<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 333-11591
Tice Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 62-1647888
(State of incorporation) (IRS Employer
Identification Number)
----------------------------------------------------------
6711 Tice Plaza
Knoxville, Tennessee 37918
(Address of principal executive office)
(423) 925-4501
(Registrant's telephone number, including area code)
----------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the registrants' two classes of
common stock on November 10, 1997 were 5,854,738 Common Shares and 750,000 Class
B Common Shares.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Page
----
Condensed Consolidated Balance Sheets -- As of September 30, 1997 2
and March 31, 1997
Condensed Consolidated Statements of Operations -- For the Three Months 4
and Six Months Ended September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -- For the Six Months 5
Ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997 (1)
<S> <C> <C>
(unaudited)
Assets
Cash and cash equivalents $ 35,912 $ 69,393
Accounts receivable 76,332 88,435
Prepaid expenses 62,743 48,408
Inventory, net 362,904 367,603
--------- ----------
Total current assets 537,891 573,839
Property and equipment:
Land 130,000 130,000
Equipment 525,447 521,574
Vehicles 124,599 124,599
--------- ----------
Total property and equipment 780,046 776,173
Less accumulated depreciation (596,603) (590,360)
--------- ----------
Property and equipment, net 183,443 185,813
Patents 167,268 159,432
Note receivable - split dollar life insurance 74,409 64,008
Other assets 29,640 24,640
--------- ----------
Total assets $ 992,651 $1,007,732
========= ==========
</TABLE>
See accompanying Notes to Condensed Financial Statements
(1) The March 31, 1997 Condensed Consolidated Balance Sheet was derived from
audited financial statements.
2
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997 (1)
<S> <C> <C>
(unaudited)
Liabilities and Stockholders' Equity
Notes payable to related parties $ 137,028 $217,542
Notes payable 209,038 350,054
Accounts payable and accrued liabilities 576,615 257,000
----------- --------
Total current liabilities 922,681 824,596
Stockholders' equity:
Capital stock, no par value, 2,000 shares authorized, 13,493 8,634
750 and 780 shares issued and outstanding at March 31,
and September 30, 1997, respectively
Common Shares, par value $.01, 30,000,000 shares 58,388 0
authorized, 0 and 5,838,780 shares issued and outstanding
at March 31, and September 30, 1997, respectively
Class B Common Shares, convertible, par value $.01, 7,500 0
5,000,000 shares authorized, 0 and 750,000 shares
issued and outstanding at March 31, and September 30,
1997, respectively
Class D Common Shares, convertible, par value $.01, 0 0
600,000 shares authorized, none issued or outstanding
at March 31, and September 30, 1997, respectively
Preferred Shares, par value $.01, 10,000,000 shares 0 0
authorized, none issued or outstanding at March 31,
and September 30, 1997, respectively
Additional paid in capital 1,413,477 4,859
Retained earnings (accumulated deficit) (1,422,888) 169,643
----------- ----------
Total stockholders' equity 69,970 183,136
----------- ----------
Total liabilities and stockholders' equity $ 992,651 $1,007,732
=========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
(1) The March 31, 1997 Condensed Consolidated Balance Sheet was derived from
audited financial statements.
3
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
-----------------------------------------------
<TABLE>
<CAPTION>
For the three months For the six months
ended September 30, ended September 30,
1997 1996 1997 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating revenues:
Sales and service revenues $ 280,362 $375,434 $ 529,282 $ 541,499
License fees 0 0 250,000 0
Royalty fees 12,908 0 12,908 0
----------- -------- ----------- ---------
Total operating revenues 293,270 375,434 792,190 541,499
Operating expenses:
Cost of revenues 230,272 223,686 445,698 329,104
Research and development 41,944 23,267 87,323 49,089
Selling, general and administrative 1,544,140 176,867 1,780,683 302,171
----------- -------- ----------- ---------
Total operating expenses 1,816,356 423,820 2,313,704 680,364
Operating loss (1,523,086) (48,386) (1,521,514) (138,865)
Other income (expense):
Rental income 0 15,625 0 28,200
Rental expense 0 (6,571) 0 (16,367)
Interest expense - related parties (29,171) 0 (33,773) (2,593)
Interest expense (26,166) (30,653) (34,410) (55,890)
Other income (expense) (470) 4,605 2,167 917
Gain on sale of fixed assets 0 468,363 0 468,363
----------- -------- ----------- ---------
Total other income (expense) (55,807) 451,369 (66,016) 422,630
----------- -------- ----------- ---------
Income (loss) before income taxes (1,578,893) 402,983 (1,587,530) 283,765
Provision for income taxes 0 65,828 5,000 45,243
----------- -------- ----------- ---------
Net income (loss) $(1,578,893) $337,155 $(1,592,530) $ 238,522
=========== ======== =========== =========
Primary income (loss) per share (Note 5) $ (0.26) $ 0.04 $ (0.26) $ 0.04
=========== ======== =========== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
<TABLE>
<CAPTION>
Six months ended
September 30, September 30,
1997 1996
(unaudited)
<S> <C> <C>
Net cash provided (used) by operating activities $212,764 $(152,778)
-------- ---------
Cash flows from investing activities:
Proceeds from sale of fixed assets 824 824,475
Capital expenditures (4,697) (5,069)
Additions to patents and other assets (20,842) (51,094)
-------- ---------
Net cash provided (used) by investing activities (24,715) 768,312
-------- ---------
Cash flows from financing activities:
Net proceeds (payments) of notes payable to (80,184) 73,093
related parties
Net proceeds (payments) of notes payable (141,346) (565,982)
-------- ---------
Net cash used by financing activities (221,530) (492,889)
-------- ---------
Net increase (decrease) in cash and cash equivalents (33,481) 122,645
Cash and cash equivalents, beginning of period 69,393 2,822
-------- ---------
Cash and cash equivalents, end of period $ 35,912 $ 125,467
======== =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
Tice Technology Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements include the
accounts of Tice Technology, Inc. ("TTI") and the accounts of its wholly
owned subsidiary, Tice Engineering and Sales, Inc. ("TES"). The
consolidation of these entities will collectively be referred to as the
Company. All significant intercompany balances and transactions have been
eliminated.
These financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the audited financial statements
of the respective companies as of and for the period ended March 31, 1997.
The information furnished reflects all adjustments which are necessary for
a fair presentation of the Company's financial position as of September 30,
1997; the results of its operations for the three month periods and six
month periods ended September 30, 1997 and 1996; and its cash flows for the
six month periods ended September 30, 1997 and 1996. All such adjustments
are of a normal recurring nature.
2. Results of Operations
The results of operations for the three month periods and six month periods
ended September 30, 1997 and 1996 are not necessarily indicative of the
results to be expected for the respective full years.
3. Inventory
<TABLE>
<CAPTION>
Inventory consists of the following:
September 30, March 31,
1997 1997
------------ ---------
<S> <C> <C>
Raw Materials $ 354,215 $ 306,920
Work In Process 76,417 124,810
Finished Goods 52,272 55,873
--------- ---------
482,904 487,603
Reserve for Obsolescence (120,000) (120,000)
--------- ---------
Inventory, net $ 362,904 $ 367,603
========= =========
</TABLE>
6
<PAGE>
4. Recapitalization
The Company's registration statement became effective on August 1, 1997. At
that time, TTI acquired all of the issued and outstanding stock of TES
including 750 shares outstanding at March 31, 1997 and 30 shares issued in
connection with the exercise of warrants subsequent to March 31, 1997, from
the shareholders of TES in exchange for 5,450,220 Common Shares and 750,000
Class B Common Shares. In addition, Monogenesis Corporation purchased
300,000 Common Shares and 1,000,000 warrants to purchase Common Shares at
par value ($.01). A portion of the shares and warrants have been
distributed to Monogenesis shareholders. Each warrant entitles the holder
to purchase one Common Share of TTI at an exercise price of $8.00. In
addition, TTI issued 88,560 Common Shares at a conversion price of $3.00
per share to holders of $265,680 of TES convertible debt. Also, 43,750
Common Shares may be issued upon the exercise of options granted to
employees of TES on August 1, 1997 at an exercise price of $1.00 per share.
An additional 11,000 Common Shares are expected to be issued upon the
exercise of options to be granted to employees of TES within the next 90
days at an exercise price of $1.00 per share. Based upon an initial share
value of $3.50, the conversion of debt, the issuances to Monogenesis and
the granting of the 43,750 options, TTI incurred interest charges of
$44,280, offering expenses of $1,047,000 and compensation expense of
$109,375 during the second quarter ended September 30, 1997. Additional
compensation expense may be incurred depending upon the market value in
effect at such time when the remaining options are granted.
In accordance with Statement of Financial Accounting Standard No. 123 (SFAS
123), 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 applies APB Opinion 25 (APB 25) and related
interpretations in accounting for any stock based compensation awarded to
employees or outside directors.
5. Income per Share
Primary income (loss) per share were $(0.26) and $0.04 for the respective
three month periods ended September 30, 1997 and 1996 and $(0.26) and $0.04
for the respective six month periods ended September 30 1997 and 1996.
Income (loss) per share were computed by dividing net income (loss)
applicable to common stock by the common shares outstanding during each
period. Outstanding warrants and options are not included in the 1997
calculation prior to exercise as their effect would be anti-dilutive. Due
to the Company's recapitalization in August 1997, all common share and per
share amounts in the accompanying financial statements have been restated.
