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 March 31, 2003
[ ] 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
-------------
(Issuer's telephone number)
International Mercantile Corporation, Inc.
------------------------------------------
(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 [ ].
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 118,555,744 shares of
Common Stock, $0.001 par value, as of May 15, 2003; 5,000,000 Class B $0.001 par
value as of May 15, 2003.
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
- ------------------------------
T & G2, INC.
AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
F-1
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002 F-3
Statements of Operations for the Three Months Ended
March 31, 2003 and 2002 (Unaudited) F-4
Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-7
F-2
T & G2 INC., AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002
ASSETS
------
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
---------------- ----------------
Current Assets:
Cash and cash equivalents $ 419 $ 9,676
Accounts receivable, net 17,000 16,850
Prepaid expenses and other current assets - 453
---------------- ----------------
Total Current Assets 17,419 26,979
---------------- ----------------
Fixed assets, net of depreciation 140,459 142,885
Deposits 2,070 2,070
---------------- ----------------
TOTAL ASSETS $ 159,948 $ 171,934
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
LIABILITIES
Current Liabilities:
Note payable - bank $ 30,867 $ 32,705
Note payable - other 78,200 78,200
Accounts payable and accrued expenses 236,195 144,296
Due to officers 18,345 5,920
Due to related parties 489,695 433,200
---------------- ----------------
Total Current Liabilities 853,302 694,321
---------------- ----------------
Total Liabilities 853,302 694,321
---------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, Class A, $.001 Par Value; 250,000,000 and
100,000,000 shares authorized, 78,928,744 and 78,928,744 shares
issued and 78,647,344 and 78,928,744 outstanding at March 31, 2003
and December 31, 2002, respectively 78,929 78,929
Common Stock, Class B, $.001 Par Value; 2,000,000 and 5,000,000
shares authorized and 5,000,000 and 1,142,858 shares issued and
outstanding at March 31, 2003 and December 31, 2002, respectively 5,000 1,143
Treasury Stock, 281,400 shares, at cost (35,800) -
Unearned compensation - (1,310)
Subscriptions receivable (2,255) (46,155)
Stock issued as collateral for note payable (8,666,667) (8,666,667)
Warrants 62,500 62,500
Additional paid-in capital 22,835,793 22,839,650
Deficit (14,970,854) (14,790,477)
---------------- ----------------
Total Stockholders' Equity (Deficit) (693,354) (522,387)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 159,948 $ 171,934
================ ================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-3
T & G2 INC., AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
2003 2002
---- ----
OPERATING REVENUES
Revenue $ 1,950 $ -
COST OF SALES 781 -
---------------- ----------------
GROSS PROFIT 1,169 -
---------------- ----------------
OPERATING EXPENSES
Professional fees and compensation expenses 101,178 204,595
Advertising and marketing expenses 4,930 25,877
General and administrative expenses 55,017 59,544
Depreciation and amortization 10,036 995
---------------- ----------------
Total Operating Expenses 171,161 291,011
---------------- ----------------
LOSS BEFORE OTHER INCOME (EXPENSE) (169,992) (291,011)
OTHER INCOME (EXPENSE)
Legal settlement - -
Impairment of goodwill - (3,177,556)
Organization costs - (4,875,000)
Interest expense, net (10,385) (10,090)
---------------- ----------------
Total Other Income (Expense) (10,385) (8,062,646)
---------------- ----------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (180,377) (8,353,657)
Provision for Income Taxes - -
---------------- ----------------
NET LOSS APPLICABLE TO COMMON SHARES $ (180,377) $ (8,353,657)
================ ================
NET LOSS PER BASIC AND DILUTED SHARES $ (0.00229) $ (1.87142)
================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 78,647,344 4,463,815
================ ================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-4
T & G2 INC., AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
2003 2002
---- ----
CASH FLOW FROM OPERTING ACTIVIITES
Net loss $ (180,377) $ (8,353,657)
---------------- ----------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 10,036 995
Amortization of unearned compensation 1,310 9,750
Impairment of goodwill - 3,177,556
Common stock issued for organizaton - 4,875,000
Common stock issued for consulting services - 38,000
