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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
___________.
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 No.)
6711 Maynardville Highway
Knoxville, Tennessee 37918
(Address of Principal Executive Offices)
(423) 425-9501
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- ----------------------
None None
Securities registered pursuant to Section 12(g) of this Act:
Common Shares, $0.01 per value per share
Common Stock Purchase Warrants
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value, as of June 30, 1998 (based upon the average bid
and asked prices on such date) of the voting and non-voting common equity held
by non-affiliates of the registrant was $1,641,684.
The number of shares outstanding of each class of the registrant's common
stock as of June 30, 1998 was: 5,919,889 Common Shares, 750,000 Class B Common
Shares and 0 Class D Common Shares.
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TABLE OF CONTENTS
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PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 11
Item 3. Legal Proceedings............................................... 12
Item 4. Submission of Matters to Vote of Security Holders............... 12
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder
Matters......................................................... 12
Item 6. Selected Financial Data......................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 23
Item 8. Financial Statements and Supplementary Data..................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures........................................... 43
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 43
Item 11. Executive Compensation.......................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 45
Item 13. Certain Relationships and Related Transactions.................. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 47
Signatures.................................................................. 48
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PART I
Item 1. Business.
The Company
Tice Technology, Inc. ("TTI" and, together with its subsidiary, the
"Company") is a holding company which was formed on June 21, 1996 by Tice
Engineering & Sales, Inc. ("TES") and Monogenesis Corporation, a closed-end
investment company ("Monogenesis"), to acquire and hold the issued and
outstanding stock of TES. On August 1, 1997, TTI acquired all of the issued and
outstanding TES stock in exchange for 5,450,220 of its Common Shares and 750,000
of its Class B Common Shares. TTI also issued 300,000 Common Shares and
1,000,000 Common Stock Purchase Warrants (the "Warrants") for $.01 each to
Monogenesis, most of which were distributed to Monogenesis' shareholders. This
established TTI's shareholder base of approximately 1,200 institutional
investors. TTI also issued 88,560 Common Shares in satisfaction of certain of
TES's debts. Upon completion of the exchange, TES became a wholly owned
subsidiary of TTI.
TTI has one wholly owned operating subsidiary, TES. TES was incorporated
in 1973 and 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, tests, manufactures,
and markets specialized high technology, 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 customer specifications as indicated on
purchase orders received from customers. Generally, a potential customer
outlines a need or problem relating to its manufacturing process, TES reviews
the need as it would apply to the industry as a whole and estimates the cost to
provide the product or service. Once manufactured for the initial customer, TES
retrofits the unit to fit specifications for other customers that would also
benefit from the new TES product that lessens or solves the problem encountered
in their same manufacturing process. TES obtains patents on many of its products
which, when patented, it licenses to other manufacturers to produce or contract
manufactures for its own customers. TES generally retains the rights to the
design of all products it designs and manufactures.
Prior to October 1996, 95% of TES's revenues were derived from the sale of
products designed and manufactured by TES and further described below. See
"Business -- Products". The remaining revenues were 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. In January 1997, TES
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granted a major sewing machine manufacturer, Brother Industries, Ltd. of Nagoya,
Japan, a nonexclusive license to make, assemble, use and sell products
incorporating TES's patented electronic gearing technology and know-how. Since
that time approximately 18% of TES's revenues are derived from license fees and
in June 1997 TES began receiving income from royalties on sales of machines
produced under the license. Royalty income represented 15% of TES's revenues
for the year ending March 31, 1998. 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 obtained three patents, two in
1994 and one in 1995. The bulk of the 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's success is dependent 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 believes the
electronic gearing technology has application to many other types of machines
including machines used in industries other than the sewing industry, such as
the automotive industry. 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 plain lock stitch sewing machine and the heavy-duty ring spinning
machine. TES is now in the pre-production stage of the lap seam felling machine
which uses the technology and is being developed under a joint-development
agreement with a major denim manufacturer. See "Business -- Research and
Development".