The amounts have been computed for September 30, 1997 and 1996 based on the
assumed weighted average number of shares outstanding as follows:
<TABLE>
<CAPTION>
Three month Six month
period period
----------- ---------
<S> <C> <C>
September 30, 1997 6,180,720 6,071,610
September 30, 1996 6,201,270 6,201,270
</TABLE>
Under SFAS 128, which the Company will adopt for fiscal year end 1998, both
basic and diluted loss per share would have been the same as primary loss
per share for the three month period ended September 30, 1997. Both basic
and diluted loss per share would be $(0.27) for the six month period ended
September 30, 1997.
7
<PAGE>
6. Effect of New Accounting Pronouncements
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income,
which is effective for fiscal years beginning after December 15, 1997.
Additionally, in June 1997, the FASB issued SFAS 131, Disclosures about
Segments of an Enterprise and Related Information, which is also effective
for fiscal years beginning after December 15, 1997. The Company expects
that SFAS 130 will have no material impact on the financial statements of
the Company. SFAS 131, which relates to additional disclosures regarding
business segments, will have no impact on the Company.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
The following analysis of the financial condition and results of operations
of Tice Technology, Inc. ("TTI") and its subsidiary, Tice Engineering and Sales,
Inc. ("TES"), collectively referred to as the "Company," should be read in
conjunction with the Condensed Consolidated Financial Statements and Notes
thereto included herein.
Since 1964, TES has been developing products which provide technical
solutions to problems relating to the manufacturing process of various companies
with a primary concentration in the sewing industry. TES designs, manufacturers,
assembles and markets its products directly to existing customers as well as
through its dealer network. 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 generally retains the right to market
the resulting equipment to other customers with similar requests. TES also
obtains patents on a majority of its products and licenses its technology on a
non-exclusive basis to customers who want to manufacture various products using
the technology developed and patented by TES.
TTI was formed on June 21, 1996, to acquire and hold all of the issued and
outstanding stock of TES. When TTI's registration statement became effective on
August 1, 1997, all of TES shares were exchanged for shares of TTI. TTI's only
activity through August 1, 1997 was in conjunction with the incorporation and
registration process.
Results of Operations
The Company's revenues historically have been generated primarily from the
sales of its products and services, with service revenues representing less than
1% of such revenues. Since TES obtained a patent on its electronic gearing
technology in 1995 and in 1997 began licensing the non-exclusive rights to
manufacture equipment using the technology to other manufacturers, TES has begun
receiving license fees and royalties. During the second quarter of fiscal 1997,
revenues were generated from product sales and services alone, whereas in the
second quarter of fiscal 1998 revenues from royalties were received in addition
to the revenue from product sales and services. The six months of fiscal 1998
ending September 30, 1997 also reflect the receipt of revenues from license
fees, as compared to the six months ended September 30, 1996 which had no
license fee revenues. Management expects that during the next two years license
fee revenues will become a larger portion of total revenues for the Company. The
principal reason for the expected growth in this area is the anticipation of
additional earnings under the license agreement currently in place with Brother
Industries, Ltd. of Nagoya Japan as well as expected successful results of
current negotiations with other manufacturers to enter into additional license
agreements.
The Company's product sales and service revenues have previously been
largely attributable to sales to three primary customers. Two of these customers
represented 81.6% of product sales
9
<PAGE>
revenues in the first six months of fiscal 1997, whereas the first six months of
fiscal 1998 reflected three primary customers which represented a total of 77.7%
of product sales revenues for the period. The lower percentage being distributed
among these primary customers is a direct reflection on the Company's
concentration on its international sales efforts. One of the Company's
distributors in Mexico has become a primary customer representing 21.9% of
product sales for the first six months of fiscal 1998. Although international
sales as a whole have increased from 1% in the first six months of fiscal 1997
to 24.8% in the first six months of fiscal 1998, there are no gains or losses
included in operations related to foreign currency exchanges due to the terms of
international sales which require payment in U.S. currency.
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items reflected in the Company's
condensed consolidated statements of operations.