Net cash provided by acquisition of Solution Technologies - 128,681
Changes in assets and liabilities
(Increase) decrease in accounts receivable (150) 7,000
(Increase) decrease in prepaid expenses and other current assets 453 (252)
Increase in accounts payable and
and accrued expenses 91,899 (74,195)
---------------- ----------------
Total adjustments 103,548 8,162,535
================ ================
Net cash provided by (used in) operating activities (76,829) (191,122)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in amounts due to related parties 56,495 116,964
Acquisitions of fixed assets (7,610) (44,310)
---------------- ----------------
Net cash provided by investing activities 48,885 72,654
---------------- ----------------
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-5
T & G2 INC., AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
2003 2002
---- ----
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from common stock issuances and stock subscriptions $ 43,900 $ -
Payments for treasury stock (35,800) -
Net proceeds from issuance of notes payable - bank (1,838) 38,474
Net proceeds from officers 12,425 72,690
---------------- ----------------
Net cash provided by financing activities 18,687 111,164
---------------- ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (9,257) (7,304)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 9,676 7,525
---------------- ----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 419 $ 221
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 18,871 $ 10,090
================ ================
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Issuance of common stock for:
Consulting services $ - $ 38,000
================ ================
Organization costs $ - $ 4,875,000
================ ================
Impairment of goodwill $ - $ 3,177,556
================ ================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
F-6
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
On January 12, 2002, International Mercantile Corporation acquired
Solutions Technology, Inc. ("STI"), formerly known as Clickese.com
("Clickese") for 20,511,365 shares of the Class A common stock, and
the former owners of STI acquired the 1,142,858 shares of the Class B
common stock for $1. 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.
On February 14, 2002, International Mercantile Corporation changed its
name to T & G2 (the "Company"). In addition, the Company changed its
domicile 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.
In addition to STI being a wholly owned subsidiary, the Company
acquired Zingo Sales Ltd. ("Zingo") 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, for which sales have been generated late in 2002.
The software developed for this product is just as advanced if not
more advanced than any product in the market at this time.
In November 2002, the Company issued a board resolution authorizing an
increase to the authorized capital to 100,000,000 Class A common
shares and the Class B common shares to remain at the 2,000,000 share
level. In February 2003, the Company issued another board resolution
authorizing a further increase in its authorized capital. Under this
resolution, the Company increased its Class A common shares and Class
B common shares to 250,000,000 shares and 5,000,000 shares authorized,
respectively. With this change, the Company issued a board resolution
to cancel the 1,142,858 Class B common shares, and issue to its
officers 2,500,000 Class B common shares each (5,000,000 total) at par
value.
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.
F-7
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
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 condensed consolidated 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
----------------------------
Commencing in 2002, the Company started generating revenues. The
Company currently records its revenue on the accrual basis, whereby
revenue is recognized upon the sales orders being placed.
Cost is recorded on the accrual basis, when the purchase orders are
placed, and operating costs 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.
The Company maintains cash and cash equivalent balances at several
financial institutions that 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
F-8
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
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 $4,930 and $0 for the three
months ended March 31, 2003 and 2002, 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 are not included in the
computation of diluted earnings per share when the Company reports a
loss because to do so would be antidilutive for the periods presented.
