<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 June 30, 1998
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 Maynardville Highway
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' classes of
common stock on August 10, 1998 were 5,919,889 Common Shares, 750,000 Class B
Common Shares and 0 Class D Common Shares.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Balance Sheets -- As of June 30, 1998 2
and March 31, 1998
Condensed Consolidated Statements of Operations -- For the Three Months 4
Ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows -- For the Three Months 5
Ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
</TABLE>
1
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998 (1)
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 35,457 $ 19,063
Accounts receivable 210,441 192,615
Note receivable 7,449 11,993
Prepaid expenses 15,294 9,013
Inventory, net 391,413 394,116
---------- ----------
Total current assets 660,054 626,800
Property and equipment:
Land 130,000 130,000
Equipment 530,581 528,740
Vehicles 124,599 124,599
---------- ----------
Total property and equipment 785,180 783,339
Less accumulated depreciation (605,779) (603,700)
---------- ----------
Property and equipment, net 179,401 179,639
Patents, net 173,824 174,462
Note receivable from related party 79,610 79,610
Other assets 46,018 41,818
---------- ----------
</TABLE>
Total assets $1,138,907 $1,102,329
========== ==========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
(1) The March 31, 1998 Condensed Consolidated Balance Sheet was derived from
the audited balance sheet for the year then ended.
2
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998 (1)
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Notes payable and current maturities of long-term debt $ 304,237 $ 255,039
Accounts payable 294,626 304,448
Accrued liabilities 54,000 38,815
Notes payable to related parties 8,117 8,741
----------- -----------
Total current liabilities 660,980 607,043
Notes payable to related parties 610,320 556,310
----------- -----------
Total liabilities 1,271,300 1,163,353
----------- -----------
Stockholders' deficit:
Capital stock, no par value, 2,000 shares authorized,
780 shares issued and outstanding at March 31,
and June 30, 1998 13,493 13,493
Common Shares, par value $.01, 30,000,000 shares authorized,
5,907,639 and 5,919,889 shares issued and outstanding
at March 31, and June 30, 1998, respectively 59,199 59,076
Class B Common Shares, convertible, par value $.01,
5,000,000 shares authorized, 750,000 shares issued
and outstanding at March 31, and June 30, 1998 7,500 7,500
Class D Common Shares, convertible, par value $.01,
600,000 shares authorized, none issued or outstanding
at March 31, and June 30, 1998 - -
Preferred Shares, par value $.01, 10,000,000 shares
authorized, none issued or outstanding at March 31,
and June 30, 1998 - -
Additional paid in capital 1,628,602 1,603,727
Accumulated deficit (1,841,187) (1,744,820)
----------- -----------
Total stockholders' deficit (132,393) (61,024)
----------- -----------
Total liabilities and stockholders' deficit $ 1,138,907 $ 1,102,329
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
(1) The March 31, 1998 Condensed Consolidated Balance Sheet was derived from
the audited balance sheet for the year then ended.
3
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
-----------------------------------------------
<TABLE>
<CAPTION>
For the three months
ended June 30,
1998 1997
(unaudited)
<S> <C> <C>
Operating revenues:
Sales and service $182,308 $248,920
License fees - 250,000
Royalties 47,456 -
-------- --------
Total operating revenues 229,764 498,920
Operating expenses:
Cost of revenues 119,632 215,426
Research and development 53,458 45,379
Selling, general, administrative 129,141 236,543
-------- --------
Total operating expenses 302,231 497,348
Operating income (loss) (72,467) 1,572
Other expense:
Interest expense - related parties (14,019) (4,602)
Interest expense (4,578) (8,244)
Other income (expense) (558) 2,637
-------- --------
Total other expense (19,155) (10,209)
-------- --------
Loss before income tax (91,622) (8,637)
Provision for income taxes 4,745 5,000
-------- --------
Net loss $(96,367) $(13,637)
======== ========
Basic and diluted loss per share $ (0.01) $ (0.00)
======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
<TABLE>
<CAPTION>
Three months ended
June 30, June 30,
1998 1997
(unaudited)
<S> <C> <C>
Net cash used by operating activities $(108,661) $ (17,116)
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,841) (2,357)
Additions to patents and other assets (686) (12,132)
--------- ---------
Net cash used by investing activities (2,527) (14,489)
--------- ---------
Cash flows from financing activities:
Net proceeds of notes payable to related parties 54,010 34,574
Net proceeds (payments) of notes payable 48,574 (10,341)
Proceeds from issuance of stock 24,998 -
--------- ---------
Net cash provided by financing activities 127,582 24,233
--------- ---------
Net increase (decrease) in cash and cash equivalents 16,394 (7,372)
Cash and cash equivalents, beginning of period 19,063 69,393
--------- ---------
Cash and cash equivalents, end of period $ 35,457 $ 62,021
========= =========
</TABLE>
See accompanying Notes to Unaudited 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 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 Company as
of and for the period ended March 31, 1998.
