T & G 2
Filing Type: 10QSB
Description: Quarterly Report
Filing Date: November 20, 2002
Period End: September 30, 2002
Primary Exchange: BB
Ticker: ttgg
T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
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Table of Contents
-----------------
10QSB
-----
PART I.....................................................................2
Item 1.....................................................................2
Balance Sheet..............................................................4
Income Statement...........................................................6
Cash Flow Statement........................................................7
Item 2....................................................................20
PART II...................................................................21
Item 1....................................................................21
Item 2....................................................................21
Item 3....................................................................22
Item 4....................................................................22
Item 5....................................................................22
Item 6....................................................................22
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Page i
T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
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10QSB
-----
Securities and Exchange Commission
Washington, D.C.
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
000-07693
---------
(Commission file number)
T & G 2, Inc.
-------------
(Exact name of small business issuer as specified in its charter)
Nevada 13-4096315
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
65 La Grande Avenue
Berkeley Heights 07922-1466
-------------------- ----------
(Address of principal executive offices) (Zip Code)
(908)508-9008
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(Issuer's telephone number)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
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Page 1
T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of latest practicable date: Class A 9,297,077 shares of Common
Stock, $0.001par value, as of October 31, 2002; 1,142,858 Class B $0.001 par
value as of October 31, 2002
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
- ------------------------------
T & G2
AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
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Page 2
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
INDEX TO FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Balance Sheets as of September 30, 2002 (unaudited) and
December 31, 2001 (audited) 4
Statements of Operations for the Nine and Three Months
Ended September 30, 2002 and 2001 (unaudited) 6
Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 (unaudited) 7
Notes to Unaudited Condensed Consolidated Financial Statements 9
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Page 3
T AND G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
September 30, December 31,
2002 2001
(Unaudited) (Audited)
---------------- ----------------
Current Assets:
Cash and cash equivalents $ 49,789 $ 7,525
Accounts receivable 15,800 24,500
Prepaid expenses and other current assets 2,000 355
---------------- ----------------
Total Current Assets 67,589 32,380
---------------- ----------------
Fixed assets, net of depreciation 174,487 73,590
Deposits 2,070 2,070
---------------- ----------------
TOTAL ASSETS $ 244,146 $ 108,040
================ ================
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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Page 4
T AND G 2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
September 30, December 31,
2002 2001
(Unaudited) (Audited)
---------------- ----------------
LIABILITIES
Current Liabilities:
Note payable - bank $ 34,749 $ -
Note payable - other 185,800 -
Accounts payable and accrued expenses 147,747 98,582
Due to officers 19,471 -
Due to related parties 445,443 218,454
---------------- ----------------
Total Current Liabilities 833,210 317,036
---------------- ----------------
Total Liabilities 833,210 317,036
---------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, Series 3, $1.00 par value, 5,000,000
shares authorized, 0 shares issued and outstanding
on September 30, 2002 and December 31, 2001, respectively - 89,286
Common Stock, Class A, $.001 Par Value; 31,000,000 shares
authorized on September 30, 2002 and December 31, 2001
respectively, and 9,297,077 and 20,511,365 shares issued
and outstanding on September 30, 2002 and
December 31, 2001, respectively 9,297 20,511
Common Stock Class B, $.001 Par Value; 2,000,000
shares authorized on September 30, 2002
and December 31, 2001 respectively, and 1,142,858
shares issued and outstanding on September 30, 2002
and December 31, 2001, respectively 1,143 1,143
Unearned compensation (11,062) (40,312)
Subscriptions receivable (2,255) (1,255)
Stock warrants outstanding 62,500 -
Additional Paid-in Capital 9,425,051 3,105,018
Deficit (10,073,738) (3,383,387)
---------------- ----------------
Total Stockholders' Equity (Deficit) (589,064) (208,996)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 244,146 $ 108,040
================ ================
