December 27, 2006 2:05 PM | Simon Carless
So, here's the first of the GameSetWatch 'holiday special' articles, and it's a kinda interesting one. The first thing to note is that it's out of date - it was originally written in January 2005, and never published. And, well, it's an investigative article written by me about Gizmondo, the now-famed Ferrari-crashing, money-squandering handheld company.
But because it goes into unprecedented detail about the financial history of the company, I think it's worth publishing. In fact, it goes into somewhat ridiculous, almost 10,000-word long detail, which is one of the reasons that it was never published. But let's give you some context here - when in Gizmondo's history was this published, and why didn't it make it out at the time?
Firstly, at the beginning of 2005, the much-hyped Gizmondo handheld console had allegedly just 'launched' in the UK (there was an official announcement that it would debut in October 2004), but nobody could actually find significant amounts of them in stores. That in itself was odd, and I was increasingly surprised that big companies like Microsoft Game Studios were signing deals with Gizmondo and were apparently happy to be associated with them, apparently without researching the company's history or plans.
In addition, the major acquisition of console developer Warthog by Gizmondo had just happened in November 2004, and hype was at an all-time high. But I could already tell there was something pretty suspicious about the company - making big announcement launches and then not getting product out into the marketplace is a major faux pas, for starters, and so I dug into Gizmondo and Tiger Telematics' history all the way back to the early '90s, by using SEC filings.
Unfortunately, I didn't have any sources within Gizmondo, so the resulting analysis was highly dense and financial, and, I thought, too speculative to post on Gamasutra. I actually considered punting it over to GameSpot, because I felt like investigative reports weren't our forte at Gama, and Curt Feldman agreed to publish an edited version, but the sheer amount of factchecking needed ended up meaning that the article never debuted.
So the report ended up languishing on my hard drive for two years - although I did keep Gizmondo's financials foremost in my sights through 2005, and broke a number of the stories on the company, such as its purchase of Isis Models to "provide marketing support and arrangements for Gizmondo", and even its ownership of a racehorse - a chestnut colt named Gizmondo. Where is Gizmondo now, I wonder?
Later in 2005, I was one of the first people to report Gizmondo's major confirmed losses for the first time, including the extraordinary payments to figures like Stefan Eriksson and Carl Freer, disclosures that ended up with their resignations and then, in pretty short time, the company's bankruptcy in January 2006.
Obviously, it was Eriksson's Ferrari crash in April 2006 which really brought the media in full force, and I ended up getting called by someone from the New York Times and someone pitching a story to Esquire at various points over Gizmondo's history, just because I've written a lot about them. But I do wonder - would things have been different if I'd published this piece? Would any later investors have been dissuaded?
But the fact is that most of the deals were done at this point, and the main reason this piece wasn't published at the time was that all it really added up to was: 'Gizmondo sure has a bit of a shady past, and some of the financial scrapes they're currently getting into aren't so pretty'. I do point out that the 'reputable GPS company' that Gizmondo is hiding behind is reasonably obviously not a going concern, but that in itself isn't a smoking gun.
Also, some of the figures from early in Gizmondo's history, such as former Tiger CEO A.J. Nassar, seem to have actually bowed out entirely by 2002 or so, meaning that a bunch of the early history I give is, sure, shady, but it doesn't directly relate to the Gizmondo/Tiger Telematics management team which masterminded the 'launch' and subsequent crash. But there's still a strong narrative of the company's history in here which goes into more detail than any published article so far, I believe. So - here goes.
Gizmondo - Inside The Eye Of The Tiger
(Originally written by Simon Carless in January 2005.)
[Please note: all of the financial facts within this article are taken from Tiger Telematics' own financial results, which can be viewed by going to the SEC Filings section for the company at the Pink Sheets website, www.pinksheets.com.]
It's likely, if you've been paying any attention to the gaming media of late, that you would have heard something about Gizmondo, the company launching a multi-function, GPS-toting handheld gaming device that was due out in Europe in ‘the fourth quarter of 2004’, and seems poised to launch across the rest of the world in early 2005. Due to licensing deals with Microsoft Game Studios for MechAssault and other major titles, as well as the outright acquisition of UK-headquartered independent developer Warthog, it's likely that the company's rising profile has intersected with your media browsing habits somewhere along the line.
It's also possible that you've heard of Gizmondo Europe's parent company, the Florida-based Tiger Telematics. In fact, if you'd read an interview in the online section of noted magazine Business Week earlier in 2004 (http://www.businessweek.com/magazine/content/04_25/b3888607.htm), you'd know that Tiger Telematics is "successful in the field of global-position-system appliances."
The official Tiger Telematics corporate site (http://www.tigertelematics.com) goes a little further: "Tiger is a pioneer in using combined GPS and GSM functionality in its products and systems. As an independent company, Tiger has developed its own state-of-the-art business systems for professional vehicle fleet management."
So, obviously, this would be a case of a successful GPS company getting a little creative, and deciding to use its assets to create a handheld aiming to get money that'll seep down from people who'd like alternatives to the Nintendo DS or Sony PSP, right? Well, very possibly. But a thorough investigation of official SEC filings for the company reveal an fascinating web of intersecting, often bankrupted companies that will certainly make you look at Gizmondo in a new light, and may even make you wonder where the company's real motives lie.
In The Beginning, There Were Platinum Hits
First things first - Tiger Telematics has not always been called Tiger Telematics. In fact, the Delaware-incorporated company (useful for tax and limited liability reasons) started life as Media Communications Group, Inc, a company based in Nashville, Tennessee, and with a very different focus altogether.