The information furnished reflects all adjustments which are necessary for a
fair presentation of the Company's financial position as of June 30, 1998 and
the results of its operations and its cash flows for the three month periods
ended June 30, 1998 and 1997. All such adjustments are of a normal recurring
nature.
2. Results of Operations
The results of operations for the three month periods ended June 30, 1998 and
1997 are not necessarily indicative of the results to be expected for the
respective full years.
3. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
--------- ---------
<S> <C> <C>
Raw Materials $ 344,806 $ 363,472
Work In Process 67,939 66,410
Finished Goods 98,668 84,234
--------- ---------
511,413 514,116
Reserve for Obsolescence (120,000) (120,000)
--------- ---------
Inventory $ 391,413 $ 394,116
========= =========
</TABLE>
6
<PAGE>
4. Loss per Share
Effective December 31, 1997, the Company adopted SFAS 128, Earnings Per
Share. Under SFAS 128, basic and diluted loss per share were $(0.01) and
$(0.00) for the respective three month periods ended June 30, 1998 and
1997. Basic loss per share was computed by dividing net loss applicable to
common stock by the weighted average common shares outstanding during each
period. Diluted loss per share was computed by dividing net loss applicable
to common stock plus the effect of assumed conversion of debt by weighted
average common shares outstanding plus dilutive potential common shares.
Potential common shares are not included in the computation of diluted per
share amounts in periods when the Company reports a loss. Basic and diluted
loss per share are the same for both classes of TTI common stock (thus they
are not presented separately) because both have noncumulative dividend
rights of which none were available for distribution under the terms of the
Certificate of Incorporation. Due to the Company's recapitalization in
August 1997, all common share and per share amounts in the accompanying
financial statements have been restated. Following is a reconciliation of
the numerators and denominators of the basic and diluted earnings per
share:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
<S> <C> <C>
Loss:
Basic and diluted:
Loss available to common stockholders $ (96,367) $ (13,637)
=========== ===========
Shares:
Basic and diluted:
Weighted average common
shares outstanding 6,662,440 5,962,500
============ ============
</TABLE>
5. Effect of New Accounting Pronouncements
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income, and
SFAS 131, Disclosures About Segments of an Enterprise and Related
Information, both of which are effective for fiscal years beginning after
December 31, 1997. In February 1998, the FASB issued SFAS 132, Employers'
Disclosures About Pensions and Other Postretirement Benefits, which is also
effective for fiscal periods beginning after December 15, 1997. In June
1998, the FASB issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, which is effective for fiscal quarters of fiscal years
beginning after June 15, 1999. The Company expects that SFAS 130 and 132
will have no material impact on the financial statements of the Company.
SFAS 131 and 133 will have no impact on the Company.
7
<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 Unaudited 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 researches, designs,
develops, test, manufactures and markets specialized high technology, garment
production line stitching machines and related equipment. TES markets its
products worldwide 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 the 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. The three months of fiscal 1998 ending
June 30, 1997 reflect the receipt of revenues from license fees as TES's
licensee introduced a second category of industrial sewing machine to market
which incorporated TES's electronic gearing technology and know-how. The three
months of fiscal 1999 ending June 30, 1998 reflect the recording of revenues due
from royalties on two categories of machines sold by the licensee during the
period. Management expects that during the next two years license fee revenue
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 additional license agreements
currently under negotiation.
8
<PAGE>
The Company's product sales and service revenues have previously been
largely attributable to sales to three primary customers. These three customers
represented 79% of product sales revenue in the first three months of fiscal
1998, whereas the same three customers represented 55% of product sales revenue
in the first three months of fiscal 1999. This decrease in percentage was the
result of a decrease in sales to two of the three primary customers as product
upgrades delayed pending orders until the second quarter of fiscal 1999. This
also resulted in decreased international sales, as one of the primary customers
is a Latin American distributor for TES's products. 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. Sales
levels to the two primary customers are expected to increase in the current
quarter as product upgrades are completed and pending orders are confirmed.
