<PAGE>
Registration No. 333-11591
================================================================================
Securities and Exchange Commission
Pre-Effective Amendment No. 4 to
FORM S-1
Registration Statement Under the Securities Act of 1933
Tice Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 8711 62-1647888
(State of Incorporation) (Primary Standard (IRS Employer
Industrial Classification Identification
Code Number) Number)
---------------------------------------
6711 Tice Plaza
Knoxville, Tennessee 37918
(423) 925-4501
(Address and telephone number of
Registrant's principal executive offices)
William A. Tice, President
Tice Technology, Inc.
6711 Tice Plaza
Knoxville, Tennessee 37918
(423) 925-4501
(Name, address and telephone number of agent for service)
Copy to: Lynn H. Wangerin, Esq.
Ogden Newell & Welch
1200 One Riverfront Plaza
Louisville, Kentucky 40202
(502) 582-1601
(502) 581-9564 (facsimile)
---------------------------------------
Approximate date of commencement of proposed distribution to public: As soon
as practicable after the registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price aggregate offering registration fee
registered per unit price
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Common Shares (1) 1,841,407 $ 0.07 $ 128,898 $ 45
Common Shares (2) 54,750 $ 1.00 $ 54,750 $ 19
Common Shares (3) 88,560 $ 3.00 $ 265,680 $ 92
Common Shares (4) 1,000,000 $ 8.00 $8,000,000 $2,759
Common Stock
Purchase Warrants 1,000,000 $ (5) $ (5) $ (5)
Total Fee $2,915
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) These securities include 300,000 shares which were issued to
Monogenesis Corporation in contemplation of distribution at a price of
$0.01 per share. They will be distributed to holders of shares of
Monogenesis Corporation as a dividend at a rate of 125 shares for each
share held. The remaining shares are to be offered for sale at market
price from time to time and are currently held by former shareholders
of Tice Engineering and Sales, Inc., 1,302,937 shares by William A.
Tice and 238,470 shares by Joseph Walker & Sons, Inc. There is no
current offering price for these shares. The fee calculation is based
upon the book value of Tice Engineering and Sales, Inc., the wholly
owned subsidiary of Tice Technology, Inc., as of September 30, 1996.
(2) These are the Common Shares which will be issued in the event that
employees holding stock options exercise the options and which are
registered only for resale by the holders. The maximum offering price
is based upon the exercise price of the options.
(3) Certain individuals who have loaned funds to Tice Engineering and
Sales, Inc., the Issuer's wholly owned subsidiary, will convert such
debt to Common Shares of the Issuer at the rate of $3.00 per share as
of the effective date of the registration statement and desire to
include such shares in the registration statement for resale as
Selling Shareholders.
(4) These are the Common Shares which will be issued in the event the
Common Stock Purchase Warrants are exercised. The maximum offering
price is based upon the exercise price of the warrants.
(5) The warrants were issued to Monogenesis Corporation at a price of
$0.01 each and will be distributed to holders of shares of Monogenesis
Corporation as a dividend at a rate of 400 warrants for each share
held. The warrants are registered in the same registration statement
as the Common Shares underlying the warrants and, therefore, no
separate registration fee is required pursuant to Rule 457(g).
<PAGE>
Tice Technology, Inc.
Cross Reference Sheet
<TABLE>
<CAPTION> Page
Item Number - Part I, S-1 Location Number
- ------------------------- -------- ------
<S> <C> <C>
1. Forepart of the Registration Statement and Same 1, 2
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Same 2, *
Pages of Prospectus
3. Summary Information, Risk Factors and Summary; Risk Factors 3, 8
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds 16
5. Determination of Offering Price Risk Factors - No
Assurance of Trading 13
Market and Arbitrary
Exercise Price
6. Dilution Not applicable
7. Selling Security Holders Risk Factors - Shares 13, 14, 40
Eligible for future Sale
Plan of Distribution;
Principal and Selling
Shareholders
8. Plan of Distribution Plan of Distribution 14
9. Description of Securities to Be Registered Securities 43
10. Interests of Named Experts and Counsel Not applicable
11. Information With Respect to the Registrant
(a) Description of business Business 18
(b) Description of property Business - Property 26
(c) Legal proceedings Legal Proceedings 38
(d) Market price of and dividends on the Risk Factors - No Dividends and 13, 43, 47
registrant's common stock and related No Assurance of Trading Market;
stockholder matters Securities; Dividends
</TABLE>
*Immediately after financial statements.
<PAGE>
<TABLE>
<CAPTION>
Page
Item Number - Part I, S-1 Location Number
- ------------------------- -------- ------
<S> <C> <C>
(e) Financial statements Financial Statements 50
(f) Selected financial data Summary - Selected Financial Data 6
(g) Supplementary financial information Not applicable
(h) Management's discussion and Management's Discussion and 28
analysis of financial condition and Analysis of Financial Condition
results of operations and Results of Operations
(i) Changes in and disagreements with Not applicable
accountants on accounting and
financial disclosure
(j) Directors and executive officers Management 38
(k) Executive compensation Management - Executive 39
Compensation
(l) Security ownership of certain Principal and Selling 40
beneficial owners and management Shareholders
(m) Certain relationships and related Management - Certain Transactions 40
transactions
12. Disclosure of Commission Position on Liability and Indemnification of 47
Indemnification for Securities Act Directors and Officers
Liabilities
</TABLE>
<PAGE>
Prospectus
- ----------
Tice Technology, Inc.
6711 Tice Plaza
Knoxville, Tennessee 37918
(423) 925-4501
2,984,717 Common Shares (the "Shares")
(par value, $0.01 per share)
1,000,000 Common Stock Purchase Warrants (the "Warrants")
Tice Technology, Inc. (the "Issuer") is registering 300,000 Shares and
1,000,000 Warrants in an offering of such Shares and Warrants through a
distribution by Monogenesis Corporation ("Monogenesis") to its shareholders.
Monogenesis, a closed-end investment company with approximately 1,200
institutional shareholders, is a statutory underwriter in connection with the
distribution, and Monogenesis will distribute 125 Shares and 400 Warrants for
each share of Monogenesis stock held by its shareholders (the "Distribution").
See "Plan of Distribution." The Issuer will not receive any funds from the
Distribution other than the $13,000 (representing $0.01 per each Share and
Warrant) paid by Monogenesis, but will receive funds if any Warrants are
exercised. Each Warrant entitles the holder to purchase one Common Share at
$8.00 per share for 24 months. There can be no assurance that the price of a
Common Share will equal or exceed the exercise price of the Warrants or that it
will be profitable for a holder to exercise any Warrant. See "Risk Factors -
Arbitrary Exercise Price" and "Securities." The Issuer is registering 1,000,000
Shares which may be issued upon exercise of the Warrants and 54,750 Shares which
may be issued upon exercise of options held by certain employees (as selling
shareholders).
In addition to the Shares underlying the options, 1,629,967 of the Shares
registered will be registered on behalf of certain shareholders described
elsewhere for sale from time to time. See "Principal and Selling Shareholders."
The Issuer will not receive any proceeds from the sale of shares by selling
shareholders.
THE SHARES AND WARRANTS INVOLVE A HIGH DEGREE OF RISK, ARE ILLIQUID AND
SHOULD ONLY BE PURCHASED BY INVESTORS THAT CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 8.
The Risk Factors described in more detail beginning on page 8 include:
. history of operating losses
. lack of working capital
. dependence on patents and new technology
. limited number of customers
. Issuer's only operations is ownership of the stock of Tice
Engineering and Sales, Inc.
. possible future acquisitions in unrelated industries in which Issuer
has no experience
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
A Monogenesis Institutional Distribution
The date of this Prospectus is ________________, 1997.
<PAGE>
(continued from previous page)
The purpose of the Distribution is to establish a public trading market to
facilitate acquisitions and access to equity capital and to provide liquidity
for employee stock incentive programs and existing shareholders. See "Risk
Factors - Acquisitions in Unrelated Industries." There is no current public
trading market for the Issuer's securities and there can be no assurance that a
market will develop after the Distribution. See "Risk Factors - No Assurance of
Trading Market." The Issuer is applying for quotation on the OTC Bulletin Board
and intends to apply for listing on an exchange at such time as it meets listing
criteria. Management does not know when, if ever, it will meet such criteria.
Of the Shares to be registered for sale by Selling Shareholders, 1,302,937
Shares are owned by William A. Tice, 238,470 Shares are owned by Joseph Walker &
Sons, Inc., 88,560 Shares are owned by former holders of notes of Tice
Engineering and Sales, Inc. which were converted to Shares and 54,750 Shares are
Shares which may be issued upon exercise of certain outstanding employee options
(collectively, the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Issuer will not receive any proceeds from the sale of these
Shares. The Shares held by the Selling Shareholders may be sold from time to
time. Such sales may be made on an exchange, in the over-the-counter market, or
in negotiated transactions, at market price or on negotiated terms. Upon any
sale of the Shares held by Selling Shareholders, Selling Shareholders and
participating agents, brokers or dealers may be deemed to be underwriters as
defined in the 1933 Act and commissions, discounts or any profit realized on the
resale of the Shares may be deemed to be underwriting commissions or discounts.
See "Plan of Distribution." The Issuer will pay the expenses of this
registration (approximately $100,000) other than any brokerage commissions or
discounts in connection with the sale of Selling Shareholders' Shares.
Holders of Common Shares of the Issuer may elect only 25% of the board of
directors. William A. Tice owns 100% of the Class B Common Shares, will elect
75% of the board of directors and thereby controls the Issuer. In addition, as
the current holder of 89% of the Common Shares, Mr. Tice will elect the
remaining 25% of the directors. On all other matters, Mr. Tice will control 90%
of the vote, since on all such matters Common Shares and Class B Common Shares
vote together. See "Risk Factors- Continued Control by Holder of Class B Common
Shares."
ADDITIONAL INFORMATION
----------------------
The Issuer will furnish annual reports containing audited financial
statements to its shareholders. Additional unaudited reports may be provided to
shareholders at such time as the Issuer may determine or as required by law. On
June 2, 1997, the Issuer's registration statement under the Securities Exchange
Act of 1934 (the "1934 Act") became effective subjecting the Issuer to the
reporting requirements of the 1934 Act. See "Plan of Distribution."
2
<PAGE>
The Issuer has filed a registration statement (which term shall include all
amendments, exhibits and schedules) on Form S-1 under the 1933 Act with the
Securities and Exchange Commission (the "Commission") in Washington, D.C. This
Prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement as filed
including the exhibits thereto. The registration statement may be reviewed
without charge at the Commission's principal place of business in Washington,
D.C. Copies of the registration statement may be obtained from the Public
Reference Section of the Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed prices. In addition, the Issuer is an
electronic filer. The Commission maintains a Web site which contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the Commission's
Web site is http://www.sec.gov. Statements made in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and,
where such contract or other document has been filed as an exhibit to the
registration statement, reference is hereby made to such exhibit and each such
statement is qualified in all respects by such reference.
SUMMARY
-------
The following is a summary of certain information contained elsewhere in
the Prospectus. Reference is made to, and this summary is qualified by, the more
detailed information set forth in the Prospectus, which should be read in its
entirety.
<TABLE>
<CAPTION>
Plan of Distribution
- --------------------
<S> <C>
The Issuer............................ Tice Technology, Inc. (the "Issuer"),
a Delaware corporation, was
incorporated on June 21, 1996 by the
management of TES, Monogenesis
Corporation and Joseph Walker and
Sons, Inc. to act as a holding
company for TES stock and to create a
public company with a substantial
shareholder base without having to
sell shares in a traditional initial
public offering. The Issuer acquired
all of the issued and outstanding
stock of Tice Engineering and Sales,
Inc. ("TES") from the shareholders of
TES, William A. Tice and Joseph
Walker & Sons, Inc., in exchange for
5,450,220 Common Shares and 750,000
Class B Common Shares of the Issuer
as of the date of this Prospectus.
See "Business - General" and
"Securities." It may make additional
acquisitions in the future. See
"Risk Factors - Uncertainty and Risks
Associated with Future Acquisitions."
</TABLE>
3
<PAGE>
Distributing Company/ Monogenesis Corporation, a Delaware
Underwriter......................... corporation, is a statutory
underwriter and, pursuant to a
resolution of its board of directors,
is distributing Common Shares and
Warrants which it purchased from the
Issuer as a dividend to its
shareholders of record on
___________, 1997 as agreed with the
Issuer in order to create a public
company as described above. See
"Risk Factors - No Assurance of
Trading Market," "Plan of
Distribution" and "Management -
Certain Transactions."
Distribution Ratio.................... Each Monogenesis shareholder will
receive 125 Common Shares, par value
$0.01 per share, and 400 Warrants of
the Issuer for each share of
Monogenesis stock held by it. See
"Plan of Distribution." After the
Distribution, Monogenesis will own
less than 1% of the outstanding
Common Shares of the Issuer.
Distribution Agent.................... Mid-America Bank of Louisville and
Trust Company, Monogenesis' transfer
agent, will act as distribution
agent, transfer agent and warrant
agent for the Issuer. See
"Securities - Transfer Agent and
Registrar."
Shares to be Distributed.............. Monogenesis will distribute as soon
as possible after the date of this
Prospectus 255,625 Common Shares to
its shareholders (125 Common Shares
for each share held) which constitute
approximately 4% of the issued and
outstanding Common Shares, and
approximately 4% of the total issued
and outstanding stock of all classes
of common stock of the Issuer. The
Issuer will not receive any proceeds
from the distribution of these
shares. However, the Issuer will
receive proceeds if any Warrants are
exercised. Monogenesis will retain
the remaining 44,375 Common Shares
and expects to sell shares from time
to time. See "Plan of Distribution"
and "Securities."
Warrants to be Distributed............ Monogenesis will distribute as soon
as possible after the date of this
Prospectus 818,000 Warrants to its
Shareholders (400 Warrants for each
share held) which constitute
approximately 82% of the issued and
outstanding Warrants. Monogenesis
will retain the remaining 182,000
Warrants which it may exercise or
sell from time to time. The Common
Shares and the Warrants are
separately transferable. See
"Securities."
4
<PAGE>
Exercise of Warrants............ Each Warrant entitles the holder to purchase
one Common Share of the Issuer at an exercise
price of $8.00 per share and may be exercised
during the 24 month period following issuance
of the Warrant. The exercise price was
determined by management of the Issuer based
upon management's assessment of the Issuer's
business potential and earnings prospects. The
exercise price may not be indicative of the
market price of the underlying shares. See
"Risk Factors - Arbitrary Exercise Price" and
"Securities." If all Warrants are exercised,
the Common Shares underlying the Warrants will
constitute approximately 15% of the issued and
outstanding Common Shares.
Distribution Date............... Certificates representing the Shares and the
Warrants will be mailed to Monogenesis
shareholders as soon as practical after the
date of this Prospectus. See "Plan of
Distribution."
Sales of Shares By Selling 1,629,967 Common Shares held by the
Shareholders................... shareholders of the Issuer will be registered
and available for resale by such shareholders
from time to time subject to certain
limitations. See "Principal and Selling
Shareholders." These shares constitute
approximately 28% of the issued and
outstanding Common Shares, and approximately
25% of the total issued and outstanding stock
of all classes of common stock of the Issuer.
The Issuer will not receive any proceeds from
the sale of Shares held by the shareholders.
See "Risk Factors - Shares Eligible for Future
Sale" and "Plan of Distribution."
Option Shares................... 54,750 Common Shares may be issued upon the
exercise of options held by certain employees
at an exercise price of $1.00 per share. The
options were issued to employees as incentives
to retain long term and key employees.
Management decided that the employees should
pay something to receive the shares, but
wanted to set the price at an amount that it
believed employees could afford. Management
believes that the $1.00 exercise price meets
this criteria. The Common Shares underlying
the employee options are registered for sale
from time to time by employees who exercise
the options. See "Principal and Selling
Shareholders" and "Securities."
5
<PAGE>
Trading Market.................. There will be no immediate trading market for
the Shares or the Warrants. See "Risk Factors
- No Assurance of Trading Market." The Issuer
is registering the Shares and Warrants to
attempt to establish a public trading market
in the Shares and is applying for quotation on
the OTC Bulletin Board, but has not applied
for listing on an exchange. See "Plan of
Distribution." There can be no assurance that
a trading market will develop.
The Issuer
- ----------
Tice Technology, Inc. (the "Issuer"), a Delaware corporation, was formed to
acquire and hold all of the issued and outstanding shares of stock of Tice
Engineering and Sales, Inc. ("TES"), and to create a public company with a
substantial shareholder base without having to sell shares in a traditional
public offering. Management of TES and the Issuer anticipate that at some point
in the future it may be advantageous to acquire additional businesses in order
to expand the Issuer's operations or diversify its holdings. The Issuer has not
yet identified any potential targets or industries, although it expects that
initial acquisitions would be in related industries or involve related
technology. Acquisitions may also be in unrelated industries in which the Issuer
has little or no experience. See "Risk Factors - Acquisitions in Unrelated
Industries." Currently, the Issuer does not have the resources necessary to make
any material acquisition, however management believes that the Issuer's stock,
especially if a trading market has developed in the stock, might be used as some
or all of the consideration for an acquisition. The Issuer owns only the TES
stock and has no other operations. The Issuer acquired all of the issued and
outstanding stock of TES, a Tennessee corporation, in exchange for stock of the
Issuer which acquisition was effective as of the date of this Prospectus. See
"Business - General."
The Issuer's wholly owned subsidiary, TES, is an engineering firm which
provides engineering and technical solutions, generally through the development
or enhancement of equipment for the apparel industry. TES researches, designs,
develops and tests specialized high technology, garment production line
stitching machines and related equipment, which, when patented, it licenses to
other manufacturers to produce or contract manufactures for its own customers.
TES currently holds eight patents over which it retains rights. It currently
sells fourteen basic products and is in the process of exploring the
applications of the technology covered by its latest patent. This patent covers
an electronically geared sewing machine which, among other things, reduces by
90% all moving parts of the sewing machine. TES currently has licensed to one
major sewing manufacturer, Brother Industries, Ltd. of Nagoya, Japan the non-
exclusive right to make, assemble, use and sell equipment using the patented
electronic gearing technology. See "Business - Products."
The Issuer was incorporated on June 21, 1996. It's principal office is
located at 6711 Tice Plaza, Knoxville, Tennessee 37918. The telephone number is
(423) 925-4501. TES was incorporated on March 16, 1973 and has the same
principal office as the Issuer. See "Business - History."
Selected Financial Data
- -----------------------
The selected financial data is that of TES. The pro forma figures of net
income per share and stockholders' equity per share reflect the capitalization
of the Issuer.
6
<PAGE>
- --------------------------------------------------------------------------------
Statement of Earnings Data (1):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
(Amounts in thousands except
per share amounts)
---------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $1,397 $1,242 $1,240 $ 1,309 $ 1,694
Cost of Revenues (815) (699) (712) (1,000) (843)
Research and Development (Net of (163) (47) (43) (141) (34)
Reimbursements)
Selling, General and Administrative (563) (482) (420) (279) (1,039)
------ ------ ------ ------- -------
Income (Loss) From Operations (144) 14 65 (111) (222)
Total Other Income (Expense) 406 5 (100) (110) 44
------ ------ ------ ------- -------
Income (Loss) Before Taxes 262 19 (35) (221) (178)
(113) (4) 5 42 ---
Provision for Income Tax ------ ------ ------ ------- -------
Net Income (Loss) Before Change in 149 15 (30) (179) (178)
Accounting Principle
Change in Accounting Principle --- --- --- 70 ---
------ ------ ------ ------- -------
Net Income (Loss) $ 149 $ 15 $ (30) $ (109) $ (178)
====== ====== ====== ======= =======
Net Income per Pro Forma Common
Share (2) $0.00 $0.00 $(0.00) $(0.02) $(0.03)
</TABLE>
- --------------------------------------------------------------------------------
Balance Sheet Data (1):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
(Amounts in thousands except
per share amounts)
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Assets $1,001 $1,431 $1,578 $1,403 $1,528
Total Long-Term Liabilities $ --- $ 661 $ 302 $ 346 $ 385
Total Stockholders' Equity $ 176 $ 142 $ 121 $ 151 $ 261
Stockholders' Equity Per Pro $ 0.03 $ 0.02 $ 0.02 $ 0.02 $ 0.04
Forma Common Share (2)
</TABLE>
- --------------------------------------------------------------------------------
(1) The statement of earnings data for the periods ended March 31, 1997, 1996
and 1995 and the balance sheet data at March 31, 1997 and 1996 were derived
from the audited financial statements of TES which are included in their
entirety elsewhere in this Prospectus. In addition, a pro forma balance
sheet and statement of operations based upon the March
7
<PAGE>
31, 1997 financial statements of the Issuer and TES and assuming
acquisition of TES by the Issuer and conversion of TES debt (including
adjustments) are also included in their entirety elsewhere in this
Prospectus. See "Financial Statements."
(2) Pro forma net income per share is calculated by dividing net income
applicable to the Issuer's common stock (including Class B Common Shares)
as increased by $17,900 for the add back of interest expense on the
converted indebtedness by the pro forma shares which are outstanding on the
date hereof (excluding those related to the distribution) (6,327,887
shares) and decreased by the compensation expense of $136,875 for the grant
of options to employees for all years (rather than the number of shares of
TES actually outstanding) on the applicable dates. Stockholders' equity per
pro forma common share is calculated by dividing stockholders' equity by
pro forma common shares. The per share figures have been rounded to the
nearest cent and do not include Common Shares which may be issued upon
exercise of the Warrants. See "Capitalization."
(3) The total long-term liabilities amounts exclude the current portion of such
obligations.
RISK FACTORS
------------
The securities described in this Prospectus involve a high degree of risk.
Prior to purchasing, Shares or Warrants investors should consider the following
factors inherent in, and affecting the business of, the Issuer and its
subsidiary, TES.
History of Operating Losses. For three of the last five fiscal years, TES
has had a net loss: $30,000 for 1995 ($(0.00) per pro forma share), $109,000 for
1994 ($(0.02) per pro forma share) and $178,000 for 1993 ($0.03) per pro forma
share). In 1996 and 1997, it had minimal net income of $15,000 ($0.00 per pro
forma share) and $149,000 ($0.00 per pro forma share), respectively. See
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and "Financial Statements." Its history of
losses together with uncertainties relating to the company's ability to obtain
additional financing or capital create uncertainty about its ability to continue
profitably. See "Financial Statements." The Issuer's and TES's ability to
achieve profitability depends upon the ability to exploit existing patents and
develop new patents. There can be no assurance that TES or the Issuer will be
able to sustain profitability in the future.