The Company believes that the income received from license fees and
royalties will become a larger portion of total revenues for the Company. This
belief is based on forecasts of increased sales of the equipment produced under
license in the December 1997 Bobbin magazine as well as anticipated successful
results of current negotiations with other manufacturers to enter into
additional license agreements. The Company also anticipates increased sales
revenues in the current fiscal year upon completion of the lap seam felling
machine and startup of production of this machine under the joint development
agreement described in the section labeled Research and Development.
Products
Standard 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:
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1) Twin Needle Belt-Loop Sewing Machine -- Patent #5,458,075 issued October
17, 1995.
2) Ergonomic Stands (pneumatic and electronic) -- Patent #5,313,893 issued May
24, 1994.
3) Single Needle Belt Loop Machines -- Prior patents, if any have expired.
4) Button Hole Indexers -- Prior patents, if any have expired.
5) Takeaway Mechanisms -- Patent #5,303,910 issued April 19, 1994.
6) Indexing Stackers -- (incorporates takeaway Mechanism covered under patent
#5,303,910).
7) Label Loader/Folders -- Patent #4,677,923 and #4,979,934 issued July 7,
1987 and December 25, 1990 respectively.
8) Automatic "J" Tackers -- Prior patents, if any have expired.
9) Belt-Loop Winders -- No patents exist on this product.
10) Needle Positioners -- Prior patents have expired.
11) Pocket Creasers -- No patents exist on this product.
12) Pneumatic Circuit Boards -- No patents exist on this product although the
circuit boards created were copyrighted from 1976 to 1986.
13) Air Operated Clamp Lifts -- Prior patents have expired.
14) Electronic Gearing Components for Sewing Machines -- Covered by patent
#5,458,075 issued on October 17, 1995.
New Product Development
TES continues to develop new products and upgrade existing products to meet
its customer's needs and to provide solutions to problems not previously
addressed by other equipment manufacturers. The end result provided by TES is
targeted to provide the customer with benefits such as increased production,
less down-time and maintenance cost, less operator fatigue, less operator
training, and increased flexibility to change equipment specifications on site.
During the fiscal year ending March 31, 1998, TES introduced the following new
products and product upgrades:
1) Ergonomic Stands + New Manual Pedestal Stand, MPS7, introduced. This stand,
like the pneumatic and electronic stands produced by TES, allows the
operator to adjust the height
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of the table up or down as well as the tilt angle of the tabletop. This new
stand is manually adjusted by the operator using a ratcheting type handle
to change the height to the desired position. The manual pedestal stand
provides the customer with a lower cost solution to an ergonomic problem.
This product is not covered under any patent.
2) Single Needle Belt-Loop Machines -- This product is an attachment that
works with a customer's existing sewing head to automate the process of
attaching belt loops. 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. This machine is now offered
with an optional KX4000 x-cut knife unit which allows the ends of the belt
loop material to be cut in a "point cut" on both ends thus eliminating
"dog-earing" of the belt loop ends. A new model, the JL4430, has also been
introduced to accommodate the new Brother B430 programmable sewing head.
3) Label Loader/Folders -- This product is an attachment that works with
either a sewing head or a plastic staple machine. The label loader/folder
feeds a label from a hopper to a folding mechanism that folds the label if
required. It presents the label to the sewing or staple machine, which is
then activated, the label is then affixed to garments with one or more
stitched tacks or staples. This product is available to accommodate either
paper or leather labels of six different sizes. The product has been
upgraded to accommodate two new label sizes. Label sizes can be changed on
existing units with interchangeable conversion kits.
4) Automatic "J" Tackers -- This product is an attachment that works with a
customer's existing sewing head. The "J" tack is a generic term for TES's
unit that is designed to make one tack then shift and place a second tack
automatically at a specified distance and angle from the first tack. These
tacks are normally placed in positions on garments that require additional
reinforcement to add strength, such as the tacks at the bottom of the fly
on jeans. This product is available with conversion kits to place tacks in
three angle/placement configurations. This product has been upgraded to
accommodate one new angle/placement configuration. Angle/placement
configurations can be changed on existing units with an interchangeable
conversion kit.