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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Page 5
T AND G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
OPERATING REVENUES
Revenue $ 1,800 $ - $ 1,800 $ -
COST OF SALES - - - -
---------------- ---------------- ---------------- ----------------
GROSS PROFIT 1,800 - 1,800 -
---------------- ---------------- ---------------- ----------------
OPERATING EXPENSES
Professional fees and compensation expenses 989,485 - 529,983 -
Advertising and marketing expenses 285,446 - 119,271 -
General and administrative expenses 222,148 9,016 78,136 653
Depreciation and amortization 2,496 - 229 -
---------------- ---------------- ---------------- ----------------
Total Operating Expenses 1,499,575 9,016 727,619 653
---------------- ---------------- ---------------- ----------------
LOSS BEFORE OTHER INCOME (EXPENSE) (1,497,775) (9,016) (725,819) (653)
OTHER INCOME (EXPENSE)
Legal settlement (172,583) - (172,583) -
Organization costs (4,981,361) - - -
Interest expense (38,632) - (11,061) -
Total Other Income (Expense) (5,192,576) - (183,644) -
---------------- ---------------- ---------------- ----------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES $ (6,690,351) $ (9,016) $ (909,463) $ (653)
Provision for Income Taxes - - - -
---------------- ---------------- ---------------- ----------------
NET LOSS APPLICABLE TO COMMON SHARES $ (6,690,351) $ (9,016) $ (909,463) $ (653)
================ ================ ================ ================
NET LOSS PER BASIC AND DILUTED SHARES $ (0.70228) $ (0.00086) $ (0.10690) $ (0.00006)
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,526,630 10,470,467 8,508,001 10,470,467
================ ================ ================ ================
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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Page 6
T AND G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
CASH FLOW FROM OPERTING ACTIVIITES
Net loss $ (6,690,351) $ (9,016)
---------------- ----------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 2,496 -
Forgiveness of debt - -
Amortization of unearned compensation 29,250 -
Common stock issues for debt conversions 62,000 -
Common stock issues for services and organization 5,596,950 -
Common stock issues for compensation 77,000 -
Common stock issues for legal settlement 172,583 -
Stock warrants issued for consulting services 62,500 -
Changes in assets and liabilities
(Increase) decrease in accounts receivable 8,700 -
Decrease in inventory - -
(Increase) decrease in prepaid expenses and other assets (1,645) -
(Increase) in deposits - -
Increase in accounts payable and
accrued expenses 49,165 (53,564)
---------------- ----------------
Total adjustments 6,058,999 (53,564)
---------------- ----------------
Net cash (used in) operating activities (631,352) (62,580)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net sales of equity securities - -
Increase in amounts due to related parties 239,489 -
Acquisitions of fixed assets (103,393) -
---------------- ----------------
Net cash provided by investing activities 136,096 -
---------------- ----------------
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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Page 7
T AND G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from common stock issuances and stock subscriptions $ 285,000 $ -
Net proceeds (payments) from officer 31,971 -
Net proceeds (payments) from issuance of notes payable - bank 34,749 -
Net proceeds from issuance of notes payable 185,800 -
---------------- ----------------
Net cash provided by financing activities 537,520 -
---------------- ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 42,262 (62,580)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 7,525 63,157
---------------- ----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 49,789 $ 577
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest expense $ 28,190 $ 16,421
================ ================
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Issuance of common stock for:
Consulting $ 5,596,950 $ 855,000
================ ================
Debt conversions $ 62,000 $ -
================ ================
Compensation $ 77,000 $ -
================ ================
Legal settlement $ 172,583 $ -
================ ================
Issuance of stock warrants for consulting services $ 62,500 $ -
================ ================
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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Page 8
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
The condensed consolidated unaudited interim financial statements
included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The
condensed consolidated financial statements and notes are presented as
permitted on Form 10-QSB and do not contain information included in
the Company's annual consolidated statements and notes. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggest that these condensed
consolidated financial statements be read in conjunction with the
December 31, 2001 audited consolidated financial statements and the
accompanying notes thereto. While management believes the procedures
followed in preparing these condensed consolidated financial
statements are reasonable, the accuracy of the amounts are in some
respects dependent upon the facts that will exist, and procedures that
will be accomplished by the Company later in the year.
