SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 31, 2003
TGFIN Holdings, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-11034 72-0861671
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
39 Broadway, Suite 740, New York, New York 10006
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 363-3900
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n/a
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(Former name or former address, if changed since last report.)
PLEASE ADDRESS ALL CORRESPONDENCE TO: Mark Gasarch, Esq.
150 East 58th Street
34th Floor
New York, New York 10155
(212) 956-9595
1
Item 2. Acquisition or Disposition of Assets
On March 31, 2003 TGFIN Holdings, Inc. (the "Company") and its wholly-owned
subsidiary, TradinGear.com Incorporated, collectively as Sellers, pursuant to
an Asset Purchase Agreement (the "Agreement") entered into on January 28, 2003
with Tradingear Acquistion LLC, a Delaware limited liability company as Buyer,
a wholly-owned subsidiary of the New York Mercantile Exchange, Inc. ("NYMEX"),
sold to the Buyer certain of its intellectual property and assets, primarily
those used in facility based trading systems to be used in conjunction with
trading activities on regulated and unregulated exchanges and markets, for
$3,000,000 in cash, of which $2,900,000 was paid at closing and the balance of
$100,000 was deposited in escrow for possible indemnification claims for one
year. The Buyer has advised the Sellers that the purchase price was paid from
working capital.
After the payment of transaction-related costs and its other obligations, the
Company will have cash available of approximately $2,500,000, no debt and no
current revenue producing business operations. The Company's immediate plan
will be to reduce significantly its monthly overhead by reducing the number of
its employees, relocating its offices, transferring the costs of servicing and
developing its products and by reducing its dependence upon outside
professionals. The Company will have continuing expenses for insurance, rent,
communications, some salaries and other normal general and administrative
expenses.
Going forward, the Company will seek out revenue generating products and
operating businesses for possible investment, acquisition or merger, as well
as the possible pursuit of the development of TradinGear's other platforms
through outsourcing, licensing or outright sale, with the intent to increase
shareholder value.
Item 7. Financial Statements and Exhibits
(a) Financial statements and
(b) Pro forma financial information *
(c) Exhibits
2.1 Asset Purchase Agreement (without exhibits or schedules) **
99.1 Certification of Chief Executive Officer and Chief Financial
Officer *
* Filed herewith
** Previously filed
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Date: April 2, 2003
TGFIN Holdings, Inc.
(Registrant)
By/s/ Samuel Gaer
---------------------------
Samuel Gaer, President
Principal Executive Officer
3
a) Financial Statements
September 30, 2002
TGFIN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 227,334 $ 230,360
Accounts receivable, net 63,947 -
Prepaid expenses 18,517 6,801
Deferred Cost - 59,899
------------ ------------
Total Current Assets 309,798 297,060
Property and equipment, net 134,414 151,964
Deposits 101,621 101,621
------------ ------------
Total Assets $ 545,833 $ 550,645
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 201,407 $ 31,087
Accrued expenses 50,688 42,731
Deferred Revenue 40,000
------------ ------------
Total Current Liabilities 252,095 113,818
------------ ------------
Stockholders' Equity:
Preferred stock ($0.01 par value)
1,000,000 shares authorized,
50,500 shares issued
and outstanding 506 -
Common stock ($.0001 par value),
50,000,000 shares authorized,
22,063,935 issued and
outstanding at September 30,
2002 220,639 188,293
Additional paid-in-capital 3,469,979 2,865,197
Less: Deferred compensation
Relating to stock issued to
consultants (251,840) (381,644)
Retained earnings (deficit) (3,145,546) (2,235,019)
------------ ------------
Total Stockholders' Equity 293,738 436,827
------------ ------------
Total Liabilities and
Stockholders' Equity $ 545,833 $ 550,645
============ ============
These accompanying notes are integral part of these financial statements.
