“I mean, when we got the first call, it was just a crash. No one is injured, no big deal.
And then it just got weirder and weirder. The deputies just kind of got sucked into this.”
Sgt. Philip Brooks
LA County Sheriff's Department
Gizmondo is the name of an erstwhile gaming hardware developer and its only product. It entered the public eye in early 2004, having morphed from a GPS-equipped child tracker into what company releases excitedly declared a “futuristic multi-entertainment wireless handheld gaming device,” intended to compete with the handhelds of Nintendo and Sony. Apparently it would have “cutting-edge gaming,” amongst other things. Nice.
Ill-conceived, woefully under-supported and spectacularly unsuccessful when it eventually launched, the Gizmondo device was nonetheless eclipsed by the cataclysmic self-destruction of the Gizmondo company. Directors formerly of - seriously - the Swedish Mafia, employed opaque business deals and personal associations to profiteer from a financial disaster, enjoying huge salaries, bonuses and expense payments as their company sunk millions into a hopelessly naïve and undernourished concept. Gizmondo Europe, once it had expended its confident veneer and ability to draw investment, rapidly became a financial train wreck which unfolded in torturous slow motion as business and gaming communities looked on in rapt fascination.
The eventual and inevitable collapse of the company in early 2006 was one of the largest tech meltdowns since the end of the dot com boom; Gizmondo Europe had frenziedly consumed over 350 million dollars in less than three years, and losses in the first nine months of 2005 had topped 264 million dollars, more than double what the company had lost in total by the end of 2004. This may be the tip of the financial iceberg, since the company's accountants refused to certify any financial reports the company published after March 2005.
Still, the whole affair would have remained largely unnoticed by the media at large if it weren't for one rather high-profile write-off and those snooping kids.
The tale culminated in February 2006, less than a month after Gizmondo Europe (GE) folded, with the spectacular crash of a Ferrari Enzo on California's Pacific Coast Highway. The car hit a tiny bump in the road at almost 200mph; it took off, spun and collided sideways with a concrete utility pole, snapping it and splitting the car in two, scattering debris over a quarter-mile stretch of highway.
When deputies from the LA County Sherriff's Department arrived at the scene they found Bo Stefan Eriksson, a former GE Director, standing beside the wrecked Ferrari with another man who identified himself as Trevor Karney. Eriksson, smelling of alcohol and sporting a freshly cut lip, said that he had been a passenger in the Ferrari and the driver had fled. Karney said he had been abandoned at the roadside by the driver of a Mercedes SLR which had been racing the Ferrari.
Attempting to resolve dubious elements of both men's stories and confusing events that followed, the law enforcement investigation eventually spread far beyond the accident itself, peeling back layers of deception and tangled, dubious personal histories to wide scrutiny. Charges from embezzlement to grand theft auto, drunk driving and illegal weapon possession were subsequently levelled one after another at the former Gizmondo Director.
Eriksson was sentenced to a 3-year jail term, with deportation to follow his release. Swedish national Carl Freer, the former Chairman of Tiger Telematics' Board of Directors and recruiter of Eriksson, was arrested in April 2006 on suspicion of impersonating a police officer to buy a gun, but was later released without charge. Gizmondo's liquidators are still trying to figure out where all of the money went.
”No matter how much you spend on cars, watches and directors' perks,
you just can't get through a sum as big as this quite as quickly as Gizmondo did.”
Begbies Traynor, one of Gizmondo Europe's liquidators
I am rather a naïve person. I fall for things. That predictably set-up joke in a TV episode? Hilarious. Movie ending you saw coming a mile off? Totally got me. Cheesy music? Suckered. Obviously-doomed consoles? I'm excited.
I remember being quite enthused about the Gizmondo. The hardware was manufactured briefly (estimates range from 10,000 to 30,000 units worldwide) but quickly became vapourware, outdone only by Infinium Labs' aptly-named Phantom console, which remained “in development” years after the first teaser trailers appeared, eventually devolving into a PC-based content delivery client before vanishing altogether. Nuon, VM Labs' DVD player hardware supplement also piqued my interest (although Jeff Minter's personal endorsement was probably the kiss of death), as did hopeless Linux-powered set-top box Indrema.
The first I heard of the Gizmondo was when its designer Rick Dickinson (formerly of Sinclair Research - he holds the patent on the design of the Sinclair ZX81) was featured in the June 2004 edition of Edge magazine, an interview of which he spent a significant portion trashing the designs of most mainstream game consoles. A photograph of a clay mock-up of the handheld was included in the article, with some vague information. I was puzzled at the time that nothing had been mentioned of this little console before. It looked rather cute and appealing.
It had begun as a GPS system parents could use to track the whereabouts of their children, but to make it easier to get children to carry it, designers later incorporated the technology into a portable videogame system called 'Gametrac'. A few months after its announcement the name was changed to 'Gizmondo', both in reference to its numerous features and the result of a trademark infringement lawsuit over the original name. The editors of gadget site gizmodo.com, just starting to gain popularity at the time, were no happier about the new one.