Lack of Working Capital. The Issuer and TES need substantial additional
funding in the near future to continue to be profitable, to develop and apply
the technology inherent in its latest patent for the electronically geared
sewing machine and to be able to produce orders it is currently receiving. The
Issuer and TES expect to need at least $5,000,000 in the next two years and hope
to obtain those funds through license fees received on the new technology and
sale of stock of the Issuer. Management of TES believes that the electronic
gearing technology has application to many of the manufacturing processes in the
sewing industry as well as in other industries. See "Capitalization," "Business
- - General" and "Research and Development" and "Financial Statements." TES has
licensed the new technology to one manufacturer, but there can be no assurance
that the Issuer and TES will receive any additional license fees or will be able
to raise such funds. If the license of the new technology does not generate
sufficient revenues or additional funds are not available through sale of stock
or otherwise, TES may not be able to continue to
8
<PAGE>
operate profitably and may be required to delay development of application of
new technology. Currently, real estate and a vehicle it owns and a life
insurance policy on Mr. Tice are pledged on existing debt. Mr. Tice has also
personally guaranteed certain debt. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Continued Control By Holder of Class B Common Shares. The Issuer has two
classes of voting stock issued and outstanding: Common Shares and Class B Common
Shares. Although each holder of Common Shares and Class B Common Shares is
entitled to one vote for each share of stock held, the current holder of Class B
Common Shares (William A. Tice) is entitled to elect 75% of the members of the
board of directors of the Issuer (presently three members). Holders of Common
Shares (together with holders of Class D Common Shares and any voting Preferred
Shares) are only entitled to elect 25% of the members of the board of directors
(presently one member). (If the number of issued and outstanding Common Shares,
Class D Common Shares and voting Preferred Shares is less than 10% of the
aggregate number of issued and outstanding Common Shares and Class B Common
Shares, all directors will be elected by the holders of all shares voting
together.) Thus, the holder of Class B Common Shares will control the board of
directors and therefore, the Issuer. Except with respect to matters which
require voting by class, shareholders of all classes will vote together on all
other matters properly brought before the shareholders. Currently, William A.
Tice controls the Issuer and, as sole holder of Class B Common Shares, elects
all directors elected by holders of Class B Common Shares. In addition, as
holder of 89% of the Common Shares, he can also elect all directors elected by
holders of Common Shares and control all other votes. See "Principal and Selling
Shareholders" and "Securities."
Dependence on Patents and Ability to Protect Proprietary Products. TES has
applied for and received patent protection on certain of its inventions,
including most recently, its electronically geared sewing machine. See
"Business - Products." There can be no assurance that others will not
independently develop proprietary information or obtain access to know-how and
expertise (patented or otherwise) substantially equivalent to that developed by
TES. If a competitor were able to develop a functionally similar product to any
of TES's patented products (especially if the competitor were one of the large
sewing machine manufacturers that is also a customer of TES), increased
competition with respect to any such product could reduce TES revenues arising
from the sale of such product as well as TES's net income. Management of TES
does believe that, at least for the next 24 months, with respect to the
electronically geared sewing technology, licensing the product from TES is more
cost effective for most sewing machine manufacturers than attempting to
duplicate the results without infringing on TES's patent. There also can be no
assurance that existing patents held by TES or future patents obtained by TES
will be enforceable, that TES's products will not infringe on patents owned by
others or that competitors will not develop similar or functionally similar
patents. In the event that TES has infringed on any such rights, it could be
required to pay damages. In addition, if TES were unable to change the design of
such product so that it no longer infringed on any intellectual property rights,
it would lose the ability to sell such product as well as the benefits of all
previous marketing efforts and name recognition associated with the product.
Even if alterations to avoid any intellectual property problems were possible,
the product as changed might not be successful in the marketplace. See
"Business - Patents."
9
<PAGE>
Dependence on Limited Number of Customers. Most of TES's business is
developing solutions and providing equipment for denim and work wear clothing
manufacturers. See "Business." Currently, although it has shipped products to
several hundred customers all over the world, 80% of TES's annual revenues from
sale of products come from three principal customers -Levi Strauss & Co.,
Wrangler, Inc. and A.B. Fab Company. TES also has license fee and royalty income
which, at this time, is primarily from one customer, Brother Industries, Ltd.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The loss of any of these customers without replacement with
comparable customers for any reason could materially affect TES's revenues and
income. Management hopes that its new products and license fees generated
thereby will minimize this risk.
Risks Associated with Fixed Price Contracts. TES principally performs
under agreements to develop products, or modifications to existing products, to
solve particular industry problems or to increase efficiency or lower costs of a
manufacturing process. Generally, in pricing a job, TES estimates the time
expected to produce the solution and a prototype product. The proposed price is
based on estimates provided in-house with what management believes are suitable
margins to accommodate reasonable contingencies. Should development costs exceed
the estimated price, TES may be required to complete the project and incur
whatever losses result. Even if it incurs losses on the initial contract, it may
recoup some or all of the losses by selling the product to other manufacturers
or developing other uses or improvements to the product and marketing the
modified product. See "Business - Products."
Dependence on Health of One Industry (Sewn Products). Currently, most of
TES's revenues are derived from products and services related to the sewn
products industry. Should this industry take a substantial downturn, business
opportunities would be limited significantly. However, based upon apparel
industry trade magazines projecting a strong market for the next three to five
years, management does not believe that a substantial downturn is likely in the
near future. In addition, management believes that the new technology for the
electronically geared sewing machine has applications in other industries such
as the spinning industry for which TES is in the process of developing a
spinning machine using the electronic gearing technology. Broadening the
applications of the technology is expected to lessen TES's dependence on the
apparel industry. See "Business."
Potential Adverse Effect of Competition. TES is aware of four companies in
the United States and two in Europe that perform work similar to TES. In
addition, all of the world's leading sewing machine manufacturers (mainly based
in Japan) engage in research and development similar to that performed by TES.
Several of such manufacturers (some of which are also customers of TES) have
tried or are trying to develop machines which are similar or competitive to
TES's electronically geared machines. However, management is not aware of the
development of any method or machine which is performance competitive to TES's
electronically geared machines and one of TES's largest competitors has licensed
the technology from TES rather than attempting to develop its own. These larger
competitors do have significantly greater resources, financial and otherwise,
than TES. See "Business - Competition." TES's ability to compete depends upon
its ability to provide cost effective solutions and products to manufacturers.
There can be no assurance that TES can continue to compete effectively with
these companies.
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<PAGE>
Potential Adverse Effect of Technological Change. Although it has not been
so in the past, it is expected that the apparel industry will show more rapid
changes in what is state-of-the-art in the future. Any of TES's products could
become obsolete at any time due to technological changes and TES may not be able
to update its products quickly enough to remain competitive. See "Risk Factors -
Research and Development" and "Business - Research and Development." In
addition, some of TES's customers have told management that they are delaying
purchases in expectation of the development of applications of new technology
owned by Tice. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
General Environmental Risks. TES previously owned and currently leases the
real estate on which its operations are located which is part of a small retail
shopping facility, commonly referred to as a strip center. In addition, TES owns
real estate on which it intends to build a new facility. See "Business -
Property." Accordingly, TES is an "owner/operator" under applicable state and
federal environmental laws. As an operator, TES is potentially responsible for
the clean-up of any hazardous or toxic materials that may be improperly located
in any of its facilities. TES outsources manufacture of components or products
which could involve environmental hazards. Thus, the development and
manufacturing processes of TES do not generate any significant quantities of
hazardous or toxic materials. See "Business - Manufacturing." Should TES be
unable to outsource this type of manufacturing, TES could be required to comply
with additional environmental regulations which might result in reduced profit
margin or cause TES to change the way it produces the product. The officers of
TES are not aware of any hazardous materials improperly located at any of TES's
facilities.
Dependence Upon Existing Management. TES's success is dependent upon the
capabilities and reputation of its President, William A. Tice, and of its senior
management and technical personnel and on their maintaining or enhancing
existing relationships with TES's customers. See "Management." The loss of Mr.
Tice or senior management or technical staff could have a materially adverse
affect on TES's business. In such event, there can be no assurance that TES
could attract qualified replacements.
Risks Associated with Shortage of Qualified Employees. As a result of the
expansion of the number of business users of computers and the expansion in
demand for computer services and custom software programming, there is a short
supply of computer professionals. Computers and software figure in the
development of and expansion of the applications of the electronically geared
sewing machine technology recently patented by TES. The situation is not
expected to improve in the near future. Thus, it is possible that TES could have
problems finding, keeping and replacing employees. However, defense contractors
have laid off many of their computer/engineering employees and this trend is
expected to continue thereby creating a pool of employees from which TES has
drawn in the past and who would likely have at least some of the expertise
needed by TES.
Risks Associated with Uncertainty of Market Acceptance of New Products.
Although TES plans to continue to build and market its traditional product line
(which does not involve the new electronically geared technology), TES's success
is at least partially dependent on the market's acceptance of the technology
involved in the electronically geared sewing machine. Historically, clothing
manufacturing has not had significant technological progression since the
invention of the sewing machine. However, due to indications of interest from
manufacturers and TES's recent
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<PAGE>
license of the technology to one manufacturer, management believes that the new
technology is gaining acceptance. Failure to achieve significant market
acceptance will have a material adverse effect on TES's business, financial
condition and results of operations. Also, unless the new technology becomes
TES's dominant product, TES's growth is also dependent on the continued market
acceptance and expansion of its traditional product line. See "Business -
Products." TES plans to continue to develop new products for its customers to
solve their manufacturing problems which products TES may choose to add to its
product line.
Risks Associated with Warranty and Support Obligations. TES traditionally
has provided a 90-day warranty against defects in materials and workmanship with
most of its products. TES plans to continue this warranty policy. It has been
TES's past experience that the warranties have cost it less than 0.5% of gross
sales over the past five years. However, this experience could change at any
time. In addition, TES anticipates that it will need to implement a support
program for the computer software associated with the new technology for the
electronically geared machine which is expected to include computer technicians
on call 24 hours a day. During the first 24 months, a minimal number of
technicians are expected to be needed at an estimated cost of $100,000 per year.
The number of technicians needed and costs of the program are expected to
increase as more products are sold, but is not expected to exceed 0.5% of gross
sales. If TES's estimates of the need for and costs of the support program are
significantly lower than the actual costs, TES's profits could be significantly
reduced.
Risks Associated with Loss of Use of Trademarks. Management of TES does not
believe that it is infringing on the trademark of any other entity in the world.
TES obtained a certificate of registration of the name "tice(R)" for use in
connection with certain components of stitching machines from the U.S. Patent
and Trademark Office in 1980. In addition, TES also obtained a certificate of
registration of the name, "Tice Technology(R)," and the related logo on June 10,
1997. If TES were prohibited from using the name, it would lose the benefits of
name recognition and its previous marketing.
Uncertainty and Risks Associated with Future Acquisitions. The Issuer may
pursue other acquisitions at some point in the future. Currently, it has no
operations other than ownership of TES and does not have the resources necessary
to make any material acquisitions. The Issuer has not identified any particular
target or target industries. It may make acquisitions in the future in
industries which are not related to its current business and in which it may not
have any experience or expertise.
Risks Associated with Issuer's Lack of Operational History. The Issuer was
incorporated on June 21, 1996 and has not yet engaged in business other than the
acquisition of TES as described in this Prospectus. See "Business - General." It
therefore has no earnings record. However, the Issuer's wholly owned subsidiary,
TES, has been in business since 1964, first as a sole proprietorship then as a
partnership and, since 1973, as a corporation. See "Selected Financial Data,"
"Business - History" and "Financial Statements."
Possible Inability to Exercise Warrants in Certain States. Holders of the
Warrants will have the right to exercise the Warrants to purchase Common Shares
only if such shares qualify for sale under state securities laws or are exempt
from qualification under applicable securities or "blue
12
<PAGE>
sky" laws of the states in which the various holders of the Warrants then reside
and there is available a current Prospectus permitting the sale of the Common
Shares underlying the Warrants. The Issuer has undertaken and intends to use
reasonable efforts to keep current a prospectus which will permit the sale of
the Common Shares underlying the Warrants, but there can be no assurance that
the Issuer will be able to do so. The Issuer is not required to qualify for sale
the Common Shares in any state. The Warrants may lose some of all of their value
if a prospectus covering the underlying shares is not kept effective or if the
underlying shares are not, or cannot be, qualified in an applicable state. See
"Securities."
No Dividends. The Issuer is newly formed and has not paid dividends. It's
only significant source of earnings out of which to pay dividends will be
dividends it receives from its subsidiary, TES. TES has not historically paid
dividends to its shareholders, and has no present plans to institute a policy of
declaring dividends. In the foreseeable future, the capital requirements of TES
will likely consume all applicable operating profits and other available cash.
There is no guarantee that TES, and therefore the Issuer, will pay dividends in
the future.
Possible Adverse Effects of Issuance of Preferred Stock on Holders of
Common Shares. The Issuer's Certificate of Incorporation authorizes the issuance
of Preferred Shares with designations, rights and preferences as determined from
time to time by its Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Shares with
dividends, liquidation, conversion, voting or other rights that could adversely
affect the dividends, liquidation rights, voting rights or other rights of the
holders of Common Shares. The voting rights of any Preferred Shares, however,
are limited by the Certificate of Incorporation and cannot exceed the voting
rights of any Common Shares. In the event of issuance, Preferred Shares could be
used, under certain circumstances, as a method of discouraging, delaying or
preventing a change of control of the Issuer. See "Securities."
No Assurance of Trading Market. There is not an established public trading
market for the Shares or the Warrants. There can be no assurance as to the
prices at which the Shares or the Warrants will trade or that such prices will
not be significantly below the book value of the Shares. Until the Shares and
the Warrants are fully distributed and an orderly market develops (if at all),
the prices at which the Shares or the Warrants trade may fluctuate
significantly. Prices for the Shares and the Warrants will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market, investor perception of the Issuer and the industry in
which the Issuer participates, and general economic and market conditions.
Arbitrary Exercise Price. The exercise price of the Warrants was determined
by management of the Issuer based upon management's assessment of the Issuer's
business potential and earnings prospects. It reflects management's opinion
relating to the future and may not be indicative of future market prices of the
Warrants or the underlying Shares, revenues or profitability.
Shares Eligible for Future Sale. Approximately 67% of the issued and
outstanding Common Shares of the Issuer (all shares except the Common Shares
described in this Prospectus) are "restricted securities" as such term is
defined in Rule 144 promulgated under the Securities Act of 1933 (the "1933
Act"). (Class B Common Shares may be converted to Common Shares.) Sales of
securities by affiliates of the Issuer may also be subject to Rule 144 resale
limitations. Currently,
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<PAGE>
all of the restricted securities are held by William A. Tice. See "Principal and
Selling Shareholders." In general, under Rule 144, if adequate public
information is available with respect to the Issuer, beginning 90 days after the
date of this Prospectus a person who has satisfied a one year holding period may
sell, within any three month period, a number of shares which does not exceed
the greater of 1% of the then outstanding shares of the class of securities in
question or the average weekly trading volume during the four calendar weeks
prior to such sale. Sales under Rule 144 are also subject to certain
restrictions relating to manner of sale, notice and the availability of current
public information about the issuer. Sales of restricted securities by a person
who is not an affiliate of the issuer (as defined in the 1933 Act) and who has
satisfied a two year holding period may be made without regard to volume
limitations, manner of sale, notice or other requirements of Rule 144. The
Issuer is unable to predict the effect that sales made pursuant to Rule 144 or
other exemptions under the 1933 Act may have on the prevailing market price of
the registered Common Shares, or when such sales may begin under the holding
period requirements of Rule 144.
PLAN OF DISTRIBUTION
--------------------
The Issuer issued 300,000 Common Shares and 1,000,000 Common Stock Purchase
Warrants to Monogenesis, a closed-end registered investment company, and
Monogenesis distributed 255,625 Shares and 818,000 Warrants to its shareholders
as of the date of this Prospectus at a rate of 125 Common Shares and 400
Warrants for each share of stock of Monogenesis held on _______________, 1997.
Monogenesis is a statutory underwriter which is distributing the Shares and
Warrants on behalf of the Issuer to create a public company (the Issuer) with a
substantial shareholder base without having to sell shares in a traditional
initial public offering. See "Risk Factors - No Assurance of Trading Market."
Monogenesis will retain the 44,375 Shares and 182,000 Warrants which were not
distributed. It expects to sell the Shares from time to time and may also
exercise or sell the Warrants.
Monogenesis purchased the Shares and Warrants at a price of $0.01 each
which is the par value of the Common Shares. In addition, Monogenesis agreed to
distribute Shares and Warrants to its approximately 1,200 primarily
institutional shareholders at the rate described above. The price was determined
by Monogenesis and TES. The Issuer recorded $1,047,000 in expenses and in
additional paid in capital based on the estimated fair value of the 300,000
Common Shares issued to Monogenesis less the $.01 per share price Monogenesis
paid for the Shares as of the date of this Prospectus. Monogenesis will retain
the Shares and Warrants not distributed and will own less than 1% of the
outstanding Common Shares of the Issuer after the Distribution. The Issuer and
TES have agreed to pay the expense of registering the Shares and Warrants issued
to Monogenesis which expenses include legal, accounting, consulting, transfer
agent and filing fees. Through the distribution of the Shares and Warrants by
Monogenesis (and the sale of Shares by the Selling Shareholders from time to
time), the Issuer hopes to create a public trading market in its Common Shares
to facilitate access to public markets and equity capital and future
acquisitions and to provide liquidity for employee stock incentive programs and
existing shareholders. See "Risk Factors - No Assurance of Trading Market" and
"Uncertainty and Risks Associated with Future Acquisitions."
Since Monogenesis is purchasing Shares and Warrants with the intent to
distribute, it is a statutory underwriter under the 1933 Act. Monogenesis is not
a broker-dealer and has not participated in any traditional underwritings. It is
registered as a closed-end investment company
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<PAGE>
under the Investment Company Act of 1940 and was formed to provide a mechanism
for companies to become reporting companies under the 1934 Act in transactions
similar to the Distribution. Monogenesis completed one such distribution in 1992
and one in early 1997. It has two directors -Scot D. Walker and Brian P.
Westfall. TES and Mr. Tice have agreed to indemnify Monogenesis against any
liability arising out of any representation, warranty or covenant made by TES or
Mr. Tice in the agreement with Monogenesis.
Shareholders of Monogenesis that receive Shares and Warrants will receive
such securities as a dividend. No holder of Monogenesis stock will be required
to pay any cash or other consideration for the Shares or the Warrants received
in the Distribution or surrender or exchange Monogenesis stock in order to
receive Shares or Warrants. Holders of the Warrants will be required to pay the
exercise price to exercise the Warrants. See "Securities."
Shareholders, including the recipients of Common Shares distributed by
Monogenesis, will be able to sell their Shares and Warrants which are
registered, at any time, although the sale of securities by affiliates is
limited under Rule 144. It is expected that, at such time as registered Shares
or Warrants are sold, such securities will be sold through the selling efforts
of brokers or dealers. There is no agreement with any specific brokers or
dealers relating to the Shares or the Warrants nor has any plan of distribution
or sale of the Shares or Warrants been developed, other than the dividend
distribution to Monogenesis shareholders and the debt conversion described
above.
The Shares which are held by Selling Shareholders (or which may be received
by Selling Shareholders upon the exercise of employee options) and which are
registered hereunder may be disposed of from time to time by the Selling
Shareholders, or by permitted transferees, in one or more of the following: (i)
to purchasers directly; (ii) in ordinary brokerage transactions and transactions
in which the broker solicits purchasers; (iii) through underwriters or dealers
who may receive compensation in the form of underwriting discounts, concessions
or commissions from the Selling Shareholders or permitted transferees or from
the purchasers of the securities for whom they may act as agent; (iv) by the
pledge of the Shares or Warrants as security for any loan or obligation,
including pledges to brokers or dealers who may, from time to time, effect
distribution of the Shares or Warrants or interests therein; (v) to purchasers
by a broker or dealer as principal and resale by such broker or dealer for its
own account pursuant to this Prospectus; (vi) in a block trade in which the
broker or dealer so engaged will attempt to sell the securities as agent but may
position and resell a portion of the block as principal to facilitate a
transaction; and (vii) through an exchange distribution in accordance with the
rules of the exchange or in transactions in the over-the-counter market. Such
sales may be made at then prevailing prices and terms which may be related to
the then current market price or at negotiated prices and terms. In effecting
sales brokers or dealers may arrange for other brokers or dealers to
participate.
The Selling Shareholders or their successors in interest, and any
underwriters, brokers, dealers or agents that participate in the distribution of
the Shares and Warrants held by the Selling Shareholders, may be deemed to be
"underwriters" within the meaning of the 1933 Act, and any profit on the sale of
securities by them and any discounts, concessions or commissions received by any
such underwriters, brokers, dealers or agents may be deemed to be underwriting
commissions or discounts under the 1933 Act. The Issuer and TES will pay all
expenses incident to the
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registration of the Selling Shareholders' Shares and Warrants other than
underwriting discounts or commissions, brokerage fees and the fees and
expenses of counsel to the Selling Shareholders, if any. The Issuer will
not receive any proceeds from the sale of Shares or Warrants by the
Selling Shareholders. In the event of a material change in the plan of
distribution disclosed in this Prospectus, the Selling Shareholders will
not be able to effect transactions in the Shares and Warrants pursuant to
this Prospectus until such time as a post-effective amendment to the
registration statement is filed with, and declared effective by, the
Commission.
The Issuer filed a registration statement under the 1934 Act
registering the Shares and the Warrants which became effective on June 2,
1997. Since that date, the Issuer has been subject to the reporting
requirements of the 1934 Act. The first report will be due August 14,
1997. The Issuer intends to apply for quotation of the Shares and Warrants
on the OTC Bulletin Board. At such time as it meets listing criteria, it
intends to apply for a listing of the Shares and the Warrants on a
national exchange which reports transactions on a real time basis;
however, there can be no assurance that the Shares and the Warrants will
be so listed.
USE OF PROCEEDS
---------------
TES borrowed $255,187 from six persons in July and August of 1996.
The debt was evidenced by promissory notes bearing interest at 10% per
annum with original maturity dates of September 1, 1996 which were
extended to July 27, 1997 awaiting the effective date of the registration
statement. The proceeds of the notes were used as working capital
primarily to continue development of the electronically geared technology.
The Issuer is offering the holders of the notes up to 88,560 Common Shares
in exchange for the principal and interest on such notes through December
15, 1996 at $3.00 per share. The Issuer will not receive any proceeds upon
conversion of the notes.
The cash proceeds of $13,000 derived from the sale of the Shares and
Warrants to Monogenesis and any proceeds derived upon the exercise of any
Warrants or options held by TES employees will be used as working capital
to hire additional employees including mechanical and electrical
engineers, purchase additional equipment and expand TES's facility to
address expected demand for the new technology. However, even if none or
only a small portion of the Warrants are exercised, there will not be
sufficient funds and TES will need to obtain funds from licenses fees or
financing which may or may not be available. See "Risk Factors - Lack of
Working Capital." The Issuer does not have any plans at this time to use
the proceeds to acquire additional businesses. The Issuer will not receive
any proceeds from the sale of Shares or Warrants by the Selling
Shareholders. See "Plan of Distribution."