<TABLE>
<CAPTION>
Percentage of Total Revenues
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenues:
Sales and service revenues 95.6% 100.0% 66.8% 100.0%
License fees 0.0% 0.0% 31.6% 0.0%
Royalty fees 4.4% 0.0% 1.6% 0.0%
------ ----- ------ -----
Total operating revenues 100.0% 100.0% 100% 100%
Operating expenses:
Cost of revenues 78.5% 59.6% 56.3% 60.8%
Research and development 14.3% 6.2% 11.0% 9.0%
Selling, general and administrative 526.5% 47.1% 224.8% 55.8%
------ ----- ------ -----
Total operating expenses 619.3% 112.9% 292.1% 125.6%
Other operating loss (519.3%) (12.9%) (192.1%) (25.6%)
Other income (expense):
Rental income 0.0% 4.2% 0.0% 5.2%
Rental expense 0.0% (1.8%) 0.0% (3.0%)
Interest expense - related parties (9.9%) 0.0% (4.3%) (0.5%)
Interest expense (8.9%) (8.2%) (4.3%) (10.3%)
Other income (expense) (0.2%) 1.2% 0.3% 0.1%
Gain on sale of fixed assets 0.0% 124.8% 0.0% 86.5%
------ ----- ------ -----
Total other income (expense) (19.0%) 120.2% (8.3%) 78.0%
Income (loss) before income taxes (538.3%) 107.3% (200.4%) 52.4%
Provision for income taxes 0.0% 17.5% 0.6% 8.4%
------ ----- ------ -----
Net income (loss) (538.3%) 89.8% (201.0%) 44.0%
====== ===== ====== =====
</TABLE>
10
<PAGE>
Three Months Ended September 30, 1997 and September 30, 1996
Total Revenues. Total revenues for the second quarter of fiscal 1998 which
ended September 30, 1997 decreased by 22% to $293,270 from $375,434 for the same
three month period in the previous year. Although the second quarter of fiscal
1998 reflected revenues received from royalties under the license agreement and
the same period of the prior year had no royalty revenues, product sales
revenues for the second quarter of fiscal 1998 were down by approximately
$95,000 from the second quarter of fiscal 1997. This reduction was due to double
the sales volume of the label loader/folders which represented $200,000 in
product sales in the second quarter of fiscal 1997 as compared to $93,000 in the
second quarter of fiscal 1998. Sales of the label loader/folders and ergonomic
stands represented 33.2% and 29.6%, respectively, of total product sales revenue
for the second quarter of fiscal 1998 as compared to sales of the label
loader/folders and automatic J-tackers which represented 53.2% and 17.1%,
respectively, of total revenues for the same period of the previous year.
Remaining product sales in both periods were generated from a mix of the
Company's other traditional products. The timing of sales of a particular
product from period to period may fluctuate greatly depending on customer needs.
Typically a customer will replace or upgrade a particular piece of equipment
throughout one plant in one quarter as their budget permits and therefore
product sales broken down by item by period is not necessarily indicative of the
total sales volume of that item for the year. Royalty income received during the
second quarter of fiscal 1998 represented the first royalty fees due under the
non-exclusive license agreement with Brother Industries, Ltd. to manufacture
equipment using the patented Tice electronic gearing technology. Royalty fees
due under this agreement are payable semiannually.
Cost of Revenues. Cost of revenues remained consistent when comparing the
two quarters, although the cost of revenues for the second quarter of fiscal
1998 represented 78.5% of total revenues for the period as compared to 59.6% in
the second quarter of the prior year. This increase in cost of revenues as a
percentage of total revenue is a result of increases in total overhead applied.
The increase in total overhead expenses related to: (i) rent expenses incurred
in the 1998 period as the Company owned the facility it currently occupies until
September 1996 and (ii) increased salary and related benefits expenses beginning
in the fourth quarter of fiscal 1997.
Research and Development (net of reimbursements). Research and development
costs increased by 80% to $41,944 in the second quarter of fiscal 1998 from
$23,267 in the second quarter of fiscal 1997 due to increased salaries and
benefits relating to engineering as well as increases in officers' salaries. As
the demand for the Tice electronic gearing technology grows, the Company is
making preparations to meet the existing and expected future demand by
increasing engineering personnel. The research and development department also
works to develop products for the Company's standard product line which use
conventional technology.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expense increased from $176,867 in the second quarter of fiscal 1997 to
$1,544,140 in the second quarter of fiscal 1998. The increase resulted from the
recording of $1,348,964 in non-recurring expenses in the 1998 period related to
the registration and distribution of TTI stock which became effective on August
1, 1997. Additionally, $43,749 in expenses were incurred during the 1998 period
to initiate
11
<PAGE>
a stockholder relations program and comply with reporting requirements.
Excluding the expenses incurred in connection with the Company's registration
statement, remaining SG&A expenses increased by $37,977 due to (i) increased
advertising as a result of the July IMB trade show in Germany, (ii) expenses for
recruiting additional engineering staff, and (iii) legal and accounting expenses
due to assistance in the Company's compliance with reporting requirements.
Operating Loss. The operating loss increased from a loss of $48,386 in the
second quarter of fiscal 1997 to an operating loss of $1,523,086 in the second
quarter of fiscal 1998. This loss resulted primarily from expenses incurred in
connection with the Company's registration statement.
Rental Income and Expense. Rental income was $9,054 in the second quarter
of fiscal 1997. No rental income or expense relating to property (other than
TES's current facility) was incurred in the second quarter of fiscal 1998 due to
the sale of the rental property.