These condensed consolidated unaudited financial statements reflect
all adjustments, including normal recurring adjustments which, in the
opinion of management, are necessary to present fairly the
consolidated operations and cash flows for the periods presented.
On February 14, 2002, T & G2 (the "Company"), changed its name from
International Mercantile Corporation. In addition, the Company changed
its incorporation state to Nevada which brought about a reverse 8 to 1
stock split, and a change in the par value of the stock to $0.001.
Prior to the name change, on January 12, 2002, International
Mercantile Corporation acquired Solutions Technology, Inc. ("STI"),
formerly known as Clickese.com ("Clickese"). Upon this acquisition,
STI became a wholly-owned subsidiary of International Mercantile
Corporation. STI designs, develops and manufactures biometrical time
clocks for tracking employees time and attendance.
In addition to STI being a wholly-owned subsidiary, the Company has
Zingo Sales Ltd. ("Zingo") who was acquired by the Company in March,
2002 in a 2,500,000 share Class A common stock acquisition. Zingo's
mission is to design, develop, manufacture and market easy to use
complete solutions using the latest available technologies. Their
first product is a fixed based bingo unit. Software has already been
developed for this and is just as advanced if not more advanced than
any product in the market at this time.
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Page 9
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
--------------------------------------
On April 25, 2001, Secure Time, Inc. merged into Clickese.com at which
time the resulting company changed its name to STI. The transaction
was valued at $1 per share for 10,500,000 shares.
International Mercantile Corporation was originally incorporated in
the State of Missouri, on March 10, 1971. Their business purpose
included among other things, maintaining an Internet based personal
computer manufacturing business selling build-to-order systems
throughout the United States to value added retailers and other
marketers of micro computer systems. The Company has terminated all of
these business activities.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
---------------------------
The condensed consolidated financial statements include the accounts
of the Company and all of its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures 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.
Revenue and Cost Recognition
----------------------------
Revenue, when generated, will be recorded on the accrual basis, when
earned. The revenue is anticipated at being earned through the STI
subsidiary in this current fiscal year.
Cost is recorded on the accrual basis as well, when the services are
incurred rather than paid for.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or
less to be cash equivalents.
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Page 10
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
Cash and Cash Equivalents (Continued)
-------------------------
The Company maintains cash and cash equivalent balances at several
financial institutions which are insured by the Federal Deposit
Insurance Corporation up to $100,000.
Fixed Assets
------------
Fixed assets are stated at cost. Depreciation is computed primarily
using the straight-line method over the estimated useful life of the
assets.
Furniture and fixtures 7 Years
Office equipment 3 to 5 Years
Equipment - Zingo Sales 1.5 Years
Time clock equipment 1.5 Years
Time clock software 3 Years
Income Taxes
------------
The income tax benefit is computed on the pretax loss based on the
current tax law. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory tax rates.
Advertising
-----------
Costs of advertising and marketing are expensed as incurred.
Advertising and marketing costs were $345,946 and $7,700 for the nine
months ended September 30, 2002 and 2001, respectively.
Earnings (Loss) Per Share of Common Stock
-----------------------------------------
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding. Diluted earnings
per share (EPS) includes additional dilution from common stock
equivalents, such as stock issuable pursuant to the exercise of stock
options and warrants. Common stock equivalents were not included in
the computation of diluted earnings per share when the Company
reported a loss because to do so would be antidilutive for periods
presented.