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items reflected in the Company's
unaudited condensed consolidated statements of operations.
<TABLE>
<CAPTION>
Percentage of Total Revenues
For the three months
ended June 30.
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Operating revenues:
Sales and service 79.4% 49.9%
License fees 0.0% 50.1%
Royalties 20.6% 0.0%
----- ------
Total operating revenues 100.0% 100.00%
Operating expenses:
Cost of revenues 52.1% 43.2%
Research and development 23.2% 9.1%
Selling, general, administrative 56.2% 47.4%
----- ------
Total operating expenses 131.5% 99.7%
Operating income (loss) (31.5)% 0.3%
Other expense:
Interest expense - related parties (6.1)% (0.9)%
Interest expense (2.0)% (1.7)%
Other income (expense) (0.2)% 0.5%
----- ------
Total other expense (8.3)% (2.1)%
----- ------
Loss before income tax (39.8)% (1.8)%
Provision for income taxes 2.1% 1.0%
----- ------
Net loss (41.9)% (2.8)%
===== ======
</TABLE>
9
<PAGE>
Three Months Ended June 30, 1998 and June 30, 1997
Total Revenues. Total revenues for the first quarter of fiscal 1999 which
ended June 30, 1998 decreased by approximately $269,000 to $229,764 from
$498,920 in the first quarter of the previous year. This decrease was largely
the result of the recording of $250,000 in license fee income in the first
quarter of the 1998 year whereas the first quarter of the 1999 year had no
comparable income. Royalty income amounted to $47,456 for the first quarter of
fiscal 1999 as a result of the licensee royalty reporting period changing in
February 1998 from semi-annual reporting to quarterly reporting, although
royalty payments are still due semi-annually. Product sales and service
revenues were down 26.8% to $182,308 in the first quarter of fiscal 1999 as
compared to $248,920 in the same period of fiscal 1998.
Sales of the Automatic J-Tackers increased in the first quarter of fiscal
1999 representing 41.3% of total product revenue as opposed to 14% of product
revenue in the same period of the prior year. This increase resulted from an
upgrade to the equipment which was completed and available to customers early in
the first quarter of fiscal 1999. The Single Needle Belt Loop Machine
represented 19.3% of sales in the first quarter of fiscal 1999, whereas the
Single Needle Belt Loop Machine and Label Loader/Folders represented 34.5% and
15% respectively of total product sales in the first quarter of the prior year.
A reduction in sales of these two products was also the result of product
upgrades that have been completed in the current quarter. Remaining product
sales in both periods were generated from a mix of TES'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. The above products are all part of the Company's traditional
product line, and are continually upgraded to meet changing customer
requirements. Products that are frequently upgraded to meet changing customer
specifications are generally produced in two segments. The first segment
consists of the base unit that can be fitted to the needs of several customers.
The second segment consists of the few parts added to the base unit which meet
customer's specifications, although several customers may also use the same
specifications. The second segment is generally produced per order, therefore
reducing the potential for significant obsolete inventory.
Cost of Revenues. Cost of revenues decreased approximately 44% to $119,632
in the first quarter of fiscal 1999 from $215,426 in the first quarter of fiscal
1998. This was the result of an approximate $100,000 increase in material
purchases during the first quarter of fiscal 1998 which were directly related to
the increase in sales revenues for that period. Cost of revenues as a percentage
of total product and service revenues decreased from 86.5% in the 1998 period to
65.6% in the 1999 period as a result of decreases in total overhead costs
allocated to the cost of revenues which primarily related to decreased salary
and related benefits as officer salaries were paid in the 1998 period as cash
flow permitted and have since been adjusted to be either paid or accrued
quarterly.
Research and Development. Research and development costs increased by
17.8% to $53,458 in the first quarter of fiscal 1999 from $45,379 in the first
quarter of fiscal 1998 due to
10
<PAGE>
increases in salary and related benefits relating to engineering which became
effective in the second quarter of fiscal 1998. The research and development
department focuses on advancing the electronic gearing technology as well as
improving the performance of current products, developing new products both with
and without the electronic gearing technology, and expanding the electronic
gearing technology to serve new markets.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by approximately $100,000 or 45.4% to $129,141 in the first
quarter of fiscal 1999 from $236,543 in the first quarter of fiscal 1998.