In late 2000, MCG Inc. revealed in a financial disclosure form that it had "entered into negotiations with Royal Monarch Media Inc. to publish its magazine The Church Connection, which is a quarterly music trade magazine to the major churches in the United States", and additionally, in early 2001, "acquired 1,000 units of the "Platinum & Gold all Top Hits(TM)" music collection from a surplus close-out and began a marketing and distribution campaign for the "Platinum & Gold all Top Hits(TM)" music collection." This is, needless to say, not exactly a conventional start for a GPS firm.
In fact, it seems that the original MCG Inc. owners largely bowed out of the company that would become Tiger Telematics, when, in 2001, an SEC form revealed that "a purchasing group led by A.J. Nassar acquired 21,900,000 shares of the common stock of the Company to become the owner of approximately 40% of the issued and outstanding common stock of the Company pursuant to an agreement including the merger of Floor Decor, Inc., a Florida corporation, into a newly formed wholly owned subsidiary of the Company." Shortly after this, the company officially became known as Floor Decor Inc, and established its geographical base in Florida that it holds to this day.
Four To The Floor
So, is Floor Decor Inc. some kind of amusing play on words, referencing some obscure part of the PCB building process for GPS chips? Not entirely. To explain, using another SEC filing: "Floor Decor, Inc. of Fort Lauderdale, Florida... is a "big box" concept with significant lines of flooring products in retail, builder and commercial distribution. The superstore concept is focused on middle to high end price categories featuring extensive inventory including several thousand area rugs and millions of square feet of wood laminates, tile and carpet, housed in a single, expansive facility." This is the company that will become Tiger Telematics, and as of early 2002, we can already see Michael Carrender, the current CEO of the company, on board.
But let's focus for a minute on the person who masterminded this switch, and would be the CEO of the company, working alongside Carrender, until the final name switch to Tiger Telematics - A.J. Nassar. Nassar's background is in the flooring business, and is worth examining, not least because of his stint as CEO and President of the Maxim Group Inc. (also called Flooring America, Inc.) in the late '90s.
Maxim/Flooring America was the subject of at least one class action lawsuit (http://web.archive.org/web/20010627132859/www.milberg.com/flooringamerica/) after, according to the "on May 22, 2000, revealed that it would be restating its previously reported financial results for the first two quarters of the fiscal year 2000. In total, losses for these two periods were understated by more than $7 million. After the Company's announcement, Flooring America shares fell to $2 9/16 per share from a high of over $6 during the class period, as the market fully absorbed the impact of these disclosures." Previous to this, on January 21st, 2000 the SEC had already launched a formal investigation into Flooring America's fiscal 1999 financial statements, accounting policies, procedures and systems of internal controls.
In fact, the company filed for bankruptcy in June 2000, shortly after this financial restatement revelation, and a St. Petersburg Times article discussing the bankruptcy (http://www.sptimes.com/News/062000/Business/Flooring_retailer_goe.shtml) reveals a little more pertinent information about the final days of the company: "Actor and former Olympic gymnast Cathy Rigby signed on as spokeswoman for a $46-million advertising campaign that promoted the 1,100-store chain's new name. At the same time, however, the company was drowning in losses, answering securities regulators' questions about its accounting practices after restating its 1998 earnings last year and defending itself in 11 shareholder lawsuits."
Adjusting Telemetry, Moving Forward
But, of course, previous issues are not necessarily a reason to dismiss a company out of hand. Clearly, A.J. Nassar had some tough times as CEO of the Maxim Group, but now heading up Floor Décor, it seemed that he had a chance to put that behind him.
Unfortunately, Floor Décor Inc. was a little slow to mature, too. According to the company’s financial results: “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. Through the first quarter ended March 31, 2001 the losses approximated $295,000.” A later financial statement brings the bad news: “As of September 30, 2001, the Company had an accumulated deficit of approximately $1,622,000.” This is, perhaps, all reasonable, considering it takes time to build up a business from scratch in any market.
Nonetheless, there seemed to be a shifting of focus, and an extreme one, at that. On February 4th, 2002, A.J. Nassar and the Floor Décor staff announced a major acquisition: “Floor Decor, Inc. (FLOR:OTCBB) today announced that it has completed its acquisition of Eagle Eye Scandinavian Distribution Ltd., a private UK-based company that specializes in the marketing and distribution of automotive telematics systems and services.”
Interestingly, the contract reveals: “The Purchase price for Eagle Eye Scandinavian Distribution Limited was 7,000,000 shares of Floor Decor, Inc. common stock”, and moreover, that two major stockholders in Eagle Eye Scandinavian were persuaded to convert a total of around 5 million dollars in indebtedness into further Floor Décor Inc. stock. Thus, the deal cost Floor Décor absolutely no money out of its own pocket. It’s also notable at this time that “Alvin J. Nassar and his affiliates currently own and control approximately forty (40%) percent of the outstanding shares of common stock of the Company.”
The two people selling Eagle Eye Scandinavian to Floor Décor at this time were Christopher Sturm and Carl Freer – Freer is particularly worth mentioning because he is still currently the MD of Gizmondo Europe. At this time, “The issued share capital of Buyer at the date hereof is approximately 54,000,000 shares of common stock” – so the deal gave Freer and Sturm about one eighth of the company. In fact, another financial report reveals: “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.” In March 2002, Eagle Eye Scandinavian Distribution Ltd, sometimes known as Eagle Eye Telematics, changed its name to Tiger Telematics Inc, the name the entire company uses today.
