in the amount of $77,597.
NOTE H - 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.
F-14
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 7,000,000 shares of stock issued were valued at $0.40 per share. This price
is the same price as the private placement transactions with investors that were
entered into from December 2001 through March 2002. This valued the stock issued
at $2,800,000. The negative equity of Tiger Telematics of $463,050 as of the
acquisition date resulted in an excess of acquisition cost over tangible asset
value of $3,263,050.
The excess of the acquisition price over the tangible asset valuation was
assigned to two intangible assets. $2,800,000 was ascribed to an order backlog
of open pending orders for products for future shipments over the next several
years. This amount will be amortized as the orders are shipped on a prorata
basis. The remaining amount of $463,050 was assigned to distribution rights
under a Distribution Agreement with Eagle Eye Telmatics, plc, which was executed
on October 19, 2001(see Form 10-K dated March 31, 2002, exhibit #21.1). This
amount will be amortized quarterly over the 32 month remaining life of the
distribution agreement at the time of acquisition.
In third quarter 2002, the Company determined that the good will relative to the
order book was impaired due to the failure to ship the orders as originally
projected to the customers and due to the change in Tiger Ltd.'s business model
to derive its income from monthly revenue generated by its wireless telecom
providers partnership arrangements as opposed to generating revenue primarily
from the sale of hardwire. The Company wrote-off an additional $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.
In fourth quarter the Company sold the common stock of Tiger Ltd. to an
unrelated third party based in Sweden that is in the business of selling and
installing telephone equipment in vehicle fleets. See Report of Form 8K dated
Janaury 2003. The agreement called for the transfer of certain assets and debt
from Tiger Ltd. to Tiger Europe prior to closing. The transaction was done in
exchange for a Royalty Agreement from the buyer and Tiger Ltd. to pay a
percentage of sales over the next 10 years. Due to the uncertainty of the future
payments the Company placed a zero value on the agreement and did not record the
future stream of payments on the balance sheet. In order to record the sale of
Tiger Ltd. transaction the company wrote off its books the remainder value of
the intangible assets of $2,103,830 comprised of the sold order book of
$1,800,000 and the sold distribution agreement of $303,830.
COMWORXX, INC.
On June 25, 2002, pursuant to a Purchase Agreement between the Company's wholly
owned subsidiary Tiger USA, Inc and Comworxx, Inc., a private Florida
incorporated company, the Company formed a new wholly owned subsidiary Comworxx
Acquisition Corporation which name the Company has changed post closing to Tiger
Telematics USA. ("Tiger USA"). Tiger USA purchased all of the assets of Comworxx
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-15
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 2001 as 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 $ -- $ 152,080 $ --
============= ============= ============= =============
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
(basic and diluted) 79,349,119 73,417,424 81,120,015 73,417,424
============= ============= ============= =============
NOTE I - 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 J - RELATED PARTY TRANSACTIONS
The Company had a 10% demand note payable to a 28.4% stockholder in the amount
of $ 852,789 and $841,064 as of December 31, 2001 and 2000, respectively.
Interest expense related to this note amounted to $86,337 and $19,499 for the
periods ended December 31, 2001 and 2000 respectively. Also, as of December 31,
2001 and 2000 the Company owed a total of $80,382 to this stockholder on a
non-interest bearing note that is due on demand. The amount of $554,500 of this
debt was converted to equity in 2002 for a total of 1,386,250 shares and
warrants- Refer to Note I Item 3.
F-16
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had a note payable in the amount of $33,540 to another stockholder
as of December 31, 2000. The note was repaid in 2001. Interest expense on the
note amounted to $794 for the year ended December 31, 2001.
As of December 31, 2001 the Company had 15% demand notes payable totaling
$335,035, including $32,034 of accrued interest, to certain stockholders of
record of the Company, none of which owns more than 0.06% of the outstanding
shares. Interest expense related to these notes amounted to $32,034 for the year
ended December 31, 2001. $ 267,212 of the total amount of these notes was
converted to equity subsequent to December 31, 2001 for a total of 668,030
shares. - Refer to Note I, Item 3.
As of December 31, 2001 the Company had 10% demand notes payable to two
stockholders (combined ownership at 0.18%) totaling $272,847, including $22,847
of accrued interest. Interest expense related to this note amounted to $22,847
for the year ended December 31, 2001. These two stockholders became stockholders
of the Company on January 1, 2001. The note payable had a balance of $ 250,000
at December 31, 2000, and has been reclassified as amounts due to stockholders
in the December 31, 2000 balance sheets.
The weighted average interest rate on amounts due to stockholders was 10.6% and
10.0% as of December 31, 2001 and 2000 respectively.
