Securities and Exchange Commission
Washington, D.C.
FORM 10QSB
----------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2004
[ ] 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.)
1 Anderson Road, Suite 105
Bernardsville, New Jersey 07924
-------------------------- ----------
(Address of principal executive offices) (Zip Code)
(908) 204-9911
--------------
(Issuer's telephone number)
------------------------------------------
(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
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
2
T & G2, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Page
----
Condensed Consolidated Balance Sheet as of June 30, 2004 4
Condensed Consolidated Statements of Operations for the
Six and Three Months Ended June 30, 2004 and 2003 5
Condensed Consolidated Statement of Comprehensive Income
(Loss) for the Six Months Ended June 30, 2004 and 2003 6
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2004 and 2003 7 - 8
Notes to Condensed Consolidated Financial Statements 9
3
T & G2 INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
ASSETS
------
Current Assets:
Cash and cash equivalents $ 42,810
Accounts receivable, net 280,643
Investment 25,575
Prepaid expenses and other current assets 39,493
----------------
Total Current Assets 388,521
----------------
Fixed assets, net of depreciation 155,289
Deposits 2,070
Goodwill, net of impairment 400,000
----------------
TOTAL ASSETS $ 945,880
================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
LIABILITIES
Current Liabilities:
Note payable - bank $ 187,525
Accounts payable and accrued expenses 544,399
Due to related parties 138,416
----------------
Total Current Liabilities 870,340
----------------
Total Liabilities 870,340
----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, Series A, $1.00 Par Value; 5,000,000 shares
authorized, 0 shares issued and outstanding -
Preferred Stock, Series B, $.001 Par Value; 5,000,000 shares
authorized, 2,950,703 shares issued and outstanding 2,951
Common Stock, Class A, $.001 Par Value; 250,000,000
shares authorized, 63,192,136 shares issued and 62,900,736 shares outstanding 63,192
Common Stock, Class B, $.001 5,000,000 shares authorized
5,000,000 shares issued and outstanding 5,000
Subscriptions receivable (2,058,745)
Warrants 62,500
Additional paid-in capital 20,652,695
Treasury stock, at cost, 291,400 shares (37,338)
Accumulated Other Comprehensive Income (Loss) (2,921)
Deficit (18,611,794)
----------------
Total Stockholders' Equity (Deficit) 75,540
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 945,880
================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
T & G2 INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2004 AND 2003
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
OPERATING REVENUES
Revenue $ 162,428 $ 11,883 $ 45,987 $ 9,933
COST OF SALES 76,658 6,309 41,060 5,528
---------------- ---------------- ---------------- ----------------
GROSS PROFIT 85,770 5,574 4,927 4,405
---------------- ---------------- ---------------- ----------------
OPERATING EXPENSES
Professional fees and compensation expenses 398,410 586,061 41,945 484,883
Advertising and marketing expenses 54,758 117,772 27,575 112,842
General and administrative expenses 101,183 122,137 58,981 67,120
Depreciation 72,354 37,341 38,973 27,305
---------------- ---------------- ---------------- ----------------
Total Operating Expenses 626,705 863,311 167,474 692,150
---------------- ---------------- ---------------- ----------------
LOSS BEFORE OTHER (EXPENSE) (540,935) (857,737) (162,547) (687,745)
OTHER (EXPENSE)
Legal settlement (17,500) - - -
Impairment of goodwill (849,964) - (849,964) -
Interest expense, net (58,286) (20,632) (55,069) (10,247)
---------------- ---------------- ---------------- ----------------
Total Other (Expense) (925,750) (20,632) (905,033) (10,247)
---------------- ---------------- ---------------- ----------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (1,466,685) (878,369) (1,067,580) (697,992)
Provision for Income Taxes - (1,092) - (1,092)
---------------- ---------------- ---------------- ----------------
NET LOSS APPLICABLE TO COMMON SHARES $ (1,466,685) $ (879,461) $ (1,067,580) $ (699,084)
================ ================ ================ ================
NET LOSS PER BASIC AND DILUTED SHARES $ (0.03239) $ (0.01093) $ (0.02042) $ (0.01696)
================ ================ ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 45,288,025 80,476,540 52,277,261 41,230,203
================ ================ ================ ================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
T & G2, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
Deficit, December 31, 2003 $ (17,145,109)
Net loss for the six months ended June 30, 2004 (1,466,685)
----------------
TOTAL DEFICIT JUNE 30, 2004 $ (18,611,794)
================
Comprehensive (loss), December 31, 2003, net of tax $ -
Other comprehensive income, net of tax:
Foreign currency loss for the six months ended June 30, 2004 (2,921)
----------------
Accumulated other comprehensive (loss) $ (2,921)
================
Deficit, December 31, 2002 $ (14,790,477)
Net loss for the six months ended June 30, 2003 (879,461)
----------------
TOTAL DEFICIT JUNE 30, 2003 $ (15,669,938)