Around this time, we also see an important U.S. addition to the Floor Décor staff – Michael Carrender was hired and became Executive Vice President and Chief Financial Officer of the Company in February 2002. He was President and Chief Executive Officer of Crowe Rope, a unit of JPBE, Inc., a manufacturer of cordage products, from January 1999 until he joined Floor Decor. Thus, both the key figures in the current Gizmondo roll-out were in place at the company.
Instruments Out Of Sync?
So, what of the newly renamed Tiger Telematics? Well, much of the company’s focus was on GPS solutions for tracking cars: “Tiger Telematics is the exclusive distributor in Scandinavia and Yugoslavia of the Eagle Eye VCG2, a vehicle communications gateway that combines telecommunications and Global Positioning Systems (GPS) technologies to provide security and communications solutions for fleet vehicle management.” This sounds promising, and it seemed that Tiger was poised to become a competitor in this new and intriguing field.
But Tiger Telematics would need new premises to expand, then. Thus, on April 26th 2002, the company made an agreement with Christian & Timbers UK, Ltd for offices on the 7th floor of 105 Piccadilly, London W1. By way of payment, the contract agreed that “the Tenant shall satisfy its obligation to pay Rent for the first year of the term of the Lease by way of the issue of five hundred thousand (500,000) shares in Floor Decor Inc. ("the Shares") each in the name of the Landlord” However, if “the aggregate net proceeds of sale arising from such sale or sales is less than (pound)126,018.75… the Tenant shall forthwith pay to the Landlord the difference between (pound)126,018.75 and the said proceeds in cash.” So, although Tiger Telematics would have to pay cash if their shares weren’t worth sufficient money at the end of the year, this was another cost, like the Eagle Eye acquisition, funded through the selling of shares.
By May 2002, it was clear to the company that telematics was the way to profitability, not flooring, as they’d previously assumed. Thus it was announced: “On May 20, 2002, the Company's Board of Directors authorized the change of the Company's name from Floor Decor, Inc. to Tiger Telematics, Inc. and a new ticker symbol "TIGR". On June 6, 2002, the Company started trading under this new symbol.”
Meanwhile, Floor Décor’s store was, if you’d pardon the rhyming, about to be no more. It was revealed: “The Board of Directors has approved the disposition of the Company's flooring segment assets. The Company is in preliminary discussions regarding the sale of all assets of the flooring operation. The Company intends to focus on development of its telematics business.”
In fact, later in the year, it was reported: “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.” Apparently, someone was keen to take the loss-making flooring business from Tiger, and, fortunately enough, sold off much of the debts of the flooring division with that sale: “The Company sold its flooring business to a purchasing group headed up by a former officer of the Company. The Company sold assets aggregating $1,152,698, and had the buyer assume liabilities totaling $1,243,135. The Company will remain contingently liable on the liabilities until such time as the acquirers pay them off.”
This requires a little more investigation, though. Apparently, “On August 9, 2002 Matthew Sailor resigned as a Director of the Company”, and on the same day, a company called M.I.N.I.M.E., INC, headed by Matthew Sailor, bought the ailing flooring business for a total of $1.00 in cash. The address to send demands for payments to M.I.N.I.M.E., INC at that time was 6001 Powerline Road, Fort Lauderdale, FL, coincidentally the same address as Tiger Telematics.
Comworxx – Doesn’t Worxx?
Now that Tiger Telematics Inc. had one GPS-related company, they were on a roll. Another acquisition wasn’t far behind, and the company triumphantly announced on June 13th, 2002: “Tiger Telematics Inc, (symbol "TIGR") has today entered into a binding definitive agreement to acquire Comworxx Inc, the US mobile telematics solutions provider subject to the issuance of $4.3 million of Tiger Telematics stock, the assumption of certain liabilities and providing $500,000 of funding which Tiger is in the process of financing.” Again, the acquisition was entirely in stock, apart from funding which Tiger had not yet raised, meaning there was no need to pay any cash out to acquire another company.
Why was Comworxx Inc. an interesting purchase for Tiger? Well, according to the press release announcing the company’s acquisition: “[Comworxx’s] Port-IT(TM) product combines global positioning, mobile telecommunications, voice-recognition and web-based information into one integrated system and has attracted preliminary expressions of interest from several major United States retailers.” Thus, it seemed like a perfect complementary product to the Tiger Telematics UK division. As part of the deal, Comworxx’s Michael Jonas became CEO of Tiger Telematics Inc. Things couldn’t be better.
Or perhaps they could. Financial documents filed a little later in 2002 revealed a major problem – working capital to actually conduct operations: “The Company is evaluating the business of its recently acquired assets of Comworxx (acquired on June 25, by the wholly owned subsidiary Tiger USA), to determine the appropriate time to launch these products full scale in the U.S. The Company is addressing the issues of the need for funding for working capital in order to launch; the need to formulate payment arrangements with certain obligations assumed by Tiger USA; and the high relative cost of the product relative to the projected sales price available for such products in the U.S. consumer marketplace. For these factors the Company has postponed a launch of the product until this evaluation can be completed.”
In case this was unclear, it was the lack of actual cash which was slowing Tiger down: “In June, the Company announced the goal to raise $500,000, $109,000 that was already raised at that time. The Company raised additional sums but has struggled in obtaining the amount of the desired funding. Depending upon the outcome of the review and the status of funding, the Company may choose not to sustain the operations of Tiger USA and may need to discontinue those operations accordingly.”