As of December 31, 2001 the Company included in its property insurance policy a
property owned by one of its stockholders. A portion of the insurance premium
totaling $21,259 was deducted from the amount owed to the stockholder.
Subsequent to December 31, 2001 separate insurance policies were written for
each property.
As of December 31, 2001 the Company was owed a total of $26,029 from employees
and officers. The Company from time to time advances nominal amounts of money to
its employees for personal reasons. The advances do not bear interest and are
due on demand.
The Company sold a total of $20,107 of several flooring products to a company
owned by an officer of record as of December 31, 2001. These transactions were
done at wholesale price.
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 at
the rate of $.10 per share, the market price at the time of the transactions.
with 4,551,761 in shares of Common Stock issued.
As of December 31, 2002, the Company had 15% demand notes totaling $77,597,
payable to stockholders (combined ownership less than 1%).
The Company also had 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 approximately 10% of the Company). As discussed
in Note H, $610,190 of these advances was converted into Common Stock and
warrants in October 2002. As of year-end, $1,20,785 remains owed in aggregate in
interest bearing promissory notes two these two shareholders.
F-17
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A shareholder borrowed some of the funds advanced to the Company (with funds
going to the Tiger Telematics, Ltd. subsidiary) from a private investment bank
London International Mercantile Bank, based in London. The shareholders failed
to repay the note when due. The investment firm made demand on the subsidiary
Tiger Ltd. to repay the funds since Tiger Ltd. was the beneficiary of the funds.
The Company maintained that it was not responsible for that obligation and
responded to the demand accordingly. The Company showed the obligations to its
shareholder on the financial statement. The Tiger Telematics, Ltd. entered into
a settlement agreement Court approved as a Tomblin Order where the demand note
to the shareholder was forgiven by the shareholder in exchange for the company
entering into an installment note to be paid over time directly with the private
investment bank in the same amount as forgiven by the shareholder of 290,000
sterling. The shareholder remained contingently obligated for the sum owed plus
interest in event that the payment was not made timely by tiger Telematics, Ltd.
The Company issued a limited guaranty for the obligation to the private bank.
The settlement agreement called for monthly payments at a variable interest
rate. Tiger Ltd. repaid approximately $80,000 prior to the sale of the business
on December 17, 2002. See Note J and L to the consolidated financial statements.
Following the sale of Tiger Telematics, Ltd. the Company was apprised that the
Tiger Ltd. was placed in liquidation insolvency under the laws of the United
Kingdom by LIM for failure to make the payments required under this arrangement.
See Note J Subsequent Events to the Consolidated Financial Statements. The
Company is uncertain as to whether it will be required to make the payments in
the future but has made a provision to cover this contingent liability.
The Company has received inquiries from persons who maintain that they have made
an investment in the Company for which the Company has no records and which
appear to be private transactions among various shareholders. Legal counsel has
looked into the circumstances surrounding each inquiry. Legal counsel has
advised that some transactions may have taken place in the UK related the Tiger
Telematics, Ltd. prior to its acquisition by the company. It is possible that
fund raisers reportedly associated with Tiger Ltd. prior to its acquisition by
the Company on February 4, 2002 may have raised funds through various private
ventures. These transactions did not involve the Company and its officers or
directors and therefore no provision has been made for these alleged
investments.
As of December 31, 2002 the company owed an executive officer and director of
the company approximately $50,000 comprised of $38,000 of salary and $12,000 of
reimbursable expenses incurred on behalf of the Company.
Total interest expense on stockholder debt amounted to $43,079 for the twelve
months ended December 31,2003.
F-18
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K -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 $571,210 and liabilities of $1,572,855 relating to the
flooring business as of December 31, 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.
The amounts held in discontinued operations have bee reclassified on the
financial statements below shows the categories of assets on discontinued
operations as to the specific notes from the year ended 2000 and 2001.
Property and equipment as of December 31, 2001 and 2000 consisted of the
following:
2001 2000
---- ----
Vehicles $ 2,350 $ 2,350
Leasehold Improvements 49,485 52,684
Furniture, Fixtures, and Equipment 149,944 99,316
--------- ---------
201,779 154,350
Less accumulated depreciation and amortization (40,751) (16,326)
--------- ---------
$ 161,028 $ 138,024
========= =========
Operating leases.
In 2001 and 2002
The Company leases its retail stores under non-cancelable agreements, which
expire through September 2005, and require monthly rental payments. The total
minimum rental commitment as of December 31, 2001 is due as follows:
Year Ending
December 31, Amount
------------------------------------------------------------------------
2002 $ 437,294
2003 455,933
2004 485,385
2005 360,513
----------
$1,739,125
Rent expense for the period ended December 31, 2001 and 2000 totaled $526,195
and $173,668 respectively. The leases contain fixed rent escalations over the
term of the lease. Rent expenses on the leases are being recognized on a
straight-line basis over the terms of the leases.