4
TGFIN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
REVENUES $ 102,147 $ 242,032 $ 662,342 $ 613,936
COSTS AND EXPENSES
General & admin. $ 193,512 $ 16,740 $ 693,377 $ 428,892
Development costs 113,708 83,240 452,263 303,433
Consulting fees 194,715 254,196 387,075 326,166
Depreciation expense 11,252 9,158 33,121 26,521
---------- --------- -------- ---------
Total costs and expense 513,187 363,334 1,565,836 1,085,012
Net Income (loss) before
Provision for Income
Taxes $ (411,040)$(121,302) $(903,494)$(471,076)
Provision for
Income taxes $ 1,260 $ 3,175 $ 7,033 $ 3,175
NET INCOME (LOSS) $ (412,300)$(124,477) $(910,527)$(474,251)
BASIC AND DILUTED LOSS
PER SHARES $ (0.02)$ (0.01) $ (0.05)$ (0.03)
Weighted Average number
of shares outstanding 20,092,711 18,674,309 19,573,487 18,674,309
The accompanying notes are an integral part of these consolidated
financial statements.
5
TGFIN HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2002 2001
Cash Flows from Operating
Activities:
Net Income (Loss) $ (910,527) $ (474,251)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
Amortization 33,121 26,521
Amortization of deferred
Compensation 225,004 130,782
Compensation costs of common stock
issued to consultant 14,416 -
Changes in assets and
liabilities, net of effect
from:
Decrease (increase) in
accounts receivable (63,947) 7,213
Increase in prepaid
Expenses (11,716) (2,416)
Increase in deposits - (49,899)
Increase in accounts
Payable and accrued
Expenses 151,693 179,948
Increase (decrease) in
deferred revenue (40,000) (130,000)
---------- ----------
Net cash used in
Operating activities (601,956) (312,102)
---------- ----------
Cash Flows from Investing
Activities:
Purchase of property and
Equipment (15,570) (35,155)
---------- ----------
Net cash provided by
(Used in) investing
Activities (15,570) (35,155)
---------- ----------
Cash Flows from Financing
Activities:
Cash proceeds from issuance
Of convertible Notes 316,500 -
Issuance of common stock 298,000 250,000
---------- ----------
Net Cash provided by
Financing Activities 614,500 250,000
---------- ----------
Net Increase (decrease) in
cash and Cash Equivalents (3,026) (97,257)
Cash and Cash Equivalents,
beginning of period 230,360 97,257
---------- ----------
Cash and Cash Equivalents,
end of period $ 227,334 $ -
========== ==========
These accompanying notes are an integral part of these financial statements.
6
TGFIN HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
2002 2001
Cash paid during the period
for:
Income Taxes $ 3,425 $ -
========== ==========
Interest $ 9,200 $ -
========== ==========
Supplemental Disclosures
of Noncash Investing and
Financing Activities:
Common Stock Issued
in exchange for
Convertible Notes $ 316,500 $ -
========== ==========
Common stock cancelled
In exchange for marketable
Securities $ - $ (755,847)
========== ==========
Common Stock issued in
exchange for accounts
payable $ 17,590 $ 484,125
========== ==========
Common Stock issued for
Services $ 14,416 $ 291,700
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Common stock for prepaid
Services $ 95,200 $ -
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Cost of Merger $ 79,899 $ -
========== ==========
Net liabilities assumed in Merger
With Digitran Systems, Incorporated $ 24,174 $ -
========== ==========
These accompanying notes are an integral part of these financial statements.
7
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
1. CONDENSED FINANCIAL STATEMENTS TRANSITION PERIOD
The accompanying financial statements have been prepared by the Company
without audit. They include information of TGFIN Holdings, Inc. and its sole
and wholly-owned subsidiary, TradinGear.com, Incorporated. In the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at September
30, 2002 and the results of operations and cash flows for the nine month
periods ended September 30, 2002 and 2001 have been made.
The Company has made the transition from an April 30th fiscal year-end to a
December 31st fiscal year-end by including in the results of operations and
cash flows for the period ended September 30, 2002 three months (July 1, 2002
through September 30, 2002) from TradingGear.com Incorporated and two months
(August 1, 2002 through September 30, 2002) from Digitran Systems,
Incorporated. Digitran Systems, Incorporated previously had filed a Form 10-
QSB for the fiscal quarter ended July 31, 2002. During this period August 1,
2002 through September 30, 2002 Digitran Systems, Incorporated incurred merger
related costs of $12,131. These current payables have become payables of TGFIN
Holdings, Inc.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 2001
audited financial statements, filed with the proxy statement in August 2002.
The results of operations for the periods ended September 30, 2002 and 2001
are not necessarily indicative of the operating results for the respective
full years.
The software licensing agreements which are marketed by the Company often sell
at a relatively high price in comparison to the total annual sales of the
Company. This relationship could lead to individual sales having a
disproportionately large effect on total sales, at the current revenue volume.