Intriguingly, although the original press release said that Tiger Telematics Inc. had bought Comworxx, it had evidently been slightly inaccurate. Apparently, it was ‘Tiger USA’, not Tiger Telematics Inc., and while Tiger Telematics Inc. was safe, Tiger USA might now need to ‘discontinue operations’ due to this lack of working capital.
Meanwhile, around this time, there were plenty of other shake-outs in Tiger’s structure: “Michael Jonas resigned as a Director and CEO on July 24, 2002. On July 24, 2002, AJ Nassar and Ed Kenny resigned as Directors of the company. On August 20, 2002 Michael W. Carrender a director, EVP and CFO was named to the additional post of CEO.”
Thus, Comworxx’s Jonas was out, only one month after the acquisition, long-time CEO Nassar also officially left the board, and Mike Carrender was now heading up the company. Where would this rollercoaster lead next?
Bad Tiger News Day?
The company’s financial results released on 15th November 2002 brought little in the way of consolation. All in all, neither of the two GPS-based businesses bought by Tiger were working out. The document explains of the UK operations: “The Company plans to develop the Tiger Telematics Ltd. product development and distribution business in the UK. This is going forward as planned but slower than anticipated due to a lack of funding. The Company is concluding development of its next generation fleet product and its new tracker products including child tracker devices.”
As for Comworxx over in the United States, the situation there was even more dire: “The company is addressing the issues of the need for funding for working capital in order to effect the [Comworxx product] launch, the need to formulate payment arrangements with holders of certain obligations that Tiger USA assumed and the high related cost of the product relative to the projected sales price available for such products in the U.S. consumer retail marketplace. The Company has postponed a launch of the product indefinitely and effectively mothballed the Tiger USA operations indefinitely. The Company plans to attempt to restructure the business with a lower cost operation at a new site and with a different pricing model. The Company is exploring disposing of the assets and associated business opportunities to third parties.”
Mixed in with all this bad news, there were even some problems with seemingly errant shareholders, which apparently had nothing to do with the company: “A shareholder borrowed some of the funds advanced to the Company from a private investment bank based in London. The shareholders failed to repay the note when due. The investment firm has made demand on the subsidiary Tiger Ltd. to repay the funds since Tiger Ltd. was the beneficiary of the funds. The Company believes it is not responsible for that obligation and responded to the demand accordingly.”
In addition, further confusion reigned about share selling: “The Company has received inquiries from persons who maintain that they have made an investment in the Company for which the Company has no records and which appear to be private transactions among various shareholders. Legal counsel is looking into the circumstances surrounding each inquiry.”
Tiger Telematics – Sold Out?
Maybe things weren’t going so well for the U.S. telematics companies. But how about Tiger Telematics UK? Surely they couldn’t be in such dire straits? Well, perhaps they weren’t. But on December 20, 2002, there was another major sale.
On that date, Tiger Telematics LLC sold its subsidiary, the UK division of Tiger Telematics, to Norrtulls Mobilextra Aktiebolag. According to the transfer documents: “The sale of the stock was in exchange for the assumption of debt of Tiger Telematics, Ltd. with an estimated book value of $825,000.” In return, Norrtulls got “EE units, prepaid commissions and other assets with an estimated book value of $600,000”, and had to pay royalties on the GPS hardware for 10 years.
However, further perusal of the document reveals that Tiger Telematics’ UK division “is engaged in the business of developing, manufacturing and marketing automotive telematics products (the "Business") in Europe… [and] has developed other unrelated products, Childtracker and non Eagle Eye Telematics tracking units that have been transferred to another UK subsidiary of Seller.” So again, we have a lucky sale to a buyer who assumes much of the debt, while the new subsidiary, Tiger Telematics Europe Ltd., has been fortunate enough to continue on with vehicle tracking and other GPS products as if nothing has happened.
In fact, in the press release put out at the time, CEO Michael Carrender explains: “This restructure was completed to reduce costs and improve our speed in coming to the market with large fleet and rental car providers in London… we also expect to relocate a portion of our staff to a lower cost facility closer to our customers.”
Since one of the items transferred to Norrtulls was the agreement with Christian & Timbers UK, Ltd for the 7th floor of 105 Piccadilly, London W1, that might explain why the offices had to move at a later date. We’ll hear more about this particular deal a little later.
On May 23rd, 2003, Tiger Telematics Inc. produced new financial statements through the end of 2002. In them, it again stated the company’s main aim: “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.”
However, this is the first time that any sign of a game console appears, and it’s in a paragraph discussing a device called the Gametrac. The statement explains: “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.”
It continues: “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.”
Unfortunately, there were a few further nasty surprises in this financial statement. In particular: “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. $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.” It seems that Floor Décor, sold just a few months earlier for just $1.00, had gone bankrupt, unfortunately.
Plus, remember that the lease on Tiger’s UK offices was sold along with Tiger Telematics Ltd (now replaced by Tiger Telematics Europe Ltd, as well as another company subsidiary, Gametrac Europe, which would later change its name to Gizmondo Europe.) Well: “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.”
In addition to this, you may recall that there were some problems with ‘funds advanced to the Company from a private investment bank based in London’. Apparently, Tiger Ltd. discovered they had to pay these funds after all. At least, they had to pay them up to the moment they were sold, when it became the responsibility of Norrtulls: “Tiger Ltd. repaid approximately $80,000 prior to the sale of the business on December 17, 2002. 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.” So Tiger Ltd. also lapsed into liquidation shortly after being sold, much like Floor Décor.