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Page 11
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
Earnings (Loss) Per Share of Common Stock (Continued)
-----------------------------------------
The following is a reconciliation of the computation for basic and
diluted EPS:
September 30, September 30,
2002 2001
---- ----
Net Loss ($ 6,690,351) ($9,016)
-------------- ------------
Weighted-average common shares
outstanding (Basic) 9,526,630 10,470,467
Weighted-average common stock equivalents:
Stock options - -
Warrants - -
Weighted-average common shares
outstanding (Diluted) 9,526,630 10,470,467
Options and warrants outstanding to purchase stock were not included
in the computation of diluted EPS because inclusion would have been
antidilutive.
Software Development Costs
--------------------------
Software development costs are accounted for in accordance with
Statement of Position 98-1, "Software Developed or Obtained for
Internal Use". Costs incurred in a preliminary project stage are
expensed as incurred. External direct costs, payroll and payroll
related costs for those directly involved with a project and interest
costs in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 34, "Capitalization of Interest Cost",
are capitalized during the application development stage. Costs
incurred during the post-implementation/ operation stage are expensed
as incurred.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount reported in the condensed consolidated balance
sheets for cash and cash equivalents, loans receivable, accounts
payable and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial instruments. The
carrying amount reported for notes and mortgages payable approximates
fair value because, in general, the interest on the underlying
instruments fluctuates with market rates.
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Page 12
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
Reclassifications
-----------------
Certain amounts for the nine months ended September 30, 2001 have been
reclassified to conform with the presentation of the September 30,
2002 amounts. The reclassifications have no effect on net income for
the nine months ended September 30, 2001.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match
the timing of the gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or
(ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. On June 30, 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133". SFAS No. 133 as amended by SFAS No. 137 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS No. 133 as amended
by SFAS No. 137 and 138 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard to have a
material effect on our consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance for revenue recognition under
certain circumstances, and is effective during the first quarter of
fiscal year 2001. SAB 101 is not expected to have a material effect on
our consolidated results of operations, financial position and cash
flows.
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Page 13
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
Recent Accounting Pronouncements (Continued)
--------------------------------
On March 16, 2000, the Emerging Issues Task Force issued EITF 99-19
"Recording Revenue as a Principal versus Net as an Agent" which
addresses the issue of how and when revenues should be recognized on a
Gross or Net method as the title implies. The emerging Issues Task
Force has not reached a consensus but sites SEC Staff Accounting
Bulletin 101. EITF 99-19 does not affect our consolidated financial
statements.
On July 20, 2000, the Emerging Issues Task Force issued EITF 00-14
"Accounting For Certain Sales Incentives" which establishes accounting
and reporting requirements for sales incentives such as discounts,
coupons, rebates and free products or services. Generally, reductions
in or refunds of a selling price should be classified as a reduction
in revenue. For SEC registrants, the implementation date is the
beginning of the fourth quarter after the registrant's fiscal year end
December 15, 1999. EITF 00-14 does not affect our consolidated
financial statements.
In June 2001, the FASB issued Statement No. 142 "Goodwill and Other
Intangible Assets". This Statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, Intangible Assets. It addresses how
intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in
the financial statements. This statement has been considered when
determining impairment of goodwill in certain transactions.
NOTE 3 - ACCOUNTS RECEIVABLE
-------------------
Of the amounts due the Company at September 30, 2002, $14,000 are due
from a company under a licensing arrangement.
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Page 14
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 4 - FIXED ASSETS
------------
Fixed assets consist of the following at September 30, 2002:
Office equipment $ 3,463
Furniture and fixtures 2,646
Equipment - Zingo Sales 79,732
Time clock equipment 38,068
Time clock software 54,144
------------
178,053
Accumulated Depreciation (3,566)
------------
Total $ 174,487
============
Depreciation expense was $2,496 and $803 for the nine months ended
September 30, 2002 and 2001.
NOTE 5 - NOTES PAYABLE
-------------
On April 3, 2001, the Company entered into a line of credit agreement
with a bank. The loan, which is due on demand bears interest at prime
plus 2.25% and provides for maximum borrowings up to $63,100. The line
of credit is guaranteed by a majority shareholder. The outstanding
balance at September 30, 2002 is $34,749. Interest expense charged to
operations for the nine months ended September 30, 2002 was $2,101.