5) Sports Ball Inflator -- The New SBI100 series of machines is a new product
that was developed for a sporting goods manufacturer. This machine
automatically inflates multiple sports balls to preset pressures
simultaneously. It is currently available as one, two, and four station
units.
During the fiscal year ending March 31, 1998, sales of the Label Loader/
Folders and Single Needle Belt Loop Machines contributed 22.5% and 22.4% to
product sales respectively.
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Sales of Ergonomic Stands represented 12.8% of product sales revenues in the
1998 period. 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. Management expects that products containing the
electronic gearing technology will become its dominant products over the next
several years.
Patents and Trademarks
The Company relies on a combination of patent, trade secret and trademark
laws, confidentiality procedures, and contractual provisions to protect its
intellectual property. TES patents many of the products it develops. See
"Management's Discussion and Analysis -- Special Considerations -- Dependence on
Patents and Ability to Protect Proprietary Products." 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 -- Standard Products".
TES is currently working on obtaining patent protection in countries other than
the U.S. on its electronic gearing technology and has applied for a second U.S.
patent on the technology. In February 1998, TES announced that it received a
favorable report regarding the international patents from the International
Preliminary Examining Authority on the Company's electronic gearing technology.
The report indicated that all 46 claims of the application met the requirements
for novelty, inventive step, and industrial applicability.
In addition to patents, the Company also holds registered trademarks on its
name "Tice" as well as the name "Tice Technology" and related logo. The
registration certificate for the name "Tice" was obtained from the U.S. Patent
and Trademark Office in 1980 and the registration certificate for the name "Tice
Technology" and related logo was obtained June 10, 1997. The registered name
"Tice Technology" and related logo are required to be prominently displayed on
all equipment, advertisements, and printed matter which relates to equipment
produced under license from TES that incorporates TES's patented electronic
gearing technology.
Research and Development
The Company conducts an active and ongoing research, development, and
engineering program that 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. When a sewing
manufacturer or other customer comes to TES with a production or ergonomic
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
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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. TES also has the option to license other
manufacturers to produce and market the product in exchange for license fees and
royalties.
Based on customer inquires and its experience in the industry, TES is in
the process of designing and building a label feeding and loading attachment for
woven labels. This attachment feeds the woven label from the hopper inserting
it into a specially designed clamp. The operator needs only to place the
garment under the clamp and engage the sewing cycle. Upon completion of the
sewing cycle, the garment is removed and the process is repeated thus allowing
greater accuracy in placement of hard-to-handle soft woven labels. Management
is not aware of any other equipment on the market that can feed woven labels
mechanically. Prior to the design by TES, woven labels had to be hand placed on
the garment. Management believes that this product will expand the Company's
standard product line.
TES is also in the process of designing the following equipment which uses
TES's patented electronic gearing technology:
. A felling machine (pre-production stage, 50% complete)
. A multi-head button hole machine (proof of concept model completed)
. A single needle plain sewer (proof of concept model completed)
. A multi-head button sewing machine (initial prototype development)
. A sewing machine capable of sewing in three dimensions for use in
sewing automotive air bags (project in initial design phase)
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 TES's electronic gearing technology. 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 to the
manufacturer is not to exceed $20,000 per machine. With respect to felling
machines sold to any other company, 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 develop the product plus interest at a
rate of 10% per annum. Although the denim manufacturer put a hold on the
project in November 1996 due to plant reorganizations which limited its ability
to take delivery of the machines, TES resumed work on the project independent of
the manufacturer in
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June 1997. TES currently has a first generation prototype of the felling machine
in operation and has completed 50% of a pre-production model.
TES incurred research and development expenses of $196,963, $163,204 and
$208,407, respectively in fiscal years 1996, 1997 and 1998, of which the 1996
expenses were reduced by a reimbursement of $150,000 under the Joint Development
Agreement. As the demand for the Tice electronic gearing technology grows, the
company is making preparations to meet the existing and expected future demands
by increasing engineering personnel.