After this point, much of the information on the company ceases until December 2003, when the shareholders are asked to authorize a further hike in the amount of shares the company needs. It’s explained: “The Company needs to increase its authorized shares by an additional 250,000,000 to 500,000,000 shares in order to convert debt, fund further product development, raise capital and to pursue acquisitions of technologies and companies as deemed appropriate.” Remember, this was a company which had around 50,000,000 shares in early 2002. Throughout 2003, the company’s shares were trading at between 3 cents and 5 cents per share. On January 16th 2004, this shift to 500,000,000 shares was confirmed. Tiger Telematics were ready to roll again.
Accumulating Goodwill, Gametrac Style?
With the vehicle tracking concepts fading into the background, seemingly abandoned, it was time to bring Gametrac to the fore, and serious development began on the handheld game console with GPS included. In a financial release in early 2004, dealing with partnerships and advances made during late 2003, it’s clear how Tiger Telematics (and more specifically Gizmondo Europe, formerly Gametrac Europe) was doing this – by ‘collaborating with’ well-known companies. Listing those companies from the earliest onwards, we see:
- a joint venture with Plextek, one of the largest independent electrical design and consulting firms in the UK.
- a strategic partnership was formed with Synergenix Interactive AB, regarding the use of Morphum games on Gametrac's mobile gaming platform.
- a strategic partnership with Intrinsyc Software International, a Microsoft Gold Level Windows Embedded Partner, and elected to utilize Windows CE.NET as Gametrac's operating system.
- a collaboration with Fathammer Alliance, a leading supplier of advanced 3D graphics and game technologies for mobile platforms
- a strategic partnership between the Company and MINICK was announced. MINICK has already built one of the largest premium messaging networks in Europe, and operates its own SMS & MMS centers that connect directly to mobile networks. This partnership sets the stage for Gametrac units serving as a platform that allows the Company's Smart Advertising (Smart Adds) service.
- in late February 2004 it was announced that Gametrac will be using Samsung's world-class S3C2440 Mobile Applications Processor.
- in late March 2004 the Company signed an agreement with CATIC, a giant State-Run Chinese conglomerate, which involved "... sales, distribution, technical support, and numerous other joint ventures for all Chinese regions,"
Thus, the company was starting to build up an increasing amount of interest and buzz through constant announcement of ‘strategic partnerships’. Some of these announcements involved little or no money changing hands, at least not until the device shipped.
But clearly, even when large-scale production hadn't commenced, there was still money being paid out to these partners. How were Tiger funding the partnerships which required payment, or even paying their staff, when the company still had no revenue? There is clearly no mainstream GPS business feeding into the game subsidiary, as some might erroneously think.
In fact, it seems that much of the working capital for Tiger Telematics Europe to work on the Gametrac was being funded by, naturally, selling more shares in Tiger. A financial statement explains: “In 1st quarter, 2004, the Company issued 10,585,000 shares for goods and services at the market rate of $.02 to $.05 per share at the time issued and expensed $305.383 for the services… The Company issued 58,053,778 in common shares in private placement transactions to qualified investors of strategic partners or providers of services and goods to the Company to raise cash as converted into dollars from sterling $2,977,833 for use primarily in its UK subsidiary for working capital and product development expenses.” As the number of shares continued to multiply, the company could still sell ever-increasing amounts of them for money to raise working capital.
Is this behavior dishonest? Not in the slightest, as long as the investors clearly understood the amount of shares and the prospects for the company, considering it still had to release its major product. But more problems were just around the corner.
Formula 1, Gametrak Fun?
What wasn't going so well, unfortunately, were continuing deals signed by Tiger in Europe. Now that Tiger Telematics Ltd were gone, Tiger Telematics Europe Ltd were presiding over the development and launch of the Gametrac, but the continual delay of the handheld's release date led to some major issues.
In particular, the major sponsorship deal signed to have the Gametrac logo displayed prominently on the Jordan Formula 1 team's cars ran into problems, when the handheld's launch, scheduled for early 2004, ran into major delays. Tiger's financial statements from later in 2004 reveals: "In March 2004 Jordan Grand Prix Ltd. filed suit against the Company in the UK alleging violation of the Sponsorship Agreement entered into between the Company and Jordan Racing in July 17, 2003 and a related Letter Agreement dated in July 2003. The sponsorship agreement was meant to assist in marketing the companies (sic) new hand held gaming device and to correspond with its launch."
Tiger's financial statement explains the issue further. Were Jordan implying that Tiger discovered that the GameTrac launch was delayed, and simply declined to pay, despite the signed contract? In the financial statement, Tiger seems unconcerned: "The launch was delayed from its anticipated time frame. Jordan sued the Company for $3 million and alleges that the Company defaulted in a payment due on January 1, 2004 of $500,000 under the sponsorship agreement and a payment for $250,000 due on the same date under a separate letter agreement. On February 26, 2004 Jordan sent the Company a letter where they formally and officially terminated both agreements for the aforementioned alleged defaults. The Company believes that it has good defenses to the suit and has filed a defense in UK courts and is considering filing a countersuit against Jordan Racing in the matter in the upcoming months."
In addition, there were further issues with allegedly unpaid creditors. An early 2004 financial report explains: "There are two vendors that have filed suit against the Gametrac Europe, Ltd. for invoice billings for services... the company has retained counsel to contest the alleged invoices... In addition, the Company has received invoices from several corporations for software charges it is maintained that the Company procured for use in current or previous products of the Company." Tiger Telematics, at this stage headed by Michael Carrender in the U.S. and Carl Freer in the UK, the same line-up that is in place today, were not making friends.