The handheld was crammed with functionality: the aforementioned GPS receiver, a 2.8inch LCD display, a 400MHz Samsung processor and 64-bit NVidia graphics accelerator, Bluetooth and GPRS facilities for multiplayer games, an SD memory card slot (from which various types of media files could be played), text and multimedia messaging and even a digital camera. All quite respectable for the time, if unfocused.
Curiously the Gizmondo could not be used as a cellphone, despite being able to send text and picture messages, and receive adverts via the mobile phone network (units with this 'feature' were £100 cheaper, and had several adverts delivered to them per day). Nonetheless, I found the prospect of 'outdoor' multiplayer games utilising GPS very interesting, as well as the unit nominally being a relatively-cheap alternative to GPS receivers (not unlike the relationship between the Playstation2 and the DVD players available at its release). Sadly it emerged that due to a lack of bundled software, the unit could not actually function as a GPS receiver out of the box.
All of this was early to mid-2004. There were web forum discussions, magazine previews, newswires and things. Most comment contained some degree of bile towards this impertinent upstart which presumed to challenge 20 years of incumbency and surmount the obstacles that previously thwarted Atari, Sega, Bandai and SNK. First among the concerns was the small and rather unexciting catalogue of games, and with a launch planned for winter 2004 the confidence of a highly sceptical entertainment media, to say nothing of gamers themselves, was less than inspired. The proposed price of £229 was laughable, and even the £129 'subsidised' version did not stack up well against the £100 Nintendo DS or more expensive but far more desirable Sony PSP. While the company did manage to contrive significant press attention prior to launch, it was directed more at the company's profligacy and relentless hyperbole than the device itself, which failed to garner or deserve much favourable copy at all.
But we're getting ahead of ourselves. The story of the mutant company that brought this console to market is an interesting one replete with unbridled spending, favouritism, double-dealing and misdirection; almost as interesting as the backgrounds of its most prominent employees and their eventual comeuppances.
In The Beginning Was... floors
The company that designed and marketed Gizmondo in the UK - Gizmondo Europe Ltd - was a subsidiary of Tiger Telematics, Inc., based in Jacksonville, Florida. Both of these companies are now defunct. Neither originally had the same name, management or purpose as they did when the Gizmondo was launched.
Tiger Telematics' history begins with Delaware-based Floor Décor, Inc. (FDI). In 2001 it had bought Media Communications Group Inc. (MCGI), a publicly-traded marketing and distribution company in a 'reverse takeover'; for accounting purposes FDI had been bought by MCGI. A company does a reverse takeover when it wants to assume some attribute of the company it's buying. In this case Floor Décor became a public company when it bought MCGI, which circumvented the accounting procedures usually required of a company wishing to become publicly-traded (filing a prospectus, making an initial public offering and such).
It seems this drew the interest of Carl Freer, a director of UK-based telematics company Eagle Eye Scandinavian Distribution Ltd. It is unlikely that Freer's interest was in Floor Décor's business, but more in the deal it had just done: a publicly-traded company can create money by selling stock, borrowing money from shareholders, creating more shares of stock and even using them in lieu of cash. The latter was what FDI had done in its reverse takeover of MCGI. It seems that Freer saw some mileage in this tactic and subsequently negotiated for Floor Décor to completely change direction.
On February 4th 2002 Floor Décor bought Eagle Eye with 7,000,000 shares of its stock and changed its name to Tiger Telematics Ltd. It also relieved itself of several million dollars of indebtedness to various shareholders by converting the debts into stock. A couple of recurring themes started here: converting debt into stock and using shares in place of 'real' money. Floor Décor had managed to acquire a new subsidiary, and reduce its liabilities by over four million dollars, without actually spending any money.
By July 2002 Floor Décor had changed its name to Tiger Telematics Inc., announced plans to dispose of its unprofitable flooring business and leased a London office for Tiger Telematics Ltd (paying for the first year with 500,000 shares). It also signed a deal to buy Comworxx Inc., a U.S.-based telematics provider. The deal was for $4.2m worth of Tiger stock, the assumption of some of Comworxx's liabilities and the provision of $500,000 of funding.
Following the deal Michael Jonas, Comworxx's former CEO was made Tiger's President and CEO. This seemed promising: the company now had a telematics presence in the U.S. to complement its recent London acquisition, and relevant experience right at the top of the company. There was just one problem: even a couple of months after the acquisition, Tiger neither had Comworrx's $500,000 of funding nor was confident it could get it. A subsequent review of Comworxx's operations concluded, rather surprisingly, that Comworxx was not a viable business. Tiger then wrote off the value of the purchase completely, adding almost five million dollars to its losses for that year. Tiger also believed it may have been fleeced by Comworxx's sellers, and hired lawyers to investigate causes of action against them for possible misrepresentation.