Therefore, sales within a quarter can lead to highly volatile results of
operations for individual quarters. The results for individual quarters may
not be indicative of annual results. All quarterly information should be
considered in light of the last fiscal year and the current year to date
operations of the Company.
2. REVERSE MERGER
On September 12, 2002, TradinGear.com, Incorporated acquired Digitran Systems
Incorporated ("Digitran"), a publicly held Delaware corporation, in a reverse
merger. The provisions of the Merger included a post-merger name change in
which Digitran became TGFIN Holdings, Inc. Former Digitran common stock
shareholders exchanged their shares for TGFIN Holdings, Inc. common stock
shares on a 21-to-1 reverse split basis; former Digitran common stock Class B
shareholders exchanged their shares for TGFIN Holdings, Inc. common stock
shares on a 20-to-1 reverse split basis; and former TradinGear.com,
Incorporated common stock shareholders exchanged their shares for TGFIN
Holdings, Inc. common stock shares one a 1-to-1 basis. TradinGear.com,
Incorporated continues as the only operating subsidiary of TGFIN Holdings,
Inc., and is wholly-owned.
8
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
Shareholders voted for the reverse merger in a Special Shareholder's Meeting
held on September 12, 2002 in Springfield, NJ. See also Part II, Item 4:
Submission of Items to Shareholder Vote of Securities Holders, below. The
merger transaction was accounted for as a purchase with the Company being
deemed the acquirer for accounting and financial reporting purposes. However,
since the stockholders of the Company will own approximately 93% of the
outstanding shares of the reorganized TGFIN Holdings, Inc. no step up basis or
goodwill will be recorded by the Company. This accounting treatment is in
accordance with the view of Securities and Exchange Commission staff members
that the acquisition by a public shell of the assets of a business from a
private company should be accounted for at historical cost and accounted for
as a reverse merger.
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
The Company consists of TGFIN Holdings, Inc. and its sole and wholly-owned
operating subsidiary, TradinGear.Com, Incorporated (the "Company"). TGFIN was
incorporated under the laws of Delaware in March 1985 (originally as Mark,
Inc.). TradinGear.com, Incorporated was incorporated under the laws of the
State of Delaware on July 7, 1999.
TradinGear.Com, Inc. produces trading software designed for the financial
services industry. The Company's software technology is designed to provide
stock exchanges and broker dealers in the securities industry the ability to
offer to its customers an on-line electronic system for securities trading.
The Company's accounting policies and certain footnote disclosures are
included in this quarterly report, in addition to standard reporting
requirements, because this is the first report of the Company after its
reverse merger with Digitran Systems, Incorporated. Management believes such
disclosure is helpful in understanding and evaluating the nature of its new
operating subsidiary, TradinGear.com, Incorporated.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, trade receivable, accounts payable and other
accrued liabilities, approximate fair value because of their short maturities.
9
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
Revenue Recognition
The Company's revenues are derived principally from providing its customers
with software applications that enable them to conduct stock transactions
online. Additional revenue may be derived from post contract support services
such as maintenance/service contracts, hosting upgrades and enhancements.
These revenues are recognized according to the statement of position 97-2 (SOP
97-2), "Software Revenues Recognition," which requires that revenue recognized
from software arrangements be allocated to each element of the arrangement
based on the relative fair values of the elements. Revenue on product sales
is recognized upon completion of each stage of production and acceptance of
the stage by the customer. The Company's post contract support services
revenue is recognized over the period during which the service is expected to
be performed. The software arrangement provides for no right of return on
refunds and are fixed or determinable. Deferred revenue represents amounts
received on uncompleted projects.
Use of Management's Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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.
Investments
The Company accounts for its investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
which requires that investments in debt securities and marketable equity
securities be designated as trading, held-to-maturity or available-for-sale.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determinations at each balance sheet date. Debt securities for which the
Company does not have the intent or ability to hold to maturity are classified
as available for sale, along with any investments in equity securities.
Securities available for sale are carried at fair value, with unrealized gains
and losses, net of income taxes, reported as a separate component of
Stockholders' Equity.
10
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment
Property and equipment are recorded at cost and being depreciated for
financial accounting purposes on the straight-line method over their
respective estimated useful lives ranging from three to thirty-nine years.