Comprehensive (loss), December 31, 2002, net of tax $ -
Other comprehensive income, net of tax:
Foreign currency loss for the six months ended June 30, 2003 -
----------------
Accumulated other comprehensive (loss) $ -
================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
6
T & G2 INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
2004 2003
---------------- ----------------
CASH FLOW FROM OPERTING ACTIVIITES
Net loss $ (1,466,685) $ (879,461)
---------------- ----------------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 72,354 37,341
Amortization of unearned compensation - 1,310
Common stock issued for consulting services 331,650 374,143
Common stock issued for legal 3,300 -
Impairment of goodwill 849,964 -
Foreign currency change (2,921) -
Cash received in acquisition of subsidiary 10,325 -
Changes in assets and liabilities
(Increase) in accounts receivable (71,707) (2,602)
(Increase) in prepaid expenses and other current assets (1,521) (5,708)
Increase (decrease) in accounts payable and
and accrued expenses (4,665) 135,082
---------------- ----------------
Total adjustments 1,186,779 539,566
---------------- ----------------
Net cash (used in) operating activities (279,906) (339,895)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in amounts due to related parties (9,752) (71,497)
Acquisition of fixed assets (27,517) (42,487)
---------------- ----------------
Net cash (used in) investing activities (37,269) (113,984)
---------------- ----------------
The accompanying notes are an integral part of the
condensed consolidated financial statements.
7
T & G2 INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
2004 2003
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from common stock issuances and stock subscriptions $ 343,231 $ 523,600
Net payments from issuance of notes payable - bank - (2,539)
Repurchase of shares - (35,800)
---------------- ----------------
Net cash provided by financing activities 343,231 485,261
---------------- ----------------
NET INCREASE IN
CASH AND CASH EQUIVALENTS 26,056 31,382
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 16,754 9,676
---------------- ----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 42,810 $ 41,058
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 10,000 $ 1,317
================ ================
Income taxes $ - $ 1,092
================ ================
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Issuance of common stock for:
Consulting services $ 331,650 $ 374,143
================ ================
Legal $ 3,300 $ -
================ ================
Common stock issued for accrued expenses $ 7,500 $ -
================ ================
Preferred stock issued for investment 2,000,000 $ -
================ ================
Stock issued for conversion of debt $ - $ 45,200
================ ================
Stock issued for collateral for note payable $ - $ 2,247,000
================ ================
Fair value of the net liabilities acquired $ 260,289 $ -
Goodwill acquired (1,249,964) -
Common stock issued for accrued expenses 1,000,000 -
---------------- ----------------
$ 10,325 $ -
================ ================
The accompanying notes are an integral part of the
condensed consolidated financial statements.
8
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
The unaudited condensed consolidated financial statements included
herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). 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 suggested that these condensed
consolidated financial statements be read in conjunction with the
December 31, 2003 audited 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 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 had 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.
9
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
(CONTINUED)
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.
On or about March 29, 2004, the Company entered into an acquisition
agreement with Holtermann & Team, GmbH, a German Company
("Holtermann"), to acquire, effective April 1, 2004, 100% of the
assets and equity interests of Holtermann in exchange for 10,000,000
restricted shares of the Company's Class A Common Stock. Under the
terms of the Acquisition Agreement, the Company is the successor in
interest to a certain Loan Agreement under which Holtermann is to
receive $950,000 by the end of 2004. The shares of common stock were
issued in April 2004.
The Company acquired WholesaleByUs ("WBU") on July 9, 2004. WBU is a
technology driven company that developed proprietary technology to
sell products through the Internet. The Company acquired WBU for
$112,000 and 5,000,000 restricted Class A Common Shares of stock.
The Company announced on July 22, 2004 a name change to Softnet
Technology Corp.
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.
10
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
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
11
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
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.
Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standards No,
130, "Reporting Comprehensive Income," (SFAS No. 130). SFAS No. 130
requires the reporting of comprehensive income in addition to net
income from operations.