F-19
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the assets and liabilities as of December 31, 2002 is as follows:
Assets:
Accounts receivable $ 517,210
-----------
Total assets $ 517,210
===========
Liabilities:
Notes payable $ 273,763
Accounts payable 575,000
Other accruals 724,092
-----------
$ 1,572,855
===========
Revenue included in loss from discontinued operations amounted to $2,163,158 and
$3,777,000 and $298,000 for the twselve months ended December 31, 2002, 2001 and
2000 respectively.
On August 9, 2002, the Company sold its flooring business to a purchasing group
headed up by a former officer of the Company. The Company sold assets
aggregating $1,152,698, and had the buyer assume liabilities totaling
$1,243,135. The Company will remain theoretically contingently liable on the
liabilities until such time as the acquirers pay them off. In addition, the
purchaser has assumed two non balance sheet operating leases for buildings with
annual rents of approximately $459,480 a year that were assumed without landlord
consents. These leases expire August 31, 2005 and September 30, 2005
respectively. Should the purchaser not meet these obligations they might become
the obligations of the company. A shareholder of the company who has since filed
a personal Chapter 11 bankruptcy personally guarantees these leases. As of
December 31, 2003 the accounts receivable $633,475 represents the obligation of
the acquirer to pay the remaining liabilities of discontinued obligations that
were assumed and for which the company is contingently liable. Due to the
bankruptcy of the buyer of the assets, the Company made a provision for $383,475
for the write-down of the receivable from MINIME that represented payments to
creditors for which the Company may be contingently liable. The company also
made a provision for $376,292 and for $295,879 for the two leases that were
assumed by MINIME. The total provision was for $1,055,745 The Company is
uncertain as to its liability since one of the leases and most of the
outstanding obligations for payables are to a subsidiary of a subsidiary of the
Company. In See note I Subsequent Events number 1
NOTE L - SUBSEQUENT EVENTS
1. Bankruptcy of acquirer of Flooring Floor Decor LLC.
On April 9, 2003 the buyer of the flooring assets MINIME doing business as Floor
Decor LLC. Filed a Chapter 11 bankruptcy. On April 17, 2003 they conducted a
Bankruptcy Court authorized liquidation sale of the assets of the business. As
of April 30, 2003 they ceased operation and are no longer in business. The
Company made a provision as of December 31, 2002 for $383,475 for the write-down
of the receivable from MINIME that represented payments to creditors for which
the Company may be contingently liable. The company also made a provision for
$376,292 and for $295,879 for contingent liability for the two leases that were
assumed by MINIME. The total provision was for $1,055,745. The provision
represents the remaining amounts due under the lease agreements for which the
company may be contingently liable despite the protections from liability
provided in the Asset Purchase Agreement.
F-20
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Common shares issued for goods and services.
In order to obtain various goods and services including consulting services the
Company issued 2,990,000 shares of stock at amounts of either $.03 or $.04 per
share to reflect the market price for shares for each transaction. In aggregate
the Company recorded an expense of $93,100 to record these transactions in first
quarter ended March 31, 2003. The Company issued another 450,000 common shares
in second quarter for the same services at a price per share of $.03 and
recorded at $15,000 charge to income. All of the shares issued were restricted
stock subject to Rule 144 of the Securities Act 3. Conversion of debt to equity
No debt was converted to equity in first quarter ended March 31, 2003.
4. Tiger Telematics - Loan from stockholder.
The Company borrowed approximately $187,000 from a shareholder of the Company
who is associated with Tiger Telematics, Europe, Ltd. The loan is evidenced by
non-interest bearing promissory notes.
In May 2003 the company borrowed $10,000 in a convertible demand loan with
interest of $500. for 20 days in order to meet working capital needs. The loan
provides that it in event it is not timely repaid as due it can be converted
into restricted 144 Rule common stock of the company at the lowest quoted price
for the Company's shares or the lowest conversion price or shares issuance by
the Company at the discretion of the creditor.
5. Shareholder approval of increase in authorized share capitalization.
At a stockholders meeting as (properly adjourned) on May 9, 2003 shareholders of
the company approved an increase in authorized shares authorized by an
additional 150,000 shares from 100,000 shares to a new total authorized of 250
million shares effective as of that date.
6. The Company was advised that Eagle Eye Scandinavian Distribution Ltd.)the
renamed Tiger Telematics, Ltd.) was placed in insolvency liquidation during 1st
quarter of 2003 by a certain creditor of the Ltd. company.