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. The Company continually
strives to broaden its customer base by obtaining new customers and by
increasing its business with those existing customers which have historically
comprised a small percentage of the Company's revenue, as well as by developing
products for industries outside of the apparel industry that would benefit from
the company's technology. For example, TES is currently developing a machine
incorporating the electronic gearing technology to allow three-dimensional
sewing of airbags for the automotive industry.
The Company markets its products and services worldwide with the primary
concentration of sales being in North America, South America, and Europe. TES
distributes its products to end users through direct technical sales persons as
well as through an independent sales and distribution network of approximately
125 dealers. In addition, TES advertises in one or more of the apparel
industry's international trade magazines and regularly attends apparel industry
trade shows as an exhibitor to display its equipment and technology. The
Company exhibited at the IMB Show in Cologne, Germany in May 1997 and at the
Bobbin Show in September 1997. It also plans to exhibit at the 1998 Bobbin
World Show in Atlanta, Georgia in September 1998. Several of the Company's
distributors also display Tice equipment in their booths at various trade shows.
Since January 1, 1998, TES's distributors have displayed Tice equipment at the
following trade shows: January 1998, Expo Costura '98 in Mexico City; April
1998, National Apparel Technology Show in Montreal, Canada; May 1998, SERMAC in
Buenos Aires, Argentina; and, July 1998, Textilmoda '98 in Bogota, Columbia. In
October 1998, one of TES's distributors is planning to exhibit Tice equipment in
their booth at the Laguna 807 show to be held in Torreon City, Mexico. All
equipment manufactured by TES bears the Company's registered trademark, and
applicable patent numbers. Equipment produced under a license agreement from
the Company is advertised in trade publications and displayed in trade shows by
the licensee with the "Tice Technology" registered logo, trademark, and patent
numbers properly displayed.
International sales increased from approximately 6% of revenues in 1997 to
24% in 1998. Management believes that this increase is the result of the
Company's efforts to expand its international markets. One of its primary
international distributors, Superior's of Mexico,
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represented 19.5% of total revenue in 1998. All export sales are paid in U.S.
Funds, either in advance of shipment or with an irrevocable letter of credit,
therefore, there are no gains or losses included in operations related to
foreign currency exchanges. To better serve its international customers, the
Company's customer service department has personnel who are fluent in German,
Spanish, and Italian.
Revenue Sources
Product Revenue
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 69.3% of its annual product revenue from three primary
customers, Wrangler, Inc. ("Wrangler"), Levi Strauss & Company ("Levi"), and
Superior's of Mexico. Sales to Wrangler and Levi, two denim and work wear
manufacturers, accounted for 31.3% and 18.5% respectively of total product
revenue during the 1998 fiscal year. Sales to Superior's, an equipment
distributor for the apparel industry, accounted for 19.5% of product revenue for
the 1998 year. Substantially all of TES's license fee and royalty revenue to
date is from one customer, Brother Industries, Ltd. ("Brother") of Nagoya,
Japan. The loss of any of these customers could materially affect TES's
revenues and net income. See "Management's Discussion and Analysis -- Special
Considerations -- Substantial Reliance on Certain Customers". However,
management believes that, as it further develops uses for the electronic gearing
technology, such as the three-dimensional stitching machine for automotive
airbags, TES's dependence on a few customers or segment of the sewing industry
will lessen or disappear. TES is also in various stages of formal and informal
negotiations with various other manufacturers of equipment for the license of
the electronic gearing technology.
License and Royalty Revenue
TES granted Brother a nonexclusive license effective as of January 1, 1997
to make, assemble, use, and sell products (consisting of up to twelve categories
of industrial sewing machines) incorporating the electronic gearing technology
and know-how 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, in addition to royalties, TES is
entitled to license fees for each category of machine developed by Brother using
the technology which, if all machines are developed will total $6,000,000. TES
received an initial license fee of $250,000 corresponding to the first category
of machines (the electronic double-needle tacker) on February 25, 1997 and in
April 1997 received a payment of $250,000 corresponding to the second category
of machines (the multi-head embroidery machine). Brother has agreed to pay TES
$250,000 within thirty days of the date of the first commercial shipment of a
product in any of the remaining ten categories and $250,000 within sixty days of
the date the aggregate net sales of
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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 the patent or any
continuation thereof. Brother is required to pay TES additional fees at TES
published rates for technical assistance and training.