Upon retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations.
Expenditures for maintenance and repairs are charged to operations. Renewals
and betterments are capitalized. Depreciation of leased equipment under
capital leases is included in depreciation.
Product Development
Costs incurred in conjunction with the development of new products are charged
to expense as incurred. Material software development costs subsequent to the
establishment of technological feasibility will be capitalized. Based upon
the Company's product development process, technological feasibility is
established upon the completion of a working model. To date attainment of
technological feasibility and general release to customers have substantially
coincided.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". SFAS 121 requires that if facts and circumstances
indicate that the cost of fixed assets or other assets may be impaired, an
evaluation of recoverability would be performed by comparing the estimated
future undiscounted pre-tax cash flows associated with the asset to the
asset's carrying value to determine if a write-down to market value or
discounted pre-tax cash flow value would be required.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
(SFAS 130), "Reporting on Comprehensive Income". This statement establishes
rules for the reporting of comprehensive income and its components which
require that certain items such as foreign currency translation adjustments,
unrealized gains and losses on certain investments in debt and equity
securities, minimum pension liability adjustments and unearned compensation
expense related to stock issuances to employees be presented as separate
components of stockholders' equity. The adoption of SFAS 130 had no impact on
total shareholders' equity.
Stock-Based Compensation
The Company will follow Accounting Principles Board Opinion No. 25, (APT 25),
"Accounting for Stock Issued to Employees" in accounting for future employee
stock option plans. Under APB 25, when the exercise price of the Company's
employee stock options equals or is above the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
In accounting for options granted to persons other than employees, the
provisions of Financial Accounting Standards Board Statement No. 123, (FASB
123), "Accounting for Stock Based Compensation" are applied in accordance with
FASB 123 at the fair value of these options.
11
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (Loss) Per Share
The Company will calculate earnings (loss) per share in accordance with SFAS
No. 128, "Computation of Earnings Per Share" and SEC Staff Accounting Bulletin
No. 98. Accordingly, basic earnings per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period.
Common equivalent shares consist of the incremental common shares issuable
upon the conversion of the Preferred Stock (using the if-converted method) and
shares issuable upon the exercise of stock options (using the treasury stock
method); common equivalent shares are excluded from the calculation if their
effect is anti-dilutive.
Earnings (loss) per share in these financial statements has been computed as
if the outstanding shares as of December 31, 2001 were outstanding for all
periods.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109, (SFAS
109) "Accounting for Income Taxes". SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Start-Up Activities
The American Institute of Certified Public Accountants issued Statement of
Position 98-5 (SOP 98-5), "Reporting the Costs of Start-Up Activities". SOP
98-5 requires start-up costs, as defined, to be expensed as incurred and is
effective for financial statements for fiscal years beginning after December
15, 1998. The Company expenses all start-up costs as incurred in accordance
with this statement and therefore the issuance of SOP 98-5 will have no
material impact on the Company's financial statements.
Recent Accounting Pronouncements
In July 2001 the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" (SFAS 141) and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method of accounting and is effective for all
business combinations initiated after June 30, 2001. SFAS 142 requires that
goodwill be tested for impairment under certain circumstances, and written off
when impaired, rather then being amortized as previous standards required.
SFAS 142 is effective for fiscal years beginning after December 15, 2001.
Early application is permitted for entities with fiscal years beginning after
March 15, 2001 provided that the first interim period financial statements
have not been previously issued. The adoption of SFAS 141 had no effect on
the Company's operating results or financial condition. The Company is
currently assessing the impact of SFAS 142 on its operating results and
financial condition.
12
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
3. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications have been made to the prior year balances to conform
to the current year presentation.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, and their respective useful lives consist of
the following at September 30,
September 30 Estimated
2002 Useful
----------- Lives
Computer equipment $ 210,929 5
Office equipment 10,504 5
Leasehold improvements 7,350 5
----------
228,783
Less: Accumulated improvements (94,369)
----------
$ 134,414
==========
6. PROVISION FOR INCOME TAXES
For the period from inception (July 7, 1999) to September 30, 2002 the Company
had accumulated losses of $3,145,546. No federal tax expense or benefit has
been reported in the financial statements due to the uncertainty of future
operations. The Income taxes provided for are for minimum local income taxes.