7. The landlord of the office in the UK has filed suit against the Company in
second quarter 2003 alleging amounts owed pursuant to the Company's guarantee of
Tiger Ltd.'s lease obligation. The Company is uncertain as to the outcome of
this suit and no additional provision has been made to the financial statements
as of December 31, 2002. See Note F Operating Leases
F-21
TIGER TELEMATICS,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - BUSINESS CONSIDERATIONS
From July 3, 2000 through December 31, 2000, the Company incurred net losses of
approximately $665,000 due to the costs associated with the store openings and
the operating costs of new stores without the corresponding revenues in the
discontinued flooring segment. For the year ended December 31, 2001, the losses
approximated $1,299,000. For the year ended December 31, 2002, the Company had
net losses of over $13 million. Although approximately $7 million of the loss in
2002 was from the non-cash write-down of impaired good will, the Company had
negative cash flows from operating activities of approximately $713,000 for the
year ended December 31, 2001 and negative cash flows from operating activities
for every month 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 Comworxx
has further 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 2002 the Company entered into private placement transactions with
individual investors. In these private placement transactions, the Company sold
shares of its common stock and warrants to raise approximately $876,000 of
equity, as disclosed in note C. During the same period, stockholders converted
approximately $923,000 of debt into equity of the Company. Stockholders of the
company continue to support the operation with substantial loans to sustain
operations as reported and note C and note J.
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 was not consummated. As a
part of funding efforts, the Company executed a subscription agreement with a
private company to sell 7,500,000 shares of Company Common Stock at $0.20 per
share. This transaction did not fund in part due to a declining price for the
Company's common shares. The fund raising of $10 million that the company was
seeking via Jefferies was not successful. The Company continues to seek equity
and bank financing form various sources. However, there can be no assurance that
additional financing, capital or other form of debt financing will be available,
or if available on terms reasonably acceptable to the Company. The company
continued to issue shares of Common Stock in first quarter 2003 to settle
obligations due for payment and to secure necessary services.
The Company plans to continue the product development and distribution business
in the UK. This is going forward as planned but slower than anticipated due to a
lack of funding. The Company is concluding development of its next generation
fleet product and its new tracker products including child tracker devices. The
company has mothballed the business of its acquired assets of Comworxx (acquired
on June 25, by the wholly owned subsidiary Tiger USA. It no longer plans to
launch these products due to the high related cost of the product relative to
the projected sales price available for such products in the U.S. consumer
retail marketplace. 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 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
Comworxx.
The Company's ability to continue as a going concern is totally dependent upon
its ability to raise sufficient equity or debt capital to accomplish these
objectives and to offset any future operating losses that may be incurred until
positive cash flows can be generated from operations. In the current economic
environment this has not been easy task.Management intends to raise capital by
issuing shares as required to fund working capital needs although there are no
assurances of success.
F-22
TIGER TELEMATICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - QUARTERLY DATA (Unaudited)
Year Ended December 31, 2002
------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Net sales $ 102 $ 152 $ 1 $ 29
Cost of Goods Sold 57 223 42 3
-------- -------- -------- --------
Gross Profit 45 (71) (41) (2)
Selling, general and
administrative expense 2,251 1,410 2149 954
Other income (expense) (1,682) (1,027) (3,774) (28)
-------- -------- -------- --------
Loss from continuing operations (3,888) (2,508) (5,964) (984)
-------- -------- -------- --------
Loss from discontinued operations 0 0 (164) (189)
-------- -------- -------- --------
Net Loss $ (3,888) $ (2,508) $ (6,128) $ (1,173)
======== ======== ======== ========
Net Loss per share $(0.0507) $(0.0345) $(0.0889) $ (0.019)
======== ======== ======== ========
Period July 3, 2000,
Date of
Inception, through
Year Ended December 31, 2001 December 31, 2000
------------------------------------------------ ----------------------
Fourth Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- --------- ---------
Net sales $ -- $ -- $ -- $ -- $ -- $ --
Cost of Goods Sold -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Gross Profit -- -- -- -- -- --
Selling, general and
administrative expense 69 66 148 -- -- --
Other income (expense) (44) (37) (37) (28) (20) (6)
--------- --------- --------- --------- --------- ---------
Loss from continuing operations (113) (103) (186) (28) (20) (6)
--------- --------- --------- --------- --------- ---------
Loss from discontinued operations (230) (178) (194) (267) (438) (202)
--------- --------- --------- --------- --------- ---------
Net Loss $ (343) $ (281) $ (380) $ (295) $ (458) $ (208)
========= ========= ========= ========= ========= =========
Net Loss per share $ (0.007) $ (0.005) $ (0.007) $ (0.005) $ (0.022) $ (0.010)
========= ========= ========= ========= ========= =========
F-23