Better luck next time, eh? Comworxx and Tiger Telematics USA—the entity which had been created to make the purchase—were both mothballed, and Michael Jonas resigned as President and CEO of Tiger less than two weeks after his appointment. Long-time company directors Alvin Nassar and Ed Kenny walked out on the same day and shortly afterwards Michael Carrender, company Vice President and Chief Financial Officer since the Floor Décor days, stepped up as CEO.
bye bye, FDI (sorry)
The flooring segment of what was becoming a telematics company had never been a particularly illustrious entry on Tiger's call sheet. By the end of 2001 Floor Décor had an accumulated deficit of almost two million dollars, the annual report noting “strained” liquidity and the possibility of having to start cost-saving measures to increase available cash.
Tiger sold its Floor Décor subsidiary on August 9th, 2002 to a company called M.I.N.I.M.E. Inc.
The company was headed by Matt Sailor, who the same day had resigned as a Director of Floor Décor. The price was $1.00, and the assumption by M.I.N.I.M.E. of $1.2m of Floor Décor's liabilities.
This relatively clean break removed substantial dead weight from the company (M.I.N.I.M.E. went bankrupt shortly afterwards, but Tiger was unaffected) but things didn't improve hugely, mostly because of money wasted buying and running Comworxx, the money spent running Tiger Ltd (the UK subsidiary) and other expenses associated with public ownership.
In an attempt to offset all of this, Tiger Ltd was sold in December 2002 to a Swedish company, in exchange for the assumption of ~$825,000 of debt and a 20% royalty on all of Tiger Ltd's profits for the next 10 years. Nominally this didn't seem like a great deal because it seemingly left Tiger with nothing but a royalty agreement of questionable value. However, what had actually been sold was Tiger Ltd's Scandinavian orders, distribution rights and inventory of telematics units. The company's report of the sale mentioned ”other unrelated products, Childtracker and non Eagle Eye Telematics tracking units that have been transferred to another UK subsidiary of Seller.”
This was the first reference to “Childtracker”, but allusions to child tracking products were scattered about for some time afterwards, as were references to a “development entity” called Childtracker Ltd, which had been operating under a different name since 1996. Its name was changed on December 12th, 2002, five days before Tiger Ltd was sold.
So once again, Tiger had dumped some deficit onto a buyer, and got to continue its UK telematics developments as if nothing had happened. The day after selling Tiger Ltd, Tiger Inc. incorporated a new subsidiary, Tiger (sigh) Telematics Europe Ltd, “to provide a variety of telematics products and services to customers in England and Western Europe”. Carl Freer was made Managing Director of this new division, and Steve Carroll (originally of Eagle Eye) made Technical Director.
Unfortunately Tiger Inc. hadn't quite seen the back of Tiger Ltd. When the company was sold, it was just beginning to repay a $475,000 debt it was settling on behalf of a shareholder. This shareholder had borrowed from funds an investor had paid Tiger Ltd, and had subsequently defaulted on the loan. Soon after being sold, Tiger Ltd was liquidated for failing to keep up the repayments. The creditors subsequently demanded that Tiger Inc. pay the remaining debt.
A short time later Tiger Inc. was sued by Christian & Timbers, who had leased Tiger Ltd's offices. Unsurprisingly Tiger Ltd had now defaulted on its lease payments, but it was Tiger Inc. that had guaranteed the lease. It was ordered to pay $300,000 to settle the lease agreement, but issued C&T with “shares of common stock...that it believes will satisfy the amount of the outstanding judgement.” Surprised?
Although full of activity, 2002 hadn't been a great start to the company's new adventure and the annual report expressed doubt about its ability to continue operating. Year-end losses had increased almost tenfold on 2001 and the accumulated deficit topped $15m, both mostly due to Tiger's relatively high turnover of subsidiaries. The 2002 annual report was the company's first mention of Carl Freer, who would eventually become Board Chairman. His history listed a number of previous appointments, including as a trustee on the Kings Medical Research Trust and a founder of company Vxtreme. The Times later reported neither of those statements were true.
Company reports for 2003 frequently whined about the lack of income; Tiger was only able to continue operating by borrowing money (usually from shareholders) or by using shares in lieu of cash to pay suppliers, even employees. Offloading Tiger Ltd and Floor Décor had helped though; 2003 losses were down several million dollars on those of 2002.
It was this year in which Stefan Eriksson was first tacitly mentioned in company documents, and by 'tacitly' I mean 'not at all'.
Remember Childtrack Ltd? Well, it had been assisting, in some capacity, with the development of the child tracking and "other" telematics devices that Tiger was working on. These were all dropped in 2003 in favour of developing a device called Gametrac, a handheld entertainment device with GPS abilities. The Register had an exclusive on it in December 2003, mentioning the same specifications as the later Gizmondo and noting alliances with a number of manufacturing heavyweights to design and produce it.