As well as legal action from other vendors, there were further problems with the name of the handheld, which Tiger Telematics had seemingly not registered as a trademark, or at least, not in time to stop a lawsuit, according to further litigation news in the same financial report: "In March 2004, the Company and its Gametrac Europe Ltd. subsidiary were sued in the UK in a trademark infringement suit by IN 2 Games Ltd. to recover over (pound) 150,000 alleging that the use of the project name Gametrac for its multi-entertainment handheld device that is in development and the use of Gametrac in the name of the subsidiary was an infringement on their registered trademark in the UK "Gametrak"." GameTrak is the motion-sensing PlayStation 2 add-on hardware/software bundle which had already been extensively advertised in Europe around that time.
As a result: "The Company had previously planned to announce the name of its new device in May at E-3 show in LA but went forward and announced the new name Gizmondo in April 2004. The company has also taken steps to remain the Gametrac Europe Ltd. subsidiary to Gizmondo Europe Ltd. The company anticipates that with the new product name change announcement and its step to rename the subsidiary in the UK that it will be able to resolve the litigation on an amicable basis although no assurances can be given. No provision has been made on the financial statements for the litigation."
So, it seems that particular issue had been put to bed. However, the title of the company's handheld console was renamed from Gametrac to Gizmondo at around the same time the gadget website Gizmodo.com became popular, leading to public accusations from the Gizmodo editors on the similarity of the name. No lawsuit has even been filed regarding this, though, and it might well be a further coincidence, albeit an unfortunate one.
Getting On The Right Track With Gizmondo
In early 2004, Tiger Telematics released its accounts for the nine months ended September 30th, 2003. They revealed net sales of negative $8,477, due to returns from client trials (presumably of earlier Tiger-related GPS products), general and administrative expenses of $1,940,034, nonetheless much decreased from the previous year due to the selling-off of the soon-to-be-bankrupt Tiger UK Ltd, and "associated staff reductions from the sale", and a continuing loss of $2,377,033 - not so good.
Meanwhile, the announcements continued to pile up:
- a deal with Ogilvy Public Relations Worldwide to select the firm as its PR agency of record
- an agreement with Toys R Us for UK Gizmondo distribution in the UK
- a heads of agreement with the Renaissance Corporation Ltd, for an exclusive Australian/New Zealand distribution contract.
- letters of intent with Redline Marketing and Tartan Sales to handle PR and marketing for the Gizmondo in the U.S.
- a deal with M-Systems to provide the memory chip for the Gizmondo
Buzz was starting to build for the handheld, even without major software announcements or a definite release date. But it seems that, in order to gain some respectability, what the company really wanted was to make it on the NASDAQ stock exchange, as well as generate more capital, possibly through selling a further stake in the company, and in order to do that, they needed to have less shares than, say, 500 million, at a significantly higher purchase price than the 5 cents that each Tiger Telematics share was currently going for.
Thus, in April 2004, an officially filed letter was sent "to approve an amendment to the Company's certificate of incorporation to effect a reverse stock split of not less than 1 for 10 shares and not more than 1 for 50 shares, and to authorize the Company's Board of Directors to determine which, if any, of these reverse stock splits to effect."
Therefore, on July 30th 2004, the big announcement could be made: "Tiger Telematics has taken a crucial step concerning its common stock (TIGR). Effective as of the opening of NASDAQ today, the reverse split takes place and has a new stock symbol (TGTL)." The split was a 1 for 25 reverse, meaning 25 old shares were worth one new share, and dramatically changing the price and amount of shares available, and enabling the company to put on a much more impressive front.
But as for the mention of NASDAQ in this official press release - well, although the much-vaunted reverse split has occurred, Tiger Telematics did not yet have all the requirements in place to move from the OTCBB share-trading market, which "does not impose listing standards", to the much more prestigious, carefully policed NASDAQ stock market. In fact, it had still not occurred as of January 10th, 2005. Nonetheless, this doesn't seem to have stopped the person writing press releases for Gizmondo, as evidenced by the following release put out in late October 2004:
"Gizmondo Europe Ltd (Gizmondo), subsidiary of Jacksonville, Florida-based Tiger Telematics Inc (NASDAQ: TGTL), confirmed today it begins shipping the new handheld console..."
In addition, other entities doing deals with Gizmondo don't seem to be aware of this discrepancy, or even necessarily that the Gizmondo is Tiger's only currently in-progress business - the SCi press release about a licensing deal explains regarding the company reads: "Gizmondo Europe Ltd. is a series of owned subsidiaries of Tiger Telematics Inc, a NASDAQ listed company (Nasdaq: TGTL). Tiger Telematics is a designer, developer, and marketer of mobile telematics systems and services that combine global GPS functions and voice recognition technology."
Gizmondo, Meet Indie Studios
As the alleged release date of the Gizmondo started to approach, it seems to have become obvious that the handheld needed a whole bunch of games in order to keep going. And, if you can't get major publishers to support such a relatively untrusted name, and you have plenty of shares to give away, why not just buy some developers to help you out?
That, indeed, was what Tiger Telematics and Gizmondo Europe did. On August 3rd, it was announced: "Gizmondo Europe Ltd, subsidiary of Jacksonville, Florida-based, Tiger Telematics Inc (TGTL: former symbol TIGR), announced today the acquisition of a European leading games developer, Indie Studios." This relatively small 10-person Swedish developer was working on a game for the Gizmondo, 'Colors', which is intended to take advantage of the GPS device inside the console.
As for the price? Well, the developer was paid entirely in shares, of course: "The deal will be paid for with 1 million shares common stock of the Tiger Telematics, Inc, and a contingent shares to be issued in the event that certain games are completed by Indie in an agreed time frame. The guaranteed value of the transaction at closing approximates $8 million as of the original contract date."