13
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
7. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of business, there may be various legal actions and
proceedings pending which could seek damages against the Company. Management
believes that the amount, if any, that may result from these claims, will not
have a material adverse affect on the financial statements.
Leases
The Company leases office equipment and office space under noncancellable
operating leases. Commitments under these leases at December 31, 2001 are as
follows:
2002 $ 139,082
2003 142,855
2004 146,741
2005 150,743
2006 90,725
---------
$ 670,146
=========
Employment Agreements
On December 10, 1999 the Company entered into an employment agreement with
Samuel H. Gaer, the Chief Executive Officer of the Company. The agreement is
for a term of three years commencing January 1, 2000 and provides for a base
annual salary of $120,000 and for bonuses as determined by the Company's Board
of Directors.
401(k) Plan and Profit Sharing Plan
The Company has approved a 401(k) Plan and a Profit Sharing Plan which cover
full-time employees who have attained the age of 21 and have completed at
least one year of service with the Company. Under the 401(k) Plan, an
employee may contribute an amount up to 25% of his compensation to the 401(k)
Plan on a pretax basis not to exceed the current Federal limitation of $10,500
per year (as adjusted for cost of living increase). Amounts contributed to
the 401(k) Plan are nonforfeitable. Under the Profit Sharing Plan, a member
in the plan participates in the Company's contributions to the Plan as of
December 31 in any year, with allocations to individual accounts based on
annual compensation.
An employee does not fully vest in the plan until completion of three years of
employment. The Board of Directors determines the Company's contributions to
the plan on a discretionary basis. The Company has not made any contributions
to date.
14
TGFIN HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Continued)
8. COMMON STOCK
The authorized capital stock of the Company consists of 50,000,000 (after
being increased from 25,000,000 through shareholder vote in conjunction with
the Merger) shares of common stock, par value $.01 per share, of which
22,063,9355 were outstanding as at September 30, 2002. Since the par value
for Digitran Systems, Incorporated, now TGFIN Holdings, Inc. was different
from that of TradinGear.com Incorporated, common stock was increased by
$218,425 and Paid in Capital was decreased by $218,425 as of the date of the
Merger. In this report, the Balance sheet at December 31, 2001 has been
retroactively restated to reflect the change in par value, for comparability.
NOTE 9 PREFERRED STOCK
The Series 1 Class A 8% Cumulative Convertible Preferred Stock has
a par value of $0.01 per share. As of September 30, 2002, there were 50,500
shares outstanding. Holders of preferred shares are entitled to cumulative
dividends of 8% per annum on the stated value of the stock, designated at $7
per share. Dividends are payable semi-annually on September 15 and March 15.
No dividends have been paid since March 15, 1993, resulting in dividends in
arrears at September 30, 2002 of approximately $280,540 or $5.55 per share,
including $14,140 accrued in the current quarter. Dividends are not payable on
any other class of stock ranking junior to the preferred stock until the full
cumulative dividend requirements of the preferred stock have been satisfied.
The preferred stock carries a liquidation preference equal to its stated value
plus any unpaid dividends. Holders of the preferred stock are entitled to one-
tenth of a vote for each share of preferred stock held. The Company may, at
its option, redeem at any time all shares of the preferred stock or some of
them upon notice to each preferred stockholder at a per share price equal to
the stated value ($7.00) plus all accrued and unpaid dividends thereon
(whether or not declared) to the date fixed for redemption, subject to certain
other provisions and requirements. Preferred Shares may be converted into
Common Shares on a one share of Preferred Stock for two shares of Common Stock
basis.
NOTE 10. SUBSEQUENT EVENT
The Company sold 333,333 shares of its common stock for $250,000 ($.75
per share) during November, 2002.
15
b) Pro Forma financial Information
HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS
The Transaction
The Asset Sale represents a significant disposition of TradinGear.com's,
business, although not all operating assets were sold. The balance sheet
effect of the transaction is such that TradinGear.com will receive $2,900,000
in cash upon closing. An additional $100,000 will be held in escrow to
reimburse the Buyer for possible claims arising out of the Asset Sale, if any.
To the extent the $100,000 is not required, this amount will be released to
TradinGear.com after one year. Correspondingly, TradinGear.com's equity will
be increased by the amounts of cash received. The Income Statement effect of
the Transaction is to record a gain from discontinued operations equal to the
amount of cash received after payment of expenses.