Childtrack Ltd became Gametrac Development Ltd in August 2003. That June, Carl Freer and Stefan Eriksson were appointed as its Directors. Its 2003 filing with Companies House states that between them the men owned 37% of the company and were also both directors of parent company Gizmondo Europe. Although no such company existed at the time it's possible that retrospective accounting has muddied the waters, as several of Tiger's overdue filings directly reference events that occurred after the year of the reports, and Gametrac Development's 2003 accounts were signed by Carl Freer in 2005. Go figure.
As 2003 progressed, development on the Gametrac stepped up. This required things like deals with component suppliers, manufacturers, distributors, software developers, marketing and PR firms and such. These did occur in time but did of course have to be financed somehow, which isn't the easiest thing in the world when you don't have any customers, income or products to sell. The answer of course was “more shares!”. In May 2003, “to convert debt, fund further product development, make acquisitions of companies and technologies and acquire capital by the issuance of shares in future,” the company's stockholders voted to increase the company's 'authorised' shares (the total number it could issue) from 100 million to 250 million. Nine months later this figure was doubled to 500 million.
By the end of the 2003 the company was beginning to build the Gametrac brand and gather momentum for the planned launch of the device in 2004. In August, Tiger Telematics Europe became Gametrac Europe Ltd, just after it had entered a “multi-million pound” sponsorship agreement with Jordan Grand Prix Ltd to display its logo on their Formula 1 cars. Tiger's 2003 annual report was bursting with announcements of “agreements,” “joint ventures” and “strategic partnerships” with firms like Plextek (who would assemble the units), Flextronics (who would supply some of the internals), Samsung (suppliers of the handheld's CPU), NVidia (suppliers of the graphics chip), Toys "R" Us, John Lewis (with whom the company had retail agreements), Ogilvy Public Relations (the company's agency of record), Microsoft Game Studios and Sales Curve Interactive, with dozens of others.
The company was certainly beginning to get noticed, at least by the specialist and business press, but was suffering debt (shareholder debt alone was as much as $2.9m during 2002, of which $1.7m was repaid with stock) and a persistent lack of income. 2003's annual report contained an audit opinion, echoed by the company itself, that the amount of equity or debt needed for the company to successfully execute its business plan raised “substantial doubt about its ability to continue as a going concern.” Oh well, onwards and upwards. Hopefully.
2004: Year Of The Lawsuit
Jordan Grand Prix made sure 2004 didn't get off to the most illustrious start: in March it filed a $3m lawsuit against Tiger, alleging it had failed to make a $500,000 payment, due that January, under their sponsorship agreement. Tiger's filings make little attempt to deny or mitigate this, simply saying that the sponsorship agreement was intended to coincide with the launch of the Gametrac, which was delayed. Jordan had terminated the sponsorship agreement that February.
Next was In 2 Games Ltd, who sued Tiger and Gametrac Europe, alleging that the Gametrac name infringed on their 'Gametrak' trademark. Tiger didn't seem overly concerned by this; in April it announced the name of its product as Gizmondo instead, which it believed would be sufficient for an amicable resolution. Accordingly the names of Gametrac Europe and recently-created subsidiary Gametrac USA were changed respectively to Gizmondo Europe and Gizmondo USA.
By summer of 2004, Tiger was evidently becoming a bit ants-y about its stock trading position, perhaps because the thirst for income was intensifying and it still didn't have anything to sell. Its stock listing had been pulled from the Over The Counter Bulletin Board the previous May because it had failed to provide timely financial reports, so it was now being traded on the 'Pink Sheets' system. Although this system imposes no such requirements, the Securities and Exchange Commission cite companies listed there as amongst the most risky investments because it is difficult to effectively research them. Not an ideal position for a wannabe-reputable company.
Tiger had set its sights on a far-more-prestigious NASDAQ listing, which required it to satisfy a number of conditions. One of these was a minimum share price of $4.00, and since Tiger's share price then was a mere 46 cents, a de facto requirement became not having, you know, over ten million outstanding shares. In a special meeting, shareholders authorised directors to make a reverse stock split of 25-to-1, so 25 old shares would be worth one new one.
The split went ahead in July 2004. It affected only outstanding shares, not authorised shares (those possessed by individuals or organisations, as opposed to the total that may be issued), which effectively increased the amount of shares Tiger could issue and in theory, increased their value. Although Tiger had still to meet any of the NASDAQ listing requirements, it seems no-one told the PR department: several post-split press releases, and even those of one of its partners, claimed it was a NASDAQ-listed company.
The split had a further unexpected effect: in December 2004 Tiger received a demand for 960,000 shares of stock from shareholder and former investment advisor Donald E. Weckstein. It seemed that back in 2002 he had been paid for his work with 1,000,000 shares of stock (imagine that). After the stock split he was left with 40,000 shares and insisted that Tiger owed him 960,000 more. Tiger sought a court judgement both that it wasn't required to issue these shares, and to get the original 40,000 shares back. After Weckstein counter-sued for more shares, costs and damages, Tiger settled the case for a further 60,000 shares. They increased his stake in the company by 150%, the big wussies.