CAPITALIZATION
--------------
The capitalization of TES (prior to its acquisition by the Issuer)
and the pro forma capitalization of the Issuer (giving effect to the
acquisition of TES) as of March 31, 1997 are as follows:
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===========================================================================
Capitalization of TES Prior to Acquisition:
===========================================================================
<TABLE>
<S> <C>
Stockholders' Equity:
Common Stock
no par value; 2,000 shares authorized;
750 shares issued and outstanding $ 8,634
Stock Warrants to purchase 30 shares 4,859
Retained Earnings 277,330
Receivable from Tice Technology, Inc. (114,687)
-----------
Total Stockholders' Equity $ 176,136
===========
===========================================================================
Pro Forma Capitalization of the Issuer Assuming Acquisition of TES and
Conversion of TES Debt:
===========================================================================
Stockholders' Equity
Common Shares
par value - $0.01 per share;
30,000,000 authorized
5,838,780 shares issued and outstanding(1) $ 58,388
Class B Common Shares
par value - $0.01 per share; convertible;
5,000,000 shares authorized;
750,000 shares issued and outstanding 7,500
Class D Common Shares
par value - $0.01 per share; convertible;
600,000 shares authorized;
no shares issued and outstanding -0-
-----------
Total Common Shares 65,888
Preferred Shares
par value - $0.01 per share;
10,000,000 shares authorized;
no shares issued and outstanding -0-
Additional Paid-In Capital (2) 1,454,470
Retained Earnings (Accumulated Deficit) (1,058,512)
-----------
Total Stockholders' Equity $ 461,846
===========
</TABLE>
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<PAGE>
(1) In addition to the Common Shares of the Issuer held by the former
shareholder of TES, the issued and outstanding Common Shares of the
Issuer include the 300,000 Common Shares issued to Monogenesis for
$3,000, the 238,470 Common Shares issued to JWSI and the 88,560 Common
Shares issued upon conversion of TES debt. This number does not
include the 1,000,000 Common Shares which may be issued upon the
exercise of the Warrants or the 54,750 Common Shares which may be
issued upon the exercise of the options held by TES employees. See
"Securities."
(2) Pro forma balance sheets assuming acquisition of TES by the Issuer and
conversion of TES debt and showing pro forma adjustments are included
in their entirety elsewhere in this Prospectus. See "Financial
Statements."
BUSINESS
--------
General
- -------
The Issuer was formed as a holding company for TES on June 21, 1996 in
connection with the registration of the Shares and Warrants to create a public
company with a substantial shareholder base without having to sell shares in a
traditional initial public offering (through the shareholder base of
Monogenesis). It is also believed that establishing the Issuer as a public
company may facilitate acquisitions at some point in the future. No particular
acquisition targets have been identified and the Issuer does not currently have
the resources to make a material acquisition. See "Risk Factors - Uncertainty
and Risks Associated with Future Acquisitions." The Issuer received all of the
issued and outstanding shares of stock of TES from TES's shareholders in
exchange for 5,450,220 Common Shares and 750,000 Class B Common Shares as of the
date of this Prospectus. The number of shares exchanged was determined by TES
and Monogenesis taking into consideration the proposed public float and
ownership interests. All of the Issuer's current business operations are
conducted through TES.
Of TES's historical revenue, 95% is derived from the sale or license of
products designed and manufactured by TES and further described below. The
remaining 5% is derived from rents received from real property owned by TES and
some consulting fees. TES sold the rental real estate on September 30, 1996. The
consulting fees are very minor as independent revenues; traditionally these fees
are encompassed in the design and manufacture of TES's products for a particular
customer.
TES performs original research engineering design, prototype development
and testing for its garment production line stitching machines and related
equipment. During manufacture and assembly, the arrangement of component parts
of a tice(R) product are configured to meet the purchaser's special production
line application requirements. Accordingly, most of TES's products are made-to-
order pursuant to contractual arrangements with purchasers. See "Business -
Products." Generally, a potential customer outlines a need or problem relating
to their manufacturing process, TES reviews the need and estimates the cost to
provide the product or solution. See "Risk Factors - Risks Associated with Fixed
Price Contracts." Often then TES applies the technology developed pursuant to a
contract to other applications or sells the product developed to other parties.
See
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<PAGE>
"Business - Products." TES also manufactures replacement parts for its products
and a few minor attachments and provides consulting services at hourly rates.
During the past five years in addition to marketing and selling the
conventional product line that it has sold for some time, TES has spent
considerable time developing new technology and has obtained three patents, two
in 1994 and one in 1995. See "Business - Products." The bulk of research efforts
since 1993 have been centered on the electronic gearing technology. This
technology was initially developed for the double needle belt loop machine and,
by using a computer and servo motors, eliminates approximately 90% of the
mechanical parts as well as certain other technical problems associated with the
machine. TES also believes the technology has application to many other types of
machines including machines used in industries other than the sewing industry
such as the spinning industry for which TES is now developing a machine. To
date, in addition to the double needle belt loop machine, TES has built "proof
of concept" models of the multi-head buttonhole machine, the lap seam felling
machine, the plain lock stitch sewing machine and the heavy-duty spinning
machine. See "Business - Research and Development."
TES's success is dependant on its ability to provide solutions to the
sewing industry (and, to a certain extent, some other industries) through its
existing products or by developing new or enhanced products. TES generally
employs five engineers, but expects to employ more in the future. In addition,
Mr. Tice has worked in the business for more than 30 years and has substantial
experience in designing solutions and estimating the costs of providing
solutions. Recently in light of the rapid changes management expects will occur
in TES's business resulting from the development and exploitation of the
electronic gearing technology, TES has hired additional key personnel who it
believes have the ability to run the business.
John Burchill is currently acting as TES's general manager. He has worked
in the sewing machine industry for approximately 35 years and was previously
Manager of New Products and Technical Services for Brother International Corp.,
the U.S. division of Brother Industries, Ltd., one of the world's largest sewing
machine manufacturers.
Eric Watson is currently Electronics Manager. Mr. Watson received his
B.S.E.E. from Northeastern University, College of Engineering, in Boston,
Massachusetts in 1989. From 1983 (prior to receiving his degree) through
November of this year, he has been employed as a project and design engineer for
Loral Hycor, Inc., in Woburn, Massachusetts which is a defense contractor
selling products to the government and commercial industries.
Products
- --------
TES sells various products mainly to the sewn products industry. Many of
its products are covered by patents which generally provide protection for
seventeen years from date of issue. TES's basic products include:
1) Twin Needle Belt-Loop Sewing Machines -- This machine takes pre-sewn
belt loop material, which is in lengths of 50 to 150 feet, and feeds
the belt loop out to the proper length, cuts the belt loop and folds
both ends under by way of turning pins. Next, the operator activation
presents the pre-cut, pre-folded belt loop to the pants waistband
whereupon two air-operated presser feet descend upon the folded belt
loop
19
<PAGE>
ends, the turning pins retract and both ends of the belt loop are sewn
on simultaneously. The presser feet return to the up position, the
operator moves the garment and the process is repeated. TES has
developed a prototype of the Twin Needle Belt-Loop Sewing Machine,
which uses the new electronic gearing technology. It is covered by
TES's patent #5,458,075 which was issued on October 17, 1995.
2) Ergonomic Stands -- These stands are either pneumatically or
electronically activated by the operator who can move the table top up
and down, stopping at any desired height, thus helping production and
physical approach to the machine/stand combination. These stands are
covered by TES's patent #5,313,892 which was issued on May 24, 1994.
3) Single Needle Belt-Loop Machines -- This machine takes pre-sewn belt
loop material which is in lengths of 50 to 150 feet. The machine feeds
the belt loop out to the proper length, cuts the belt loop and folds
both ends under by way of turning pins. Next, the operator activation
presents the pre-cut, pre-folded belt loop to the pants waistband
whereupon two air-operated presser feet descend upon the folded belt
loop ends, the turning pins then retract, one end of the belt loop is
sewn, the unit indexes and the opposite end of the belt loop is sewn.
The presser feet return to the up position, the operator moves the
garment and the process is repeated. All patents, if any, on this
product have expired.
4) Button Hole Indexers -- This unit uses a conventional single head
buttonhole machine. The operator places a shirt panel with the placard
already formed at the beginning position on the buttonhole indexer
moving plate and engages the starting button. The first buttonhole is
sewn, upon completion the shirt panel is indexed the proper distance
where the second buttonhole is sewn, it is once again indexed and this
process continues through six, seven or eight buttonholes. The panel
is then removed and the operator starts the process again. All
patents, if any, on this product have expired.
5) Takeaway Mechanisms -- These mechanisms are built to customer
specifications and are used for the purpose of moving parts or full
garments from one point to another. This product is covered under
TES's patent #5,303,910 which was issued on April 19, 1994.
6) Indexing Stackers -- Indexing stackers incorporate the patented take-
away and pick-up device described in patent #5,303,910 where as the
pick-up/take-away mechanism moves the particular part to a
predetermined position where it is placed, the stacker then moves so
that the next part picked up by the take-away is placed in a different
stack, the indexer then returns to the original position to await
receipt of the next part. The sequence is then repeated.
7) Label Loader/Folders -- The label loader/folders feed a label from a
hopper to a folding mechanism that folds the label, if required. It
presents the label to the sewing machine which is then activated, the
label is sewn on the garment. The label loader
20
<PAGE>
repeats the process. This product is covered by TES's patents
#4,677,923 and #4,979,934 which were issued on July 7, 1987 and
December 25, 1990 respectively.
8) Automatic "J" Tackers -- The term automatic "J" tacker is a generic
term for a machine designed to make one tack then shift and place a
second tack automatically. These tacks are normally placed in
positions on garments that require additional reinforcement to add
strength. Patents on this product, if any, have expired.
9) Belt-Loop Winders -- During the process of manufacturing a belt loop
in lengths of 50 to 150 feet, the belt loop winder winds the belt loop
up on a reel (very similar in appearance to a movie reel that film is
wound on). These reels are then taken to a belt loop machine where the
belt loop material is then pulled off these reels by the belt loop
sewing machine. No patents exist on this product.
10) Needle Positioners -- Needle positioners are air operated units that
are retrofitted to existing conventional sewing machines. This unit
when activated positions the needle up and out of the sewn work. This
process was traditionally done by the operator turning the pulley hand
wheel. This product is covered under TES's patents #4,271,775 and
#4,270,474 which were issued on June 9, 1981 and June 2, 1981
respectively.
11) Pocket Creasers -- The pocket creaser takes the pre-formed and cut
pocket material and first folds it, then creases it by means of heat
so that the operator can sew the pocket in a closed fashion into the
garment or, in the case of a back pocket, onto the outside of the
garment. No patents exist on this product.
12) Pneumatic Circuit Boards -- This technology was discovered in the mid-
1970's at which time TES was only one of two companies (that TES is
aware of) who were capable of manufacturing multi-level pneumatic
circuit boards. Basically, the circuit boards are multi-layered
acrylic sheets that are grooved and ported to facilitate the flow of
air to specific ports in a valve configuration. This technology to air
is similar to an electronic printed circuit board and greatly enhances
the capability of pneumatic operations. No patents exist on this
technology although the circuit boards created were copyrighted from
1976 to 1986 at which time the use was greatly reduced as TES
converted to electronics.
13) Air Operated Clamp Lifts -- The function of the air operated clamp
lift is to semi-automate tacker sewing machines. The clamp lift
controls the raising and lowering of the presser foot and the engaging
of the sewing machine into the sew cycle. TES's patents on this
product have expired.
14) Electronic Gearing Components for Sewing Machines -- The technology
referred to as electronic gearing is the ability to coordinate to
within one-eighth of one degree the accuracy between the needle and
the bobbin hook assembly of a sewing machine. TES believes that this
technology has many applications and is used in the Twin Needle Belt-
Loop Sewing Machine which operates as described above and is covered
by TES's patent #5,458,075 issued on October 17, 1995.
21
<PAGE>
During fiscal year 1997, sales of the Label Loader/Folders
contributed 34% to product sales revenues with sales of the folders
divided between two models representing 18% and 16% respectively. Sales of
the J-Tackers represented 16% of product sales revenues in the 1997
period. During fiscal year 1996, sales of the Label Loader/Folders
contributed 17% to consolidated revenues with sales of the folders divided
between three different models, contributing 14%, 1.6% and 1.4%,
respectively. During fiscal year 1995, sales of the Label Loader/Folders
constituted 21% of revenues, split between two models at 18.6% and 2.4%
each. There were no products which contributed 15% or more revenues during
fiscal year 1994. Management expects that products containing the
electronic gearing technology will become its dominant products over the
next several years.
Historically, TES has primarily designed and manufactured special
application equipment and attachments for denim (blue jeans) and work wear
manufacturers. It also has manufactured equipment for other types of
sewing manufacturers that produce drapery products; upholstery; shoes;
sewn medical supplies; boat, car and aircraft interiors; and general
apparel. Currently, TES receives approximately 72% of its annual revenue
from the sale of products from three denim and work wear manufacturers -
Levi Strauss & Co., Wrangler, Inc. and A.B. Fab Company and substantially
all of its license fee and royalty revenue from one customer, Brother. The
loss of any of these customers could materially affect TES's revenues and
net income. See "Risk Factors - Dependence on Limited Number of
Customers." However, management believes that, as it further develops uses
for the electronic gearing technology, such as the spinning machine it is
now developing, TES's dependence on a few customers or segment of the
sewing industry will lessen or disappear.
TES granted Brother Industries, Ltd. ("Brother") of Nagoya, Japan, a
nonexclusive license effective as of January 1, 1997 to make, assemble,
use and sell products (consisting of up to 12 categories of industrial
sewing machines) incorporating the electronic gearing technology and
related additional technology which may be developed by TES. The license
is granted for the term of the applicable patent. TES is also required to
provide Brother with technical assistance and training. In return for the
license, if certain conditions are met, TES is entitled to license fees of
up to $6,000,000 in addition to royalties. TES received the initial
license fee of $250,000 (corresponding to the first category of machines)
on February 25, 1997 and in April 1997 received a payment of $250,000
corresponding to the second category of machines. Brother has agreed to
pay TES $250,000 within 30 days of the date of the first commercial
shipment of a product in any of the remaining ten categories and $250,000
within 60 days of the date the aggregate net sales of products in a
category equals $30,000,000. In addition, TES is entitled to a continuing
royalty of 2% of net sales, 1.75% of net sales relating to additional
"know-how" provided by TES to Brother and 80% of any sub-license income of
Brother relating to the TES technology during the life of patent or any
continuation thereof. Brother is required to pay TES additional fees at
TES published rates for technical assistance and training. Brother has
developed machines in two categories which it is advertising and promoting
at trade shows.
TES is also in various stages of formal and informal negotiations
with various other manufacturers of equipment for the sewing and spinning
industry for the license of the electronic gearing technology.
22
<PAGE>
Patents
- -------
TES's success depends in large part on its ability to exploit its existing
patents and to obtain additional patents on similar or new technology. TES
currently has eight patents under which it is producing products and is working
on designs for additional products. See "Business - Research and Development."
The patents have expiration dates ranging from 1998 to 2012. TES also sells
products on which it holds patents that have expired. See "Business - Products."
TES is currently working on obtaining patent protection in countries other than
the U.S. on its electronic gearing technology.
There can be no assurance that foreign patents will be approved, that TES
will develop additional proprietary products that are patentable, that any
patents issued to TES will provide TES with competitive advantages or will not
be challenged or that the patents of others will not prevent the
commercialization of products incorporating the technology. Furthermore, there
can be no assurance that others will not independently develop similar products,
duplicate TES's products or design around its patents. Any of the foregoing
could have a material adverse effect on TES's results of operations and
financial condition.
Litigation, which could result in substantial costs to TES, may also be
necessary to enforce its patents or to determine the scope and validity of third
party proprietary rights. If competitors or customers of TES that claim
technology also claimed by TES prepare and file patent applications, TES may
have to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial costs to TES, even if the eventual outcome is favorable. Any such
litigation or proceedings, regardless of outcome, could be expensive and time
consuming or subject TES to significant liability, require disputed rights to be
licensed from third parties or require TES to cease using the technology, all of
which could have a material adverse effect on TES's results of operations. TES
does not know of any threatened challenges to any of its patents.
Research and Development
- ------------------------
TES primarily provides solutions to production or ergonomic problems of its
customers which are primarily sewing manufacturers and produces and markets such
products or technology. It also modifies existing products and markets them for
different applications. When a sewing manufacturer or other customer comes to
TES with a problem, TES will generally consult, build and then manufacture a
piece of equipment designed to eliminate or lessen production or ergonomic
problems or enhance production capabilities. Once the piece of equipment has
been designed and produced as required by the customer, TES generally retains
rights to the design and then offers the equipment and technology to the
industry as a whole. In many cases, TES obtains a patent on the process to
protect its rights. See "Risk Factors - Dependence on Patents and Ability to
Protect Proprietary Products."
TES recently completed research and development work and has recorded sales
of two new products, the SBI 100 Soccer Ball Inflator which is an apparatus that
automatically inflates multiple soccer balls to preset pressures simultaneously
and the KX4000 which is a unit used to cut belt loops and other like materials
to obtain a point cut on both ends. These products use traditional
23
<PAGE>
technology (as opposed to the electronic gearing technology). Revenues generated
from these products are expected to be less than 1% of TES's total product
revenues for fiscal year 1998.
Other than a Joint Development Agreement with a denim clothing manufacturer
described in more detail below, TES does not currently have any outstanding
research and development agreements. However, based on customer inquires and its
experience in the industry, at the present time, TES is in the process of
designing and building the following equipment which management believes TES may
be able to sell:
. A custom designed pickup and delivery system for a bedding
manufacturer.
. A special system to rotate heating dryers for silk screen printing for
the same sporting goods manufacturer.
TES is also in the process of designing the following equipment which uses
TES's newly patented electronically gearing technology:
. A multi-head button hole machine.
. A multi-head button sewing machine.
. A felling machine.
. A single needle plain sewer.
. A heavy-duty spinning machine.
TES incurred research and development expenses of $192,364, $196,963 and
$163,204, respectively in fiscal years 1995, 1996 and 1997, of which the 1995
and 1996 expenses were reduced by reimbursements of $150,000 in each year under
the Joint Development Agreement described below.
With respect to the felling machine, TES entered into a Joint Development
Agreement with a denim clothing manufacturer to develop a felling machine
suitable for inseaming jeans using the TES computer controlled sewing mechanism.
Under the agreement, TES retains ownership of the technology, but granted the
manufacturer a nonexclusive, paid-up license to the jointly developed felling
machine. The manufacturer paid TES a fee of $300,000 to develop the felling
machine. In return, in addition to the license, it has the exclusive right after
production of the first felling machine to purchase the resulting felling
machines so long as it purchases a minimum of the lesser of TES's entire
production or 249 machines during each year. The cost of each machine is as
agreed to from time to time, but in no event in excess of $20,000 per machine.
With respect to felling machines sold to any other person, the manufacturer is
entitled to receive a royalty of 4% of the gross selling price until such time
as it has received an amount equal to the amount paid by it to
24
<PAGE>
develop the product plus interest at a rate of 10% per annum. TES currently has
a first generation prototype of the felling machine in operation, which is
considered 75% complete. In November, 1996, the manufacturer requested that the
work be put on hold due to plant reorganizations limiting its ability to take
delivery of the machines. The last communications from the manufacturer
indicated that development work is expected to resume in the fall of 1997. In
June, TES elected to resume work on the project without the participation of the
manufacturer. TES is not obligated to repay the development fee but is
obligated, if it decides to proceed with development on its own, to pay the
royalty described above upon the commercial sale to any person other than the
denim clothing manufacturer until such time as royalties equaling the amount of
the development fee and accrued interest are paid.
Market
- ------
TES's customers are primarily, but not exclusively, apparel manufacturers.
In addition to providing products used in apparel manufacturing, TES has
designed and built special equipment for Ford Motor Company, Lockheed Aerospace,
Camel Tent and Awning, and California Sail and Rigging as well as a number of
furniture manufacturers and medical supply companies. An example of special
equipment that TES has produced is an automated soccer ball inflater. TES is
currently developing a heavy-duty spinning machine for the spinning industry.
These types of sales make up approximately 1% of TES's revenues.
TES currently markets primarily to the apparel industry. It sells its
products and services directly to end users as well as by means of a dealer
network of approximately 125 dealers worldwide. In addition, TES advertises
monthly in one or more of the apparel industry's international trade magazines.
TES also regularly attends apparel industry trade shows as an exhibitor to
display its equipment and technology. TES exhibited at a trade show in Japan in
May 1996, at the Bobbin Show in Atlanta in October 1996, at the 1997 Apparel
Show of the Americas in Miami in March 1997 and at the IMB Show in Cologne,
Germany in May 1997. It also plans to exhibit at the 1997 Bobbin Show in
September 1997.
Backlog
- -------
TES estimates that its backlog orders believed to be firm as of March 31,
1997 and 1996 were $200,000 and $780,000 respectively. The backlog on March 31,
1997 has been completed along with an additional $450,000 in orders recorded
since the end of fiscal 1997. Backlog orders believed to be firm as of June 30,
1997 were $418,000. TES estimates that such backlog will be completed by the end
of September 1997.
Competition
- -----------
Management believes that all of the large Japanese and most of the other
manufacturers of equipment for the apparel industry maintain research and
development departments which perform research along the same lines as TES. All
of these companies are much larger than TES and have much larger research and
development facilities. See "Risk Factors - Potential Adverse Effects of
Competition." In addition, management estimates that there are four companies of
approximately the same size as TES that provide similar services and products.
TES's management is also aware
25
<PAGE>
of two companies in Europe which perform similar services, but does not know the
size of the companies.
Like TES, most of these competitors perform research and development at a
customer's request. TES has found that its competitors have designed products
similar to TES's Single Needle Belt Loop Machine, Ergonomic Stands and Pocket
Creasers to which extent there is direct competition with these TES products,
although one of TES's largest competitors has licensed the patented electronic
gearing technology from TES as opposed to trying to develop its own technology.
Generally, the market in this industry is targeted through advertising in trade
journals and attendance at trade shows such as the Bobbin Show. The principal
methods of competition, in addition to technology, are price, workmanship,
overall machine performance and service offered.
Manufacturing
- -------------
TES generally manufactures all prototype products which it develops
pursuant to service agreements and manufactures the already developed products
it offers. It also sometimes manufactures the final products under such
contracts for the customer. However, TES's general policy has been to outsource
manufacturing of components (such as nickel and chrome plating for the ergonomic
stands) which for various reasons create environmental hazards. So far TES has
found that it has generally been less expensive to outsource when the
environmental compliance costs are factored in. In the event that TES were no
longer able to outsource the manufacture of these components or products, it
would most likely change the finish. TES has no current plans or perceived need
to make any material capital expenditures for environmental control.
TES's facility has the machining capabilities of sawing, milling, welding,
brazing, sanding, surface grinding, drilling, tapping, threading, turning
(lathe), riveting, bending, heat treating and painting. TES maintains an
assembly department which consists of eight assembly stations, each with an
assortment of hand tools, electronic and air-driven power tools, vises, air
supply and electronic requirements. In addition, the assembly department has two
stations designated for the assembly of electronic circuit boards and
components. During manufacture and assembly and prior to shipment, each product
manufactured by TES goes through a series of quality checks.