Share and Share Alike - Gizmondo's Big Money!
You can buy companies with shares, sure - but you still need money to pay the employees that you've acquired, a problem that Tiger Telematics seem to have faced in the past. So with the share price finally on the rise, and continuing big publicity for deals surrounding the much-vaunted Gizmondo launch, it seems Tiger Telematics could finally do what it had been trying to do for a number of years - get enough hype behind a product to convince investors to bite, and to bite hard.
Specifically, the big pay-out came when, "On October 6, 2004 the Company completed a sale... of 4 million shares of its common stock for an aggregate purchase price of $20 million." That was $20 million straight into the coffers of the company, which indicated it "will use a substantial portion of the funds at its Gizmondo Europe Ltd. subsidiary to buy game content for its soon to be launched Gizmondo multi-entertainment device."
Two months later, another major investor was hooked: "On December 30, 2004 the Company completed a sale... of approximately 1,528,440 of its common stock for an aggregate purchase price of approximately $12.443 million", and again: "The company will use a substantial portion of the funds at its Gizmondo Europe Ltd. subsidiary to buy game content for its Gizmondo multi-entertainment device and for future increased marketing expenses."
Interestingly, the December 2004 financial statement related to this reveals that "the Company anticipates that it will have outstanding approximately 37,4 million common shares", whereas the October 2004 statement revealed "approximately 28.5 million shares" were outstanding. So the company had given away another 10 million shares, largely to pay for acquisitions and services, in just 2 months, only a few months after a 25 to 1 reverse split. Without that, the company would have close to one billion shares outstanding at this time.
Gizmondo, Meet Warthog
But Indie Studios on its own wasn't enough in terms of developer acquisitions, especially as the release date of the Gizmondo neared. So, flush with $20 million in cash to bolster its continuing operations, Tiger had bigger developer fish to fry than the tiny Indie Studios.
Thus, on November 3rd, there was another major announcement: "Tiger Telematics Inc (NASDAQ: TGTL) of Jacksonville, Florida, and London, announced today the acquisition of Warthog Plc’s subsidiaries, intellectual properties and assets, in a move to further expand their games development agenda and management infrastructure... The deal brokered by Durlacher, who were retained to act as exclusive financial advisors for this hugely significant UK acquisition, comprises cash payments of $1,113,000 and 497,866 shares of common stock in TGTL, to be held in escrow."
This time, financially troubled UK console developers Warthog, who also had subsidiaries in Sweden and Texas, as well as more than 100 employees, were lured by upfront cash, likely from the investor's $20 million, as well as further shares in the company. Warthog had previously developed one of the 'Harry Potter' titles, as well as a Battlestar Galactica game and its own Mace Griffin franchise.
But now, '12 additional games' were available for Gizmondo, albeit many titles that were actually being developed for PlayStation 2 and next-generation consoles at the time, not a GPS-enabled Windows CE handheld. The continuing cost for employing the large amount of Warthog developers would be significant, but, flush with cash from recent investments, Tiger Telematics seemed to be able to deal.
Gizmondo, Meet Bizmondo
Even after Indie Studios and Warthog, the acquisitions weren't done. On 5th November, another press release emanated from Tiger Telematics, revealing another triumphant acquisition. This time, the company "announces the acquisition of the UK headquartered company Integra SP and its award winning real-time front end product AltioLive that will be used to establish its new product line, codenamed Bizmondo."
There was a plan behind this device, too, since: "With the integration of AltioLive software, the Bizmondo becomes the ultimate mobile trading toll and access point for the accomplished business user." The Bizmondo Smartphone concept was launched, and given Tiger's obsession with shares and share prices, the concept almost seems natural. In fact, Integra SP produces revenues - $4.1 million for the fiscal year.
But, of course, the acquisition was an all-share deal, involving 625,250 shares at close, and then 2,794,785 over the next 2 years. Tiger Telematics had managed to acquire another company, and a revenue-producing one, without actually spending any money itself. How a business phone that allowed stock trading tied in with a GPS gaming handheld, apart from the snazzy name and some similar hardware, was somewhat unclear. But it certainly sounded impressive.
Gizmondo - Big Licenses, More Hype
Even before the major stock investments, Tiger Telematics was able to make plenty of noise with strategic alliances and guarantees to make the Gizmondo with major names, such as Samsung for the main CPU and Nvidia for the mobile GPU - this in itself cost little or nothing. But now $20 million in investment had come in, the company could deal with the lack of notable software, and acquire major game titles for the Gizmondo, simply by paying their publishers for them. So they did.
First up was SCi, for which the company paid UKP750,000 in cash for the rights to make 12 SCi games on the Gizmondo, including Conflict: Vietnam and Carmageddon. Next was a major deal with Microsoft Game Studios, with financial details as yet unannounced, but this likely involved Tiger paying a significant sum in order to develop and publish Microsoft titles including Age Of Empires, MechAssault, and Rare-developed title It's Mr Pants.
Finally, a smaller deal with Buena Vista Games to make a Gizmondo version of Tron 2.0 was announced early in 2005. It's clear that these games are unlikely to arrive for a number of months, however, since they were only licensed in the last 3 months or so, and work on them (presumably at Tiger's new internal studios) is only just starting.
All the time, the company was making other announcements regarding strategic partners, new features, and all manner of further impressive-sounding co-announcements. These included:
- a deal with Flextronics which confirmed the company as Gizmondo's handheld manufacturer.