Pro Forma Financial Statements
The pro forma balance sheet is as of September 30, 2002 and the income
statement for the year ended April 30, 2002 and the nine months ended
September 30, 2002. The unaudited pro forma consolidated results are based on
estimates and assumptions, which have been made solely for the purpose of
developing such pro forma information. The unaudited pro forma consolidated
results are not necessarily indicative of the actual results of operations and
financial condition that would have been achieved had the Asset Sale been
consummated as of January 1, 2002 or September 30, 2002, respectively.
Pro Forma Balance Sheet
The Pro Forma Balance Sheet includes audited historical balance sheets
of TGFIN Holdings, Inc. The Pro Forma adjustments are made to the historical
balance sheet as of September 30, 2002 to show the effect of the Asset Sale
had it occurred on September 30, 2002. All material adjustments required to
reflect the Asset Sale are set forth in the column labeled "Pro Forma
Adjustments", and in the opinion of management, all adjustments have been made
that are necessary to present fairly the pro forma data.
The unaudited pro forma condensed consolidated balance sheet should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial
statements, including the notes thereto, appearing in this Information
Statement. The pro forma data is for informational purposes only and may not
necessarily reflect our financial position or what our financial position
would have been had we consummated the Asset Sale on September 30, 2002.
Pro Forma Income Statements
The Pro Forma Income Statements for TGFIN Holdings, Inc. include an unaudited
historical income statement for the previous fiscal year end, unaudited
results from operations as of September 30, 2002 (its most recent and
available financial statement), Pro Forma adjustments as if the transaction
had occurred at the beginning of the period presented, and Pro Forma results.
The Income Statement for TGFIN Holdings, Inc. for the year ended April 30,
2002 (when it was known as Digitran Systems, Incorporated), in keeping with
the purpose of the Pro Forma Income Statement, is presented with only the
results from continuing operations. Losses from its discontinued operations
and Gains from extraordinary items have been excluded in this Pro Forma Income
16
Statement. Since TradinGear.com, Incorporated was audited at December 31,
2001, and in order to update its financial results for inclusion in the
unaudited consolidated historical Income Statement for TGFIN Holdings, Inc.
for the previous fiscal year ended April 30, 2002, its results from operations
from the quarter ended March 31, 2002 were added, and its results from
operations from the quarter ended March 31, 2001 were subtracted, to arrive at
the twelve months ended March 31, 2002. The result is representative of the
consolidated results from continuing operations for the previous fiscal year.
Consequently, the quarter ended March 31, 2002 is included twice in the Pro
Forma Income Statement: as part of the historical previous fiscal year end,
and as part of the unaudited income statement for the Nine Months Ended
September 30, 2002. The Pro Forma results from these adjustments illustrate
the pro forma costs of continuing operations after the Asset Sale. Since the
purpose of the Pro Forma Income Statement is to illustrate the Pro Forma
effects of the transaction on continuing operations only, the effect of the
Asset Sale and related gain from discontinued operations, are shown
separately.
Book Value
The Pro Forma effect of the transaction is to increase the Book Value of TGFIN
Holdings, Inc. by $.13 per share.