TES maintains an in-house inventory of all parts it manufactures and
approximately 80% of the components supplied by outside vendors. Approximately
25% of components of TES products are vendor supplied. TES generally uses
components supplied by a number of different sources and is therefore not
predominantly dependant on one supplier of any component of any of its products.
In addition, with the exception of a few items such as P.L.C.s (programmable
logic controller, i.e. mini computer), PC computers, electric motors and
electric switches (which are available from numerous suppliers), TES has the
capability of manufacturing the components used in its products. Raw materials
are also available from many suppliers.
Property
- --------
Until September 30, 1996 when it was sold, TES owned a small retail
shopping facility (commonly known as a strip center) in Knoxville, Tennessee.
The land and building were valued at $670,291 ($356,112 if accumulated
depreciation of $316,179 is taken into account) on TES's balance sheet. The
property was sold to an unrelated party for $825,000. The property had been
26
<PAGE>
listed with a real estate broker for three years. The offer of $825,000 together
with the rental space for eight months was the best of two offers received by
TES. The property had been appraised earlier in 1996 for $1,200,000. Management
believes that the appraisal was approximately $200,000 too high. The appraisal
was based on the sales of other properties in the vicinity which management
believes sold for higher prices because they were more desirable property than
the TES property. Management accepted the price it did because it believed it to
be reasonable and the best that it was likely to get in the near future. In
addition, management desired to reduce TES's debt and needed the proceeds of the
sales to do so, reducing TES's monthly payments by approximately $4,000.
The proceeds of the sale were primarily used to pay off bank loans. TES
uses approximately 20,000 square feet of the total 33,000 square feet available
at the strip center for its operations and under an oral agreement with the
buyer remained in the space rent free through May 1997. The rent free space
added a prepaid rent benefit to TES valued at $32,000. The rent benefit was
expensed each month at the rate of $4,000 per month. Since the expiration of the
rent free period, TES continues to rent the space on a month to month basis at
$4,000 per month under a verbal agreement to be renegotiated at the end of
December 1997 if TES continues to occupy the space at that time. Of that space,
the manufacturing area consists of 18,000 square feet, 2,000 square feet of
which constitute research and development operations. The remaining 2,000 square
feet houses the administrative offices.
TES also owns approximately 5.71 acres of undeveloped land approximately
one quarter mile from the existing facility. To meet anticipated growth needs,
TES plans to build a 55,000 square foot building consisting of 40,000 square
feet for manufacturing and assembly and 15,000 for research and development and
administrative offices on the land. TES has architectural drawings of the
proposed facility and, assuming sufficient capital is available, expects the
facility to be complete by November or December 1997. See "Risk Factors - Lack
of Working Capital." Based on bids received from contractors over the last three
months, the costs of construction of the building are estimated to be
$1,600,000. In the event that TES were unable to remain in its current space
until its new facility is built, management believes that there is adequate
available space in the Knoxville area and that this would not create a problem
for TES. TES has no unusual space requirements.
TES's machinery and equipment consists of saws, mills, welding and brazing
equipment, sanders, surface grinders, drill presses, tapping and threading
machines, lathes, riveting and binding equipment, heat treating ovens and
painting equipment, hand tools, electronic and air-driven power tools, vises,
air compressors and electronic testing equipment. TES's machinery and equipment
is valued at $522,000 on TES's balance sheet. Management believes replacement
costs would be closer to $1,000,000.
Employees
- ---------
TES is a non-union shop with eighteen hourly employees. It also has eight
salaried employees. TES employees are machinists, welding specialists,
electronic specialists, assembly personnel, shipping and inventory personnel,
clerical workers, electronic and mechanical engineers and sales and service
personnel. Approximately 70% of TES's employees have been employees of TES for
at least ten years.
27
<PAGE>
History
- -------
TES was founded by Richard E. Tice (William Tice's father) in 1964 as a
contract designer and manufacturer of specialized, pneumatically operated
garment sewing equipment. Richard Tice had entered the garment making industry
in 1916 as a 13 year old apparel factory worker and worked through the years as
a sewing machine mechanic and equipment innovator, obtaining his first patent in
1950. William A. Tice began working in his father's firm in the 1960's when he
was a teenager. Upon his father's retirement in 1972, William Tice began running
the business and in 1973 incorporated as Tice Engineering and Sales, Inc. Mr.
Tice purchased the last of his father's shares in TES in 1979 and purchased
shares held by his mother in 1995. William Tice obtained his first patent in
1975.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Overview
- --------
Since 1964, TES has been developing products which provide technical
solutions to problems relating to the manufacturing processes of various
companies with a primary concentration in the sewing industry. TES's corporate
offices are located in a shopping center which the company sold in fiscal 1997.
Ninety-five percent (95%) of TES's customers are repeat customers with much of
its product line having been produced to address the problems of a particular
customer. TES retains the right to market the resulting equipment to other
customers with similar requests. Products developed by TES are marketed through
its dealer network, attendance at trade shows, direct sales to existing
customers and advertisement primarily in trade journals. TES also licenses
technology on a non-exclusive basis to customers who want to manufacture various
products using technology developed and patented by TES.
TES's revenues are classified as product revenues, service revenues and
license fee revenues. Product revenues include the sale of the company's
internally designed and manufactured robotic and pneumatic industrial sewing
machine attachments. Service revenues include revenues related to repairs, while
the license fee revenues include fees earned under a non-exclusive license and
royalty agreement with Brother Industries, Ltd. ("Brother"). Revenues are
generated from the sale of products and services in both domestic and
international markets. During fiscal 1997, approximately 6% of revenues were
generated in international markets. Three customers accounted for an aggregate
of 72% of revenues in fiscal 1997. Management expects that during the next
several years, license fee revenues will become a larger portion of total
revenues for TES. A principal reason for the expected growth in this area is the
anticipation of additional earnings under the license agreement currently in
place with Brother as well as current negotiations with other manufacturers to
enter into such agreements. As a result of the company's focus on product
development and marketing license agreements over the past three years, product
revenues decreased somewhat in 1997 as compared to 1996.
Cost of revenues includes direct expenses, such as labor and inventory, as
well as an allocation of overhead incurred in manufacturing products sold and
licensed by TES. The direct costs associated with providing services performed
by the company for its customers are also included in cost of revenues.
28
<PAGE>
Research and development ("R&D") expense includes salaries and the related
benefits of employees performing R&D, materials and overhead allocated to direct
expenses incurred in R&D activities. These costs are expensed as incurred and
are recorded net of any reimbursements TES may receive under contracts to
perform R&D for others. See Note 8 of the Notes to Financial Statements.
Selling, general and administrative ("SG&A") expense includes costs related
to TES's sales force and administration. Included are direct labor costs for
sales representatives as well as commissions paid to dealers on direct sales
outside TES's normal network. Costs associated with marketing and advertisements
for the company's products are included in this category along with travel-
related expenses for various trade shows. Administrative expenses, including all
corporate and administrative functions that serve to support the existing
business of TES as well as provide the infrastructure for future growth, are
reflected in this category, as are certain management, supervisory and staff
salaries and related employee benefits, rent and office supply costs. In
addition, the portion of depreciation and amortization expense and other
overhead items allocable to SG&A are included in this category.
The following analysis of the financial condition and results of operations
of TES should be read in conjunction with the Financial Statements and Notes
thereto included elsewhere in this Prospectus.
Results of Operations
- ---------------------
The following table sets forth the percentage relationship to revenues and
the period-to-period change of certain statements of operations data for the
periods indicated.
<TABLE>
<CAPTION>
Percentage of Revenues
-----------------------------
For the Years Ended March 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Revenues:
Sales 82% 100% 100%
Service 0% 0% 0%
License fees 18% 0% 0%
---- ---- ----
Total operating revenues 100% 100% 100%
Operating Expenses:
Cost of revenues 58% 56% 57%
Research and development (net of reimbursements) 12% 4% 3%
Selling, general and administrative 40% 39% 35%
---- ---- ----
Total operating expenses 110% 99% 95%
---- ---- ----
Operating income (loss) -10% 1% 5%
Other income (expense):
Interest income 0% 0% 0%
Rental income 2% 4% 4%
Rental expense -2% -4% -3%
Gain on sale of fixed assets 35% 8% 0%
Interest expense - related parties -1% -1% -1
Interest expense -5% -8% -8%
Other income (expense) -0% 1% 0%
---- ---- ----
Total other income (expense) 29% 0% -8%
---- ---- ----
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Percentage of Revenues
-----------------------------
For the Years Ended March 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
19% 1% -3%
Income (loss) before income taxes
Provision (benefit) for income taxes 8% 0% 0%
---- ---- ----
Net income (loss) 11% 1% -3%
==== ==== ====
Period-to-Period Percentage
Increase (Decrease)
-----------------------------
1997 1996
vs vs
1996 1995
---- ----
<S> <C> <C>
Operating Revenues:
Sales -8% 0%
Service -17% -34%
License fees 100% 0%
----- -----
Total operating revenues 12% 0%
Operating Expenses:
Cost of revenues 16% -2%
Research and development (net of reimbursements) 248% 11%
Selling, general and administrative 17% 15%
----- -----
Total operating expenses 25% 5%
----- -----
Operating income (loss) -1096% -78%
Other income (expense):
Interest income -98% -72%
Rental income -43% -6%
Rental expense -36% 8%
Gain on sale of fixed assets 374% 100%
Interest expense - related parties 45% -24%
Interest expense -24% 2%
Other income (expense) -109% 824%
----- -----
Total other income (expense) 7508% 105%
----- -----
Income (loss) before income taxes 1226% 156%
Provision (benefit) for income taxes 2437% 179%
----- -----
Net income (loss) 874% -152%
===== =====
</TABLE>
Fiscal Years Ended March 31, 1997 and 1996
- ------------------------------------------
Total Revenues. Total revenues increased in 1997 by 12% to $1,397,281 from
$1,242,558 in 1996. Product revenues decreased 8% to $1,144,884 in 1997 from
$1,239,666 in 1996 as TES
30
<PAGE>
directed more resources to new product development and marketing license
agreements. In 1997, sales of the Label Loader/Folder and Automatic J-Tacker
constituted approximately $394,000 (34%) and $180,000 (16%), respectively, of
product sales revenue; whereas, in 1996, sales of the Label Loader/Folder
generated 17% of product sales revenue. The Label Loader/Folder and Automatic J-
Tacker are part of TES's traditional product line and are ordered periodically
by its customers. Remaining product sales in both years were primarily generated
from a mix of the company's other traditional products; however, there was no
other product comprising more than 15% of revenues in either year. The timing of
sales from year to year may fluctuate greatly depending on customer needs.
Management believes that less than 5% of TES's products will become obsolete in
the next two years as many of the company's smaller customers and those in
third-world countries will most likely continue to purchase the traditional
equipment rather than purchasing the more expensive equipment using the new
technology. Management believes that equipment using the new technology will
replace approximately ten percent (10%) of its existing product line in the near
future. TES signed one license and royalty agreement in fiscal 1997 which
provided for revenue of $250,000 in that year. See Note 9 of the Notes to
Financial Statements.
Cost of Revenues. Cost of revenues increased 16% to $814,587 in 1997 from
$699,293 in 1996 primarily due to the recording of a $120,000 inventory
obsolescence reserve due to management's efforts at redirection of the company's
focus on new technology and an increase in total overhead expenses of which a
portion is applied to cost of revenues. The increase in total overhead expenses
related to: (i) rent expenses allocated to overhead when TES sold the shopping
center in which TES occupies space in September 1996 and (ii) increased salary
and related benefits expenses relating to the general manager hired by TES
during fiscal 1997, a portion of which expenses were allocated to overhead. Cost
of revenues as a percentage of total product and service revenues increased from
56% in 1996 to 71% in 1997 primarily as a result of the inventory reserve
recorded in 1997.
Research and Development (net of reimbursements). Research and development
costs increased by approximately $116,000, or 248%, to $163,204 in 1997 from
$46,963 in 1996, reflecting the lack of reimbursements in fiscal 1997 as
compared with $150,000 of reimbursements in both 1996 and 1995. See Note 8 to
the Notes to Financial Statements.
Selling, General and Administrative. SG&A expense increased 17% to
$563,223 in 1997 from $481,876 in 1996. SG&A was 39% of revenues in 1996
compared to 40% in 1997. This increase was primarily a result of the hiring of a
general manager as well as an increase in officers' salaries. This increase was
based on a higher allocation of the officers' salaries to R&D in 1996 versus
1997 as more of the President's time was spent in R&D efforts, including those
related to the new electronic gearing technology, in 1996. These increases were
somewhat offset by a decrease in the Company's sales force which was the result
of sales personnel taking positions with other companies not in competition with
TES, and such sales personnel are expected to be replaced in the 1998 fiscal
year.
Operating Income(Loss). Operating income for 1997 decreased by
approximately $158,000 to an operating loss of $143,733, or (10%) of total
revenues, from an operating profit of $14,426, or 1% of total revenues, in 1996.
This decrease was primarily a result of the lack of reimbursements for R&D
projects in 1997 coupled with increases in SG&A costs.
31
<PAGE>
Rental Income and Expense and Gain on Sale of Property and Equipment.
Rental income decreased from $49,575 in 1996 to $28,200 in 1997, rental expense
decreased from $46,424 in 1996 to $29,792 in 1997 and gain on sale of property
and equipment increased from $105,593 in 1996 to $500,363 in 1997. These changes
were primarily a result of the sale of a shopping center in September 1996 for
which TES received rents from tenants prior to the sale. Higher maintenance
costs created the increase in rental expense as a percentage of rental income
between years. See Note 6 of the Notes to Financial Statements.
Interest Expense and Interest Expense - Related Parties. Interest expense
decreased 24% in 1997 to $75,652 from $99,235 in 1996, as a result of the
decrease in the average outstanding debt, from approximately $1,046,000 in 1996
to $641,000 in 1997. The average interest rate on the company's debt remained
stable at approximately 9.5% from year to year. The decrease in the average debt
outstanding was generated by the repayment of debt incurred to finance the
purchase of the shopping center that was sold in September 1996. Interest
expense - related parties increased by 45% from $16,830 in 1996 as compared to
$16,312 in 1997 as a result of an increase in the average outstanding balance of
notes payable to related parties which rose from approximately $156,000 in 1996
to $174,000 in 1997. Amounts still outstanding at March 31, 1997, including the
related party notes payable, were obtained primarily to provide working capital
for operations. The notes payable to the business associates (included in both
notes payable and notes payable to related parties) are expected to be converted
to common stock upon the effective date of the registration statement. See Notes
3 and 4 of the Notes to Financial Statements.
Income Taxes. TES's effective tax rate was 43% in the 1997 period as
compared to a rate in 1996 of 22%, principally due to the company's recording a
$67,990 valuation allowance against deferred tax assets as well as a change in
rate to reflect the rates expected to be in effect when the temporary
differences reverse. This increase was somewhat offset by utilization of state
net operating losses not previously recorded. See Note 5 of the Notes to
Financial Statements.
Certain amounts in the March 31, 1996 and 1995 financial statements have
been reclassified and grouped to conform to the March 31, 1997 presentation.
These reclassifications include reclassifying: (1) sales salaries from cost of
revenues to selling, general and administrative expense and (2) a portion of
interest expense-related parties to interest expense. In addition, several items
have been grouped together in the balance sheets as well as the cash flow
statements that were previously reported as separate line items including: (1)
trade and employee accounts receivable; (2) utility deposits, cash surrender
value of life insurance and investments; and (3) notes payable and long-term
debt. See Note 1 of the Notes to Financial Statements.
Fiscal Years Ended March 31, 1996 and 1995
- ------------------------------------------
Total Revenues. Total revenues increased slightly in 1996 by 0.2% to
$1,242,558 from $1,239,854 in 1995. Product revenues remained relatively stable
increasing to $1,239,666 in 1996 from $1,235,492 in 1995. Sales of one product,
the Label Loader/Folder, represented 17% of product sales revenue in 1996 and
21% of product sales revenue in 1995. Sales of no other products comprised more
than 15% of total revenues in either of these years. The modest increase was
primarily a result of increased sales of a variety of TES's remaining product
line.
32
<PAGE>
Cost of Revenues. Cost of revenues decreased 2% to $699,293 in 1996 from
$712,142 in 1995 primarily due to the use of lower-cost materials to make
certain products. In addition, management has worked to consolidate material
purchases to increase volume discounts. Total cost of revenues as a percentage
of total revenues decreased from 57% in 1995 to 56% in 1996 due to the
aforementioned factors.
Research and Development (net of reimbursements). Research and development
costs increased by approximately $4,500, or 11%, to $46,963 in 1996 from $42,364
in 1995. Gross costs increased only 2% from $192,364 in 1995 to $196,963 in 1996
with reimbursements of $150,000 in each of those years from a denim clothing
manufacturer under a joint development agreement. During these years, R&D
expense related primarily to the electronic gearing technology which is also
used in the machine being developed under this agreement. The equipment related
to this agreement is in the first generation prototype stage and is considered
to be seventy five (75%) complete. In November 1996, the manufacturer requested
that R&D activities related to agreement temporarily cease due to plant
reorganization which limited the manufacturer's ability to take delivery of the
machines. As of June 13, 1997, TES has not received an answer from the
manufacturer with regards to their continued participation in the joint
development agreement. The company is currently planning to resume development
of the machine with or without the participation of the manufacturer. TES is not
obligated to repay the amounts received under the agreement, but is required to
pay royalties to the manufacturer if the machines being developed under the
agreement are sold to other companies. This obligation ceases when the
manufacturer has received royalties equal to the development fee and interest
thereon. See Note 8 of the Notes to Financial Statements. Management believes
that the electronic gearing technology can be used in many of its R&D projects.
Selling, General and Administrative. SG&A expense increased 15% to
$481,876 in 1996 from $420,152 in 1995, primarily as a result of increased
airplane and travel expenses; professional fees; legal and accounting fees;
amortization expense; and clerical salaries. Airplane and travel expenses
increased 59% from $58,874 in 1995 to $93,776 in 1996 due to mandatory aircraft
maintenance required by the Federal Aviation Administration, van rentals for
marketing the electronic gearing technology, and, after the plane was sold in
November 1995, aircraft charters primarily for marketing-related travel.
Professional fees increased from zero to $4,859 due to the issuance of warrants
valued at $4,859 to Joseph Walker & Sons, Inc. as a retainer for consulting
services based on the fair value of the services TES received. Legal and
accounting fees increased 298% from $8,300 in 1995 to $33,056 in 1996. This
increase was a result of consultation regarding the filing of a registration
statement and as a result of expenses associated with preparing the licenses for
the new electronic gearing technology. In addition, there was an approximate
$3,000 increase in amortization of patents as more patents are being issued thus
costs related to these new patents are being capitalized and subsequently
amortized. Clerical salaries increased 477% from $7,416 in 1995 to $42,801 in
1996 due to the hiring of a new purchasing agent in 1996 as well as allocation
of more clerical employees' time to SG&A responsibilities versus R&D
responsibilities in 1995 based on time spent in each area. The remaining
increase in SG&A is due to an increase in clerical employee benefits associated
with the higher allocation discussed above.
Operating Income(Loss). Operating income for 1996 decreased by
approximately $50,000 to $14,426 or 1% of total revenues, from $65,196 or 5% of
total revenues, in 1995 primarily as a result of increases in SG&A costs.
33
<PAGE>
Rental Income and Expense. Rental income decreased from $52,920 in 1995 to
$49,575 in 1996 while rental expense increased from $43,002 in 1995 to $46,424
in 1996. This was a result of the vacancy of a large area of the rental property
during remodeling of the facility.
Gain on Sale of Property and Equipment. TES's gain on the sale of property
and equipment increased from zero in 1995 to $105,593 in 1996. The gain in 1996
was due to the November 1995 sale of the company's airplane. The company made
the decision to sell the plane to reduce debt and increase working capital.
Interest Expense and Interest Expense - Related Parties. Interest expense
and interest expense - related parties remained somewhat stable with interest
expense increasing 2% from $96,446 in 1995 to $99,235 in 1996 and interest
expense - related parties decreasing 3% from $15,326 in 1995 to $11,628 in 1996.
The increase in interest expense is attributable to the timing of receipt of
proceeds in the two years as the company's average outstanding notes payable and
long-term debt decreased from approximately $1,068,000 in 1995 to $1,046,000 in
1996 but the interest expense increased due to the timing of receipt of the debt
proceeds. In 1995, proceeds were received later in the year thus less interest
accrued as compared to 1996. The decrease in the average debt outstanding was
generated by repayment of the note related to the airplane that was sold in
November 1995. The decrease in interest expense - related parties is due to the
decrease in average balance outstanding in 1996 of approximately $156,000 versus
$174,000 in 1995 as a result of repayments made on these loans offset somewhat
by additional borrowings for working capital needs. The average interest rate
remained somewhat stable from year to year.
Income Taxes. TES's effective tax rate was 22% in the 1996 period as
compared to rate in 1995 of (16%), principally as a result of larger permanent
differences in 1996 in addition to pre-tax net income of $15,314 in 1996 versus
a net loss of $29,662 in 1995. See Note 5 of the Notes to Financial Statements.
Prior Year Audit Report
- -----------------------
The auditor's report on the TES financial statements for the year ended
March 31, 1996, originally dated May 23, 1996, contained an explanatory
paragraph noting substantial doubt about the company's ability to continue as a
going concern. During fiscal 1997, TES realized substantial gains from sales of
company assets, retired a substantial portion of both short-term and long-term
debt, and entered into a license agreement with a sewing machine manufacturer,
which contributed to net income for the year ended March 31, 1997. In light of
this new information, the auditors of the 1996 financial statements removed the
going concern explanatory paragraph from their report and reissued their opinion
on the 1996 financial statements on February 10, 1997. In addition, the fiscal
1996 and 1995 financial statements were restated and the auditors' report was
reissued on April 22, 1997 to reflect the expensing of the fair value of
warrants (net of tax benefit) issued to Joseph Walker & Sons, Inc. and to
reflect the adoption of Statement of Financial Accounting Standard (SFAS) 109.
The effect on the 1996 financial statements was to increase previously reported
net income and earnings per share by $1,015 and $1.30, respectively. The effect
on the 1995 financial statements was to decrease previously reported net income
and earnings per share by $184,055 and $245.41, respectively.
34
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Since its inception, TES has financed its operations through a combination
of cash flows from operations, bank borrowings and borrowings from individuals.
TES's capital requirements have arisen primarily in connection with purchases of
fixed and intangible assets, and the company makes significant expenditures each
year for research and development and marketing new technology.
Net cash provided (used) by operating activities was ($3,306) in 1997,
$17,198 in 1996 and ($127,640) in 1995. The primary cause of the net use of cash
from operations in 1997 was the operating loss of $143,733 offset by increases
and decreases in working capital items.