Salary and related benefits were higher in the 1998 period, as officer salaries
were paid as cash flow permitted and have since been adjusted to be either paid
or accrued quarterly. The 1998 period reflected approximately $40,000 in
organization and registration expenses not incurred in the 1999 period, which
were related to the registration process. Legal and accounting fees totaled
$36,544 in the first quarter of fiscal 1998 as opposed to $15,214 in the first
quarter of fiscal 1999 due to the prior year audit involving a change of
auditors.
Operating Income (Loss). Operating income totaled $1,572 for the first
quarter of fiscal 1998 as opposed to an operating loss of $72,467 for the first
quarter of fiscal 1999. This loss resulted primarily from the reduced sales in
the 1999 period as well as the fact that the 1999 period did not have license
fee income as in the same period of the prior year. The license fee income and
royalty income have no associated costs.
Interest Expense and Interest Expense - Related Parties. Interest expense
- - related parties increased 205% from $4,602 in the 1998 period to $14,019 in
the 1999 period as TES incurred additional indebtedness from related parties
subsequent to June 30, 1997. Interest expense decreased by 44.5% to $4,578 in
the first quarter of 1999 from $8,244 in the first quarter of 1998 as the result
of the conversion of $119,910 of notes to Common Shares of the Company in the
second quarter of fiscal 1998.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through a
combination of cash flow 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, and the Company makes
significant expenditures each year for research and development and marketing
new technology.
Net cash used by operating activities was $108,661 in the first quarter of
fiscal 1999 and $17,116 in the first quarter of fiscal 1998. The primary cause
of the net use of cash from operations was the operating loss of $72,467 in the
first quarter of fiscal 1999 and the operating income of only $1,572 in the
first quarter of fiscal 1998 offset by increases and decreases in working
capital items.
11
<PAGE>
Net cash used by investing activities was $2,527 in the 1999 period and
$14,489 in the 1998 period. Primary use of funds were related to capital
expenditures, patents and notes receivable. Capital expenditures totaled
approximately $1,800 in the 1999 period and $2,300 in the 1998 period. Capital
expenditures are expected to increase over the next year during which time the
Company expects to move from its existing facility. See "Future Operations."
Net cash provided by financing activities was $127,582 in the 1999 period
and $24,233 in the 1998 period. The cash provided by financing activities in
both periods was related to proceeds from notes payable issued to related
parties and others.
The Company's principal commitments at June 30, 1998 consisted primarily of
notes payable to related parties as 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 the
registration of securities of the Company. 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 were converted to 88,560 Common Shares of the Company at $3.00
per share. Remaining notes payable, with interest rates ranging from 10% to
prime plus 1% are due in fiscal 1999. The Company plans to extend the remaining
related party notes payable if working capital is not sufficient to repay the
loans. Due to the continuing demand for the new technology, management is
actively seeking up to a $2,000,000 line of credit to provide funds for the
tooling, inventory and additional personnel needed to meet the industry's
demands for the new technology. There are no significant restrictive covenants
relating to the existing notes payable, although several of the notes are
personally guaranteed by the President of the Company.
Effect of Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income, and
SFAS 131, Disclosures About Segments of an Enterprise and Related Information,
both of which are effective for fiscal years beginning after December 31, 1997.
In February 1998, the FASB issued SFAS 132, Employers' Disclosures About
Pensions and Other Postretirement Benefits, which is also effective for fiscal
periods beginning after December 15, 1997. In June 1998, the FASB issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities, which is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
Company expects that SFAS 130 and 132 will have no material impact on the
financial statements of the Company. SFAS 131 and 133 will have no impact on the
Company.
Year 2000 Issues
Many currently installed computer systems and software products are coded
to accept only two-digit entries to represent years. For example, the year
"1997" would be represented by "97". These systems and products will need to be
able to accept four-digit entries to distinguish years beginning with 2000 from
prior years. As a result, systems and products that do not accept four-
12
<PAGE>
digit year entries will need to be upgraded or replaced to comply with such
"Year 2000" requirements.