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of information that historically
has not been recognized in the calculation of net income.
Advertising
-----------
Costs of advertising and marketing are expensed as incurred.
Advertising and marketing costs were $ 54,758 and $ 117,772 for the
six months ended June 30, 2004 and 2003, respectively.
Goodwill and Other Intangible Assets
------------------------------------
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. The Company in its acquisition of Holtermann
recognized $1,249,964 of goodwill. The Company has determined that
$849,964 of this goodwill has been impaired as of June 30, 2004. The
remaining $400,000 has been reflected as goodwill on the condensed
consolidated balance sheet at June 30, 2004.
12
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
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:
June 30, June 30,
2004 2003
---------------- ----------------
Net Loss ($1,466,685) ($879,461)
---------------- ----------------
Weighted-average common shares
outstanding (Basic) 45,288,025 80,476,540
Weighted-average common stock equivalents:
Stock options - -
Warrants - -
- -
Weighted-average common shares
outstanding (Diluted) 45,288,025 80,476,540
================ ================
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 six months
ended June 30, 2004 and 2003, do not relate to the application
development stage and therefore have expensed these costs as they were
incurred.
13
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
Fair Value of Financial Instruments
-----------------------------------
The carrying amount reported in the condensed consolidated balance
sheet 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 six months ended June 30, 2003 have been
reclassified to conform to the presentation of the June 30, 2004
amounts. The reclassifications have no effect on net income for the
six months ended June 30, 2003.
Recent Accounting Pronouncements
--------------------------------
In September 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under
the new rules, the pooling of interests method of accounting for
business combinations are no longer allowed and goodwill and
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be
amortized over their useful lives. The Company adopted these new
standards effective January 1, 2002.
14
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
Recent Accounting Pronouncements (Continued)
--------------------------------
On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), that is applicable to financial
statements issued for fiscal years beginning after December 15, 2001.
The FASB's new rules on asset impairment supersede SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and portions of Accounting Principles Board
Opinion 30, "Reporting the Results of Operations." This Standard
provides a single accounting model for long-lived assets to be
disposed of and significantly changes the criteria that would have to
be met to classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are not
depreciated and are stated at the lower of fair value and carrying
amount. This Standard also requires expected future operating losses
from discontinued operations to be displayed in the period (s) in
which the losses are incurred, rather than as of the measurement date
as presently required.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. This statement rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, and an amendment of that
statement, SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers, and SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This statement amends SFAS No. 13,
Accounting for Leases, to eliminate inconsistencies between the
required accounting for sales-leaseback transactions and the required
accounting for certain lease modifications that have economic effects
that are similar to sales-leaseback transactions.
Also, this statement amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions.
Provisions of SFAS No. 145 related to the rescissions of SFAS No. 4
were effective for the Company on November 1, 2002 and provisions
affecting SFAS No. 13 were effective for transactions occurring after
May 15, 2002. The adoption of SFAS No. 145 did not have a significant
impact on the Company's results of operations or financial position.
In June 2003, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement covers
restructuring type activities beginning with plans initiated after
December 31, 2002. Activities covered by this standard that are
entered into after that date will be recorded in accordance with
provisions of SFAS No. 146. The adoption of SFAS No. 146 did not have
a significant impact on the Company's results of operations or
financial position.
15
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
Recent Accounting Pronouncements (Continued)
--------------------------------
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.
In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", which
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. This Statement is
effective for contracts entered into or modified after June 30, 2003,
except for certain hedging relationships designated after June 30,
2003. Most provisions of this Statement should be applied
prospectively. The adoption of this statement did not have a
significant impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities
and Equity". This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). This statement is
effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities, if applicable.
16
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(CONTINUED)
Recent Accounting Pronouncements (Continued)
--------------------------------
It is to be implemented by reporting the cumulative effect of a change
in an accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the beginning
of the interim period of adoption. The adoption of this statement did
not have a significant impact on the Company's results of operations
or financial position.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45
requires a company, at the time it issues a guarantee, to recognize an
initial liability for the fair value of obligations assumed under the
guarantees and elaborates on existing disclosure requirements related
to guarantees and warranties. The recognition requirements are
effective for guarantees issued or modified after December 31, 2002
for initial recognition and initial measurement provisions. The
adoption of FIN 45 did not have a significant impact on the Company's
results of operations or financial position.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN
46"), Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51. FIN 46 requires certain variable interest entities to
be consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired
prior to February 1, 2003, the provisions of FIN 46 must be applied
for the first interim or annual period beginning after June 15, 2003.