Yes, 2004 was the year of acquisitions. In May, GE bought a 75% stake in Isis Models Ltd, to provide “marketing support and arrangements for the Gizmondo.” A former employee commented to The Mail on Sunday that “no one was ever sure why, except it allowed the directors to hang around with some beautiful people.” It also ensured there were plenty of attractive women to brighten up Tiger's press events. Isis was the only part of the company that ever turned a profit, though it wasn't enough to offset the outrageous spending occurring elsewhere.
Perhaps I'm being unfair though - Gizmondo did make, though not exactly earn, some money in 2004. This rare phenomenon first occurred when somehow, somehow, two individuals who'd just sold their stock in Tiger were persuaded to buy the same amount of stock again, at the same per-share price they'd just sold them for! $1.5m. Ker-ching.
Money aside, Tiger was still having difficulty persuading major developers to commit to the Gizmondo so decided to get some studios of its own. Early in August, just a couple of weeks after the stock split, a press release proudly announced Gizmondo Europe had purchased Stockholm game developers Indie Studios AB, for 1,000,000 shares of stock. Quite why the company was so pleased remains unclear since it appears that before being bought by Tiger, Indie hadn't done anything at all, ever.
This acquisition marked both the entry into the company of Carl Freer's Swedish associates (we'll get to them) and its first seriously questionable business deal. Indie Studios was bought for $850,000 and shares valued at $2,740,000 - in total over three million dollars in excess of its stated value. If it were possible to shrug in text, this filing excerpt would be it:
The excess of purchase price over the value of the tangible assets acquired ($3,651,713), was assigned to Goodwill.
In business terms, 'goodwill' is a possession that is intangible but still has value. For example, if a business has built up the confidence of its associates that it will conduct itself reasonably, this good standing - goodwill - may have financial value in establishing other business relationships. As a company which had done absolutely nothing, it is difficult to imagine what goodwill Indie could possibly have acquired besides its association with Freer.
Indie was bought from a company called Golden Sands Investment Holdings. Its directors were Peter Uf, Joe Marten and Stefan Eriksson. The three men were associates, and Freer had met Eriksson while he was running nightclubs in Stockholm during the late 80s. Wired reported the two met again during 2001, although the circumstances of this are unclear.
A number of personnel changes followed the acquisition: Freer was made a Director of Tiger and Board Chairman (on top of his position as MD of Gizmondo Europe), Eriksson and Uf were brought on as Directors of Gizmondo Europe and Carroll was made Tiger's Chief Technology Officer. Johan Enander, an associate of Eriksson, was made Head of Security for Gizmondo Europe. Eriksson, Freer said, would be able to provide “strategic introductions” in the racing industry which would provide Gizmondo with sponsorship opportunities.
The absence of income and the share capital that Tiger was doling out to suppliers like lollipops didn't deter Freer from setting his basic salary at £500,000 and those of Eriksson and Carroll at £400,000. Their employment contracts were backdated to March 2004, perhaps so it seemed slightly less outlandish when Freer and Eriksson's salaries were both doubled... in October. The two remained eligible for bonuses up to 200% of their basic salary and received annual automobile allowances of over £60,000, figures that a spokesman later said were “by no means beyond European norms” considering “the kind of vehicles normally associated with this management level.” Alright for some, I guess.
Company directors didn't just look after themselves well, they took care of their associates too: Carl Freer's wife received $173,831 for “consultancy services” to Gizmondo Europe; Tamela Sainsbury, Company Secretary and live-in partner of Steve Carroll (Gizmondo's CTO), received base salaries in excess of $150,000, a car worth almost $70,000 and company shares worth $467,213; Steve Carroll himself received a Bentley Continental worth over $230,000. Before the Indie acquisition and his subsequent employment, Joe Marten received $1.8m worth of Tiger stock for “services rendered to the company.” He later resigned after the Board discovered he'd used company money to buy a luxury car without permission, although in a letter to spong.com, Marten's lawyer said:
...the Company has not made any accusations or allegations against Mr Marten and has not accused him of dishonesty or gross misconduct in any way as respect to this transaction. Mr Marten believed the vehicle was properly authorized by Gizmondo Director, Stefan Eriksson and proceeded accordingly and he did nothing of an improper nature in this matter.”
Whatever dude, I guess he wasn't inside the privileged circle. Unlike, for example, the aforementioned Carl Freer who got $163,855 of his personal legal expenses paid by Gizmondo Europe during 2004.
This extravagance of course had to be paid for, as well as things like employees (now numbering over 100) and day-to-day operations. Shares could only go so far. By the third quarter of 2004, however, Tiger's stock was hitting $14.75 per share so the company was finally able to attract some serious investment. On October 6th, Tiger sold four million shares of stock for twenty million dollars, at last a serious injection of 'real' cash with which Tiger was decidedly unfamiliar. When reporting the sale, Tiger indicated that much of these funds would be used by Gizmondo Europe to buy game content.