The Company's products are not date sensitive. With respect to its internal
systems, the Company has reviewed such systems to assess the impact of the Year
2000. Based upon that review and information provided from vendors, the Company
believes that the only one of its internal systems that will be affected is its
IBM AS400 main frame computer which controls the Company's administrative,
accounting, financial, and inventory software. As part of the Company's
participation in IBM's ongoing maintenance program, IBM has indicated that it
has made the necessary modifications available in an upgrade for the operating
system and software packages that the Company uses. The Company purchased the
upgrade package during the 1998 fiscal year and plans to complete installation
and testing of the upgrade by the end of January 1999. The Company does not
anticipate any material disruptions in its operation as the result of installing
the upgrade. The Company believes that the overall cost of compliance will not
be material and is expensing such compliance costs when incurred.
It is uncertain whether the Company's customers and suppliers will have
Year 2000 issues that may affect the Company, but the Company currently is
developing a plan to evaluate the Year 2000 compliance status of its customers
and suppliers. There can be no guarantee that those customers and suppliers with
systems that are not now Year 2000 compliant will be timely converted to
compliance. Additionally, there can be no guarantee that those customers and
suppliers of business importance to the Company will successfully and timely
reprogram or replace, and test, all of their own computer hardware, software,
and process control systems.
Future Operations
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. New product developments such as
the label loader/folder for woven labels and upgrades to existing equipment
using traditional technology, are expected to keep the traditional product line
competitive as the Company continually works on developing products that its
competitors have not attempted or have failed to develop. In addition,
management believes that there is a great demand for products incorporating the
electronic gearing technology. The Company is in various stages of design and
development on machines using the electronic gearing technology including a
three-dimensional stitching machine for automotive air bags, a multi-head
buttonhole machine, a multi-head button sewing machine, a single needle plain
sewer and a heavy duty ring spinning machine.
The Company has recently completed the first production felling machine,
incorporating the electronic gearing technology, which was developed under
a joint development agreement with a major denim manufacturer. The Company plans
to exhibit this machine, as well as other products containing the patented
electronic gearing technology and products from its standard product line at the
1998 Bobbin World Show to be held in Atlanta, Georgia during September 1998.
13
<PAGE>
As the demand for the electronic gearing technology is growing, the Company
is making preparations to meet the existing and expected future demands of its
research and development efforts. Management is actively seeking financing of
up to $2,000,000 to provide funds for the tooling, inventory and additional
personnel needed to meet the industry's demands for this technology.
The Company anticipates that income from license fees and royalty revenues
will increase over the next several years as its existing licensee introduces
new electronically geared equipment to the market, as additional manufacturers
license the technology, and as royalty revenues increase based on the increased
sales of products by the current licensee and royalties are generated by
potential additional licenses.
To provide for continued growth, the Company plans to build a new facility
that should provide sufficient space for the Company's needs both short and long
term. The Company owns undeveloped land which is currently being offered for
sale due to management's recent determination that the property would only meet
short-term growth needs. The estimated cost of building the new facility is
$1,600,000. Assuming sufficient capital is available, the Company plans to
construct the facility during the 1999 calendar year. The cost of the land and
facility is expected to be funded through a combination of cash received from
the sale of current property, cash flows from operations and financing.
As of June 30, 1998, the Company had backlog orders it believes to be firm
totaling approximately $126,000 for equipment using traditional technology.
This backlog of orders is expected to be completed by August 30, 1998. In
addition, the Company has received indications of interest for additional orders
totaling approximately $750,000 relating to products, other than the felling
machine, using the electronic gearing technology upon completion of production
models and $1,176,000 for new products currently being developed 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.
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 on as an
indicator of future performance.
Factors Relating to Forward-Looking Statements
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform
14
<PAGE>
Act of 1995. In addition, words such as "believes", "anticipates", "expects",
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause the actual results, performance, or
achievements of the Company or events, or timing of events, relating to the
Company to differ materially from any future results, performance, or
achievements of the Company or events, or timing of events, relating to the
Company expressed or implied by such forward-looking statements. The Company
cannot assure that it will be able to anticipate or respond timely to the
changes which could adversely affect its operating results in one or more fiscal
quarters. Results of operations in any past period should not be considered
indicative of results to be expected in future periods. Fluctuations in
operating results may result in fluctuations in the price of the Company's
securities.
Management is currently reviewing potential debt and equity financing
options. There can be no assurance that any such financing will be available on
acceptable terms. If such financing is not available on satisfactory terms, the
Company may be unable to expand its business or develop new customers as desired
and its operating results may be adversely affected. Debt financing will
increase expenses and must be repaid regardless of operating results. Equity
financing could result in dilution to existing stockholders.