The following is a reconciliation of the computation for basic and
diluted EPS:
March 31, March 31,
2003 2002
---- ----
Net Loss ($180,377) ($8,353,657)
--------- -----------
Weighted-average common shares
outstanding (Basic) 78,647,344 4,463,815
Weighted-average common stock
equivalents:
Stock options - -
Warrants - -
Weighted-average common shares
outstanding (Diluted) 78,647,344 4,463,815
F-9
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
Earnings (Loss) Per Share of Common Stock (Continued)
-----------------------------------------
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
--------------------------
Internal use software costs are recorded in accordance with Statement
of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". Qualifying costs
incurred during the application development stage, which consist
primarily of outside services are capitalized and amortized over the
estimated useful life of the asset. All other costs are expensed as
incurred. The Company has determined that all costs for the three
months ended March 31, 2003 and 2002, do not relate to the application
development stage and therefore have expensed these costs as they were
incurred.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount reported in the condensed consolidated balance
sheets for cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and notes payable approximate fair value
because of the immediate or short-term maturity of these financial
instruments.
Stock-Based Compensation
------------------------
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), and
related interpretations, in accounting for their employee stock
options rather than the alternative fair value accounting allowed by
SFAS No. 123, "Accounting for Stock-Based Compensation", and has
adopted the enhanced disclosure provisions of SFAS No. 148,
"Accounting for Stock Based Compensation - Transition and
Disclosures", an amendment of SFAS No. 123. APB No. 25 provides that
the compensation expense relative to the Company's employee stock
options is measured based on the intrinsic value of the stock option.
SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide a pro-forma disclosure of the impact of applying the fair
value method of SFAS No. 123.
Reclassifications
-----------------
Certain amounts for the three months ended March 31, 2002 have been
reclassified to conform to the presentation of the March 31, 2003
amounts. The reclassifications have no effect on net income for the
three months ended March 31, 2002.
F-10
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
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 its condensed 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
the Company's condensed consolidated results of operations, financial
position and cash flows.
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 the Company's condensed
consolidated financial statements.
F-11
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
Recent Accounting Pronouncements (Continued)
--------------------------------
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 currently affect the Company's
condensed 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.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure", an amendment of
FASB Statement No. 123"("SFAS 148"). SFAS 148 amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of
that Statement to require prominent disclosure about the effects on
reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. Finally, this Statement
amends Accounting Principles Board ("APB") Opinion No. 28, "Interim
Financial Reporting", to require disclosure about those effects in
interim financial information. SFAS 148 is effective for financial
statements for fiscal years ending after December 15, 2002. The
Company will continue to account for stock-based employee compensation
using the intrinsic value method of APB Opinion No. 25, "Accounting
for Stock Issued to Employees", but has adopted the enhanced
disclosure requirements of SFAS 148.
F-12
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 3 - ACCOUNTS RECEIVABLE
-------------------
Included in accounts receivable at March 31, 2003, is $14,000 that is
due from a company under a licensing agreement. Management of the
Company has not reserved any allowance against this receivable that it
deems to be fully collectible.
NOTE 4 - FIXED ASSETS
------------
Fixed assets consist of the following at March 31, 2003:
Office equipment $ 4,475
Furniture and fixtures 9,594
Equipment - Zingo Sales 79,732
Time clock equipment 38,730
Time clock software 54,144
------
186,675
Accumulated Depreciation (46,216)
----------
Total $ 140,459
==========
Depreciation expense was $10,036 and $995 for the three months ended
March 31, 2003 and 2002. A portion of these fixed assets were acquired
when the Company was acquired by International Mercantile Corporation.
NOTE 5 - NOTES PAYABLE - BANK
--------------------
On April 3, 2001, the Company entered into a line of credit agreement
with a bank. The note, 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 March 31, 2003 was $30,867. The line of credit was STI's,
and was assigned over to the Company upon the acquisition. Interest
expense charged to operations for the three months ended March 31,
2003 and 2002 was $531 and $385, respectively.
NOTE 6 - NOTES PAYABLE - OTHER
---------------------
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. In addition to receiving
the funds from Protech, the Company issued them 200,000 shares of
common stock for consulting in accordance with the agreement. In April
2003, the agreement was cancelled and the shares were returned and
subsequently cancelled.