So, make with teh acquisitionz lolzor!!1!one
Yes, Eriksson, Marten and Uf had barely gotten comfortable on their JEWEL-ENCRUSTED THRONES before it was time for the next round of buy-outs. To begin addressing the rather anaemic software line-up for the Gizmondo - which in October 2004 had begun limited production in the UK - Tiger bought Warthog Plc, a UK game developer with subsidiaries in Sweden and Texas, for $1.1m cash and 497,866 shares of stock. These companies were subsequently renamed Gizmondo Studios Ltd, Gizmondo Studios Texas, Inc. and Gizmondo Studios Sweden AB, receiving $1.3m of working capital between them within a couple of days of the deal closing.
Tiger still wasn't done, however: as it announced the Warthog purchase, it had also closed a deal to purchase the stock of Integra SP, a developer of “software for process management and integration of real-time”. Integra was intended to support a new 'Bizmondo' platform, a planned mobile stock trading tool based on the Gizmondo hardware. Little information was ever released about it, but with its purchase of Integra (for 625,250 shares, and 2,794,785 more to be issued over the following two years) Tiger finally had a division with a significant income - $4.1m in unaudited revenues by June 2004 - again, without spending any actual cash.
I've jumped ahead of the chronology slightly for readability's sake, so allow me to backtrack a month because this particular tidbit is worth it. In September, Gizmondo Europe agreed to pay Northern Lights Software Ltd, “a company registered in the United Kingdom” (I suppose one can't argue with that) $4.5m to develop the games Chicane and Colours. $3.5m of this was paid during 2004.
Hookay, where to begin? How about that the games it was paid to develop were actually being developed by Indie and Warthog? How about there being no record of Northern Lights doing anything at all, prior to being paid over three million dollars? Surely you wouldn't pay that much to an unproven supplier unless, for example, two of your Board members are on its board of Directors. Oh, what's that? Two of your Board members are on the supplier's Board? And this fact is printed in your company's annual report, two pages after it specifically states that no Director is on the Board of any other company? Get out of here! Would this be the same Gizmondo Europe that paid £78,333 to Nathan Maknight Consultancy Ltd. for "consultancy services" from an individual that was not only a director of Nathan Maknight, but of Gizmondo Europe as well?
I imagine directors owning the company they're paying is also quite an incentive. The rather juicy 'related party transactions' section of Tiger's 2004 report stated that Carl Freer and Stefan Eriksson were on Northern Lights' Board of Directors, and that each owned a 23.5% stake in it. What it didn't say was that Freer and Eriksson were Northern Lights' only directors, or that via convoluted means arguably owned all of it. On the face of it Freer and Eriksson each owned 24% of Northern Lights, but the controlling interest was held by “Asiatic Securities at Asiatic Commerce Bank,” in Panama. Speaking of which...
Asiatic Bank & Finance
This is so awesome it deserves a section all to itself. The Asiatic Bank & Finance company was involved in a fairly head-scratching series of deals involving Gizmondo, Freer, Eriksson and other entities they had ties to.
First of all, the Northern Lights deal. Did I mention the games they were paid millions to develop were actually developed by Indie Studios and Warthog? I guess it got lost in the impropriety and slipped my mind, but that's neither here nor there. Tiger's report on Freer and Eriksson's ownership of Northern Lights (now dissolved, by the way) is more or less correct if you just go off the surface information.
Companies House filings for Northern Lights Software Ltd do indeed have Freer and Eriksson as directors and part-owners. Both held 24 of the company's 100 shares, with the remaining 52 held by the aforementioned Asiatic Securities. The Times reported in 2007 that although there is an Asiatic Securities in Panama, there is no record of an Asiatic Commerce Bank. However, there was an Asiatic Commerce Bank in London. When it dissolved in March 2007 it was wholly owned by Stefan Eriksson.
Here's the other thing Asiatic Commerce Bank did in 2004. Well, actually, it wasn't Asiatic Commerce Bank. It was Asiatic Bank & Finance. Formerly Asiatic Commerce & Finance. Decide for yourself if all of them are in fact the same entity; the fact they're all practically anagrams of each other might help with that. Whatever, I'll just say 'Asiatic' from here.
In the 'related party transactions' section of Gizmondo Europe's 2004 report, it says that Freer and Eriksson caused Asiatic to pay a total of $7,622,000 to 3P Preform Marketing and Research AB (a systems developer based in Stockholm) and other parties. Ostensibly this was payment for services Gizmondo Europe received from those companies, although it's worth mentioning that this is the only context in which 3P Preform is ever mentioned in Tiger's SEC filings. The report goes on to say that “this amount has been credited in full payment of amounts previously owed by Carl Freer and Stefan Eriksson to Gizmondo Europe.”