Interest Expense and Interest Expense - Related Parties. Interest
expense and interest expense - related parties increased from $30,653 in the
second quarter of fiscal 1997 to $55,337 in the fiscal 1998 period primarily due
to the recording of $44,280 in interest in the 1998 period related to the debt
converted to stock upon the effective date of the Company's registration
statement and was partially offset by substantial repayments of outstanding
indebtedness.
Gain on Sale of Fixed Assets. Gain on sale of fixed assets during the
second quarter of fiscal 1997 resulted from the sale of the rental property
during that period. There were no significant asset sales in the second quarter
of fiscal 1998.
Income Taxes. The Company's effective tax rate was 0% in the 1998 period
as compared to 16% in the 1997 period principally due to significant permanent
differences related to non-deductible registration expenses incurred in fiscal
1998 and an increase in the valuation allowance.
Six Months Ended September 30, 1997 and September 30, 1996
Total Revenues. Total revenues increased 46% in the first six months of
fiscal 1998 to $792,190 from $541,499 in the first six months of the prior year.
Income from license fees and royalties from the non-exclusive license agreement
with Brother Industries, Ltd. were $262,908 in the 1998 period and were not
received in the same period of the prior year. The license fee income
represented the initial fee due from Brother upon the sale of the second class
of machine under the agreement, the multi-head embroidery machine. Royalties are
based on sales of all machines under license using the electronic gearing
technology, and are due on a semi-annual basis. Product sales decreased 2.3%
from the 1997 period to the 1998 period. The leading sales items for both
periods were the label loader/folders. Sales volume of a particular product can
vary greatly from quarter to quarter as customers update or replace equipment
depending on their needs and budget requirements. In the fiscal 1998 period
sales of the label loader/folders and automatic J-tackers represented 47.9% and
12%, respectively, of product sales revenue as compared to sales of the label
loader/folders, single needle belt loop machines and ergonomic stands
representing 24.8%, 21% and 18.9%, respectively, of product sales revenue for
the 1997 period. Each of these items are from
12
<PAGE>
TES's standard product line. Remaining product sales for both periods were from
sales of a variety of other products and replacement parts in TES's standard
product line. The Company is continually updating its products to meet customer
needs and adding to its existing product line to remain competitive which is
evidenced by 95% of TES's customers being repeat customers.
Cost of Revenues. Cost of revenues increased 35.4% from $329,104 in the
1997 fiscal period to $445,698 in the 1998 fiscal period. This increase was
primarily due to increases in cost of materials and overhead applied. Cost of
materials increased 28.8% from $228,347 in the 1997 period to $291,505 in the
1998 period due to the higher cost of materials used in the single needle belt
loop machines. Total overhead applied increased 90% from $48,811 in the 1997
period to $92,791 in the 1998 period as a result of: (i) increases in salary and
related benefits expenses beginning in the fourth quarter of fiscal 1997; and
(ii) rent expenses which were not incurred in the 1997 period as the Company
owned the facility it currently occupies until September 1996.
Research and Development. Research and development costs increased by
77.8% to $87,323 in the first six months of fiscal 1998 from $49,089 in the
first six months of fiscal 1997 due to increased salaries and benefits relating
to engineering as well as the allocated portion of officers' salaries. As the
demand for the Tice electronic gearing technology is growing, TES is making
preparations to meet the existing and expected future demands by increasing
engineering personnel. The research and development department also works to
develop products to add to TES's standard product line which do not use the
electronic gearing technology.
Selling, General and Administrative. SG&A expense increased by
approximately $1,479,000 or 489% to $1,780,683 in the first six months of fiscal
1998 from $302,171 in the first six months of fiscal 1997. This increase was
primarily the result of recording $1,431,997 in the 1998 period to reflect the
non-recurring expenses relating to the registration process, stock distribution
and implementation of a stockholder relations program; whereas the 1997 period
reflected only $63,417 in non-recurring expenses relating to the registration
process. The remaining SG&A expenses for the fiscal 1998 period represent a 46%
increase over the 1997 period. This increase was primarily the result of
increases in salary and related benefits, and legal and accounting expenses
although they were somewhat offset by decreases in airplane expense during the
1998 fiscal period. Salary and related expenses increased 84% in the first six
months of fiscal 1998 over the same 1997 period as a result of increases in
salaries and related benefits in the fourth quarter of the 1997 period, and
expenses related to recruiting additional personnel during the first six months
of the 1998 fiscal year. Legal and accounting expenses increased $41,868 from
$3,516 in the fiscal 1997 period to $45,384 in the fiscal 1998 period. The
increase in the 1998 fiscal period was due to an increase in fees related to the
fiscal 1997 annual audit performed in the first quarter of fiscal 1998.
Reductions in airplane expenses from $17,672 in the fiscal 1997 period to $559
in the fiscal 1998 period helped offset other increases in SG&A expense as the
Company adapted more of its travel needs to commercial airlines as opposed to
charter aircraft.