The adoption of FIN 46 did not have a significant impact on the
Company' results of operations or financial position.
NOTE 3 - ACCOUNTS RECEIVABLE
-------------------
The Company extends unsecured credit to its customers in the ordinary
course of business but mitigates the associated credit risk by
performing credit checks and actively pursuing past due accounts. An
allowance for doubtful accounts has not been established at June 30,
2004, since Management is of the opinion that all accounts receivable
are fully collectible.
17
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 4 - FIXED ASSETS
------------
Fixed assets consist of the following at June 30, 2004:
Office equipment $ 11,516
Furniture and fixtures 2,646
Equipment - Zingo Sales 284,828
Time clock equipment 38,730
Time clock software 54,144
-----------
391,864
(236,575)
-----------
Total $ 155,289
===========
Depreciation expense was $72,354 and $37,341 for the six months ended
June 30, 2004 and 2003. 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 June 30, 2004 was $0. The line of credit was STI's, and was
assigned over to the Company upon the acquisition. Interest expense
charged to operations for the six months ended June 30, 2004 and 2003
was $0 and $1,069, respectively.
The Company's German subsidiary, Holtermann, has a note payable
outstanding with a bank in the amount of $187,525 at June 30, 2004.
NOTE 6 - NOTES PAYABLE - OTHER
---------------------
The Company pursuant to a note agreement dated May 28, 2002 with
Protech Trading Inc. had a note payable in the amount of $68,800, due
May 30, 2003. Interest on this note was 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. The
agreement between the parties was cancelled, and the note was
forgiven, The Company had reclassified this note to additional paid in
capital along with all accrued interest on the note as of December 31,
2003.
18
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 7 - RELATED PARTY TRANSACTIONS
--------------------------
Amounts due to/from related parties at June 30, 2004 were $138,416 and
consists of the following:
A note payable to an officer at 10% interest, payable monthly, due on
demand. At June 30, 2004, the Company has paid off this note, and
there remains $6,415 in accrued interest to this officer.
Note receivable from a company through common ownership in the amount
of $23,752 at June 30, 2004.
Note payables to a company through common ownership in the amount of
$152,968 at June 30, 2004, at 10% interest, payable monthly, due on
demand. At June 30, 2004, the Company has approximately $12,505 in
accrued interest to this company.
The Company has $9,200 outstanding to another entity related through
common ownership at June 30, 2004. At June 30, 2004, the Company has
approximately $560 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 consolidated statements of
operations for the year ended December 31, 2002.
19
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 8 - ACQUISITIONS (CONTINUED)
------------
On or about March 29, 2004, the Company entered into an acquisition
agreement with Holtermann & Team, GmbH, a German Company
("Holtermann"), to acquire, effective April 1, 2004, 100% of the
assets and equity interests of Holtermann in exchange for 10,000,000
restricted shares of the Company's Class A Common Stock. Under the
terms of the Acquisition Agreement, the Company is the successor in
interest to a certain Loan Agreement under which Holtermann is to
receive $950,000 by the end of 2004. The shares of common stock were
issued in April 2004.
The Company acquired WholesaleByUs ("WBU") on July 9, 2004. WBU is a
technology driven company that developed proprietary technology to
sell products through the Internet. The Company acquired WBU for
$112,000 and 5,000,000 restricted Class A Common Shares of stock.
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Preferred Stock
---------------
At June 30, 2004, there are 5,000,000 shares of Class A Preferred
Stock, par value $1.00 authorized and 0 shares issued and outstanding.
In April, 2003, the Company passed a board resolution to re-instate
the Series A Preferred Stock changing its par value to $.001.
Additionally, the Company passed a board resolution to authorize
5,000,000 shares of Class B Preferred Stock, par value $.001. As of
June 30, 2004, the Company has 2,950,713 shares issued and
outstanding. 282,713 of these shares were issued to Mercatus Partners,
Ltd. in connection with an amended loan agreement. These shares were
issued when the Company cancelled the 66,666,667 shares of Class A
Common Stock that were issued as collateral to the original loan
agreement. The amended loan agreement was terminated by the Company
and all 282,713 shares have been cancelled of record. As of June 30,
2004 certificates representing 117,885 have been surrendered to the
Company. An additional 668,000 shares were issued to a Bermuda company
as collateral for a promissory note. These shares were valued at the
par value and recorded against additional paid in capital as the
preferred shares have no readily determinable market value. Effective
April 9, 2004, the Company terminated this agreement due to this
company's failure to make loan advances as set forth in the agreement.