All products produced under license from TES must prominently display the
registered "Tice Technology" trademark on the equipment, service manuals,
advertisements, and other related items. Brother has developed machines in two
categories which it is actively advertising and promoting at trade shows and
selling. Royalties on net sales of equipment sold under license were to be
reported at the end of each six-month period, June and December each year, and
are paid within thirty days after such report. Royalties reported in July 1997
for the period January through June 1997 totaled $12,908. Royalties reported in
January 1998 for the period July 1997 through December 1997 totaled $102,664.
In February 1998, TES requested that Brother report royalties on a quarterly
basis although payment would remain due on a semi-annual basis. This change in
reporting requirements allowed management to reflect the amount of royalties due
on each quarterly financial report. Brother complied with the requested
reporting change and in April 1998 reported royalties due for the period January
1998 through March 1998 which totaled $85,947 for the three month period.
Management anticipates that revenue from license fees and royalties will
increase as Brother introduces more machines using the electronic gearing
technology and as Brother's sales of the two existing machines increase.
Backlog
The Company estimates that its backlog orders believed to be firm as of
March 31, 1998 and 1997 were $209,000 and $200,000 respectively. The backlog on
March 31, 1998 has been 50% completed. The balance of the backlog is expected
to be completed by the end of July 1998. An additional $83,000 in completed
orders have been recorded since the end of fiscal 1998. Backlog orders believed
to be firm as of June 30, 1998 were $126,000. The Company estimates that this
additional backlog will be completed by the end of September 1998.
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 "Management's Discussion and Analysis -- Special
Considerations -- Potential Adverse Effects of Competition". In addition,
management estimates that there are four companies of approximately the same
size as TES that
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provide similar services and products. The Company's management is also aware 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
(none of which use the electronic gearing technology) 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. 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 and
manufactures the already developed products it offers. However, TES's general
policy has been to out source manufacturing of components or manufacturing
processes (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 component or process, it would most likely change the component or finishing
process. 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 dependent 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,
such as aluminum, steel, and brass, are also available from many suppliers.
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Employees
As of March 31, 1998, the Company had twenty-two full time employees. This
number includes eleven hourly and eleven salary employees. The Company employs
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 the Company's
management have been employees of TES for at least ten years. During the past
twelve months, the Company hired two additional key employees.
Mr. Burt Grocke was hired in August 1997 to head the Company's engineering
department. Mr. Grocke received his MSME and BSME from the University of
Illinois in 1969 and 1966 respectively. Mr. Grocke was previously an
engineering manager for Black & Decker.
Mr. Andy Silver was hired in November 1997 as the Company's national sales
manager. Mr. Silver was previously Director of Marketing for AMF Reece, a
manufacturer of specialized sewing equipment and a competitor of TES. Mr.
Silver has been in the industry for over twenty years, fourteen of which were
with AMF Reece.
The Company considers its relationship with its employees to be good, and
none of its employees currently are represented by a union in collective
bargaining with the Company.
Due to the growing demand for the electronic gearing technology, the
Company expects to increase its workforce by approximately 30% during the
current fiscal year. The additional personnel will consist of engineers needed
for the increased demand on the research and development department as well as
assembly and production workers needed for the increased production output upon
completion of the felling machine.
Item 2. Properties.
Tice Technology's corporate headquarters are located in Knoxville,
Tennessee and are housed in the manufacturing facility leased through its
subsidiary, TES. The facility consists of approximately 20,000 square feet. Of
that space, the manufacturing area consists of 18,000 square feet, 2,000 of
which constitute research and development operations. The remaining 2,000 square
feet houses the administrative offices. The facility is located in a small
retail center which was owned by TES prior to October 1996. As a condition of
the sale of the center, TES remained in the center rent free through May 1997.