F-13
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 6 - NOTES PAYABLE - OTHER (CONTINUED)
---------------------
The Company had a note payable in the amount of $167,000 due to Largo
Holdings. During the year ended December 31, 2002, $50,000 plus
$12,000 in interest expense was converted to 100,000 shares of the
Company's Class A Common Stock. The remaining amount ($117,000) was
subsequently discharged by the lender in October 2002.
NOTE 7 - RELATED PARTY TRANSACTIONS
--------------------------
Amounts due to related parties at March 31, 2003 were $489,695 and
consists of the following:
A note payable to an officer totaling $335,000 at 10% interest,
payable monthly, due on demand. At March 31, 2003, the Company has
approximately $18,492 in accrued interest to this officer.
Note payables to a company through common ownership in the amount of
$154,695, at 10% interest, payable monthly, due on demand. At March
31, 2002, the Company has approximately $19,000 in accrued interest to
this company.
Prior to the acquisition by International Mercantile Corporation, STI
relied upon funds from related parties to fund operations.
NOTE 8 - ACQUISITIONS
------------
On January 12, 2002, the Company acquired STI as a wholly owned
subsidiary for 20,511,365 shares of common stock. At the time of the
acquisition, STI's book value of their net assets was approximately
$0. The acquisition of the 20,511,365 shares were valued at the
Company's fair value at the time of the issuance which approximated
$.15 per share, $3,177,556. In accordance with FASB 142, the Company
impaired the goodwill for that amount.
In March, 2002, Zingo was acquired as a wholly owned subsidiary by the
Company for 2,500,000 shares of common stock. Zingo Sales, Ltd., a
relatively new company had very little activity and also had a net
book value of approximately $0. The shares issued were valued at
$1.95, the fair value of the stock at the time of issuance. The
$4,875,000, was recorded as goodwill and subsequently impaired to $0.
The impairment is included in the condensed consolidated statements of
operations for the three months ended March 31, 2002.
F-14
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
As of March 31, 2003, there were 250,000,000 authorized shares, and
78,928,744 issued and 78,647,344 outstanding shares of the Company's
common stock A with a par value of $.001.
As of March 31, 2003, there were 5,000,000 authorized shares, and
5,000,000 issued and outstanding shares of the Company's common stock
B with a par value of $.001. In February 2003, the Company upon an
approved board resolution increased the authorized limit of the Class
B common shares to 5,000,000. Subsequent to this board resolution, the
Company cancelled the outstanding 1,142,858 shares and issued the
entire 5,000,000 shares to two of its officers.
As of March 31, 2003, there were 0 authorized shares and 0 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 2002 were
cancelled during 2002, and with that cancellation the Company
authorized the cancellation of this class of stock. In April, 2003,
the Company passed a board resolution to re-instate the preferred
class of stock. Preferred stock in April 2003 is anticipated to be
issued in connection with the amended collateral agreement with
Mercatus (See Note 13), upon the cancellation of the Class A common
shares currently being held by Mercatus under the collateral
agreement.
There were no issuance of the Company's common stock A for the three
months ended March 31, 2003. The following shares of common stock
Class A were issued for the year ended December 31, 2002:
There were 20,511,365 shares of common stock issued for the
acquisition of STI at a value of $.15 per share ($3,177,556) on
January 14, 2002.
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).
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).
F-15
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------
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 that 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).
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).
F-16
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------
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).
The Company issued 225,000 shares of stock in the quarter ended
December 31, 2002, for consulting services at a fair value of $.23 per
share ($51,750).
The Company issued 70,000 shares of stock in the quarter ended
December 31, 2002, for legal services at a fair value of $.20 per
share ($14,000).
The Company issued 115,000 shares of stock in the quarter ended
December 31, 2002, for consulting services at a fair value of $.13 per
share ($14,950).
The Company issued 215,000 shares of stock in the quarter ended
December 31, 2002, for consulting services at a fair value of $.13 per
share ($27,950).
The Company issued 190,000 shares of stock in the quarter ended
December 31, 2002, for compensation at a fair value of $.17 per share
($32,300).