13
<PAGE>
Operating Loss. The operating loss increased from $138,865 in the first
six months of fiscal 1997 to $1,521,514 in the first six months of fiscal 1998.
This loss resulted primarily from the expenses incurred upon the effective date
of the registration of TTI stock.
Rental Income and Expense. Rental income and expense was not incurred in
the first six months of fiscal 1998 as the result of the sale of the Company's
rental property in September 1996.
Interest Expense and Interest Expense-Related Parties. Interest expense and
interest expense-related parties increased by $9,700 from $58,483 in the 1997
period to $68,813 in the 1998 period. This increase was primarily a result of a
non-cash interest charge of $44,280 upon the effective date of the Company's
registration statement offset by substantial repayments of outstanding
indebtedness.
Gain on Sale of Fixed Assets. Gain on sale of fixed assets during the first
six months of fiscal 1997 resulted from the sale of the rental property during
that period. There have been no significant fixed asset sales in fiscal 1998.
Income Taxes. The Company's effective tax rate was 0% in the 1998 period
as compared to 16% in the 1997 period principally due to significant permanent
differences related to non-deductible registration expenses and an increase in
the valuation allowance.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through a
combination of cash flows from operations, bank borrowings and borrowings from
individuals. The Company's capital requirements have arisen primarily in
connection with purchases of fixed and intangible assets. The Company also makes
significant expenditures each year for research and development and marketing
new technology.
Net cash provided by operating activities was $212,764 in the six month
period ended September 30, 1997 and net cash used by operating activities was
$152,778 in the same period of the previous year. The primary cause for the
change was increases and decreases in working capital items.
Net cash used by investing activities was $24,715 in the 1998 period and
net cash provided by investing activities was $768,312 in the 1997 period.
Primary use of funds were related to capital expenditures, patents and notes
receivable. Capital expenditures totaled approximately $4,700 in the 1998 period
and $5,000 in the 1997 period. Capital expenditures are expected to increase
over the next two years during which time the Company expects to move from its
existing facility. See "Future Operations." The primary source of funds in the
1997 period was proceeds from the sale of fixed assets.
Net cash used by financing activities was $221,530 in the 1998 period and
$492,889 in the 1997 period. The cash used by financing activities in both
periods was
14
<PAGE>
related to payments on notes payable to related parties and others.
The Company's principal commitments at September 30, 1997 consisted
primarily of notes payable to related parties a well as other notes payable. The
Company 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 TTI. Several of these notes were
extended to retain working capital. On August 1, 1997, the effective date of the
registration statement, $145,770 of notes payable to related parties and
$119,910 of notes payable were converted to 88,560 Common Shares of TTI at $3.00
per share. Remaining notes payable, with interest rates ranging from 10% to
prime plus 1% are due in fiscal 1998, and management believes that cash balances
and cash flows from operations will be sufficient to meet the Company's working
capital needs, including payment of the notes payable, for at least the next 12
months. The Company plans to extend the remaining related party notes payable if
working capital is not sufficient to repay the loans. There are no significant
restrictive covenants relating to the notes payable, although several of the
notes are personally guaranteed by the President of the Company.
Effect of Recently Issued Accounting Standards
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. The Company plans to adopt the provisions of SFAS 128 for
fiscal year end 1998. Had the pronouncement been in effect at September 30, 1997
and 1996, basic EPS would have been $(0.26) and $0.06 for the three month
periods and $(0.27) and $0.04 for the six month periods, respectively. The
diluted EPS would have been the same as basic EPS in all periods except for the
three month period ended September 30, 1996 for which diluted EPS would have
been $0.05.
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income,
which is effective for fiscal years beginning after December 15, 1997.
Additionally, in June 1997, the FASB issued SFAS 131, Disclosures about Segments
of an Enterprise and Related Information, which is also effective for fiscal
years beginning after December 15, 1997. The Company expects that SFAS 130 will
have no material impact on the financial statements of the Company. SFAS 131,
which relates to additional disclosures regarding business segments, will have
no impact on the Company.
15
<PAGE>
Future Operations
To provide for continued growth, the Company requires a new facility for
which it has been developing the plans over the past several months and which
are complete. Estimated costs of building the facility are $1,600,000. The
Company owns undeveloped land upon which the facility could be built; however,
after careful consideration, management has decided that the undeveloped
property, known as "Tice Corporate Park," is not adequate for additional future
expansion which may be required within the next three to five years. Having
recognized that expansion may be necessary, management has decided to sell the
property it currently owns. Several other parcels of land are being considered
for the new facility. The location under primary consideration has better access
to the interstate system and provides considerable tax advantages to the
Company. The Company anticipates that the relocation will delay completion of
the facility until the fall of 1998, but the benefits are expected to outweigh
the inconvenience in many respects as the Company should have ample room for
long term growth. The cost of the land and facility is expected to be funded
through a combination of cash received from the sale of the current property,
cash flows from operations and proceeds from notes payable to be incurred.