Upon the expiration of the rent free period, TES continues to rent the
manufacturing facility on a month to month basis at $6,773 per month under a
verbal agreement to be renegotiated at the end of December 1998 if TES continues
to occupy the space at that time.
TES also owns approximately 5.71 acres of undeveloped land approximately
one-quarter mile from the existing facility. This property was acquired for the
purpose of building a 55,000 square foot manufacturing facility to replace the
existing rental facility and to allow for anticipated growth needs. This
facility would consist of 40,000 square feet for manufacturing and assembly and
15,000 square feet for research and development and administrative offices.
11
<PAGE>
Estimated costs of building the facility are $1,600,000. 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 the
additional 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. Management has decided to delay the purchase of the new site until the
sale of the existing property is finalized. The Company has architectural
drawings of the proposed facility and, assuming sufficient capital is available,
the Company plans to construct the manufacturing 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 the current property,
cash flows from operations and proceeds from notes payable to be incurred. See
"Management's Discussion and Analysis -- Special Considerations -- Lack of
Working Capital". In the event that the Company were unable to remain in its
current space until its new facility is built, management believes that there is
adequate space in the Knoxville area and that this would not create a problem
for the Company. TES has no unusual space requirements.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which Tice Technology,
Inc. or its subsidiaries or to which any of its properties are subject.
Item 4. Submission of Matters to Vote of Security Holders.
No matters were submitted to a vote of security holders of Tice Technology,
Inc. during the fourth quarter of the Company's fiscal year ended March 31,
1998.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters.
Trading of Tice Technology, Inc.'s Common Shares and Warrants is reported
on the NASDAQ Electronic Bulletin Board (the "Bulletin Board") under the symbols
TICE and TICEW, respectively. Reporting commenced on August 28, 1997.
The following table reflects the high and low bid prices for the Company's
Common Shares and Warrants for each quarter of its fiscal year ended March 31,
1998:
12
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Common Shares Purchase Warrants
------------- -----------------
1998 High Low High Low
<S> <C> <C> <C> <C>
4th Quarter $ 8.00 $ 2.00 $0.875 $0.3125
3rd Quarter $14.00 $3.625 $ 1.00 $ 0.05
2nd Quarter $ 4.25 $ 2.50 $0.0** $ 0.0**
1st Quarter N/A* N/A* N/A*** N/A***
</TABLE>
* No trading during April 1998 - June 1998.
** No trades recorded.
*** Not traded yet.
The Company's Common Shares and Warrants were not traded during the
Company's fiscal year ended March 31, 1997.
The approximate number of holders of Common Shares of TTI as of July 7,
1998 were 1,087 (based upon the number of record holders), excluding
stockholders whose Common Shares are held in nominee or street name by brokers.
The approximate number of holders of Warrants as of that same date were
approximately 1,067 (based upon the number of record holders), excluding holders
whose Warrants are held in nominee or street name by brokers.
The Company has not paid any dividends. In addition, TES historically has
not paid dividends. It is expected that the capital requirements of the Company
will prevent payment of dividends in the near future.
Item 6. Selected Financial Data.
The following table summarizes certain selected consolidated financial data
of the Company and is qualified in its entirety by the more detailed
consolidated financial statements and notes thereto appearing elsewhere herein.
The data have been derived from the consolidated financial statements of the
Company audited by PricewaterhouseCoopers LLP, independent public accountants.
The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings per
Share.