All shares have been surrendered to the Company.
20
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------
Preferred Stock (Continued)
---------------------------
The remaining 2,000,000 shares of the Class B Preferred Stock was
issued in accordance with a March 24, 2004 Investment Exchange
Agreement (the "Agreement") with Cross Capital Fund, LLC. ("Cross
Capital"). The Company entered into the Agreement that provides for
Cross Capital to make an equity investment in the Company and the
Company will receive from Cross Capital an Investor Membership
Interest in an aggregate amount equal to $2,000,000 over the next
twelve months (March 2005). The 2,000,000 shares were issued in
exchange for the Investor Membership Interest. The Company has
recorded the $2,000,000 as a subscription receivable on the condensed
consolidated balance sheet at June 30, 2004. The Preferred shares
convert to the Company's Class A Common Shares as set forth in the
agreement.
Common Stock
------------
As of June 30, 2004, there were 250,000,000 shares authorized, and
63,192,136 issued and 62,900,736 outstanding shares of the Company's
common stock A with a par value of $.001. In February 2003, the
Company upon an approved board resolution increased the authorized
limit of the Class A common shares to 250,000,000.
As of June 30, 2004 there were 5,000,000 shares authorized, and
5,000,000 shares issued and outstanding of the Company's common stock
B with a par value of $.001, respectively. 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.
The following shares of common stock Class A were issued for the six
months ended June 30, 2004 and for the year ended December 31, 2003:
The Company in the quarter ended June 30, 2004 issued 13,858,059
shares of common stock for cash in the amount of $237,231. In
addition, the Company has a subscription receivable of $39,930 due for
a portion of these shares. This amount was collected in July 2004.
The Company in April 2004 issued 10,000,000 shares of common stock to
Holtermann valued at $1,000,000 for the acquisition of that company.
21
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------
Common Stock (Continued)
------------------------
On January 14, 2004, the Company entered into a Loan and Security
Agreement and a Multiple Advance Promissory Note with a Bermuda
company. This agreement establishes a multiple advance loan of a
maximum of $2,600,000. As collateral for this note, the Company issued
668,000 shares of its Series B Preferred Stock. Additionally, the
Company issued to the Bermuda company a warrant for the purchase of up
to 6,000,000 shares of the Company's common stock A at an exercise
price of $.15 per share. The warrants carry no registration rights.
Both the Series B Preferred Stock and the warrants have been cancelled
due to the Bermuda company's failure to fund the loan.
The Company issued 3,585,000 shares to consultants at various fair
market value prices for a total expense of $331,650 (average value of
$.09 per share) during the quarter ended March 31, 2004.
The Company issued 30,000 shares for legal services for $3,300 (value
of $.11 per share) during the quarter ended March 31, 2004.
The Company issued 50,000 shares during the quarter ended March 31,
2004 in conversion of accrued expenses valued at $7.500 ($.15 per
share).
The Company received $106,000 of subscriptions receivable in the
quarter ended March 31, 2004 that related to stock issuances in 2003.
There were 1,600,000 shares of stock issued in the quarter ended
December 31, 2003 for consulting services (including legal fees) at a
fair value of $248,000 ($.15 per share).
There were 2,100,000 shares of stock issued in the quarter ended
December 31, 2003 for cash for $203,510 ($.09 per share). The Company
recorded an additional $139,120 on these shares to record the discount
provided and bring the fair value of the shares issued to an average
of $.16 per share, which was the fair value of the shares on the dates
issued. In addition, the Company has a subscription receivable of
$122,560 relating to these shares. The Company also, in the quarter
ended December 31, 2003 received $65,000 relating to shares issued in
the quarter ended September 30, 2003.
There were 525,000 shares of stock cancelled in the quarter ended
December 31, 2003 for accrued compensation to the officers of the
Company at a fair value of $105,000 ($.20 per share).
There were 1,210,000 shares of stock issued in the quarter ended
September 30, 2003 for consulting services (including legal fees) at a
fair value of $170,400 ($.14 per share).