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 the 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.
As of September 30, 1997, TES had backlog orders it believes to be firm
totaling approximately $238,000 for equipment using traditional technology. This
backlog of orders is expected to be completed by December 1997. In addition, TES
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 the Company has no present acquisition agreement 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, the Company may need to incur
additional indebtedness or issue equity securities to make any such acquisition.
Management has not identified any particular targets for acquisition.
16
<PAGE>
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 the Company's operations to
date.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
TTI does not have any market risk sensitive instruments.
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
All sales of equity securities of TTI during the period covered by this
report are described in the issuer's registration statement which was effective
on August 1, 1997 (SEC file number 333-11591). Under the registration statement,
TTI registered 300,000 Common Shares and 1,000,000 Common Stock Purchase
Warrants (the "Warrants") which were sold to Monogenesis Corporation
("Monogenesis") for a total of $13,000. Monogenesis, as statutory underwriter,
distributed 125 shares and 400 Warrants to each of its shareholders for each
share of stock of Monogenesis held by them. Monogenesis retained 44,375 Common
Shares and 182,000 Warrants. TTI also registered 1,541,470 Common Shares for
shareholders of TTI, 54,750 Common Shares underlying employee stock options,
88,560 Common Shares issued in satisfaction of $255,187 in principal of notes
and a portion of the interest on such notes and the 1,000,000 Common Shares
underlying the Warrants. Each Warrant entitles the holders to purchase one
Common Share for $8.00 for 24 months.
All of the shares and Warrants to be distributed by Monogenesis have been
distributed. The selling shareholders may sell their shares from time to time at
market price or in negotiated or other transactions. TTI believes that selling
shareholders have sold 81,000 Common Shares under the registration statement
during the second quarter of fiscal 1998.
Since August 1, 1997 and prior to October 1, 1997, the effective date of
the registration statement, TTI has incurred for its account in connection with
the issuance and distribution of the securities registered the following
amounts:
17
<PAGE>
<TABLE>
<CAPTION>
Direct or Indirect Payments
to Directors, Officers, Holders
of 10% of Any Class of Stock Direct or Indirect
or Affiliates of TTI Payments to Others
------------------------------- ------------------
<S> <C> <C>
Underwriting Discounts
or Commissions 0 $ (1)
Finders' Fees 0 0
Underwriter's Expenses 0 0
Other Expenses 0 175,940
----------- -----------
Total Expenses $ 0 $ 175,940 (1)
</TABLE>
(1) TTI recorded $1,047,000 in expenses and in additional paid in capital based
upon the estimated fair value of the 300,000 Common Shares issued to
Monogenesis less the $0.01 per share price it paid for the shares. The
estimated fair value of the shares retained by Monogenesis at the time was
$155,313.
There are no net offering proceeds to TTI since there were no
significant offering proceeds ($255,187 in reduction of debt and $13,000
cash to purchase the Securities to be distributed), nor were there intended
to be any. The registration statement primarily related to a distribution of
shares and warrants as a dividend and not to a traditional sale of
Securities.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits Index
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
I. Plan of Acquisition, Reorganization, Arrangement, 2
Liquidation 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, (i) +
Inc.
(ii) Bylaws of Tice Technology, Inc. (ii) +
III. Instruments Defining Rights of Security Holders 4
(i) Common Stock Purchase Warrant Agreement *
Between Tice Technology, Inc. and Warrant Agent
IV. Material Contracts 10
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
(i) Agreement Between Tice Technology, Inc. and
Transfer Agent *
V. Statement re Computation of Per Share Earnings 11 20
VI. Financial Data Schedule 27 21
</TABLE>
* Previously filed as an exhibit to the Registration Statement on Form S-1 of
Tice Technology, Inc. which became effective August 1, 1997.
+ Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the above
described Registration Statement.
(b) No reports have been filed on Form 8-K.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tice Technology, Inc.
By: /s/ William A. Tice
-----------------------------------
William A. Tice, President
Date: November 13, 1997
By: /s/ Karen A. Walton
-----------------------------------
Karen A. Walton, Chief Financial Officer
Date: November 13, 1997
19
<PAGE>
Exhibit 11
----------
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months: Three Months: Six Months: Three Months:
Weighted Average Shares 1997 1997 1997 1997
Primary Fully Diluted
<S> <C> <C> <C> <C>
750 o/s shares X 7,949 exchange ratio 5,961,750 5,961,750 5,961,750 5,961,750
TES shares outstanding 760 770 760 770
Warrants of TES exercised 8/1/97 (3) 79,580 159,160 238,740 238,740
Shares converted from debt 8/1/97 (2) 29,520 59,040 88,560 88,560
--------- --------- --------- ---------
Total shares (1) 6,071,610 6,180,720 6,289,810 6,289,820
========= ========= ========= =========
</TABLE>
(1) Common stock equivalents related to options granted to employees upon the
effective date are not included because their effect would be anti-dilutive.