Net cash provided (used) by investing activities was $580,788 in 1997,
$234,980 in 1996 and ($36,714) in 1995. The primary source of funds in 1997 and
1996 was generated through the sale of company assets including a shopping
center and related property as well as the company airplane. Primary uses of
funds in all years presented were related to capital expenditures, patents and
notes receivable. Capital expenditures totaled approximately $11,000 in 1997
compared to approximately $37,000 in 1996 and $5,000 in 1995. Capital
expenditures are expected to increase over the next two years during which time
TES must move from its existing facility. See "Future Operations."
Net cash provided (used) by financing activities was ($517,911) in 1997,
($294,920) in 1996 and $186,981 in 1995. In both 1997 and 1996, such amounts
were used primarily to make debt repayments including notes related to the
shopping center and airplane that were sold in these years. The cash provided by
financing activities in 1995 was related to proceeds from notes payable issued
to related parties and others.
At March 31, 1995, the ratio of current assets to current liabilities was
0.53 to 1 compared to 1.02 to 1 at March 31, 1996 and 0.69 to 1 at March 31,
1997. The increase in the ratio from 1995 to 1996 was primarily due to the
restructuring of notes payable from short-term to long-term. The subsequent
decline from 1996 to 1997 was due to current maturities of notes payable and
increased accounts payable related to the registration process as well as a
decrease in inventory value resulting from the establishment of an obsolescence
reserve. Quick liquidity (current assets less inventories to current
liabilities) was 0.24 to 1 at March 31, 1995; 0.28 to 1 at March 31, 1996 and
0.24 to 1 at March 31, 1997. The increase from 1995 to 1996 was as a result of
the debt restructuring which was somewhat offset by an increase in the monthly
average collection period for accounts receivable from 36 days in 1995 to 41
days in 1996. The increase from 1996 to 1997 was primarily due to the decrease
in inventory as a percentage of total current assets created by the obsolescence
reserve. The ratio of debt to total capitalization was 11.06 to 1 at March 31,
1995; 7.48 to 1 at March 31, 1996 and 1.65 to 1 at March 31, 1997. This decline
from year to year was a direct result of repayment of notes payable as well as
an increase in net income.
TES's principal commitments at March 31, 1997 consisted primarily of notes
payable to related parties as well as other notes payable. TES used the proceeds
of these notes to provide working capital for operations and for the continuing
development of the electronic gearing technology as well as to fund the costs of
license and royalty agreement negotiations and registration of securities of the
Issuer. Several of these notes were extended to retain working capital. Upon the
effective date of the registration statement, $145,770 of the $217,542 notes
payable to related parties and $119,910 of the $350,054 notes payable are
expected to be converted into 88,560 Common Shares
35
<PAGE>
of the Issuer at $3 per share. Remaining notes payable, with interest rates
ranging from 10% to prime plus 1%, are due in fiscal 1998, and management
believes that its cash balances and cash flows from operations will be
sufficient to meet its working capital needs, including repayment of the notes
payable, for at least the next 12 months. These remaining notes payable
agreements have no significant restrictive covenants and several are personally
guaranteed by the President of the Company. See Notes 3 and 4 of the Notes to
Financial Statements.
TES borrowed $225,000 from SunTrust Bank, East Tennessee, N.A. on August
31, 1996 pursuant to a commercial note with a maturity date of August 30, 1997.
The interest rate is the lender's Base Rate plus 1% which is currently 9.25%.
The funds were initially borrowed under a 120 day renewable note which was
converted to long-term debt on August 31, 1996. The restructuring was done at
the request of the bank to provide for monthly payments of principal. The note
is payable in eleven installments of $4,712 with a final payment of the
remaining principal and accrued interest due on the maturity date. As of March
31, 1997, TES owed $206,803 under the note. The note is secured by a Deed of
Trust on Lot #4 on Tice Lane which is the undeveloped real estate on which TES
intends to build its new facility, an assignment of a life insurance policy on
Mr. Tice and Mr. Tice's personal guaranty. The debt was incurred to provide
working capital for the continued development of the new technology and for fees
relating to license negotiations and registration of the Issuer's stock. TES
expects to use funds from operations including licensing fees to repay the debt.
In addition, TES has a ninety-day renewable note in the principal amount of
$20,000 due and payable upon demand or if no demand is made on August 25, 1997
with Commercial Bank. The note was originally issued on April 25, 1996 in the
principal amount of $25,000, which amount was reduced at a renewal. The note
bears interest at a rate of 9.25% per annum and is secured by a 1989 Mercedes
420. The debt was incurred for working capital and TES expects to use funds from
operations to repay it.
TES also has borrowed $184,000 from Mr. Tice during the 1997 fiscal year in
addition to funds borrowed in prior years. As of March 31, 1997, the principal
balance owed him was $67,706. All of the debt bears interest at the rate of 10%
per annum and is subordinate to other debts of TES unless written notice is
otherwise given. In addition, interest was accrued in the amount of $7,322
during that year. Payments totaling $253,733 have been made to Mr. Tice on these
notes in fiscal year 1997. The notes are renewable in 90 day increments. The
outstanding promissory notes are due and payable as follows: $47,669 due
September 10, 1997 with remaining amounts due September 24, 1997. The debt was
incurred to provide working capital which was primarily used for operations and
to cover expenses of development of the new technology. The notes were extended
to retain working capital. The debt is expected to be repaid out of operating
income when TES's operating income and cash flow can support repayment. Until
that time, the notes are expected to be extended.
Effect of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS 121), which
(i) requires that long-lived assets to be held and used be reviewed for
impairment whenever events or circumstances indicate that the carrying value of
an asset may not be recoverable (ii) requires that long-lived assets to be
disposed of be reported
36
<PAGE>
at the lower of the carrying amount or the fair value less costs to sell, and
(iii) provides guidelines and procedures for measuring impairment losses that
are different from previously existing guidelines and procedures in that
recoverability is assessed based on estimates of undiscounted expected future
cash flows of the asset being evaluated. TES adopted the provisions of Statement
121 in 1996. The adoption of Statement 121 did not have a material effect on the
company's financial position, results of operations or cash flows.
On April 1, 1996, TES adopted Statement of Financial Accounting Standard
No. 123, Accounting for Stock Based Compensation (SFAS 123). In accordance with
this Statement, the company has recorded all stock-based compensation awarded to
vendors at the fair value of the services received. As permitted by SFAS 123,
the company has chosen to apply APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for any stock-based
compensation which may be awarded to employees or outside directors. The
application of SFAS 123 has had no effect on the company's financial position,
results of operations, or cash flows as of March 31, 1997.
In February 1997, the FASB issued Statement of Accounting Standards No.
128, Earnings Per Share (SFAS 128). The Statement simplifies the standards for
computing earnings per share ("EPS"). Additionally, the Statement requires dual
presentation of the basic and diluted EPS on the face of the income statement
and requires a reconciliation of the numerator and denominator of the diluted
EPS calculation. TES plans to adopt the provisions of SFAS 128 in fiscal year
1998. Had the pronouncement been in effect at March 31, 1997, 1996 and 1995
basic and diluted EPS would have been $198.89 and $191.23 in 1997, $20.42 and
$19.68 in 1996 and $(39.55) (both basic and diluted) in 1995, respectively.
Future Operations
- -----------------
To provide for continued growth, TES plans to build a new facility on
undeveloped land it currently owns. Management is currently negotiating an
arrangement in which a facility will be constructed to TES's specifications and
occupied under a sale-leaseback arrangement. Management expects that the lease
will have a 15-year term and include a purchase option. The estimated cost of
the facility is $1,600,000 which management expects to be completed by December
1997. The cost is expected to be funded through a combination of cash flows from
operations and notes payable.
Management believes that its traditional products will continue to generate
sales revenue and that TES will continue to solve other problems for customers
as they arise in their manufacturing processes. In addition, management believes
that there is a great demand for products incorporating the electronic gearing
technology and is designing various machines using the new technology including
a multi-head button-hole machine, a multi-head button sewing machine, a felling
machine, a single needle plain sewer and a heavy-duty spinning machine. In
addition to revenues which may be generated from sale of products using the new
technology, TES also expects to continue to develop additional license and
royalty agreements with its customers and is currently in both formal and
informal negotiations in this regard. While TES has signed one such agreement,
management believes that other sewing machine manufacturers will license the
technology to remain competitive with the initial licensee. Management intends
to use these funds to market its traditional product line and to expand
operations to ensure that all orders for the new technology are efficiently
filled.
37
<PAGE>
As of June 30, 1997, TES had backlog orders it believes to be firm totaling
approximately $418,000 for equipment using traditional technology. In addition,
the Company has received indications of interest for additional orders totaling
approximately $750,000 relating to products using the new electronic gearing
technology upon completion of production models and for equipment using
traditional technology. There is no assurance that these indications of interest
will become firm orders.
Although TES has no present acquisition agreements or arrangements,
management may make strategic acquisitions in the future which may or may not be
in related industries, using stock, cash, debt or a combination thereof.
Depending on the terms of the acquisition, TES may need to incur additional
indebtedness or issue equity securities to make any such acquisition. Management
has not identified any particular targets nor does it expect to pursue any such
arrangements until it has further developed applications of the electronic
gearing technology.
The Company believes that future results of operations will be influenced
by a number of factors, including general economic conditions, dependence on key
customers and market acceptance of new technology. Because of these factors, as
well as other factors, historical results should not be relied upon as an
indicator of future performance.
Inflation
- ---------
Inflation has not had a significant impact on TES's operations to
date.
LEGAL PROCEEDINGS
-----------------
There are no material legal proceedings currently pending against TES or
the Issuer.
MANAGEMENT
----------
Officers and Directors of the Issuer and TES
- --------------------------------------------
<TABLE>
<CAPTION>
Name Position with the Issuer (1) Position with TES
- ---- ---------------------------- -----------------
<S> <C> <C>
William A. Tice President, Chairman of the Board, President, Chairman of the
Director Board, Director
Karen Ann Walton Vice President, Secretary/ Vice President, Secretary/
Treasurer, Director Treasurer, Director
Sarah Y. Sheppeard Director Director
Billie Joe Clayton Director Director
</TABLE>
- --------------------------------------------------------------------------------
(1) All persons listed were appointed to such positions in 1996.
38
<PAGE>
Officers serve at the discretion of the Board of Directors. Directors hold
office until the next annual meeting of shareholders and until their successors
have been elected and accept office. Directors receive directors' fees of $300
per year.
William A. Tice, age 52, has been President, Chairman of the Board and a
director of TES since 1972 when he purchased the business from his father. Mr.
Tice received an associate degree in Accounting and Business Administration from
Knoxville Business College in 1974.
Karen Ann Walton, age 37, has been Secretary and a director of TES since
1983, Treasurer from December 1983 to June 1986 and since July 1996 and an
employee since 1978. She became General Manager and a Vice President in 1988.
From June 1992 to March 1993, she also worked for Kimberly-Clark Corp assisting
in relocating their accounts receivable department from Neenah, Wisconsin to
Knoxville. Ms. Walton became a Licensed Public Accountant in 1989, but due to
her employment with a single company has ceased maintaining the license. She
received an Associates Degrees in Accounting and Computer Programming from
Draughon's Junior College in Knoxville, Tennessee in 1986.
Sarah Y. Sheppeard, age 41, has been a director of TES since 1995. She is
currently a partner with the Knoxville law firm of Sheppeard & Swanson and has
held such position since April 1994. Prior to forming her current firm, she was
a partner with the Knoxville law firm of Sheppeard and Susano from 1989 to 1994.
Prior to that, she was a sole practitioner since leaving Lockridge & Becker,
P.C. in 1985. She received her J.D. from the University of Tennessee College of
Law in 1979 and a B.S. also from the University of Tennessee in 1976.
Billie Joe Clayton, age 61, recently became a director of TES and the
Issuer. Mr. Clayton is currently the chief executive officer of Clayton Motors,
Inc. and affiliated companies and has held such position since 1961. He is also
a director and Vice Chairman of the Board of Clayton Homes, Inc. since 1985. He
is a Regional Director for First Tennessee Bank.
Executive Compensation
- ----------------------
The following table sets forth the compensation of the President (the Chief
Executive Officer) for the fiscal years ending March 31, 1997, 1996 and 1995.
The Issuer has not paid any compensation.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($) (1)
------------------ ---- ---------- --------- --------------------
<S> <C> <C> <C> <C>
William A. Tice, President, 1997 105,000 -0- 58,097
Chief Executive Officer 1996 75,000 -0- 29,600
1995 68,500 -0- 17,218
</TABLE>
- --------------------------------------------------------------------------------
39
<PAGE>
(1) Other annual compensation includes life insurance premiums on split dollar
(for 1997, $46,228 and for 1996, $17,780), regular life insurance (for
1997, $9,695; for 1996, $9,695; and for 1995, $15,770), health insurance
premiums (for 1997, $1,274; for 1996, $2,125; and for 1995, $1,448;) and
401(k) Plan match (for 1997, $900) which is the same percentage of employer
contribution match offered to other employees. TES provides Mr. Tice with
the use of a 1989 Mercedes 420 SEL; he pays the expenses of operation. Mr.
Tice also received interest on certain notes reflecting funds loaned to
TES. See "Management - Certain Transactions."
Compensation Committee Interlocks and Insider Participation in Compensation
- ---------------------------------------------------------------------------
Decisions
- ---------
For all years referenced in the Summary Compensation Table, the two
shareholders of TES, Bill Tice and Daisy Tice (his mother who was a director and
shareholder of TES until her retirement in August 1995), determined executive
compensation.
Certain Transactions
- --------------------
Management believes that all of the transactions listed below are at least
as fair as a similar transaction with an unaffiliated third party would have
been.
During the last three years, Mr. Tice has loaned TES money on which debt he
has received interest at a rate of 10% per annum. For fiscal years ending March
31, 1997, 1996 and 1995 he received interest totaling $7,322, $11,628 and
$15,327 respectively. See "Management's Discussion and Analysis of Financial
Condition."
TES invested $1,245.25 in gold and silver certificates which subsequently
declined in value by approximately $200. Mr. Tice purchased the certificates at
the purchase price of $1,245.25 to avoid future losses by TES.
Ms. Sheppeard is corporate counsel for the Issuer and TES and provides
legal services to Mr. Tice from time to time.
Mr. Clayton loaned TES $130,000 at an interest rate of 10% per annum and
converted the principal and interest through December 15, 1996 into 44,990
Common Shares of the Issuer at a rate of $3.00 per share.
John Burchill who is an employee and general manager of TES loaned TES
$10,000 at an interest rate of 10% per annum and converted the principal and
interest through December 15, 1996 into 3,491 Common Shares of the Issuer at a
rate of $3.00 per share.
PRINCIPAL AND SELLING SHAREHOLDERS
----------------------------------
Management and 5% or Greater Shareholders
- -----------------------------------------
The following table sets forth information with respect to ownership of
issued and outstanding stock and warrants of the Issuer by management and 5% or
greater shareholders as of the date hereof:
40
<PAGE>
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Shares Sale (2)
- ---------------- -------------- ------------ --------- ------ --------
<S> <C> <C> <C> <C> <C>
William A. Tice (3) Common Shares 5,211,750 89% 1,302,937 67% (4)
7610 Breckenridge Lane Class B Common Shares 750,000 100% -0-
Knoxville, TN
Billie Joe Clayton (5) Common Shares 44,990 1% 44,990 0% (4)
817 Laurel Hill Road Class B Common Shares -0- 0% -0-
Knoxville, TN
Karen Ann Walton (6) Common Shares 15,000 * 15,000 0% (4)
7633 Breckenridge Lane Class B Common Shares -0- 0% -0-
Knoxville, TN
Total number of shares Common Shares 5,271,740 90% 1,362,927 67% (4)
owned by directors and Class B Common Shares 750,000 100% -0-
executive officers as a
group
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Less than 1%
(1) These figures do not include Common Shares which may be issued upon the
exercise of the Warrants, but do include Common Shares which may be issued
upon exercise of employee options. See "Securities."
(2) This is the percent of class of the Shares held by Selling Shareholders
assuming all Shares offered are sold, all employee options are exercised
and no Warrants are exercised.
(3) Mr. Tice is President, Chairman of the Board and a director of the Issuer
and TES. See "Management." In addition, Mr. Tice intends to give a total of
75,000 of his Shares to his brother, sister, two sons and a daughter either
outright or in trust.
(4) No Class B Common Shares will be registered or available for public sale by
Selling Shareholders.
(5) Mr. Clayton became a director of the Issuer and TES in 1996. These are the
Common Shares that Mr. Clayton received upon conversion of certain debt to
equity. See "Management - Certain Transactions."
(6) Ms. Walton is Vice President, Secretary/Treasurer and a director of the
Issuer and TES. See "Management." The shares listed are shares which Ms.
Walton is entitled to receive if she exercises options she received as an
employee of TES. The terms and conditions of the options are the same as
for other employees who hold options. See "Securities."
Other Selling Shareholders
- --------------------------
The following table sets forth information with respect to ownership of the
Issuer by Selling Shareholders (including employees who hold options to acquire
Shares registered for resale
41
<PAGE>
hereunder) who are not part of management and hold less than 5% of the issued
and outstanding shares of any class as of the date hereof. No person listed
below owns any Class B Common Shares. In addition, the Issuer is registering
12,000 Common Shares which may be issued upon the exercise of options which the
Issuer expects to grant to employees during the next 90 to 120 days.
<TABLE>
<CAPTION>
Total Number of Percent Number of Percent
Securities Owned of Registered After
Name and Address Title of Class Beneficially Class (1) Shares Sale (2)
- ---------------- -------------- ------------ --------- ------ --------
<S> <C> <C> <C> <C> <C>
Joseph Walker & Sons Common Shares 238,470 4% 238,470 0%
88 Walker Creek Road
Walker, WV
John Garret (1) Common Shares 19,284 * 19,284 0%
3518 Crown Point Road
Louisville, TN
Sam Baird (2) Common Shares 10,000 * 10,000 0%
7713 Windsong Drive
Powell, TN
Greg Cunningham (2) Common Shares 10,000 * 10,000 0%
6107 E. Emory Road
Knoxville, TN
Fred Pickell (1) Common Shares 6,994 * 6,994 0%
700 Hill Avenue
Knoxville, TN
BHD Creations (1) Common Shares 6,936 * 6,936 0%
P. O. Box 2832
Murfreesboro, TN
Gary Koontz (1) Common Shares 6,865 * 6,865 0%
108 Hillcrest Avenue
Knoxville, TN
John B. Burchill (3) Common Shares 3,991 * 3,991 0%
6433 Downridge Road
Knoxville, TN
Scott Brenneman (2) Common Shares 3,000 * 3,000 0%
509 Hardwick Drive
Knoxville, TN
Randy Curington (2) Common Shares 2,000 * 2,000 0%
P. O. Box 91
Corryton, TN
Larry Stipes (2) Common Shares 2,000 * 2,000 0%
7505 John Road
Corryton, TN
Adriana Kay (2) Common Shares 250 * 250 0%
5523 Jericho Lane
Knoxville, TN
- ---------------------------------------------------------------------------------------------
</TABLE>
*less than 1%
42
<PAGE>
(1) The Shares listed are shares which were received when the persons
listed converted loans made to TES at a rate of $3.00 per share.
(2) The Shares listed are shares which may be received if employee options
held by such persons are exercised. See "Securities."
(3) Of the Shares listed, 500 are Shares which Mr. Burchill may receive if
he exercises options he received as an employee of TES and the
remaining 3,491 shares are Shares received as a result of conversion
of a loan by Mr. Burchill to TES at a rate of $3.00 per share. See
"Securities."
Joseph Walker and Sons, Inc. ("JWSI") began providing consulting
services to TES in May of 1994. JWSI acted and acts as a business financial
development advisor to TES in connection with the formation of the Issuer
and other matters. Services included aid in the development of TES's
business plan and in implementing business financial development plans. As
consideration for the services, JWSI received an initial retainer fee of
warrants to purchase stock equal to 4% of the stock of TES outstanding at
the time of employment. The right to purchase the warrants at one cent for
each share was earned at the end of the first year of employment and the
warrants were issued on May 5, 1995. The value of the warrants ($4,859) was
recorded as an expense in fiscal year 1996. JWSI exchanged the warrants for
238,470 Common Shares which constitute approximately 4% of the total issued
and outstanding Common Shares. (By agreement with TES, JWSI converted all
Class B Common Shares it was entitled to receive under its warrants to
Common Shares.)
SECURITIES
----------
Description of Capital Stock
----------------------------
Common Shares. The Issuer is authorized to issue 30,000,000 Common
Shares, par value $.01 per share, of which 5,838,780 shares were issued and
outstanding as of the date of this Prospectus. There will be approximately
1,200 holders of the issued and outstanding Common Shares after the
Distribution. However, William A. Tice currently owns 89% of the issued and
outstanding Common Shares and together with his ownership of 100% of the
Class B Common Shares controls the Issuer. See "Risk Factors - Continued
Control by Holder of Class B Common Shares." See "Principal and Selling
Shareholders." The holders of Common Shares of the Issuer are entitled to
one vote per share on all entitled matters including the election of
directors and do not have cumulative voting rights. With respect to the
election of directors, holders of Common Shares (together with holders of
Class D Common Shares and of any Preferred Shares with voting rights)
voting as a separate class are entitled to elect 25% of the members of the
Board of Directors of the Issuer. Holders of Class B Common Shares are
entitled to elect the remaining directors. See "Risk Factors - Control By
Holders of Class B Common Shares." Notwithstanding the foregoing, if, on
the record date for any shareholders' meeting at which directors are to be
elected, the number of issued and outstanding Common Shares, Class D Common
Shares and voting Preferred Shares is less than 10% of the aggregate number
of issued and outstanding voting shares of all classes, all directors will
be elected by the holders of all voting shares voting together.
The holders of Common Shares have a noncumulative $.05 per share
annual dividend preference over non-stock dividends paid on Class B Common
Shares (described below) from funds
43
<PAGE>
legally available for dividends when, as and if declared by the Board of
Directors of the Issuer. See "Risk Factors - No Dividends." In addition,
holders of Class B Common Shares may not receive any dividends unless
holders of Common Shares receive a dividend per share at least equal to the
dividend per share paid to holders of Class B Common Shares. Stock
dividends may only be paid to holders of Common Shares in Common Shares and
only if the same number of Class B Common Shares will be paid with respect
to each outstanding Class B Common Share. The payment of dividends may also
be subject to preferential or identical rights, if any, of the holders of
other outstanding securities. See "Risk Factors -Possible Adverse Effects
of Issuance of Preferred Stock." Common Shares or Class B Common Shares may
not be combined or subdivided without at the same time making a
proportionate combination or subdivision of the shares of the other of such
classes.
Holders of Common Shares are also entitled to share ratably in all of
the assets of the Issuer available for distribution to holders of common
shares (including Class B Common Shares and Class D Common Shares) upon
liquidation, dissolution or winding up of the affairs of the Issuer subject
to the preference of holders of Common Shares, but only to the extent of
the par value of such Common Shares, and subject to any preferential rights
of the holders of any other outstanding securities. See "Risk Factors -
Possible Adverse Effects of Issuance of Preferred Stock." Common Shares do
not have preemptive, subscription or conversion rights and are not subject
to call or redemption (there are no applicable sinking fund provisions).