- Daniels & Associates appointed as Gizmondo's exclusive investment bank
- an agreement with Playcom to distribute the Gizmondo in Germany and Austria
- a team-up with UK retailer John Lewis, a department store not necessarily well-known for games, to distribute the Gizmondo on the UK
- an official announcement that Gizmondo would be using the Nvidia GoForce 3D 4500 mobile processor
- a Scandinavian distribution announcement that founds Gizmondo Nordic AB
- the agreement of a PR agency, Indigo, for the Gizmondo launch in the UK
- a deal with Spanish distributor United Electronics SL for Gizmondo's launch in Spain and Portugal
This impressive set of announcements continued to wow casual observers. But what was happening beneath the surface?
Gizmondo's Hit With The Web Audience
Now, how was online buzz for the handheld shaping up? There were certainly some very enthusiastic fan sites, including the independent GizmondoArena.com, which printed most of Tiger's press releases verbatim, and also had a forum section specifically to discuss Tiger's stock price, an odd move for a fan site.
But the official Gizmondo.com site was apparently where all the eyes were going, according to a borderline hyperbolic press release put out in December 2004 by Tiger: "Over 560,000 pre-orders have been recorded since the new official website Gizmondo.com went live on 29th October. The majority of pre-orders originated from outside the UK, apparently from early adopters trying to purchase units ahead of the US and pan-European roll outs, scheduled for Q1 2005 - further evidence of mounting anticipation across the globe."
So the handheld already has 560,000 pre-orders? That's better than many other higher-profile consoles manage. But it's very unclear what 'pre-orders' mean in this context - traditionally some kind of deposit is needed to pre-order a game or console in a retail store, but it seems that Gizmondo may be using 'pre-order' to be synonymous with 'register interest'. Even then, 560,000 seems like a gigantic figure, but congratulations to Gizmondo if they've truly pulled that off.
Expensive UK television ads were also apparently paying dividends, according to the same release: "Niclas Hermansson, Ogilvy Interactive, says: “There were over 40,000 unique sessions recorded within two minutes of the first TV ad being aired.”" Again, if 40,000 English residents stop watching TV and simultaneously come to visit Gizmondo.com, then that's certainly some impressive advertising, and is certainly impressive to investors and partners alike.
Gizmondo: Available Now, In Stores?
In the midst of all this cacophany of acquisitions, share-buying, and strategic partnerships, it was about time for the much-delayed handheld to actually make it into stores. And so, on October 29th, 2004, it was announced: "Tiger Telematics Ships Gizmondo", and the PRNewswire press release joyfully explained: "Gizmondo Europe Ltd... confirmed today it begins shipping the new handheld console as part of a strategic roll-out in the UK."
But how strategic is strategic? A perusal of the Gizmondo Arena forums as of January 9th, 2005, reveals that not one UK retail customer has yet been able to buy the device. It's also unclear what game software a consumer would actually be able to play, had he/she picked a Gizmondo up on October 29th, since it's not currently (as of January 10th, 2005) possible to buy any Gizmondo-specific software, either offline or online.
This information is additionally embarrassing considering that Gizmondo triumphantly announced, on 2nd November, that "a flagship Gizmondo store will be opening in Carnaby Street, one of the most well-known and youth-orientated retail areas in central London, in the run up to Xmas." It appears likely that no Gizmondo handhelds were ever sold in that store, although this didn't seem to phase Carl Freer, managing director of Gizmondo Europe, who argued in the press release: "We don't see this flagship store as competition to other retail. The store's primary function will be to promote the device and brand as a whole." With the lack of any actual hardware, this would seem to be the case.
In fact, in an interview with UK trade magazine MCV in December 2004, Gizmondo admitted the units were not particularly available, but also made some truly startling claims about the price of the console, going forward: "Some units will trickle into the UK High Street before Christmas, with full availability scheduled for the first week of February. Gizmondo’s launch price is £229, but managing director Carl Freer told MCV: “We will definitely be under £100 by this time next year, and I’d be surprised if we’re not under £50.""
During CES 2005, during which Tiger showed Gizmondo units on the show floor with playable but clearly unfinished versions of a number of games, a host of rumors sprang up that Microsoft, which had already licensed other Microsoft Game Studios titles including MechAssault, would allow a version of its seminal Xbox title Halo to appear on the Gizmondo. Tiger does indeed have two unannounced Microsoft titles licensed, although Bungie are assuring people that Halo is not one of them.
If this indeed was true, though, it would be yet another coup for a company who has successfully raised tens of millions of dollars in capital, and has now partnered with some of the biggest publishers and hardware. This in itself, is a major success. Indeed, as well as this, Tiger Telematics' share price is currently hovering just over $30, giving the company, which has around 38 million shares, a market capitalization of over $1 billion, and making many of its employees paper multi-millionaries - extremely impressive for a company with no revenues, no launched products, and an unfortunate past.
Nonetheless, the question remains - would major companies such as Microsoft, NVidia, and Buena Vista Interactive allow themselves to be included in glowing press releases, or even license their games for the Gizmondo, if they knew of the somewhat shadowy past of the company? Or, indeed, would some of the many companies that have recently been acquired by Tiger Telematics or Gizmondo have been happy to do so, if they were aware of all the previous issues with companies acquired by Tiger or its predecessors?
But whatever happens, to quote a television show, 'past is prologue'. It's definitely possible that Gizmondo will go on to be a massive hit when it's released - a late February 2005 date is currently being mentioned for a wider release, including some units for North American release. But it's easier to evaluate a company's future when all the cards from its past are clearly laid out on the table - and now they are.