So Freer and Eriksson owed GE some money? They did indeed: some $8,846,040 between them during 2004. One hell of an expense account. Okay, so... Asiatic, which they owned, and which by the way held 400,000 shares of Tiger Telematics, paid companies GE had debts with, and in return Freer and Eriksson's debts with GE were cleared? Well, that's very nice for them, but what about the $1.2m difference between $7,622,000 and $8,846,040? Tiger's first quarter report for 2005 amplifies slightly, saying ”all amounts owed by Mr. Freer and a portion of amounts owed by Mr. Eriksson were satisfied by Asiatic in the transaction just described” (emphasis added) and adding that Asiatic had previously owed Freer and Eriksson $7,622,000.
The report continues to say that during 2005, Eriksson owed Gizmondo Europe as much as $318,147, ”all of which has been repaid”. Okay, even though it doesn't say who repaid it or how, strike it from the outstanding $1.2m and you're left with $905,923, almost precisely GE's outstanding debt to Northern Lights at the end of 2004, which ”was subsequently paid in 2005.” Had Gizmondo Europe repaid its own loan to Eriksson via Northern Lights?
It goes on. Eriksson didn't get full ownership of Asiatic until January 31st 2005, by which time Northern Lights had received most or all of its $4.5m payment for doing nothing at all (remember that Asiatic had the controlling stake in Northern Lights). What I had difficulty figuring out was who had owned Asiatic before Eriksson. Both Freer and Eriksson originally held 25 of Asiatic's 100 shares, and the rest belonged to a company called Juanita Developments Ltd, of 28-30 St. John's Square, London.
I spent most of a day going out of my mind trying to find something on this company without success. Companies House had no listing of the name, either as current, dissolved or previous names (names that have since been changed) and even old faithful had never heard of it. In what I'm sure must have been an odd call to receive, I spoke to the accountancy firm which leased the building at Juanita Developments' supposed address, and was told that “for sure” they had never had a tenant with that name. Are you allowed to just put companies that don't exist on official documents now?
It wasn't until much later when I was reading the Companies House records of Childtrack Ltd - Gametrac Developments Ltd as of August 2003 - that it clicked. Nominally there appears to be no association between it and Asiatic at all, and without the earlier obsessing about Juanita Developments I wouldn't have picked it up. The address of Childtrack Ltd? 28-30 St. John's Square, London. Perhaps Freer, Eriksson and associates at Tiger had owned Asiatic all along.
All of this 'related party' nonsense must have at least set some smoke detectors off in Tiger's upper echelons, to say nothing of the media which began reporting on this with some interest once the company's financial reports for 2004 came out. The document also contained a report entitled “Management Report on Internal Control over Financial Reporting,” the conclusion of which seemed a tacit admission of internal problems, noting “material weaknesses” in a number of areas such as segregations of duties, retention of records and control over the hiring of personnel. The audit opinion concurred. Although Gizmondo Europe is not specifically mentioned in the report, it seems likely it was the 'target' of the report since it was Tiger's only significant operation.
The particular concern was that the aforementioned 'related party' transactions had been executed without the approval of the Board and worse, that two of the Board's three members were involved in those transactions. Tiger's intention was to add four independent directors to the Board, who would approve further such dealings and also investigate the previous ones.
Still, it wasn't all doom and gloom in Tiger Towers. By the time the 2004 annual report had been filed (not until September 2005 - there goes another NASDAQ prerequisite) the company - and most likely Freer, who it was said “could sell sand in the Sahara and refrigerators to Eskimos” - had hooked several major investors into stock sales worth over one hundred million dollars. Buoyed by all of this cash, Gizmondo was free to... to spend it all. 2005 saw the announcement of further deals, including the purchase of the remainder of Isis Models, a $100,000 agreement with Buena Vista Games to license a number of its film properties, and a $5.9m deal with Electronic Arts to license SSX and FIFA Soccer for the Gizmondo.
By spring 2005 the amount of releases emitting from Gizmondo's PR department was reaching absurd levels, drawing derision of their frequently-vacuous content but nonetheless increasing Tiger's spotlight. Following all of this investment, news of deals and partnerships and the Freer's confident face, company share prices were up in the stratosphere at $32.50, valuing the company in excess of one billion dollars. An extravagant press party at London's Park Lane Hotel, hosted by Dannii Minogue and Tom Green and featuring performances from Sting, Jamiroquai's Jay Kay and Busta Rhymes, announced the UK launch of the Gizmondo. Freer, Eriksson and Carrender were all in attendance, Freer arriving in a Maybach limousine and Eriksson in a red Ferrari Enzo. They spent the evening sipping champagne, enjoying the attractive women and music performances, and waxing about the Gizmondo's promising future to anyone who would listen.
Unfortunately, it doesn't seem like the public actually noticed. Perhaps it would have helped if Tiger had invited a significant number of gaming journos to the event. Perhaps such people would have been able to explain to the slightly bewildered b-list celebrities what they were doing there. Perhaps if they'd been brought in a little earlier they could have convinced Tiger not to waste its time on the whole misadventure.