All Common Shares now outstanding are fully paid and nonassessable.
Class B Common Shares. In addition to Common Shares, the Issuer is
authorized to issue 5,000,000 Class B Common Shares, $.01 par value per
share, of which 750,000 shares were issued and outstanding as of the date
hereof. See "Principal and Selling Shareholders." There is one holder of
Class B Common Shares, William A. Tice. Holders of Class B Common Shares
have the right to one noncumulative vote per share on all matters on which
they are entitled to vote. For the election of directors, the holders of a
majority of Class B Common Shares are entitled to elect 75% of the members
of the Board of Directors. If, on the record date for any shareholders'
meeting at which directors are to be elected, the number of issued and
outstanding Common Shares, Class D Common Shares and voting Preferred
Shares is less than 10% of the aggregate number of issued and outstanding
voting shares of all classes, all directors will be elected by the holders
of all voting shares voting together. If more than 90% of the aggregate
number of issued and outstanding Common Shares, Class B Common Shares,
Class D Common Shares and voting Preferred Shares are Class B Common
Shares, the holders of a majority of Class B Common Shares will in practice
be able to elect all of the members of the Board of Directors. See "Risk
Factors - Control By Holder of Class B Common Shares."
Holders of Class B Common Shares are entitled to receive dividends
when, as and if declared subject to a non-cumulative $.05 per share annual
dividend preference on each Common Share. See "Risk Factors - No
Dividends." In addition, holders of Class B Common Shares may not receive
any dividend unless holders of Common Shares receive a dividend per share
at least equal to the dividend per share paid to holders of Class B Common
Shares. Stock dividends may only be paid to holders of Class B Common
Shares in Class B Common Shares and may only be paid in shares at all if
the same number of Common Shares will be paid with respect to each
outstanding Common Share. The payment of dividends may also be subject to
preferential or identical rights, if any, of
44
<PAGE>
the holders of other outstanding securities. See "Risk Factors - Possible
Adverse Effects of Issuance of Preferred Stock."
Holders of Class B Common Shares are also entitled to share ratably in
all of the assets of the Issuer available for distribution to holders of
common shares (including Common Shares and Class D Common Shares) upon
liquidation, dissolution or winding up of the affairs of the Issuer,
subject to the preference of holders of Common Shares, but only to the
extent of the par value of such Common Shares, and subject to any
preferential rights of other shareholders. See "Risk Factors - Possible
Adverse Effects of Issuance of Preferred Stock." Holders of Class B Common
Shares have preemptive rights only as to Class B Common Shares. Class B
Common Shares are not subject to call or redemption (there are no
applicable sinking fund provisions). All Class B Common Shares now
outstanding are fully paid and nonassessable.
In addition, the Board of Directors must seek the approval of a
majority of the holders of Class B Common Shares to grant rights to
subscribe for, purchase or issue shares of authorized and unissued Class B
Common Shares. Common Shares or Class B Common Shares may not be combined
or subdivided without at the same time making a proportionate combination
or subdivision of the shares of the other of such classes. Each share may
also be converted into one Common Share at any time at the option of the
holder.
At this time, 100% of the issued and outstanding Class B Common Shares
are owned by William A. Tice. See "Principal and Selling Shareholders." The
holders of Class B Common Shares elect 75% of the directors and therefore
Mr. Tice controls the Issuer. In addition, Mr. Tice held 89% of the issued
and outstanding Common Shares by which ownership he controls decisions by
holders of Common Shares as well. See "Risk Factors - Continued Control By
Holder of Class B Common Shares."
Class D Common Shares. Class D Common Shares are a convertible
security created in order to secure highly motivated executive personnel
for the Issuer and its subsidiaries and take the place of compensation
stock options, although the Issuer remains authorized to issue stock
options. There are 600,000 Class D Common Shares authorized at $.01 par
value per share. Class D Common Shares are identical to Common Shares and
have equal rights and privileges with Common Shares except as described
below. Class D Common Shares are nontransferable. The Board of Directors,
by resolution, may authorize the issuance of Class D Common Shares;
provided that, each such resolution contains a formula under which the
shares may be converted to Common Shares. In no case may the Board of
Directors set any conversion rights which could result in the issuance of
more than ten Common Shares for each Class D Common Share. At the close of
business on the fifth anniversary of the date of a resolution authorizing
the issuance of any Class D Common Shares, such issued and outstanding but
unconverted shares will be deemed to have been converted at the rate of one
Common Share for each such Class D Common Share. There are no issued and
outstanding Class D Common Shares as of the date of this Prospectus.
Preferred Shares. The Board of Directors of the Issuer, by resolution,
has the authority to issue, in one or more series, up to 10,000,000
Preferred Shares. Such unissued shares will have such preferences, rights
and limitations as are established by the Board of Directors except that
the voting rights, if any, of one Preferred Share may not exceed the voting
rights of one Common Share. See
45
<PAGE>
"Risk Factors - Possible Adverse Effects of Issuance of Preferred Stock."
There are no issued and outstanding Preferred Shares as of the date of this
Prospectus.
Common Stock Purchase Warrants. The Issuer has issued and outstanding
1,000,000 Common Stock Purchase Warrants, each Warrant entitling the holder
to purchase one Common Share of the Issuer. The Warrants may be exercised
at any time during the 24 month period beginning on the date of this
Prospectus at an exercise price of $8.00 per share, subject to adjustment,
by surrendering the Warrant to the Warrant Agent with the subscription
properly completed and executed with payment of the exercise price. See
"Risk Factors - Arbitrary Exercise Price." No fractional Common Shares will
be issued in connection with the exercise of Warrants. The Issuer has no
right to call the Warrants.
If a holder of Warrants fails to exercise the Warrants prior to their
expiration, the Warrants will expire and the holder will have no further
rights with respect to the Warrants. If a market for the Warrants develops,
the holder may sell the Warrants instead of exercising them. There can be
no assurance that a market for the Warrants will develop or continue. See
"Risk Factors - No Assurance of Trading Market." If the Issuer is unable to
qualify for sale the Common Shares underlying the Warrants (or the shares
are exempt from qualification) in the states in which the various holders
of the Warrants then reside, holder of the Warrants may have no choice but
to let the Warrants expire. See "Risk Factors - Possible Inability to
Exercise Warrants in Certain States."
A holder of Warrants will not have any rights or privileges of a
shareholder of the Issuer prior to exercise of such Warrants. The Issuer
will keep available a sufficient number of authorized Common Shares to
permit exercise of the Warrants. The exercise price of the Warrants and the
number of shares issuable upon exercise of the Warrants will be subject to
adjustment in the event of stock dividends, stock splits, combinations,
reorganizations, subdivisions and reclassifications. No assurance can be
given that the market price of the Issuer's Common Shares will exceed the
exercise price at any time during the term of the Warrants.
The Warrants were issued pursuant to a Warrant Agreement between the
Issuer and Mid-America Bank of Louisville and Trust Company (the "Warrant
Agent"). All descriptions of the Warrants are qualified in their entirety
by reference to the Warrant Agreement which is included as an exhibit to
the Registration Statement of which this Prospectus is a part.
Employee Stock Options. The Issuer granted options to purchase 42,750
Common Shares to eight of the employees of TES as of the date of this
Prospectus. The Issuer expects to grant options to purchase 12,000 Common
Shares in the next 90 to 120 days. The options may be exercised at any time
during the 24-month period after issuance at an exercise price of $1.00 per
share. The options are "nonqualified" options and the employees will have
compensation income upon the exercise of the options to the extent of the
difference between the exercise price and the fair market value of the
Common Shares. The options are nontransferable except upon the employee's
death. A holder of the options will not have any rights or privileges of a
shareholder of the Issuer prior to exercise of the options. If the options
are not exercised prior to expiration, the holder has no further rights.
46
<PAGE>
Transfer Agent, Registrar and Warrant Agent
-------------------------------------------
The transfer agent and registrar for the Common Shares and the Warrant
Agent is Mid-America Bank of Louisville and Trust Company, P.O. Box 1101,
Louisville, Kentucky 40201-1101.
DIVIDENDS
---------
The Issuer has not paid any dividends. In addition, TES historically
has not paid dividends. It is expected that the capital requirements of TES
will prevent payment of dividends in the near future. There is no guarantee
that TES, and therefore the Issuer, will pay dividends in the future. See
"Risk Factors - No Dividends" and "Possible Adverse Effects of Issuance of
Preferred Stock."
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS
----------------------
Officers and directors of the Issuer are covered by certain provisions
of the Delaware General Corporation Law and the Certificate of
Incorporation and Bylaws of the Issuer, which serve to limit, and, in
certain instances, to indemnify them against, certain liabilities which
they may incur in such capacities.
Elimination of Liability in Certain Circumstances
-------------------------------------------------
Delaware has enacted legislation which authorizes corporations to
limit or eliminate the personal liability of directors to corporations and
their shareholders for monetary damages for breach of a director's
fiduciary duty of care. The duty of care requires that, when acting on
behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them.
Absent the limitations authorized by the legislation, directors are
accountable to corporations and their shareholders for monetary damages for
conduct constituting negligence or gross negligence in the exercise of
their duty of care. Although the statute does not change directors' duty of
care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission by including certain provisions
in its Certificate of Incorporation.
The Issuer's Certificate of Incorporation limits the liability of its
directors to the Issuer or its shareholders (in their capacity as
directors, but not in their capacity as officers) to the fullest extent
permitted by the legislation. Specifically, the directors of the Issuer
will not be personally liable for monetary damages for breach of director's
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Issuer or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) for unlawful payments of dividends or
unlawful stock repurchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
Indemnification
---------------
The Issuer's Certificate of Incorporation provides that the Issuer
indemnify any and all of its directors or officers or former directors or
officers or any person who may have served at its request
47
<PAGE>
as a director or officer of another corporation in which it owns shares of
capital stock or of which it is a creditor against expenses actually and
necessarily incurred by them in connection with the defense of any action,
suit or proceeding in which they, or any of them, are made parties, or a
party, by reason of being or having been directors or officers of the
Issuer, or of such other corporation, except in relation to matters as to
which any such director or officer or former director or officer or person
shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty.
In addition, Section 7.1(a) of the Issuer's Bylaws provides that the
Issuer must indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Issuer) by reason of the fact that
such person is or was a director, officer, employee or agent of the Issuer,
or is or was serving at the request of the Issuer as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner reasonably believed to be in or not opposed to the best
interests of the Issuer, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Issuer, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that this
conduct was unlawful.
Section 7.1(b) of the Issuer's Bylaws provides that the Issuer must
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Issuer to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or agent of
the Issuer or is or was serving at the request of the Issuer as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred in connection
with the defense or settlement of such action or suit if such person acted
in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Issuer, except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Issuer unless and only to the
extent that the Delaware Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall
deem proper.
Section 7.1(d) of the Issuer's Bylaws provides that any
indemnification under Sections 7.1(a) and (b) (unless ordered by a court)
shall be made by the Issuer only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because such person has met the
applicable standard of conduct. Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, (ii) if such a
quorum is not obtainable, or,
48
<PAGE>
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the shareholders of
the Issuer. To the extent, however, that a director, officer, employee or agent
of the Issuer has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in the defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith, without the necessity of authorization in the specific case under
Section 7.1(c).
Under Section 7.1(e), expenses incurred by a director, officer, employee or
agent of the Issuer in defending or investigating a threatened or pending
action, suit or proceeding may be paid by the Issuer in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director, officer, employee or agent to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by the Issuer.
The indemnification and advancement of expenses provided by or granted
pursuant to the Issuer's Bylaws are not exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any Bylaw, agreement, contract, vote of shareholders or disinterested directors
or otherwise, both as to action in official capacity and as to action in another
capacity while holding such office, it being the Issuer's policy that
indemnification of the persons specified in the Bylaws shall be made to the
fullest extent permitted by law. The indemnification and advancement of expenses
provided by, or granted pursuant to the Issuer's Bylaws shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Issuer pursuant
to the foregoing provisions, the Issuer has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is therefore unenforceable.
LEGAL MATTERS
-------------
The Issuer has been advised with respect to certain legal aspects of the
offering by Ogden Newell & Welch, 1200 One Riverfront Plaza, Louisville,
Kentucky 40202.
EXPERTS
-------
The financial statements of TES as of March 31, 1997 and for the year then
ended and the financial statements of the Issuer as of March 31, 1997 and for
the period from its inception (June 21, 1996) to March 31, 1997, included in
this Prospectus and elsewhere in the Registration Statement, have been included
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of TES as of March 31, 1996 and 1995, and for each
of the years in the two year period ended March 31, 1996 included in this
Prospectus and elsewhere in the Registration Statement, have been included in
reliance on the reports of Boring & Goins, P.C.,
49
<PAGE>
Certified Public Accountants, given on the authority of that firm as experts in
accounting and auditing.
In early 1997, the Issuer and TES, pursuant to decisions by their Boards of
Directors, engaged Coopers & Lybrand L.L.P. to perform the fiscal year 1997
audit while continuing to employ Boring & Goins, P.C. to provide accounting
services for TES and the Issuer. Coopers & Lybrand was retained because of their
additional expertise with public companies. Except for the going concern
qualification which was removed by Boring & Goins as described elsewhere in the
Prospectus, the reports of Boring of Goins for the past two years did not
contain an adverse opinion, disclaimer, qualification or modification. There
were no disagreements with Boring & Goins on any matter of accounting principles
or practices, financial statement disclosure or auditing scope procedure.
The appraised value of the shares of stock of the Issuer based on the March
31, 1997 financial statements and assuming the acquisition of TES by the Issuer
(as described herein), included in this Prospectus and elsewhere in the
Registration Statement, have been included in reliance on the valuation prepared
by Norman Jones Enlow & Co., certified public accountants, given on the
authority of that firm as experts.
FINANCIAL STATEMENTS
--------------------
TABLE OF CONTENTS
-----------------
Tice Engineering and Sales, Inc.
Years Ended March 31, 1997, 1996 and 1995
Tice Technology, Inc.
For the Period June 21, 1996 (inception) through March 31, 1997
<TABLE>
<CAPTION>
Tice Engineering and Sales, Inc. Page
- -------------------------------- ----
<S> <C>
Independent Auditor's Report - June 13, 1997......................................................... F - 1
Independent Auditor's Report - April 22, 1997........................................................ F - 2
Balance Sheets - March 31, 1997 and 1996............................................................. F - 3
Statements of Operations - For the years
ended March 31, 1997, 1996 and 1995................................................................. F - 5
Statements of Stockholders' Equity - For the years ended
March 31, 1997, 1996 and 1995...................................................................... F - 6
Statements of Cash Flows - For the years
ended March 31, 1997, 1996 and 1995................................................................. F - 7
Notes to Financial Statements........................................................................ F - 8
Tice Technology, Inc. Page
- --------------------- ----
Independent Auditor's Report - May 30, 1997.......................................................... F - 20
Balance Sheet - March 31, 1997....................................................................... F - 21
Statement of Operations and Accumulated Deficit - For the period June 21, 1996
(inception) through March 31, 1997................................................................. F - 22
Statement of Cash Flows - For the period June 21, 1996 (inception)
through March 31, 1997............................................................................. F - 23
Notes to Financial Statements........................................................................ F - 24
Pro Forma Balance Sheet and Statement of Operations.................................................. F - 26
</TABLE>
50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tice Engineering & Sales, Inc.
We have audited the accompanying balance sheet of Tice Engineering & Sales, Inc.
(the Company) as of March 31, 1997, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tice Engineering & Sales, Inc.
as of March 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
June 13, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Tice Engineering and Sales, Inc.
Knoxville, Tennessee
We have audited the accompanying balance sheets of Tice Engineering and Sales,
Inc. (the company) as of March 31, 1996 and 1995, and the related statements of
income, stockholders' equity and cash flows for each of the two years in the
period ended March 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated May 23, 1996, which
report contained an explanatory paragraph regarding the Company's ability to
continue as a going concern, the Company has realized gains from the sale of
assets, has retired a substantial portion of long-term and short-term debt and
has entered into a license and royalty agreement with a sewing machine
manufacturer. In light of the Company's improved financial condition, the
conditions that raised substantial doubt about whether the Company will continue
as a going concern no longer existed.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tice Engineering and Sales,
Inc. as of March 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the two years in the period ended March 31, 1996, in
conformity with generally accepted accounting principles.
Boring & Goins, P.C.
Knoxville, Tennessee
April 22, 1997
F-2
<PAGE>
TICE ENGINEERING & SALES, INC.
Balance Sheets
As of March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(Restated)
Assets
<S> <C> <C>
Cash and cash equivalents $ 62,393 $ 2,822
Accounts receivable 88,435 135,062
Prepaid expenses 48,408 28,291
Inventory, net 367,603 464,997
Deferred tax asset - 10,500
---------- ----------
Total current assets 566,839 641,672
Property and equipment:
Land 130,000 305,000
Building and improvements - 449,885
Equipment 521,574 558,531
Vehicles 124,599 124,599
---------- ----------
Total property and equipment 776,173 1,438,015
Less accumulated depreciation (590,360) (875,404)
---------- ----------
Property and equipment, net 185,813 562,611
Patents 159,432 91,657
Deferred tax asset - 102,246
Note receivable - split dollar life insurance 64,008 17,780
Other assets 24,640 15,140
---------- ----------
Total assets $1,000,732 $1,431,106
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TICE ENGINEERING & SALES, INC.
Balance Sheets, Continued
As of March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
(Restated)
Liabilities and Stockholders' Equity
<S> <C> <C>
Notes payable to related parties $217,542 $ 129,116
Notes payable and current maturities of long-term debt 350,054 269,844
Accounts payable 249,868 196,912
Accrued liabilities 7,132 32,252
-------- ----------
Total current liabilities 824,596 628,124
Long-term debt, less current maturities - 661,325
-------- ----------
Total liabilities 824,596 1,289,449
Commitments and contingencies (Notes 3, 4, 9 and 11)
Stockholders' equity:
Capital stock, no par value, 2,000 shares authorized,
750 shares issued and outstanding at March 31, 1997 and 1996 8,634 8,634
Additional paid-in capital - 30 stock warrants 4,859 4,859
Retained earnings 277,330 128,164
Receivable from Tice Technology, Inc. (114,687) -
---------- ----------
Total stockholder's equity 176,136 141,657
---------- ----------
Total liabilities and stockholders' equity $1,000,732 $1,431,106
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TICE ENGINEERING & SALES, INC.
Statements of Operations
For the years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
(Restated) (Restated)
<S> <C> <C> <C>
Operating revenues:
Sales $1,144,884 $1,239,666 $1,235,492
Service 2,397 2,892 4,362
License fees 250,000 - -
---------- ---------- ----------
Total operating revenues 1,397,281 1,242,558 1,239,854
Operating expenses:
Cost of revenues 814,587 699,293 712,142
Research and development (net of reimbursements) 163,204 46,963 42,364
Selling, general and administrative 563,223 481,876 420,152
---------- ---------- ----------
Total operating expenses 1,541,014 1,228,132 1,174,658
---------- ---------- ----------
Operating income (loss) (143,733) 14,426 65,196
Other income (expense):
Rental income 28,200 49,575 52,920
Rental expense (29,792) (46,424) (43,002)
Gain on sale of fixed assets 500,363 105,593 -
Interest expense - related parties (16,830) (11,628) (15,326)
Interest expense (75,652) (99,235) (96,446)
Other income (expense) (644) 7,451 1,405
---------- ---------- ----------
Total other income (expense) 405,645 5,332 (100,449)
---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes 261,912 19,758 (35,253)
Provision (benefit) for income taxes 112,746 4,444 (5,591)
---------- ---------- ----------
Net income (loss) $ 149,166 $ 15,314 $ (29,662)
========== ========== ==========
Earnings per share (Note 12):
Pro forma primary earnings per share $ 0.00 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TICE ENGINEERING & SALES, INC.
Statements of Stockholders' Equity
For the years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional
Paid-in
Capital Capital-Stock Retained
Stock Warrants Earnings
(Restated)
<S> <C> <C> <C>
Balances, April 1, 1994 $8,634 $ - $142,512
Net loss - - (29,662)
------ ------ --------
Balances, March 31, 1995 8,634 - 112,850
Issuance of 30 common stock warrants - 4,859 -
Net income - - 15,314
------ ------ --------
Balances, March 31, 1996 8,634 4,859 128,164
Net income - - 149,166
------ ------ --------
Balances, March 31, 1997 $8,634 $4,859 $277,330
====== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TICE ENGINEERING & SALES, INC.
Statements of Cash Flows
For the years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
(Restated) (Restated)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income (loss) $ 149,166 $ 15,314 $ (29,662)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 35,683 51,887 51,994
Increase in cash surrender value of life insurance (9,500) (14,250) -
Provision for inventory obsolescence 120,000 - -
Gain on sale of property and equipment (500,363) (105,593) -
Deferred income taxes 112,746 4,444 (5,591)
Changes in operating assets and liabilities:
Receivables 46,626 75,782 (124,393)
Prepaid expenses 11,884 (1,033) (1,261)
Inventory (22,606) (137,702) (35,485)
Accounts payable and accrued liabilities 53,058 128,349 16,758
----------- --------- ---------
Net cash provided (used) by operating activities (3,306) 17,198 (127,640)
----------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (10,974) (37,257) (4,957)
Proceeds from disposal of property and equipment 825,000 349,091 -
Additions to patents (72,323) (60,319) (31,757)
Additions to note receivable - split dollar life insurance (46,228) (17,780) -
Advances made to Tice Technology, Inc. (114,687) - -
Proceeds from sale of investments - 1,245 -
----------- --------- ---------
Net cash provided (used) by investing activities 580,788 234,980 (36,714)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable to related parties 324,000 77,000 65,200
Proceeds from notes payable and long-term debt 940,201 - 225,000
Principal payments on notes payable to related parties (252,733) (142,220) (63,850)
Principal payments on notes payable and long-term debt (1,529,379) (229,700) (39,369)
----------- --------- ---------
Net cash provided (used) by financing activities (517,911) (294,920) 186,981
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents 59,571 (42,742) 22,627
Cash and cash equivalents, beginning of period 2,822 45,564 22,937
----------- --------- ---------
Cash and cash equivalents, end of period $ 62,393 $ 2,822 $ 45,564
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
TICE ENGINEERING & SALES, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies and Other Disclosures
General Information -- Tice Engineering & Sales, Inc. ("TES" or "the
Company") provides engineering and technical solutions, generally through
the development or enhancement of equipment for the apparel industry. TES
researches, designs, develops and tests specialized high technology,
garment production line stitching machines and related equipment, which,
when patented, it manufactures for its own customers or licenses the
technology to other manufacturers for their production.