17
TGFIN HOLDINGS, INC
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
Unaudited Pro Forma
Consolidated Adjustments Pro Forma
TGFIN Holdings As if Asset Pro Forma Results after
Inc. as of Sale occurred Effect of effect for
September 30, at September 30, Disposition Disposition
2002 2002 of Assets of Assets
ASSETS ------------- --------------- ----------- -------------
- ------
Current Assets:
Cash and cash
equivalents $ 227,334 $ 0 $ 2,800,000(2)$ 3,027,334
Accounts receivable,
net 63,947 (63,947)(1) 0 0
Prepaid expenses 18,517 (18,517)(1) 0 0
----------- ------------ ----------- -----------
Total Current
Assets 309,798 (82,464) $ 2,800,000 $ 3,027,334
Property and equipment,
net 134,414 (119,414)(1) 0 15,000
Deposits 101,621 (101,621)(1) 100,000(2) 100,000
----------- ------------ ----------- -----------
Total Assets $ 545,883 $ (303,499) $ 2,900,000 $ 3,142,334
=========== ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 201,407 $ (201,407)(1) $ 0 $ 0
Accrued expenses 50,688 (50,688)(1) 0 0
Notes payable 0 0 0 0
----------- ------------ ----------- -----------
Total Current
Liabilities $ 252,095 $ (252,095) $ 0 $ 0
----------- ------------ ----------- -----------
Stockholders' Equity:
Preferred stock ($.01
par value) 506 0 0 506
Common stock ($.001
par value) 220,639 0 0 220,639
Class B Common stock
($.01 par value) 0 0 0 0
Additional paid-in
capital 3,469,979 0 0 3,469,979
Less: Deferred
Compensation due to
Consultants (251,840) 0 0 (251,840)
Retained earnings
(accumulated deficit)(3,145,546) (51,404)(1) 2,900,000(2) (296,950)
----------- ------------ ---------- -----------
Total Stockholders'
Equity (Deficit) $ 293,738 $ (51,404) $2,900,000 $ 3,142,334
----------- ------------ ---------- -----------
Total Liabilities
and Stockholders'
Equity $ 545,833 $ (303,499) $2,900,000 $ 3,142,334
=========== ============ ========== ===========
Book value per share 0.01 (0.00) 0.13 0.14
Cash Dividends per
share (none) 0.00 0.00 0.00 0.00
Basic and diluted
common shares
outstanding 22,063,935 22,063,935 22,063,935 22,063,935
========== ========== ========== ==========
See accompanying notes to these pro forma financial statements.
18
TGFIN HOLDINGS, INC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Historical Income Statement
For the most recent Fiscal Year
Ended April 30, 2002
-------------------------------
Unaudited
Audited Consolidated
For the Unaudited For the Most
Year Ended For the Twelve Recent Fiscal
April 30, 2002 Months Ended Year Ended
TGFIN March 31, 2002 TGFIN
Holdings, TradinGear.com Holdings,
Inc. Incorporated Inc.
--------- -------------- ---------
Revenues:
Software license fees $ 0 $ 1,351,405 $1,351,405
--------- ----------- ----------
Costs and Expense:
General and administrative 0 1,048,260 1,048,260
Development costs 0 368,521 368,521
Consulting fees 0 557,210 557,210
Depreciation expense 0 47,581 47,581
--------- ----------- ----------
Total Costs and Expenses 0 $ 2,021,572 $2,021,572
--------- ----------- ----------
Net Income (Loss) from Operations $ 0 $ (670,167) $ (670,167)
--------- ----------- ----------
Net Income (Loss) from continuing
operations 0 $ (670,167) $ (670,167)
Income (Loss) from discontinued
operations - - -
---------- ----------- ----------
Net Income (Loss) before
Provision for Income Tax 0 (670,167) (670,167)
---------- ----------- ----------
Provision for Income Tax 0 5,949 5,949
---------- ----------- ----------
Net Income (Loss) $ 0 $ (664,218) $ (664,218)
========== ========== ==========
Other Comprehensive income (loss)
Dividends on convertible
preferred stock, unpaid (28,280) 0 (28,280)
---------- ---------- ----------
Total other comprehensive income
(loss) $ (28,280) $ (664,218) $ (692,498)
========== ========== ==========
Income (Loss) per Share:
Basic and diluted Income (loss)
per share from:
continuing operations $ 0.00 $ (0.03) $ (0.03)
discontinuing operations 0.00 0.00 0.00
---------- ---------- ----------
Total basic and diluted income
(loss) per share $ 0.00 $ (0.03) $ (0.03)
========== ========== ==========
Basic and diluted common shares
outstanding 23,883,447 22,063,935 22,063,935
========== ========== ==========
[CONTINUED]
TGFIN HOLDINGS, INC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Pro Forma
Pro Forma Results after
Effect of Effect for
Pro Forma Disposition of Disposition
Adjustments Assets of Assets
----------- -------------- -------------
Revenues:
Software license fees $(1,351,405)(1) $ 0 $ 0.00
--------- ----------- ----------
Costs and Expense:
General and administrative (808,260)(1) 0 240,000
Development costs (368,521)(1) 0 0
Consulting fees (557,210)(1) 0 0
Depreciation expense (43,581)(1) 0 4,000
---------- ----------- ----------
Total Costs and Expenses (1,777,572) $ 0 $ 244,000
---------- ----------- ----------
Net Income (Loss) from Operations $ 426,167 $ 0 $ (244,000)
---------- ----------- ----------
Net Income (Loss) from continuing
operations 426,167 $ 0 $ (244,000)
Income (Loss) from discontinued
operations - $ 2,900,000(2) $2,900,000
----------- ----------- ----------
Net Income (Loss) before
Provision for Income Tax 426,167 2,900,000 2,656,000
----------- ----------- ----------
Provision for Income Tax (5,949)(1) 0 0.00
----------- ----------- ----------
Net Income (Loss) $ 420,218 $ 2,900,000 $2,656,000
=========== =========== ==========
Other Comprehensive income (loss)
Dividends on convertible
preferred stock, unpaid 0 0 (28,280)
----------- ----------- ----------
Total other comprehensive income
(loss) $ 420,218 $ 2,900,000 $2,627,720
=========== =========== ==========
Income (Loss) per Share:
Basic and diluted Income (loss)
per share from:
continuing operations $ 0.02 $ 0.00 $ (0.01)
discontinued operations 0.00 0.13 0.13
----------- ----------- ----------
Total basic and diluted income
(loss) per share $ 0.02 $ 0.13 $ 0.12
=========== =========== ==========
Basic and diluted common shares
outstanding 22,063,935 22,063,935 22,063,935
=========== =========== ==========
See accompanying notes to these pro forma financial statements.