Some of the more prominent known risks and uncertainties of the Company's
business are set forth below. However, this section does not discuss all
possible risks and uncertainties to which the Company and its business is
subject, nor can it be assumed that there are not other risks and uncertainties
which may be more significant to the Company.
Such other factors include, among others:
. the lack of working capital needed to further develop and apply the
electronic gearing technology and other products and management's ability
to find acceptable financing to supply such working capital;
. the potential failure by the Company to successfully negotiate additional
licensing agreements;
. continued dependence on a small number of significant customers for
substantially all of the Company's revenue and the potential loss of one or
more of the Company's principal customers;
. the shortage of qualified and competent engineers and the risk that the
Company will be unable to retain its key employees and managers, especially
in the event the Company loses one or more of its principal customers;
. dependence on the apparel industry and the potential failure to diversify
the Company's product and service offerings and to expand its markets into
other industries;
15
<PAGE>
. the unanticipated expense of new product development, the potential
failure by the Company to complete new products under development and
others started in the future successfully or on a timely, cost effective
basis, and the failure of any such products to achieve substantial market
acceptance;
. the dependence on patents and ability to protect proprietary products, the
potential that existing patents held by TES or future patents obtained by
TES will not be enforceable, the risk that TES products will infringe on
patents held by others, or the risk that competitors will develop similar
or functionally similar products; and
. the potential adverse effect of competition, the potential failure by the
Company to provide competitive timely designs of cost-effective solutions
and products to manufacturers, and the potential adverse effect of
technological change with which the Company is unable to keep pace.
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 and Use of Proceeds.
On June 8, 1998 in a transaction not involving any public offering pursuant
to 4(2) of the Securities Act of 1933, TTI sold 12,500 Common Shares to one
individual for $2.00 per share. There was no underwriter or broker involved and
no solicitation of any other potential investors.
TTI's registration statement became 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 1,541,407 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 no
selling shareholders that owns over 5% of TTI's Common Shares sold any Common
Shares during the first quarter of fiscal 1999.
16
<PAGE>
Since August 1, 1997, the effective date of the registration statement, and
prior to June 30, 1998, TTI has incurred for its account in connection with the
issuance and distribution of the securities registered the following amounts:
<TABLE>
<CAPTION>
Direct or Indirect
Payments to Directors,
Officers, Holders of
10% of Any Class
or of Stock Direct or Indirect
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 were no net offering proceeds to TTI since there were no significant
offering proceeds ($255,187 in reduction of debt, $13,000 cash to purchase the
securities to be distributed and $19,158 from exercise of Warrants and options),
nor were there intended to be any significant proceeds. 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.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
(ii) Bylaws of Tice Technology, Inc. (ii) +
III. Instruments Defining Rights of Security Holders 4
(i) Common Stock Purchase Warrant Agreement x
Between Tice Technology, Inc. and Warrant Agent
IV. Financial Data Schedule 27 20
</TABLE>
+ Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 of Tice Technology, Inc. which became
effective August 1, 1997.
x Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the above
described Registration Statement.
(b) No reports have been filed on Form 8-K.
18
<PAGE>
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: August 13, 1998
--------------------------------------
By: /s/ Karen A. Walton
----------------------------------------
Karen A. Walton, Chief Financial Officer
Date: August 13, 1998
--------------------------------------
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the first quarter financial statements of Tice Technology, Inc. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 35,457
<SECURITIES> 0
<RECEIVABLES> 217,890
<ALLOWANCES> 0
<INVENTORY> 391,890
<CURRENT-ASSETS> 660,054
<PP&E> 785,180
<DEPRECIATION> 605,779
<TOTAL-ASSETS> 1,138,907
<CURRENT-LIABILITIES> 660,980
<BONDS> 610,320
0
0
<COMMON> 80,192
<OTHER-SE> (212,585)
<TOTAL-LIABILITY-AND-EQUITY> 1,138,907
<SALES> 182,308
<TOTAL-REVENUES> 229,764
<CGS> 119,632
<TOTAL-COSTS> 302,231
<OTHER-EXPENSES> 558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,597
<INCOME-PRETAX> (91,622)
<INCOME-TAX> 4,745
<INCOME-CONTINUING> (96,367)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (96,367)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