The Company issued 250,000 shares of stock in the quarter ended
December 31, 2002, for consulting services at a fair value of $.14 per
share ($35,000).
The Company issued 1,900,000 shares of stock in the quarter ended
December 31, 2002, for cash at a fair value of $.13 per share
($203,100). $43,900 is still outstanding on this issuance and is
reflected in subscriptions receivable.
The Company issued 66,666,667 shares of stock in the quarter ended
December 31, 2002, as collateral for a note payable with a bank at a
fair value of $.13 per share ($8,666,667). These shares have been
issued and are being held in escrow, and will only be delivered to the
lender upon a default on the note (See Note 13). In April 2003, the
Company entered into an amended collateral agreement whereby these
Class A common shares were cancelled and replaced by preferred stock
of the Company.
F-17
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------
In January 2003, the Company instituted a buy back program of its own
stock. For the quarter ended March 31, 2003, the Company bought back
281,400 shares of its common stock and placed it in its treasury. The
Company has accounted for its treasury stock utilizing the cost
method, and such, the $35,800 at March 31, 2003 represents the cost
value of the treasury shares acquired by the Company.
NOTE 10 - GOING CONCERN
-------------
As shown in the accompanying condensed consolidated financial
statements, the Company incurred additional net losses for the three
months ended March 31, 2003 and incurred substantial net losses for
the year ended December 31, 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 (See Note 13).
The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
NOTE 11 - COMMITMENTS
-----------
The Company's Zingo products have received clearance in certain
jurisdictions within the State of California as a Class 2 gaming
device. With this clearance, the Company is anticipating the placement
of 50 Bingo units to a race track in southern California. This is
anticipated to take place within the next 30 days.
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 was completed in late
November. Both of these installations signed contracts for continuing
and ongoing services in March 2003.
F-18
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 12 - LITIGATION
----------
An action commenced on or about March 28, 2002 in the Supreme Court of
the State of New York. In that action, the plaintiff seeks $40,000 in
damages from the Company as well as other defendants listed in this
action, allegedly sustained as a result of third party payments made
on behalf of all defendants, including, but not limited to the
Company. . An answer denying all material allegations was served upon
the Plaintiff on May 1, 2002, within the time allotted by law to do
so. Management is of the belief that all allegations involved in this
action will be dismissed. No liability is recorded for this action as
of March 31, 2003.
NOTE 13 - SUBSEQUENT EVENTS
-----------------
In January 2003 the Company entered into a Collateral Loan Agreement
(the "Loan Agreement") with Mercatus Partners Limited, a UK
Corporation ("Mercatus"), pursuant to which Mercatus has agreed to
provide the Company with loans in the amount of $2,000,000.
Loans under the Loan Agreement were evidenced by a promissory note
payable to Mercatus and are secured by the 66,666,667 shares of Class
A Common Stock of the Company (See Note 9). The interest rate on the
loans was 5.5%.
Except as otherwise provided in the Loan Agreement, the stock shall be
held as collateral by Mercatus at all times there remains principal or
interest owing to Mercatus under the promissory note. Other than as
specifically set forth in the Loan Agreement, the stock may not be
sold, hypothecated, assigned, transferred, or otherwise encumbered. In
an event of a default under the Loan Agreement, however, Mercatus may
thereafter, sell, assign, hypothecate, or otherwise dispose of the
stock. Any proceeds received by Mercatus in excess of the default
amount plus reasonable attorney's fees, if any, and related costs of
disposition will be returned to the Company.
In the event of a default by the Company, the Company has further
agreed to take all reasonable steps to register the stock for resale
by Mercatus. A default by the Company under the Loan Agreement can be
expected to have a materially adverse effect on the price of the
Company's common stock.