(2) Shares applicable to convertible debt prior to conversion are not
considered common stock equivalents because their effective yield is less
than 66-2/3% of Aa+ corp. bond yield and their effect would be anti-
dilutive.
(3) Warrants are anti-dilutive thus are not included prior to exercise. After
exercise, these were exchanged for 238,740 shares of TTI stock.
<TABLE>
<CAPTION>
Six Months: Three Months: Six Months: Three Months:
1996 1996 1996 1996
Primary Fully Diluted
<S> <C> <C> <C> <C>
750 o/s shares X 7,949 exchange ratio 5,961,750 5,961,750 5,961,750 5,961,750
TES outstanding shares 750 750 750 750
30 warrants of TES 30 30 30 30
30 warrants of TES exchanged for TTI stock 238,740 238,740 238,740 238,740
---------- ---------
Shares converted from debt 8/1/97 (not CSEs) 88,560 88,560
--------- ---------
6,201,270 6,201,270 6,289,830 6,289,830
========= ========= ========= =========
</TABLE>
Net Income (Loss) Applicable to Common Shares:
<TABLE>
<CAPTION>
Primary Fully Diluted
------- -------------
For the Six Months Ended: For the Six Months Ended:
09/30/97 09/30/96 09/30/97 09/30/96
<S> <C> <C> <C> <C>
Net income (loss) per financial statements ($1,592,530) $238,522 ($1,592,530) $238,522
Interest expense on convertible debt N/A N/A 8,500 7,000
------------ -------- ------------ --------
Net income (loss) applicable to common stock ($1,592,530) $238,522 ($1,584,030) $245,522
============ ======== ============ ========
</TABLE>
<TABLE>
<CAPTION>
For Three Months Ended: For Three Months Ended:
09/30/97 09/30/96 09/30/97 09/30/96
<S> <C> <C> <C> <C>
Net income (loss) per financial statements ($1,578,893) $337,155 ($1,578,893) $337,155
Interest expense on convertible debt N/A N/A 2,200 1,500
------------ -------- ------------ --------
Net income (loss) applicable to common stock ($1,578,893) $337,155 ($1,576,693) $338,655
============ ======== ============ ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Six Months:
-----------
Primary EPS: 09/30/97 09/30/96
($1,592,530) $238,522
------------ --------
6,071,610 ($0.26) 6,201,270 $0.04
======= =====
Three Months:
-------------
09/30/97 09/30/96
($1,578,893) $337,155
------------ --------
6,180,720 ($0.26) 6,201,270 $0.05
======= =====
Six Months:
-----------
Fully Diluted EPS: 09/30/97 09/30/96 All fully diluted calculations are either
($1,584,030) $245,522 the same as primary or are anti-dilutive, thus
------------ -------- fully diluted EPS will not be presented,
6,289,820 ($0.25) 6,289,830 $0.04 in the statement of operations.
======= =====
Three Months:
-------------
09/30/97 09/30/96
($1,576,693) $338,655
------------ --------
6,289,820 ($0.25) 6,289,830 $0.05
======= =====
</TABLE>
page 1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Tice Technology, Inc. September 30, 1997 Quarterly Report and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 35,912 0<F1>
<SECURITIES> 0 0<F1>
<RECEIVABLES> 76,332 0<F1>
<ALLOWANCES> 0 0<F1>
<INVENTORY> 362,904 0<F1>
<CURRENT-ASSETS> 537,891 0<F1>
<PP&E> 780,046 0<F1>
<DEPRECIATION> 596,603 0<F1>
<TOTAL-ASSETS> 992,651 0<F1>
<CURRENT-LIABILITIES> 992,681 0<F1>
<BONDS> 0 0<F1>
0 0<F1>
0 0<F1>
<COMMON> 79,381 0<F1>
<OTHER-SE> (9,411) 0<F1>
<TOTAL-LIABILITY-AND-EQUITY> 992,651 0<F1>
<SALES> 280,362 375,434
<TOTAL-REVENUES> 293,270 375,434
<CGS> 230,272 223,686
<TOTAL-COSTS> 1,816,356 423,820
<OTHER-EXPENSES> 470 (6,571)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 55,337 30,653
<INCOME-PRETAX> (1,578,893) 402,983
<INCOME-TAX> 0 65,828
<INCOME-CONTINUING> (1,523,086) (48,386)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,578,893) 337,155
<EPS-PRIMARY> (0.26) 0.06
<EPS-DILUTED> (0.25) 0.05
<FN>
<F1> These items are not required to be included in the filing.
</FN>
</TABLE>