The Company pursuant to a note agreement dated May 28, 2002 with
Protech Trading Inc. has a note payable in the amount of $68,800, due
May 30, 2003. Interest on this note is payable quarterly, at one
percent per quarter, four percent annually. The note is collateralized
by 200,000 shares of the Company's Class A Common Stock.
The Company has a note payable in the amount of $117,000 due to Largo
Holdings. During the nine months ended September 30, 2002, $50,000
plus $12,000 in interest expense was converted to 100,000 shares of
the Company's Class A Common Stock.
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Page 15
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 6 - RELATED PARTY TRANSACTIONS
--------------------------
Amounts due to related parties at September 30, 2002 is $445,443 and
consist of the following:
Two notes payable to an officer totaling $300,000, at 10% interest,
payable monthly, due on demand.
A note payable to a company through common ownership in the amount of
$145,443 due on demand.
NOTE 7 - ACQUISITIONS
------------
On January 12, 2002, the Company acquired STI as a wholly owned
subsidiary for 20,511,365 shares of common stock.
In March, 2002, Zingo was acquired as a wholly owned subsidiary by the
Company for 2,500,000 shares of common stock.
NOTE 8 - STOCKHOLDERS' EQUITY
--------------------
As of September 30, 2002 and December 31, 2001, there were 31,000,000
authorized shares, and 9,297,077 and 20,511,365 issued and outstanding
shares of the Company's common stock A with a par value of $.001.
As of September 30, 2002 and December 31, 2001, there were 2,000,000
authorized shares, and 1,142,858 issued and outstanding shares of the
Company's common stock B with a par value of $.001.
As of September 30, 2002 and December 31, 2001, there were 5,000,000
authorized shares, respectively, and 0 and 89,286 issued and
outstanding shares of the Company's preferred stock with a par value
of $1.00. The 89,286 shares of preferred stock issued during the year
were cancelled during 2002, and preferred stock is no longer
authorized to be issued.
The shares of common stock issued for the nine months ended September
30, 2002 relate to the following:
There were 200,000 shares of stock issued in the quarter ended March
31, 2002 for consulting services at a fair value of $.19 per share
($38,000).
There were 2,500,000 shares of stock issued in the quarter ended March
31, 2002 for the acquisition of Zingo at a fair value of $1.95 per
share ($4,875,000).
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Page 16
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
--------------------------------
There were 55,000 shares of stock issued in the quarter ended June 30,
2002 for consulting services at a fair value of $.57 per share
($31,350).
There were 100,000 shares of stock issued in the quarter ended June
30, 2002 in a debt conversion at a fair value of $.62 per share
($62,000) representing a debt reduction of $50,000 and accrued
interest of $12,000.
There were 200,000 shares of stock issued in the quarter ended June
30, 2002 for consulting services at a fair value of $.57 per share
($114,000).
There were 255,000 shares of stock issued in the quarter ended June
30, 2002 for consulting services at a fair value of $.50 per share
($127,500).
There were a total of 239,000 shares of stock issued in the quarter
ended June 30, 2002 for $135,000 cash.
There were 200,000 shares of stock issued in the quarter ended
September 30, 2002 for consulting services at a fair value of $1.02
per share ($204,000).
There were 50,000 shares of stock issued in the quarter ended
September 30, 2002 for consulting services at a fair value of $1.02
per share ($51,000).
There were 100,000 shares of stock issued which were converted for
stock options exercised at a fair value of $1.02 per share ($102,000)
for compensation to officers. The stock options had an exercise price
of $.25 per share. The differential from exercise price to fair value
was charged to compensation expense in the quarter ended September 30,
2002.
There were 200,000 shares of stock issued which were converted for
stock warrants previously purchased at $.75 per share for $150,000
cash. The fair value of the stock at the time of conversion was $.92
per share. The differential from exercise price to fair value was
charged to consulting expense in the quarter ended September 30, 2002.