Tice Technology, Inc. ("TTI") was formed in June 1996, to serve as a
holding company for TES. Upon the effective date of a registration
statement, which TTI has filed with the Securities and Exchange Commission,
TTI is expected to acquire all of the outstanding stock of the Company. In
exchange for each share of the Company's outstanding stock, shareholders
will receive 7,949 shares of TTI stock. In addition, it is anticipated that
$265,680 of TES convertible debt will be converted to 88,560 shares of TTI
common shares and TTI is expected to issue 300,000 common shares and
1,000,000 warrants to purchase TTI common shares to its statutory
underwriter, Monogenesis Corporation, upon the effective date of the
registration statement.
Cash and Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less as
cash equivalents.
Trade Accounts Receivable and Concentrations of Credit Risk - TES considers
accounts receivable to be fully collectible; accordingly, no allowance for
doubtful accounts has been recorded. If amounts are determined by
management to be potentially uncollectible, appropriate amounts will be
charged to operations when that determination is made. The Company conducts
a substantial portion of its business with three customers in the sewing
industry (Note 7) with approximately $71,000 of total accounts receivable
represented by these customers at March 31, 1997. The loss of any of these
customers without replacement with comparable customers could materially
affect TES's operations.
Inventories -- Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over
the estimated useful lives of the assets. The estimated useful life of
building and improvements is 15 - 31.5 years, equipment 5 -7 years, and
vehicles 5 years. Routine repair and maintenance costs are expensed as
incurred. Costs of major additions, replacements and improvements are
capitalized. Gains and losses from disposals are included in operations.
F-8
<PAGE>
Notes to Financial Statements
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Patents -- Certain legal and other direct expenses incurred in order to
obtain patents on company designed and manufactured parts have been
capitalized at their cost to the Company. Amortization is calculated by the
straight-line method over a seventeen year estimated useful life.
Amortization expense totaled $4,548, $4,042 and $1,223 during the years
ended March 31, 1997, 1996 and 1995, respectively.
Note Receivable - Split Dollar Life Insurance -- The Company is paying
premiums on a life insurance policy for an officer of the Company in a
split dollar agreement with collateral assignment, whereby the premiums
paid by the Company are to be repaid upon receipt of the policy proceeds by
the officer's beneficiaries. The Company is not a beneficiary of the
policy. Premiums paid by the Company totaled $46,228 and $17,780 in fiscal
1997 and 1996, respectively.
Impairment of Long-Lived Assets -- In March 1995, the FASB issued Statement
of Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which (i)
requires that long-lived assets to be held and used be reviewed for
impairment whenever events or circumstances indicate that the carrying
value of an asset may not be recoverable (ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or
the fair value less costs to sell, and (iii) provides guidelines and
procedures for measuring impairment losses that are different from
previously existing guidelines and procedures in that recoverability is
assessed based on estimates of undiscounted expected future cash flows of
the asset being evaluated. The Company adopted the provisions of Statement
121 in 1996. The adoption of Statement 121 did not have a material effect
on the Company's financial position, results of operations or cash flows.
Accounting for Stock Based Compensation -- On April 1, 1996, the Company
adopted Statement of Financial Accounting Standard No. 123, Accounting for
Stock Based Compensation (SFAS 123). In accordance with this Statement, the
Company has recorded all stock-based compensation awarded to vendors at the
fair value of the services received. As permitted by SFAS 123, the Company
has chosen to apply APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for any stock-based
compensation which may be awarded to employees or outside directors. The
application of SFAS 123 has had no effect on the Company's financial
position, results of operations, or cash flows as of March 31, 1997.
Earnings Per Share -- In February 1997, the FASB issued Statement of
Accounting Standards No. 128, Earnings Per Share (SFAS 128). The Statement
simplifies the standards for computing earnings per share (EPS).
Additionally, the Statement requires dual presentation of basic and diluted
EPS on the face of the income statement and requires a reconciliation of
the numerator and denominator of the diluted EPS calculation. TES plans to
adopt the provisions of SFAS 128 in fiscal year 1998. Had the pronouncement
been in effect at March 31, 1997, 1996 and 1995, basic and diluted EPS
would have been $198.89 and $191.23 in 1997; $20.42 and $19.68 in 1996; and
$(39.55) (both basic and diluted) in 1995, respectively.
F-9
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Reclassifications - Certain amounts in the 1996 and 1995 financial statements
have been reclassified to conform to the 1997 presentation. The following
amounts were reclassified in the statement of operations:
<TABLE>
<CAPTION>
1996
----
As Originally As Increase
Reported Reclassified (Decrease)
<S> <C> <C> <C>
Revenues $1,392,558 $1,242,558 ($150,000)
Cost of revenues 450,937 699,293 248,356
Research and development -- 46,963 46,963
Selling, general and administrative (1) -- 481,876 481,876
Expenses 968,760 -- (968,760)
Rental expense -- 46,424 46,424
Interest expense 110,863 99,235 (11,628)
Interest expense - related parties -- 11,628 11,628
Interest income 176 -- 176
Other income (loss) 7,275 7,451 (176)
(1) Includes restatement for warrants (see Note 14)
1995
----
Revenues $1,389,854 $1,239,854 ($150,000)
Cost of revenues 498,000 712,142 214,142
Research and development -- 42,364 42,364
Selling, general and administrative -- 420,152 420,152
Expenses 869,660 -- (869,660)
Rental expense -- 43,002 43,002
Interest expense 111,772 96,446 (15,326)
Interest expense - related parties -- 15,326 15,326
Interest income 618 -- (618)
Other income 787 1,405 618
</TABLE>
Research and Development Costs -- Research and development ("R&D") costs,
including work performed under contracts to perform R&D for others
(development agreements), are expensed as incurred, net of reimbursements
each year (Note 8).
Receivable From Tice Technology, Inc. -- During fiscal 1997, TES advanced
TTI funds for organization and registration expenses. It is anticipated
that the advances will be eliminated during the consolidation of the two
companies upon the effective date of TTI's registration statement and,
accordingly, the amount advanced to TTI has been reflected as a reduction
in stockholders' equity in the accompanying financial statements.
F-10
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Income Taxes -- The asset and liability method is used in accounting for
income taxes, whereby deferred tax assets and liabilities are determined
based upon the differences between financial reporting and tax bases of
assets and liabilities and are measured based on enacted tax rates and laws
when the differences are expected to reverse.
Revenue Recognition and Deferred Revenue -- The Company generally
recognizes revenue at the time related products are shipped or at the time
services are rendered. License fees and related royalties are recognized as
earned based on sales of equipment by the manufacturer using the Company's
technology.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2. Inventories
Inventories at March 31 consist of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw materials $ 306,920 $278,735
Work in process 124,810 141,994
Finished goods 55,873 44,268
--------- --------
487,603 464,997
Reserve for obsolescence (120,000) -
--------- --------
Inventory, net $ 367,603 $464,997
========= ========
</TABLE>
Management recorded the obsolescence reserve in 1997 as a result of the
Company's redirection of focus to new technology. The Company believes that
the remaining traditional product line included in inventory is salable and
that no additional reserve is necessary.
F-11
<PAGE>
Notes to Financial Statements, Continued
3. Notes Payable to Related Parties
Notes payable to related parties consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Notes payable to an officer, dated March 30, 1996 to March
31, 1997; renewable every 90 days; interest at 10%; principal
and interest of $47,669 due September 10, 1997 with
remaining amounts due September 24, 1997; subordinate to
all other debt. $ 67,706 $129,116
Notes payable to employee and outside director (business
associates), dated June 24, 1996 to August 23, 1996;
renewable every 90 days; interest at 10%; principal and
interest due July 27, 1997. The notes, including interest
accrued through December 15, 1996, are convertible to shares
of common stock of TTI at $3 per share upon the effective
date of the TTI registration statement (Note 1). Interest
accrued after December 15, 1996, will be paid in cash. 149,836 -
-------- --------
$217,542 $129,116
======== ========
An officer and majority stockholder of the Company has personally
guaranteed $139,124 of the $149,836 notes payable to business associates.
4. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of the following at March 31:
1997 1996
Note payable to a bank, dated March 28, 1996, interest at
9.5% payable monthly, due on demand, collateralized by
accounts receivable, furniture, fixtures and equipment,
personally guaranteed by an officer and majority stockholder.
$ - $400,000
Note payable to a bank, dated July 11, 1994, originally due
November 11, 1994, renewable every 120 days, renewed to
October 11, 1996, interest at bank index rate plus 1%,
payable monthly, personally guaranteed by an officer and
majority stockholder. - 225,000
Note payable to an individual, dated February 29, 1986,
interest at 10%, principal and interest of $6,343 due monthly
through August 2001, shopping center and property pledged
as collateral. - 306,169
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
4. Notes Payable and Long-Term Debt, continued
<S> <C> <C>
1997 1996
Note payable to a bank, dated April 25, 1996, original
maturity date of May 27, 1996, extended to August 25, 1997,
interest at 9.25% payable monthly, vehicle pledged as
collateral, personally guaranteed by an officer and majority
stockholder. 20,000 -
Note payable to a bank, dated August 31, 1996, monthly
payments of $4,712 with final payment due August 30, 1997,
interest at prime plus 1%, undeveloped real property and life
insurance policy pledged as collateral, personally guaranteed
by an officer and majority stockholder. 206,803 -
Notes payable to individuals (business associates) dated
June 18, 1996 to August 29, 1996, renewable every 90 days,
interest at 10%, principal and interest due July 27, 1997. The
notes, including interest accrued through December 15, 1996,
are convertible to shares of common stock of TTI at $3 per
share upon the effective date of the TTI registration statement
(Note 1). Interest accrued after December 15, 1996, will be
paid in cash. 123,251 -
-------- --------
350,054 931,169
Less current maturities 350,054 931,169
-------- --------
Long-term debt, less current maturities $ - $661,325
======== ========
</TABLE>
An officer and majority stockholder of the Company personally guarantees $42,838
of the $123,251 notes payable to business associates.
F-13
<PAGE>
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
5. Income Taxes
The provision (benefit) for income taxes for the periods ended March 31,
1997, 1996 and 1995, is comprised of:
1997 1996 1995
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal $ - $ - $ -
State - - -
Deferred income tax expense (benefit)
attributable to temporary differences
and change in valuation allowance:
Federal 23,561 (4,708) (472)
State 5,712 (1,883) (188)
Deferred income tax expense (benefit)
attributable to utilization of net operating
loss carryforwards and change in valuation
allowance:
Federal 77,410 7,883 (3,523)
State 6,063 3,152 (1,408)
-------- ------- -------
Total expense (benefit) $112,746 $ 4,444 $(5,591)
======== ======= =======
</TABLE>
The components of temporary differences and the approximate tax effects that
give rise to the Company's net deferred tax asset at March 31, 1997 and 1996,
are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current:
Deferred tax asset:
Net operating loss carryforwards $ 12,350 $ 10,500
Valuation allowance (12,350) -
Total current asset $ - $ 10,500
======== ========
Long-term:
Section 263A cost of ending inventory $ 24,440 $ 23,662
Inventory reserves 31,200 -
Net operating loss carryforwards - 78,584
-------- --------
55,640 102,246
Valuation allowance (55,640) -
-------- --------
Total long-term asset $ - $102,246
======== ========
</TABLE>
F-14
<PAGE>
Notes to Financial Statements, Continued
5. Income Taxes, continued
During 1997, the Company recorded a valuation allowance totaling $67,990
which is maintained against deferred tax assets which the Company has not
determined will be more likely than not realizable at this time.
The provision (benefit) for income taxes at March 31 differs from the
"expected" income tax expense (computed by applying the U.S. corporate
income tax rate of 21%) as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ 55,002 $2,297 $(4,449)
State income taxes, net of federal income taxes 13,096 766 (1,483)
Permanent differences 450 1,381 341
Utilization of state NOLs not previously recorded (23,792) - -
Change in valuation allowance 67,990 - -
-------- ------ -------
Provision (benefit) for income taxes $112,746 $4,444 $(5,591)
======== ====== =======
</TABLE>
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $23,000 and $124,000 for federal and state purposes,
respectively, available to offset future taxable income. These carryforwards
will expire, if not utilized, in 2015.
At March 31, 1997, the carrying value of inventory for tax purposes was
approximately $94,000 higher than reported in the financial statements due
to the addition of IRS code section 263(a) costs to inventory for tax
purposes.
6. Sale of Rental Property
On September 30, 1996, TES sold rental property with a book value of
$356,112 for $825,000 cash plus an eight-month lease which allows the
Company to continue to occupy space in the property rent-free through May
1997. After May 31, 1997, the Company can continue to occupy space for
$4,000 per month on a month-by-month basis. The value of the eight-month
initial lease of $32,000 was included in the selling price of the property
and recorded on the balance sheet as prepaid rent. The Company has recorded
six months of rent expense totaling $24,000, during the period ended March
31, 1997. The balance of prepaid rent of $8,000 is included in prepaid
expenses in the accompanying balance sheet.
F-15
<PAGE>
Notes to Financial Statements, Continued
7. Major Customers and Export Sales
For the years ended March 31, 1997, 1996, and 1995, sales to the major
customers of the Company approximated the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ------------------- ---------------------
Sales % of Sales Sales % of Sales Sales % of Sales
<S> <C> <C> <C> <C> <C> <C>
Company 1 $376,000 33% $582,000 47% $197,000 16%
Company 2 368,000 32% 272,000 22% 395,000 32%
Company 3 82,000 7% 136,000 11% - -
</TABLE>
Approximately 6%, 4% and 4% of the Company's sales were export sales in
fiscal 1997, 1996 and 1995, respectively. All export sales are paid with an
irrevocable letter of credit drawn on U.S. funds, therefore, there are no
gains or losses included in operations related to foreign currency
exchanges.
8. Research and Development Costs and Joint Development Agreement
Research and development costs consist of the following approximate amounts
at March 31:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Salaries $108,000 $ 151,000 $ 134,000
Travel 5,000 1,000 4,000
Insurance 3,000 6,000 5,000
Payroll taxes 4,000 12,000 9,000
Telephone 3,000 2,000 2,000
Utilities 1,000 1,000 1,000
Materials 39,000 16,000 37,000
Legal and patent fees - 8,000 -
-------- --------- ---------
163,000 197,000 192,000
Less reimbursements - (150,000) (150,000)
-------- --------- ---------
$163,000 $ 47,000 $ 42,000
======== ========= =========
</TABLE>
In December 1994, the Company entered into an agreement with a denim
clothing manufacturer to develop a specialized sewing machine for the
manufacture of jeans. This agreement was accounted for by the Company in
accordance with SFAS 68. The manufacturer reimbursed the Company a total of
$300,000 for research and development costs, providing $150,000 in both
fiscal 1996 and 1995. TES incurred total costs related to this agreement of
$41,903, $160,633 and $150,468 in fiscal 1997, 1996 and 1995, respectively,
which are included in the research and development costs above.
F-16
<PAGE>
Notes to Financial Statements, Continued
8. Research and Development Costs and Joint Development Agreement, continued
Under the terms of the agreement, the denim clothing manufacturer will have
exclusive rights to purchase specialized sewing machines for an initial
period of two years from the date of shipment of the first production
machine. After the initial two year period, in order to maintain its
exclusive rights, the manufacturer must purchase certain minimum
quantities. In the event the Company sells the machines to a third party
during this two-year period, the Company is required to pay royalties to
the manufacturer at the rate of 4% of gross selling price up to the total
amount reimbursed to the Company ($300,000) for research and development
costs, plus 10% interest. The Company has sold no machines to third parties
as of March 31, 1997. Under no circumstances is any portion of the
reimbursement refundable. The equipment related to this agreement is in the
first generation prototype stage and is considered to be seventy-five
percent (75%) complete. In November 1996, the manufacturer requested that
developmental activities under the agreement temporarily cease. As of June
13, 1997, the Company had not received an answer from the manufacturer with
regards to their continued participation in the joint development
agreement. The Company is currently in the planning process for resuming
development of the machine with or without the participation of the
manufacturer.
9. License and Royalty Agreement
In June 1996, the Company entered into a nonexclusive license and royalty
agreement with a sewing machine manufacturer to use the electronically
geared sewing machine technology developed and patented by the Company.
Under the terms of the agreement, the manufacturer paid the Company
$250,000 upon sales of the first class of machine built by the manufacturer
using the technology. This amount is included in operating revenues in the
accompanying statement of operations. In addition, the manufacturer will
pay the Company an additional $250,000 plus 2% of the sales price for sales
of each class of sewing machine produced and sold by the manufacturer using
the Company's technology. The manufacturer has no obligation to apply the
Company's technology to additional classes of industrial sewing machines.
Subsequent to year-end, the Company received an additional $250,000 under
the agreement for the second class of machine.
10. 401(k) Plan
The Company's 401(k) plan was established in fiscal 1997 and is available
to all full-time and part-time employees who have completed six months of
continuous employment with the Company. The Company makes a discretionary
matching contribution which is determined by the Board of Directors at the
beginning of each plan year. The matching contribution vests at 20% per
year over a five year period. Each year, employees must work a minimum of
1,000 hours. Vesting at the plan start date is retroactive to the date of
employment for individuals employed by TES prior to the plan start date.
The Company made its initial contribution of approximately $5,000 in fiscal
1997.
F-17
<PAGE>
Notes to Financial Statements, Continued
11. Stock Warrants
On May 5, 1995, the Company issued thirty stock warrants, valued at $4,895,
to Joseph Walker & Sons, Inc. as a retainer for consulting services
provided to the Company in connection with a plan of reorganization.
Remaining amounts due Joseph Walker & Sons, Inc. were either paid or are
recorded as payable and have been expensed in the year services were
performed. The warrants can be converted to thirty shares of TES stock at
an exercise price of $1 per share on or before May 5, 2005. Upon
registration of TTI's common shares with the Securities and Exchange
Commission, the thirty warrants will be converted into 238,470 TTI Common
Shares which would continue to represent a 4% ownership interest in the
Company.
12. Historical and Pro Forma Earnings Per Share
Historical primary earnings (loss) per share were $191.23, $19.68 and
($39.55) in fiscal 1997, 1996 and 1995, respectively, and were computed by
dividing net income (loss) applicable to common stock by the common and
common equivalent shares outstanding during each period. Common equivalent
shares were the 30 warrants issued to Joseph Walker & Sons, Inc. in 1995.
The historical amounts have been computed for fiscal years 1997, 1996 and
1995 based on the assumed weighted average number of shares outstanding of
780, 778 and 750 shares, respectively.
The convertible debt issued by the Company in 1996 was not considered a
common stock equivalent at the time of issue and has not been included for
purposes of calculating fully diluted earnings per share because it is
anti-dilutive.
Pro forma earnings per common share for fiscal 1997 was computed by
dividing net income applicable to common stock as increased by $17,900 for
the add back of interest expense on the converted indebtedness and as
decreased by compensation expense of $136,875 for grant of options to
employees by the pro forma shares which are to be outstanding upon
effectiveness of the registration statement (excluding those related to the
offering), assuming such shares were outstanding at April 1, 1996, and are
comprised of the following:
<TABLE>
<CAPTION>
Pro forma
Shares
<S> <C>
Conversion of 750 common shares outstanding 5,961,750
Conversion of 30 warrants outstanding 238,470
Common equivalent shares for 54,750 options granted 39,107
Shares converted for debt outstanding 88,560
---------
Pro forma shares assumed outstanding 6,327,887
=========
</TABLE>
F-18
<PAGE>
Notes to Financial Statements, Continued
13. Supplemental Disclosure of Cash Flow Information
1997 1996 1995
Cash paid during the period for:
Interest $67,240 $94,551 $96,446
Noncash investing and financing activities:
In fiscal 1996, the Company issued 30 common stock warrants in exchange
for consulting services valued at $4,859.
In fiscal 1997, 1996, and 1995, the Company converted $25,222, $11,628,
and $15,326, respectively, of accrued interest into notes payable to
business associates and officers.
In fiscal 1997, the Company received eight months free rent included in
the sale of the shopping center and related property. The rent was valued
at $32,000 and was recorded by the Company as prepaid rent at the time of
the sale.
14. Restatement of Financial Statements
In fiscal 1996, when the Company originally issued warrants to Joseph
Walker & Sons, Inc., they recorded an addition to equity and a
corresponding receivable from TTI rather than expensing the cost when
incurred. In addition, the Company originally accounted for income taxes in
fiscal 1996 and 1995 under Accounting Principles Board (APB) Opinion 11
rather than under SFAS 109 as required. The Company has restated its
financial statements for the years ended March 31, 1996 and 1995, and the
auditors reissued their report on April 22, 1997.
The impact of these adjustments on the Company's financial results for
fiscal 1996 and 1995 as originally reported is as follows:
<TABLE>
<CAPTION>
1996 1995
As Reported As Restated As Reported As Restated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net income $ 14,299 $ 15,314 $154,393 $(29,662)
Earnings per share (Note 12) $ 18.38 $ 19.68 $ 205.86 $ (39.55)
Retained earnings $199,605 $128,164 $185,306 $112,850
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tice Technology, Inc.
We have audited the accompanying balance sheet of Tice Technology, Inc. (the
Company) as of March 31, 1997, and the related statements of operations and
accumulated deficit, and cash flows for the period June 21, 1996 (inception)
through March 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tice Technology, Inc. as of
March 31, 1997, and the results of its operations and its cash flows for the
period June 21, 1996 (inception) through March 31, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
May 30, 1997
F-20
<PAGE>
TICE TECHNOLOGY, INC.
Balance Sheet
As of March 31, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 7,000
--------
Total current assets $ 7,000
========
Liabilities and Stockholders' Deficit
Current liabilities:
Payable to Tice Engineering & Sales, Inc. $114,687
--------
Total current liabilities 114,687
--------
Commitments and contingencies (Note 5)
Stockholders' deficit:
Common shares, par value $.01, 30,000,000 shares authorized,
none issued or outstanding -
Class B common shares, convertible, par value $.01, 5,000,000
shares authorized, none issued or outstanding -
Class D common shares, convertible, par value $.01, 600,000
shares authorized, none issued or outstanding -
Preferred shares, par value $.01, 10,000,000 shares authorized,
none issued or outstanding -
Accumulated deficit (107,687)
--------
Total stockholders' deficit (107,687)
--------
Total liabilities and stockholders' deficit $ 7,000
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
TICE TECHNOLOGY, INC.
Statement of Operations and Accumulated Deficit
For the period June 21, 1996 (inception) through March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenue $ -
Organization and registration expense 107,687
--------
Net loss (107,687)
Balance on June 21, 1996 (inception) -
--------
Accumulated deficit at March 31, 1997 $(107,687)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
TICE TECHNOLOGY, INC.