22
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------
Common Stock (Continued)
------------------------
There were 5,625,000 shares of stock issued in the quarter ended
September 30, 2003 for cash for $626,693 ($.11 per share). The Company
recorded an additional $228,307 on these shares to record the discount
provided and bring the fair value of the shares issued to an average
of $.15 per share, which was the fair value of the shares on the dates
issued. In addition, the Company has a subscription receivable of
$65,000 relating to these shares. The Company also, in the quarter
ended September 30, 2003 received $172,000 relating to shares issued
in the quarter ended June 30, 2003.
There were 985,000 shares of stock issued in the quarter ended
September 30, 2003 for accrued compensation to the officers of the
Company at a fair value of $165,000 ($.16 per share).
There were 3,332,000 shares of stock issued in the quarter ended June
30, 2003 for consulting services (including legal fees) at a fair
value of $261,960 ($.07 per share).
There were 8,280,000 shares of stock issued in the quarter ended June
30, 2003 for cash for $651,700 ($.079 per share). The Company recorded
an additional $112,183 on these shares to record the discount provided
and bring the fair value of the shares issued to an average of $.09
per share, which was the fair value of the shares on the dates issued.
In addition, the Company has a subscription receivable of $172,000
relating to these shares.
There were 800,000 shares of stock issued in the quarter ended June
30, 2003 for accrued compensation to the officers of the Company at a
fair value of $45,200 ($.0565 per share).
There were 32,100,000 shares of stock issued in the quarter ended June
30, 2003 as collateral for a note payable agreement that the Company
had anticipated entering into. These shares had a fair value of
$2,247,000 ($.07 per share). The note payable was entered into, and
due to a default on or about May/June 2003 by the other party to the
transaction in July 2003, the shares were returned and cancelled by
the Company.
23
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
------------------------------
Common Stock (Continued)
------------------------
There were 66,666,667 shares of stock cancelled in the quarter ended
June 30, 2003 that were issued as collateral for a note payable
agreement that the Company had entered into with Mercatus Partners,
Ltd. These shares had a fair value of $8,666,667 ($.13 per share), and
were being held in escrow. In April 2003, the Company amended the loan
agreement and these shares were cancelled as a result of the
amendment, and the Company issued 282,703 shares of Series B Preferred
Stock at par value of $.001. As set forth above, those shares have
similarly been cancelled.
The Company, in the quarter ended March 31, 2003 received $43,900
relating to shares issued in 2002.
Treasury Stock
--------------
In January 2003, the Company instituted a buy back program of its own
stock. For the six months ended June 30, 2004, the Company bought back
no additional shares of its common stock and placed it in its
treasury. For the year ended December 31, 2003, the Company bought
back 291,400 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 $37,338 at June 30, 2004 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 substantial net losses for the six
months ended June 30, 2004 and the years ended December 31, 2003 and
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.
The Company has improved its operations through its acquisitions of
Holtermann and WholesaleByUs, and has been affected by recent
legislative mandates on the gaming industry that has lead to a portion
of the Zingo unit revenue being diminished. Management feels that
through their recent acquisitions, the Company will develop positive
operations and cash flows in those subsidiaries offsetting potential
losses in Zingo and STI.
The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
24
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 11 - COMMITMENTS
-----------
In November 2002, 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. In the first quarter of 2004,
Securetime has installed a biometric ID system in a bingo facility in
Wyoming.
NOTE 12 - LITIGATION
----------
In an action commenced on or about March 28, 2002 in the Supreme Court
of the State of New York, 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. The
Plaintiff as of March 25, 2004, has failed to respond to the Company's
discovery demands. The Company will seek an Order of the Court
dismissing this action due to the plaintiff's failure to comply.
Management is of the belief that all allegations involved in this
action are without merit. No liability is recorded for this action as
of June 30, 2004.
In an action commenced in or about March 2003 in the Superior Court of
Union County New Jersey, the plaintiff seeks $35,000 for the Company's
alleged breach of a Communications Agreement. The Company believes it
owes only $15,000. During a mediation hearing held on December 10,
2003, the Company settled this matter for $17,500. The Company has
made the required settlement payment and the case was dismissed in
February 2004.
NOTE 13 - INVESTMENT
----------
The Company's subsidiary, Zingo Sales, Ltd. formed a joint venture
company as a 50% owner. This company has a 20% ownership in the
management of a Bingo Hall. These consolidated financial statements
have consolidated these operations, and reflects the investment in the
management of the Bingo Hall on its condensed consolidated balance
sheet in accordance with the cost method, as its ownership percentage
is 20%, and the Company does not exercise significant influence on the
operational or financial decision making of that company.