The Company issued 50,000 in stock warrants at a value of $1.25 per
share. The $62,500 was charged to consulting expense in the quarter
ended September 30, 2002.
The Company issued 80,000 shares of stock in the quarter ended
September 30, 2002 for consulting services at a fair value of $.66 per
share ($52,800).
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Page 17
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
--------------------
The Company issued 20,000 shares of stock in the quarter ended
September 30, 2002 for consulting services at a fair value of $.54 per
share ($10,800).
The Company issued 25,000 shares of stock in the quarter ended
September 30, 2002 for consulting services at a fair value of $.48 per
share ($12,000).
The Company issued 25,000 shares of stock in the quarter ended
September 30, 2002 for consulting services at a fair value of $.42 per
share ($10,500).
The Company issued 908,333 shares of stock in the quarter ended
September 30, 2002 in settlement of a lawsuit at a fair value of $.19
per share ($172,583).
The Company issued 100,000 shares of stock in the quarter ended
September 30, 2002 for promotional services at a fair value of $.36
per share ($36,000).
NOTE 9 - GOING CONCERN
-------------
As shown in the accompanying condensed consolidated financial
statements, the Company incurred substantial net losses for the years
ended December 31, 2001 and 2000 as well as for the nine months ended
September 30, 2002. There is no guarantee whether the Company will be
able to generate enough revenue and/or raise capital to support those
operations. This raises substantial doubt about the Company's ability
to continue as a going concern.
Management also states that they are confident that they can improve
operations and raise the appropriate funds needed through the
advancements in STI and Zingo over the last six months.
The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 10 - SUBSEQUENT EVENT
----------------
In November, the Company issued 225,000 shares of stock for consulting
services at a fair value of $.24 per share ($54,000).
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Page 18
T & G2 AND SUBSIDIARIES, INC.
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE 10 - SUBSEQUENT EVENT (CONTINUED)
----------------
In November, the Company renegotiated their contractual relationship
with the United States Military for the placement of 50 Bingo units.
The units will no longer be placed at the Hunter Army Airfield Base.
These units will now be placed at another military installation and
the contract has been extended from two to three years. As part of the
revised contract, the Company will be guaranteed a return for each
unit, and the Company is anticipating revenues approximating $291,000
over the term of the contract.
The Company is in the final phase of receiving its gaming license in
the State of Arizona. With this license, the Company is anticipating
the placement of 36 Bingo units to the Fort McDowell Native American
Casino. This is anticipated to take place within the next 30 days.
The Company has entered into a distribution agreement for the
distribution of its Bingo units in Wyoming. The Company has placed its
first order for approximately 15 Bingo units.
In November, the Company installed its Securetime system in a
restaurant at a major Las Vegas, Nevada casino. The Company has also
received an order for the Securetime system from a Native American
business in Oklahoma and the installation should be completed by late
November.
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Page 19
T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
Introduction
- ------------
The following discussion and analysis highlights the financial position of T &
G2, Inc. (the "Company" or "us") at September 30, 2002 and compared to year end
December 31, 2001 and plan of operations for the three month, and nine month
periods ended September 30, 2002 and 2001. This discussion and analysis
contained in our Annual Report on Form-10KSB for the year ended December 31,
2001. Financial information contained within this report is condensed and
unaudited.
Certain statements in this Form 10-QSB, including information set forth under
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations constitute `forward-looking statements' within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Such
forward-looking statements are identified by words such as "intends,"
"anticipates." "hopes," and "expects," among others, and include, without
limitation, statements regarding the Company's plan of business operations,
anticipated revenues, related expenditures, and the results of any business
transactions. Factors that could cause actual results to differ materially
include, among others, the following: acceptability of the Company's services in
the market place, general economic conditions, political and economic conditions
in the United States and abroad, and competition. Investors are cautioned not to
put undue reliance on forward-looking statements. Except as otherwise required
by applicable securities statutes or regulations, the Company disclaims any
intent to update publicly these forward-looking statements, whether as a result
of new information, future events or otherwise.