Statement of Cash Flows
For the period June 21, 1996 (inception) through March 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Net cash flows from operating activities:
Net loss $(107,687)
---------
Net cash used by operating activities (107,687)
---------
Net cash flows from financing activities:
Advances from Tice Engineering & Sales, Inc 114,687
---------
Net cash provided by financing activities 114,687
---------
Change in cash and cash equivalents 7,000
Cash and cash equivalents, beginning of period -
---------
Cash and cash equivalents, end of period $ 7,000
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
TICE TECHNOLOGY, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Nature of Business -- Tice Technology, Inc. ("the Company"), a Delaware
corporation, was formed on June 21, 1996, to acquire and hold all of the
issued and outstanding stock of Tice Engineering & Sales, Inc ("TES"). Upon
effectiveness of TTI's registration statement and closing, all of the TES
shares will be exchanged for shares of TTI. TES provides engineering and
technical solutions for the apparel industry. As of and for the year ended
March 31, 1997, TES had assets of $1,000,732, revenue of $1,397,281, and
net income of $149,166. The Company's only activity to date has been in
conjunction with the incorporation and registration process.
2. Summary of Significant Accounting Policies and Other Disclosures
Organization and Registration Expense -- Organization and registration
expense represents legal, consulting and accounting costs related to the
proposed reorganization of TES and the registration of the Company's
securities.
Cash and Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less as
cash equivalents.
3. Related Company
Tice Technology, Inc. will acquire all of the issued and outstanding stock
and all the outstanding warrants and options of TES, a Tennessee
corporation, in exchange for stock and warrants of the Company when the
Company's registration statement becomes effective. The Company's
management is the same as that of TES.
4. Capital Stock
The Company has authorized three classes of common stock and one class of
preferred stock with none issued or outstanding at March 31, 1997. The
Common Shares (or "Common Stock") entitle holders to one vote per share on
all entitled matters including the election of directors. Holders of the
Common Stock are entitled to elect twenty-five percent (25%) of the Board
of Directors with Class B Shareholders entitled to elect the remaining
seventy-five percent (75%). In addition, holders of Common Stock have a
noncumulative $0.05 per share annual dividend preference over any non-stock
dividends paid on Class B Common Shares. Common Stockholders also receive
preference over Class B Common Shareholders upon issuance of stock
dividends. Class D Common Shares are convertible securities expected to be
used as a form of employee compensation. These shares are nontransferable
once issued and are convertible into no more than ten Common Shares for
each Class D Common Share. The conversion rate will be based on agreements
with employees to which the Class D shares are issued. Class D Shares are
automatically converted to Common Shares after five years.
F-24
<PAGE>
Notes to Financial Statements, Continued
4. Capital Stock, continued
The Preferred Shares will have preferences, rights and limitations as
established by the Board of Directors except that voting rights, if any, of
one Preferred Share may not exceed the voting rights of one Common Share.
5. Commitments and Contingencies
When the filed registration statement becomes effective, the Company will
acquire all of the issued and outstanding stock of TES from the
shareholders of TES in exchange for 5,450,220 shares of Common Stock and
750,000 Class B Common Shares. In addition, Monogenesis Corporation will
purchase 300,000 shares of Common Stock and 1,000,000 warrants to purchase
Common Stock at par value ($.01). A portion of the shares and warrants will
be distributed to Monogenesis shareholders. Each warrant entitles the
holder to purchase one share of Common Stock of the Company at an exercise
price of $8.00. In addition, the Company will issue 88,560 shares of Common
Stock at a conversion price of $3 per share to holders of $265,680 of TES
convertible debt. Also, 54,750 shares of Common Stock may be issued upon
the exercise of options granted to employees of TES upon the effective date
of the registration statement at an exercise price of $1 per share. Based
upon an initial share value of $3.50, the issuances to Monogenesis and the
granting of the options will give rise to offering expense of $1,047,000
and compensation expense of approximately $136,000.
The Company will follow Statement of Financial Accounting Standard No. 123,
Accounting for Stock Based Compensation (SFAS 123). In accordance with this
Statement, the Company will record all stock based compensation awarded to
vendors at the fair value of the services received. As permitted by SFAS
123, the Company will apply APB Opinion 25, Accounting for Stock Issued to
Employees (APB 25) and related interpretations in accounting for any stock
based compensation awarded to employees or outside directors.
F-25
<PAGE>
Tice Technology, Inc. and Subsidiary
Pro Forma Financial Statements (Unaudited) Introduction
The pro forma financial statements are included to show the expected
effects on the balance sheets and statements of operations of Tice Technology,
Inc. (the "Issuer") and Tice Engineering & Sales, Inc. ("TES") of certain events
which are to occur after the balance sheet date and on the effective date of the
registration statement. These are (i) the exercise of the warrants by Joseph
Walker & Sons, Inc. ("JWSI"); (ii) the reorganization in which the shareholders
of TES exchange all of the outstanding stock of TES for 5,450,220 Common Shares
(5,211,750 to Mr. Tice and 238,470 to JWSI) and 750,000 Class B Common Shares at
which time TES will become a wholly-owned subsidiary of the Issuer; (iii) the
conversion of $265,680 of debt of TES to 88,560 Common Shares of the Issuer at
an exercise price of $3 per share; (iv) the issuance of 300,000 Common Shares
and 1,000,000 warrants to purchase Common Shares of the Issuer to Monogenesis
Corporation for $13,000; and (v) the issuance of options to employees of TES to
purchase up to 54,750 Common Shares of the Issuer with an exercise price of $1
per share.
The pro forma financial statements have been prepared by management of the
Company and may not be indicative of the financial position or results that
actually would have occurred if the aforementioned transactions had taken place
on the dates indicated or which may be obtained in the future.
F-26
<PAGE>
Tice Technology, Inc. and Subsidiary
Pro Forma Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
Issuer TES Issuer and
Balance Balance Subsidiary
Sheet Sheet Pro forma Pro Forma
03/31/97 03/31/97 Adjustments Balance Sheet
--------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 7,000 $ 62,393 $ 3,000 (1) $ 82,423
30 (2)
10,000 (3)
Accounts receivable 0 88,435 88,435
Prepaid expenses 0 48,408 48,408
Inventory, net 0 367,603 367,603
--------- ---------- --------------
Total current assets 7,000 566,839 586,869
Property and equipment 0 776,173 776,173
Less accumulated depreciation 0 (590,360) (590,360)
--------- ---------- --------------
Property and equipment, net 0 185,813 185,813
Patents 0 159,432 159,432
Note receivable - split dollar life insurance 0 64,008 64,008
Other assets 0 24,640 24,640
--------- ---------- --------------
Total assets $ 7,000 $1,000,732 $ 1,020,762
========= ========== ==============
Liabilities & Stockholders' Equity
Notes payable to related parties $ 0 $ 217,542 (145,770)(4) 71,772
Notes payable & current maturities of long-term debt 0 350,054 (119,910)(4) 230,144
Due to TES 114,687 0 (114,687)(5) 0
Accounts payable 0 249,868 249,868
Accrued liabilities 0 7,132 7,132
---------- ---------- --------------
Total liabilities 114,687 824,596 558,916
Stockholders' Equity:
Capital stock 0 8,634 (8,634)(6) 0
Common Shares 0 0 52,117 (6) 58,388
2,385 (2)
886 (4)
3,000 (1)
Class B Common Shares 0 0 7,500 (6) 7,500
Class D Common Shares 0 0 0
Preferred Shares 0 0 0
Additional paid in capital 0 0 (50,983)(6) 1,454,470
2,504 (2)
309,074 (4)
1,047,000 (1)
10,000 (3)
136,875 (7)
Additional paid in capital - 30 stock warrants 0 4,859 (4,859)(2) 0
Due from the Issuer 0 (114,687) 114,687 (5) 0
Retained earnings (accumulated deficit) (8) (107,687) 277,330 (1,047,000)(1) (1,058,512)
(44,280)(4)
(136,875)(7)
--------- ---------- --------------
Total stockholders' equity (107,687) 176,136 461,846
--------- ---------- --------------
Total liabilities & stockholders' equity $ 7,000 $1,000,732 $ 1,020,762
========= ========== ==============
</TABLE>
See notes to pro forma balance sheet (unaudited).
F-27
<PAGE>
Tice Technology, Inc. and Subsidiary Notes to
Pro Forma Balance Sheet (Unaudited)
(1) To reflect issuance of 300,000 Common Shares to Monogenesis for $3,000 cash
and services with a fair value of $1,047,000.
(2) To reflect issuance of 30 shares of TES capital stock for 30 warrants held
by JWSI for an exercise price of $1.00 per share and exchange of the 30 TES
shares for 238,470 Common Shares of the Issuer.
(3) To reflect issuance of 1,000,000 warrants to purchase Common Shares to
Monogenesis for $10,000.
(4) To reflect issuance of 88,560 Common Shares for conversion of $265,680 of
TES debt at $3.00 per share and interest expense of $44,280 recorded for
difference between the $3.50 per share appraised value of the stock and
$3.00 conversion rate.
(5) To reflect elimination of intercompany receivables and payables.
(6) To reflect exchange of 750 shares of outstanding capital stock of TES for
5,211,750 Common Shares and 750,000 Class B Common Shares.
(7) To reflect issuance of 54,750 options to purchase Common Shares with an
exercise price of $1.00 per share; compensation expense is recorded for the
difference between the $1.00 exercise price and the $3.50 per share
appraised value of the stock.
(8) Items affecting retained earnings (accumulated deficit) are not tax
effected due to the uncertainty regarding the realization of these benefits
by Tice Technology, Inc. and Subsidiary.
F-28
<PAGE>
Tice Technology, Inc. and Subsidiary
Pro Forma Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Issuer TES TES Pro
Statement of Statement of Forma
Operations Operations Pro Forma Statement of
03/31/97 03/31/97 Adjustments Operations
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Operating revenues:
Sales $ 0 $ 1,144,884 $ 1,144,884
Service 0 2,397 2,397
License fees 0 250,000 250,000
------------ ------------ ------------
Total operating revenues 0 1,397,281 1,397,281
Operating expenses:
Cost of revenues 0 814,587 814,587
Research and development (net of 0 163,204 163,204
reimbursements)
Selling, general and administrative 107,687 563,223 136,875 (2) 807,785
------------ ------------ ------------
Total operating expenses 107,687 1,541,014 1,785,576
------------ ------------ ------------
Operating income (loss) (107,687) (143,733) (388,295)
Other income (expense):
Rental income 0 28,200 28,200
Rental expense 0 (29,792) (29,792)
Gain on sale of fixed assets 0 500,363 500,363
Interest expense - related parties 0 (16,830) 9,820 (1) (7,010)
Interest expense 0 (75,652) 8,080 (1) (67,572)
Other income (expense) 0 (644) (644)
------------ ------------ ------------
Total other income (expense) 0 405,645 423,545
------------ ------------ ------------
Income (loss) before provision (benefit) for (107,687) 261,912 35,250
income taxes
Provision (benefit) for income taxes (3) 0 112,746 112,746
------------ ------------ ------------
Net income (loss) $ (107,687) $ 149,166 $ (77,496)
============ ============ ============
Earnings per share (4):
Historical primary earnings per share $ 191.23 $ (99.35)
Pro forma primary earnings per share $ 0.00 $ (0.01)
</TABLE>
See Notes to pro forma statement of operations (unaudited).
F-29
<PAGE>
Tice Technology, Inc. and Subsidiary
Notes to Pro Forma Statement of Operations (Unaudited)
(1) To reflect reduction of interest expense related to convertible debt that
was expensed during fiscal 1997.
(2) To reflect the issuance of 54,750 options to purchase Common Shares with an
exercise price of $1.00 per share; compensation expense is recorded for the
difference between the $3.50 per share appraisal value of the stock and the
$1.00 exercise price.
(3) Pro forma adjustments are not tax effected due to the uncertainty regarding
the realization of these benefits by Tice Technology, Inc. and Subsidiary.
(4) Historical primary earnings per share were computed by dividing net income
applicable to common stock by the common and common equivalent shares
outstanding. Common equivalent shares were the 30 warrants issued to JWSI.
The weighted average number of shares outstanding for fiscal year 1997 was
780. Pro forma earnings per share has been computed assuming that all
outstanding shares of TES have been exchanged for 5,211,750 Common Shares
and 750,000 Class B Common Shares of the Issuer, the warrants issued to
JWSI have been converted to 238,470 Common Shares of the Issuer, the debt
of TES has been converted to 88,560 Common Shares of the Issuer and 54,750
options to purchase Common Shares have been granted to employees. Weighted
average pro forma common shares outstanding was 6,327,887.
F-30
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and if given or made, such information or representations must not be
relied upon as having been authorized by the Issuer. The delivery of this
Prospectus at any time does not imply that the information herein is correct as
of any time subsequent to its date of issue. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of these securities.
_________________________
TABLE OF CONTENTS
_________________________
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information 2
Summary 3
Risk Factors 8
Plan of Distribution 14
Use of Proceeds 16
Capitalization 16
Business 18
Management's Discussion 28
and Analysis of Financial
Condition
Legal Proceedings 38
Management 38
Principal and Selling 40
Shareholders
Securities 43
Dividends 47
Liability and Indemnification 47
of Directors
Legal Matters 49
Experts 49
Financial Statements 50
_________________________
</TABLE>
2,984,717 Common Shares
and
1,000,000 Common Stock
Purchase Warrants
of
Tice Technology, Inc.
______________________________
PROSPECTUS
______________________________
__________________, 1997
Until _____________________, 1997, all dealers effecting transactions in
the registered securities, whether or not participating in this distribution,
may be required to deliver a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
<PAGE>
Part II - Information Not Required In Prospectus
- ------- --------------------------------------
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
Expenses of the offering are estimated to be approximately $100,000 which
amount includes the following items:
<TABLE>
<CAPTION>
<S> <C>
Registration fee - federal $ 2,915
Registration fees - state $ 450
Transfer Agent Fees* $15,000
Printing and EDGAR Filing Costs* $12,000
Legal Fees (including fees relating
to the reorganization)* $50,000
Accounting Fees $20,000
</TABLE>
- --------------------------------------------------------------------------------
* estimates
The Selling Shareholders are not paying any expenses of the registration.
Item 14. Indemnification of Directors and Officers
-----------------------------------------
The Issuer has provisions in its Certificate of Incorporation which limit
its directors' monetary liability to it or its shareholders except: (a) for any
breach of the director's duty of loyalty to the corporation or its shareholders;
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (c) for unlawful payment of dividends
or unlawful repurchase or redemption of its own stock; or (d) for any
transaction from which the director derived an improper personal benefit.
The Issuer is required to indemnify its officers and directors for any
liability incurred by them in their capacity as such except in relation to
matters as to which any such director or officer or former director or officer
or person shall be adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty.
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
On the effective date of this Registration Statement, the Issuer issued
5,450,220 Common Shares and 750,000 Class B Common Shares to the shareholders of
Tice Engineering and Sales, Inc. in exchange for all of TES's issued and
outstanding stock (238,470 Class B Common Shares issued to Joseph Walker and
Sons, Inc. were converted to Common Shares) and options to purchase 42,750
Common Shares to eight employees. The Issuer also issued 88,560 shares to six
persons in satisfaction of certain debt of TES. The Issuer claims exemption from
registration under Section 4(2) of the Securities Act of 1933.
Of the Common Shares issued to TES shareholders and note holders, 1,629,967
shares (in addition to the Common Shares sold to Monogenesis) will be registered
under this Registration Statement. The remaining securities issued will bear a
restrictive legend. The Common Shares which may be issued upon exercise of the
employee stock options will also be registered under this Registration
Statement.
<PAGE>
<TABLE>
<CAPTION>
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
- ---------------------------------------------------------------------------------------------
Exhibit Page
Table Number Number
------------ ------
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
I. Plan of Acquisition, Reorganization, Arrangement, Liquidation 2
or Succession
- ---------------------------------------------------------------------------------------------
(i) Stock Purchase Agreement and Plan of Reorganization +
(including all schedules)
- ---------------------------------------------------------------------------------------------
II. Articles of Incorporation and Bylaws 3
- ---------------------------------------------------------------------------------------------
(i) Certificate of Incorporation of Tice Technology, Inc. +
- ---------------------------------------------------------------------------------------------
(ii) Bylaws of Tice Technology, Inc. +
- ---------------------------------------------------------------------------------------------
III. Instruments Defining the Rights of Security Holders 4
- ---------------------------------------------------------------------------------------------
(i) Common Stock Purchase Warrant Agreement Between x
Tice Technology, Inc. and Warrant Agent
- ---------------------------------------------------------------------------------------------
IV. Opinion of Counsel - Legality of Securities Being Registered 5 *
- ---------------------------------------------------------------------------------------------
V. Material Contracts 10
- ---------------------------------------------------------------------------------------------
(i) Agreement Between Tice Technology, Inc. and Transfer *
Agent
- ---------------------------------------------------------------------------------------------
(ii) Patent, Technical Data and Assistance License Between x
Tice Engineering and Sales, Inc. and Brother Industries,
Ltd.
- ---------------------------------------------------------------------------------------------
VI. Statement re Computation of Per Share Earnings 11 86
- ---------------------------------------------------------------------------------------------
VII. Letter re Change in Certifying Accountant 16 87
- ---------------------------------------------------------------------------------------------
VIII. Subsidiaries of the Registrant 21 *
- ---------------------------------------------------------------------------------------------
IX. Consent of Experts 23
- ---------------------------------------------------------------------------------------------
(i) Consent of Coopers & Lybrand L.L.P. 88
- ---------------------------------------------------------------------------------------------
(ii) Consent of Boring & Goins, P.C., 89
Certified Public Accountants
- ---------------------------------------------------------------------------------------------
(iii) Consent of Norman Jones Enlow & Co., 90
Certified Public Accountants
- ---------------------------------------------------------------------------------------------
(iv) Consent of Counsel - See Exhibit 5
- ---------------------------------------------------------------------------------------------
X. Financial Data Schedule 27
- ---------------------------------------------------------------------------------------------
</TABLE>
* Included in original filing of Registration Statement and incorporated by
reference herein.
+ Included in Pre-Effective Amendment No. 1 to the Registration
Statement and incorporated by reference herein.
x Included in Pre-Effective Amendment No. 2 to the Registration
Statement and incorporated by reference herein.
<PAGE>
Item 17. Undertakings
------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this pre-effective amendment no. 4 to this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Knoxville, State of Tennessee,
on July 11, 1997.
Tice Technology, Inc.
By: /s/ William A. Tice
--------------------------------------------------------
William A. Tice, President, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this pre-
effective amendment no. 4 to this registration statement has been signed
by the following persons in the capacities and on the dates indicated.
/s/ William A. Tice
- ------------------------------------------------------------- on July 11, 1997
William A. Tice, President, Chief Executive Officer
/s/ Karen A. Walton
- ------------------------------------------------------------- on July 11,1997
Karen A. Walton, Chief Financial Officer
The following are at least a majority of the directors of Tice
Technology, Inc.:
/s/ William A. Tice
- ------------------------------------------------------------- on July 11, 1997
William A. Tice, Director
/s/ Karen A. Walton
- ------------------------------------------------------------- on July 11, 1997
Karen A. Walton, Director
/s/ Sarah Y. Sheppeard
- ------------------------------------------------------------- on July 11, 1997
Sarah Y. Sheppeard, Director
0086796.03
- ----------
- ---------------COMPARISON OF FOOTERS---------------
-FOOTER 1-
* Immediately after financial statements.
<PAGE>
Exhibit 11
----------
Statement re Computation of Per Share Earnings
----------------------------------------------
<TABLE>
<CAPTION>
Historical Shares:
1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
Shares outstanding 750 750 750
Thirty warrants to be converted (1) 30 27.5 0
---- ----- ----
780 777.5 750
Total shares 780 778 750
==== ===== ====
</TABLE>
(1) The warrants were issued in early May 1995, thus they were outstanding for
11/12 of the year. (11/12 X 30 = 27.5 shares outstanding for fiscal year
1996).
<TABLE>
<CAPTION>
Net Income (Loss) Applicable to Common Shares:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per financial statements $149,166 $15,314 ($29,662)
======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Historical EPS: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
$149,166 $15,314 ($29,662)
-------- ------- -------
780 $191.23 778 $19.68 750 ($39.55)
======= ====== ======
</TABLE>
<PAGE>
Exhibit 16
----------
July 11, 1997
U. S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Tice Technology, Inc. - Form S-1
Registration No. 333-11591
Gentleman:
As required by 17 CFR (S)229.304, Item 304(a)(3), this letter may be filed
as an exhibit to Amendment No. 4 of the above referenced filing as evidence that
we have reviewed the disclosure made in response to Item 304 in the Experts
Section of the Prospectus and that we agree with the statements made with
respect to this firm.
Boring & Goins, P.C.
By: /s/Roger L. Goins
-----------------------
Title: CPA
--------------------
<PAGE>
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 4 to the Tice Technology, Inc.
registration statement on Form S-1 (No. 333-11591) of our reports dated May 30,
1997 and June 13, 1997, on our audits of the financial statements of Tice
Technology, Inc. and Tice Engineering and Sales, Inc., respectively. We also
consent to the reference of our firm under the caption "Experts" and "Selected
Financial Data."
COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
July 15, 1997
<PAGE>
Exhibit 23
----------
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our report dated April 22, 1997
relating to certain financial statements of Tice Engineering and Sales, Inc. in
Amendment No. 4 to Form S-1 filed on behalf of Tice Technology, Inc. for the
registration of 2,984,717 Common Shares and 1,000,000 Common Stock Purchase
Warrants of Tice Technology, Inc. under the Securities Act of 1933.
Dated: July 9, 1997 Boring & Goins, P.C.
By: /s/ Roger L. Goins
--------------------
Title: /s/ CPA
-----------------
<PAGE>
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference of our firm under the caption "Experts" in this
Amendment No. 4 to the Tice Technology, Inc. registration statement on Form S-1
(No. 333-11591).
/s/
Norman Jones Enlow & Co.
Certified Public Accountants
Dublin, Ohio
July 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Financial Statements of Tice Engineering and Sales, Inc. (which will be a wholly
owned subsidiary of Tice Technology, Inc.) for the fiscal years ended March 31,
1997 and 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-START> APR-01-1996 APR-01-1995
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 62,393 2,822
<SECURITIES> 0 0
<RECEIVABLES> 88,435 135,062
<ALLOWANCES> 0 0
<INVENTORY> 367,603 464,997
<CURRENT-ASSETS> 566,839 641,672
<PP&E> 776,173 1,438,015
<DEPRECIATION> 590,360 875,404
<TOTAL-ASSETS> 1,000,732 1,431,106
<CURRENT-LIABILITIES> 824,596 628,124
<BONDS> 0 661,325
0 0
0 0
<COMMON> 8,634 8,634
<OTHER-SE> 167,502 133,023
<TOTAL-LIABILITY-AND-EQUITY> 1,000,732 1,431,106
<SALES> 1,144,884 1,239,666
<TOTAL-REVENUES> 1,397,281 1,242,558
<CGS> 814,587 699,293
<TOTAL-COSTS> 1,541,014 1,228,132
<OTHER-EXPENSES> 30,436 46,424
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 92,482 110,863
<INCOME-PRETAX> 261,912 19,758
<INCOME-TAX> 112,746 4,444
<INCOME-CONTINUING> (143,733) 14,426
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 149,166 15,314
<EPS-PRIMARY> 191.23 19.68
<EPS-DILUTED> 0.00 0.00
</TABLE>