25
T & G2, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 14 - SUBSEQUENT EVENTS
-----------------
The Company acquired WholesaleByUs ("WBU") on July 9, 2004. WBU is a
technology driven company that developed proprietary technology to
sell products through the Internet. The Company acquired WBU for
$112,000 and 5,000,000 restricted Class A Common Shares of stock.
The Company announced on July 22, 2004 a name change to Softnet
Technology Corp.
26
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 June 30, 2004 and compared to the
second quarter ended June 30, 2003 and plan of operations for the six-month
periods ended June 30, 2004 and 2003. Financial information contained within
this report is condensed and reviewed. 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. In July of 2004,
the Company sold Zingo sales to a third party company. In the second quarter of
2004, the Company acquired Holtermann & Team GmbH, a German Based Company. Post
June 30, 2004, The Company purchased Wholesalebyus, LLC as a wholly owned
subsidiary. Subsequently, the name of the Company was changed to SoftNet
Technology Corp to better reflect the business direction of the new Company. The
business activities of the Company are now that of the wholly owned
subsidiaries. Comparisons are provided below but the Company is not yet able to
show a year-by-year comparison of business activities because of the change on
business operations. 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. In 2002, the Company was mainly focused
on research and development and testing of the new products developed in the
subsidiary companies.
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 and commitments for cash were accomplished in the last 6
months. Management is currently enhancing their business plan to incorporate the
new subsidiaries acquired in this fiscal year, and is in process of trying to
raise the appropriate funds to execute this business plan. There can, however,
be no assurances that this money will be raised in the near future.
Additionally, the Company achieved a listing on the third level of the Berlin
Stock Exchange. Active trading for the Company's shares began in the first week
of July 2004. 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 third and fourth quarters, the Company anticipates to further
expand and generate revenues from the sale of their time clocks and the
continued growth of the new subsidiary, Wholesalebyus. 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 completely fund. This would include a
possible stair step-financing plan. This may encompass a first and second level
of private placements, bridge financing, and mezzanine financing. However, there
27
can be no assurance management will be successful in these endeavors. However,
with the listing on the Berlin Exchange and Frankfurt Exchange, the Company has
greatly increased its chances of success for raising capital.
Liquidity and Capital Resources
- -------------------------------
For the six-months ended June, 2004, the Company used $279,906 in operating
activities compared to $339,895 for the six-months ended June, 2003. The actual
cash used was mainly for the marketing and distribution of the Company's
products. The first and second quarter of 2004 shows an increase in actual cash
used and the issuance of stock for consulting fees for the development of the
Company's business operations. These increases were to improve the distribution
for the current product lines and to increase the visibility of the Company in
the business community. The Company has made significant progress with respect
to future funding. Further 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 significant 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 June 30, 2004, had a working capital deficit. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. However, the acquisition of Wholsalebyus brings
significant cash flow to the Company and appears ready to grow very quickly in
the coming months. It now appears that the Company has a realistic chance to
reach cash flow positive by the end of the fourth quarter (December, 2004) of
this year. The Company is also in the process of creating new distribution for
the SecureTime System in numerous jurisdictions. On another note, The Company's
wholly owned subsidiary, Solutions Technology, is now in the process of putting
into place numerous distribution and sales agreements for the SecureTime System.
It is anticipated that the new distribution currently being set up for the Time
and Attendance product will begin to show significant gains in the near future.
Solutions Technology is expected to begin contributing to the overall sales of
the company in a significant way in early 2005.
28
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, 2004.
Item 5. Other Information
- ---------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
31.1 Certification of the Principal Executive Officer
and Chief Financial Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer and
Chief Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On April 28, 2004, the Company filed a Curent Report on Form 8-K
under Item 5 reporting an an Agency Agreement with Registrar and
Transfer Company whereby the Company appointed Registrar and
Transfer Company to act as its transfer agent, with regard to it
Class A Common Stock ("Stock"), in place and in stead of American
Stock Transfer & Trust Corp. At the time of appointment,
250,000,000 shares of Stock were authorized and 51,334,077 shares
of Stock were outstanding. The Company will maintain, internally,
the records of any issuances of any class of the Company's stock
other than the Class A Common Stock.
29
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: August 20, 2004 By: /s/ James Farinella
-------------------------------------
James Farinella
Chairman, Chief Executive Officer and
President
30