Plan of Operation
- -----------------
The Company's management intends to seek funding from a variety of sources
including private placements of its stock, public offerings of its stock, as
well as debt financing. Additionally, business combinations with entities with
significant cash will be considered. However, there can be no assurance
management will be successful in these endeavors.
For the following three month period from October 1, 2002 to December 31, 2002
it is anticipated, absent the Company's obtaining other sources of liquidity as
described above, the Company's primary funding for ongoing corporate expenses,
such as legal and accounting fees and filing fees, will be provided by the
private sale of the Company's securities. Thereafter, the Company anticipates to
further expand and generate revenues from the sale of their time clocks and
computerized bingo systems.
The Company's management has had ongoing discussions with investment bankers
pertaining to a stair step financing plan. This will encompass initial seed
- --------------------------------------------------------------------------------
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T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
- --------------------------------------------------------------------------------
capital, a first and second level of private placements, bridge financing, and
mezzanine financing. However, there can be no assurance management will be
successful in these endeavors.
During the three month period ended September 30, 2002, the Company realized a
net loss of $909,463 compared with $653 for the three-month period ended
September 30, 2001. Of the $909,463 loss for the period, $723,183 represents
services provided for issuances of common stock. We anticipate that going
forward, we will streamline administrative, and professional fees to conserve
cash flow. Once the recognition of revenues occurs, certain expenses will
increase, but only in accordance with the increase in revenues.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended September 30, 2002, the Company used $631,352 in
operating activities compared to $62,580 for the nine months ended September 30,
2001. Most noted in this increase in cash used in operations is the increase in
accounts payable and accrued expenses, which we believe should be improved by
the year end, and the issuances of stock for services, and organization. The
Company did receive $285,000 from the sale of stock in the nine months ended
September 30, 2002, compared to $-0- for the nine months ended September 30,
2001. Additionally, the Company has borrowed certain amounts from related
parties as well as banks to finance the beginning production costs for its
timeclocks and computerized bingo systems.
The Company has made significant progress with respect to future funding.
Funding is expected shortly which will enable the Company to market, and produce
its products.
Going Concern. The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company has suffered recurring
losses from operations and at September 30, 2002, had a working capital deficit.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
- ---------------------------
The Company is not engaged in any legal proceedings except litigation in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to any such proceedings will not be material to
the Company's financial position or results of operations.
Item 2. Changes in Securities
- -------------------------------
None.
- --------------------------------------------------------------------------------
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T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
- --------------------------------------------------------------------------------
Item 3. Defaults Upon Senior Securities
- -----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Securities Holders
- ---------------------------------------------------------------
No matters were submitted to a vote of the security holders of the Company
during its fiscal quarter ended September 30, 2002.
Item 5. Other Information
- ---------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K.
The Company reported an 8K for the change of name and merger into
T & G 2 from Solutions Technology and International Mercantile
Corporation.
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Page 22
T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
- --------------------------------------------------------------------------------
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T & G 2, Inc.
Date: November 20, 2002 By: /s/ James Farinella
-------------------------------------
James Farinella
Chairman, Chief Executive Officer and
President
- --------------------------------------------------------------------------------
Page 23
T & G 2 - 10QSB - Quarterly Report Date Filed: 11/20/2002
- --------------------------------------------------------------------------------
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, in his capacity as an officer of T & G2, Inc.
(the "Company"), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
A. the Quarterly Report of the Company on Form 10QSB for the period ended
September 30, 2002 fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
B. the information contained in such report fairly presents, in all
material respects, the financial condition and results of operation of
the Company.
Dated: November 20, 2002
/s/ James Farinella
James Farinella
Chairman, Chief Executive Officer and President
- --------------------------------------------------------------------------------
Page 24