Sales of the Gizmondo were weak, and knowledge of its existence not widespread. Tiger's earlier press release proclaiming the launch had “brought Regent Street to a standstill” rang hollow, and Carl Freer's position that “we don't see this flagship store as competition to other retail” certainly was convenient, given that no-one seemed to be able to actually buy any Gizmondo units from there. You'd think the company would want to make some of the £175,000 annual lease back. Other outlets did not seem to fare much better; despite Gizmondo Europe's retail deals with UK chains Comet, Argos, Carphone Warehouse and Amazon, gaming websites reported difficulty obtaining Gizmondo units other than through online retail. The scattered stock dried up quickly, with little indication when more would be coming.
Tiger's financial position was also apparently in decline. In May 2005, less than one month after a stock sale had raised $21.4m (total raised by major stock sales at that point: $83.8m), Tiger reported it had borrowed $21.2m from two shareholders. It is unclear where all of this money had gone; by September 2005 - where financial reporting stops - Tiger reported it had spent $218.2m on “operational and administrative expenses” and some $89.6m on salaries, more than 18 times what was spent on the same in 2004.
Tiger's filings are suprisingly nonchalant in reporting these staggering losses. While stating that cost-saving measures had been introduced (including chopping over 100 employees, which seems to have been the bulk of the workforce) the U.S. launch of the Gizmondo was still planned for October 2005, bolstered by a planned $30m advertising campaign. Freer was unabashed by the doomsayers: “We think it's going to do pretty well in America.”
Meanwhile, costs were piling up and creditors were smelling blood. In July Tiger settled its lawsuit with Jordan Grand Prix for $1.5m and 30,000 shares of stock, at the time worth around $600,000. In August Ogilvy Group Sweden, the company's PR agency, sued Gizmondo Europe to collect $4.1m it claimed GE had failed to pay for PR and marketing services. In the U.S. Ogilvy Public Relations Worldwide began an arbitration against GE for $305,000 it claimed was also outstanding. In September, MTV Networks Europe demanded $1.5m in sponsorship fees it claimed GE had not paid. Former employees even got in on the act: Joe Marten, who had joined after the Indie Studios acquisition, and resigned after buying a car with company money without permission, demanded $740,000 he claimed he was owed by Gizmondo Europe, although no filings state why. Handheld Games Inc. rounded out this happy family by suing Tiger in the third quarter for $900,000 over a dispute about the game Chicane. This, to say the least, is confusing. Not only was Handheld Games Inc. never mentioned in company filings until this happened, but also Chicane was supposedly being developed in-house by Gizmondo
What income Tiger did receive during 2005 came from Gizmondo sales (a paltry $1.7m), a $7.7m stock sale during the third quarter and from CEO Michael Carrender, who by September 2005 had deferred $900,000 of his salary. Carl Freer also loaned the company $1.8m during the third quarter and settled a $1.5m bill with a component supplier on its behalf. Tiger pushed blindly on, buying Texas-based Globicom Inc. to provide wireless networking support for the Gizmondo, and paying Game Factory Publishing Ltd $3.9m in August to develop 19 game concepts, including a Typing Tutor (inspired choice, for a device with no keyboard) and Weather Control (for a device with no weather control hardware).
Game Factory is another company virtually absent from internet memory prior to its involvement with Tiger. Robert Stein, a 50% owner of that company and close friend of Carl Freer, also owned 100,000 shares of Tiger. His father, Martin Stein, ran a company formation business The Times reports Freer and Eriksson availed themselves of several times. As if yet another deal that benefited personal associates of Freer wasn't enough, none of the games that Game Factory was paid for were actually delivered. That's right: no M&M's game, no Tin Tin game, no Cheerios game. GUTTED. Fair enough, said Tiger, withdrawing from the agreement and getting the full $2.5m back.
Wait, what? $2.5m? And the remaining $1.4m? Yeaah, Tiger never reported receiving that back.
Speaking of receiving money, there were a few million dollars more of unexpected income during September 2005. On the 28th, Carl Freer reimbursed Tiger the $163,855 of legal fees it had paid on his behalf in 2004, and the aggregate $173,831 it had paid his wife. On the 29th he also paid the $4.5m Gizmondo Europe previously paid Northern Lights Software into a company escrow account, “to avoid any appearance or doubt of impropriety,” subsequent filings said. Doubt of impropriety?
On the same day, ENTIRELY COINCIDENTALLY, three new independent directors joined the board. They formed a special committee which would investigate the aforementioned 'related party' transactions and approve future, similar transactions. Tiger's accountants refused to certify any of its financial reports for 2005 until these investigations had concluded.
Come October and Tiger was, with what I don't know, gearing up for the U.S. launch of the Gizmondo. The plan was to sell it from kiosks in a number of shopping malls nationwide, backed by a $30m advertising campaign (the campaign never materialised, but a few kiosks did). Freer and Eriksson relocated to the U.S. for the launch and soon set themselves up in comfortable mansions in California.
Then they resigned.
Part 2>> (with source citations)