F-19
T & G2, INC. AND SUBSIDIARIES
(FORMERLY INTERNATIONAL MERCANTILE CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MARCH 31, 2003 AND 2002
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
-----------------
The initial term of the loan was 5 years, with interest-only payments
for the first year of the loan. Upon payment in full of all interest
and principal due under the loan, the stock will be returned to the
Company for cancellation. During the term of the loan, Mercatus will
provide a voting proxy with respect to the stock to a person
designated by the Company. In the event of a default however, the
proxy shall be deemed null and void.
In connection with the Loan Agreement, in December 2002, the Company,
delivered the 66,666,667 shares of the Class A Common Stock to
Mercatus. The Company expects delivery of the funds by April 15, 2003.
In April 2003, the Company executed an amended collateral agreement
whereby the 66,666,667 Class A common shares were cancelled in May
2003, and replaced by preferred stock of the Company.
F-20
Management's Discussion and Analysis of Financial Conditions
------------------------------------------------------------
and Results of Operations
-------------------------
Introduction
- ------------
The following discussion and analysis highlights the financial position of T &
G2(squared), Inc. (the "Company" or "us") at March 31, 2003 and compared to the
first quarter ended March 31, 2002 and plan of operations for the three-month
period ended March 31, 2003 and 2002. This discussion and analysis contained in
our Quarterly Report on Form-10QSB for the Quarter ended March 31, 2003.
Financial information contained within this report is condensed and reviewed. It
is important to note that the Company had no operations in the year 2001 and in
early 2002 and had a primary goal of finding a new business(s). In the year of
2002 T & G2(formerly known as International Mercantile Corporation) changed its
name to the current name the Company goes under(T & G2), effectuated a 1 for 8
reverse split and acquired two companies - Solutions Technology and Zingo Sales,
Ltd. The business activities of the Company are now that of the two wholly-owned
subsidiaries. Comparisons are provided below but the Company is not yet able to
show a year-by-year comparison of business activities. In reviewing the
Company's numbers in this report, it must be remembered that it essentially
shows the first year of operations in the Company's two wholly-owned
subsidiaries.
Certain statements in this Form 10-QSB, including information set forth under
Item 2. Management's Discussion and Analysis of Financial Condition and Result
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 entered into a transaction for funding in the form of a
debt financing. Additionally, business combinations with entities with
significant cash will also be considered. It now seems to be a forgone
conclusion that a sufficient amount of money will be funded for management to
execute it's business plan and succeed. However, until this transaction actually
does fund, there can be no assurance that a closing will take place. There were
two other finacing arrangements that the Company entered into, in the past year,
issuing a total of 100,000,000 million shares. Both of these transactions never
closed and the Company therefore has cancelled these shares post March 31, 2003.
For the following nine-month period from April, 2003 to December, 2003 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 and from operating activities.
Thereafter, in the second quarter, 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 additional financing as a backup or second option in the
case that the transaction already entered into by the Company does not close.
This would include a stair step-financing plan. This will encompass initial seed
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.
2
Liquidity and Capital Resources
- -------------------------------
For the three-months ended March 31, 2003, the Company used $180,377 in
operating activities compared to $8,353,657 for the three-months ended March 31,
2002. Most noted in this decrease in cash used in operations is attributable to
the issuances of stock for the acquisition of Both Solutions Technology, Inc and
Zingo Sales, Ltd. for which the Company recorded $3,177,556 as impairment of
goodwill and $4,875,000 written off to organizational cost respectively in 2002.
While the first quarter of 2003 shows an increase in actual cash used as apposed
to the issuance of stock. The Company has continued to borrowed certain amounts
from related parties to finance the beginning production costs for its time
clocks 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. 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.
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 March 31, 2003, had a working capital deficit. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. However, the Company has realized installations for
its bingo equipment and has many pending orders. It now appears that the company
has a realistic chance to reach cash flow positive by the end of the second
quarter(June 30, 2003) of this year.
3
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.
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 March 31, 2003.
Item 5. Other Information
- ---------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
4
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: May 20, 2003 By: /s/ James Farinella
-------------------------------------
James Farinella
Chairman, Chief Executive Officer and
President
5