19
TGFIN HOLDINGS, INC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Nine Months Ended Pro Forma
September 30, 2002 Pro Forma Results after
------------------------------ Effect of Effect for
TGFIN Pro Forma Disposition Disposition
Holdings, Inc. Adjustments of Assets of Assets
-------------- ------------- ------------- --------------
Revenues:
Software
license fees $ 662,342 $ (662,342) $ 0 $ 0
-------------- ----------- ------------- --------------
Costs and Expense:
General and
administrative 693,377 (513,377)(1) 0 180,000
Development costs 452,263 (452,263)(1) 0 0
Consulting fees 387,075 (387,075)(1) 0 0
Depreciation
expense 33,121 (30,121)(1) 0 3,000
-------------- ----------- ---------- --------------
Total Costs
and Expenses $ 1,565,836 $(1,382,836) $ 0 $ 183,000
-------------- ----------- ---------- --------------
Net Income (Loss)
from Operations $ (903,494)$ 720,494 $ 0 $ (183,000)
-------------- ----------- ---------- --------------
Net Income (Loss)
from continuing
operations $ (903,494)$ 720,494 $ 0 $ (183,000)
Net Income (Loss)
from discontinued
operations $2,900,000 (2) $ 2,900,000
-------------- ----------- ---------- --------------
Net Income (Loss)
before Provision
for Income tax (903,494) 720,494 2,900,000 2,717,000
-------------- ----------- ---------- --------------
Provision for
Income Tax 7,033 (7,033)(1) 0 0
-------------- ----------- ---------- --------------
Net Income (Loss) $ (896,461)$ 713,461 $2,900,000 $ 2,717,000
============== =========== ========== ==============
Other Comprehensive
Income (Loss)
Dividends on
convertible
Preferred stock
unpaid (28,280) 0.00 0 (28,280)
-------------- ----------- ---------- --------------
Total other
Comprehensive
Income (Loss) $ (924,741)$ 713,461 $2,900,000 $ 2,688,720
============== =========== ========== ==============
Income (Loss)
per Share:
Basic and diluted
Income (loss)
per share from:
continuing
operations $ (0.04)$ 0.03 $ 0.00 $ (0.01)
Discontinued
operations 0.00 0.00 0.13 0.13
-------------- ----------- ---------- --------------
Total basic and
diluted income
(loss) per
share $ (0.04)$ 0.03 $ 0.13 $ 0.12
============== =========== ========== ==============
Basic and diluted
common shares
outstanding 22,063,935 22,063,935 22,063,935 22,063,935
============== ========== ========== ==============
See accompanying notes to these pro forma financial statements.
20
Notes to Pro Forma Financial Statements
(1) To reflect the elimination of all operating assets, liabilities, revenues
and expenses as of the date indicated, except for operating expenses expected
to continue.
(2) To reflect cash to be received in the Asset Sale as follows: $2,900,000 in
cash, expenses of $100,000 for the Asset Sale and $100,000 to be placed in
escrow for one year for the satisfaction of potential claims, if necessary.
The $2,900,000 net sale price is reflected as a gain from discontinued
operations, even though some product lines will be retained by the company for
further activity.
21