13
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenues $ 1,344,231 $1,397,281 $1,242,558
Operating expenses:
Cost of revenues 751,093 814,587 699,293
Research and development (net) 208,407 163,204 46,963
Selling, general, and administrative 882,161 563,223 481,876
----------- ---------- ----------
Total operating expenses 1,841,661 1,541,014 1,228,132
Operating income (loss) (497,430) (143,733) 14,426
Other income (expense):
Registration expenses (1,278,873) (107,687) -
Interest, net (94,358) (92,482) (110,863)
Gain on sale of fixed assets - 500,363 105,593
Other, net 3,218 (2,236) 10,602
----------- ---------- ----------
Total other income (expense) (1,370,013) 297,958 5,332
----------- ---------- ----------
Income (loss) before income taxes (1,867,443) 154,225 19,758
Income tax expense 47,020 112,746 4,444
----------- ---------- ----------
Net income (loss) $(1,914,463) $ 41,479 $ 15,314
=========== ========== ==========
Income (loss) per common share
Basic $ (0.02) $ 0.01 $ 0.00
=========== ========== ==========
Diluted $ (0.02) $ 0.01 $ 0.00
=========== ========== ==========
Weighted average number of common shares
Basic 6,229,049 5,962,500 5,962,500
556,310ed 6,229,049 6,191,897 6,181,125
Consolidated Balance Sheet Data (at end of period):
Total assets $ 1,102,329 $1,007,732 $1,431,106
Total long-term liabilities 556,310 - 661,325
Stockholders' equity (deficit) (61,024) 183,136 141,657
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Year Ended March 31, 1998 Compared with Year Ended March 31, 1997
Product revenues decreased approximately 22% from $1,147,281 in fiscal 1997
to $892,713 in fiscal 1998 largely due to decreased sales of Automatic J-Tackers
and Label Loader/Folders. In 1998, sales of the Automatic J-Tackers and Label
Loader/Folders constituted approximately $86,500 (9.8%) and $198,100 (22.5%),
respectively, of product sales revenue; whereas, in 1997, sales of the Automatic
J-Tackers and Label Loader/Folders generated $180,000 (16%) and $394,000 (34%),
respectively, of product sales revenue. These products, part of the Company's
traditional product line, are continually upgraded to meet changing customer
requirements and are expected to show sales increases in the current fiscal year
based on the completion of upgrades in the first and second quarter and new
product developments for the Label Loader/Folders. The decrease in sales of
these two machines was offset somewhat by an increase in sales of the single
needle belt loop machine. Sales of the single needle belt loop machine
increased during the 1998 year, representing approximately $197,800 (22.4%) of
product revenue as compared to 1997 sales of the same machine which represented
approximately $106,200 (9.2%) of product revenue in that year. The decrease in
product revenue was also offset somewhat by $201,518 in royalty income recorded
in the 1998 year as royalties were reported from a non-exclusive license
agreement signed in the fourth quarter of the 1997 fiscal year. Income from
license fees remained consistent at $250,000 in each of the two years. Total
operating revenues for the 1998 year amounted to $1,344,231 which is a 3.8%
decrease from $1,397,281 total revenues in the prior year.
Total operating losses increased by approximately 246% from $143,733 in
the 1997 fiscal year to $497,430 in the 1998 fiscal year largely due to
increases in selling, general, and administrative expenses ("SG&A").
Cost of revenues as a percentage of total revenues decreased 2.4% to 55.8%
of total revenues for fiscal 1998 as compared to 58.3% of total revenues for
fiscal 1997. This decrease is largely the result of the recording of royalty
revenue in the 1998 fiscal year which has no associated cost. Also, the fourth
quarter of the 1997 fiscal year recorded a provision for $120,000 of excess and
obsolete inventory, whereas management believes that the remaining traditional
product line included in the 1998 fiscal year end inventory is salable and no
additional reserve was allocated. The royalty revenue helped to offset
increases in direct labor and related benefits as well as increased overhead
applied relating to increases in rent expenses incurred during the 1998 year.
Research and development ("R&D") costs increased by 27.7% to $208,407 in
the 1998 fiscal year from $163,204 in the 1997 fiscal year due to increased
salaries and benefits relating to engineering as well as officers' salaries and
increased R&D inventory.
15
<PAGE>
SG&A expense increased 56.6% to $882,161 in fiscal 1998 from $563,223 in
fiscal 1997. Compensation expenses relating to employee stock options granted
August 1, 1997 totaling $109,375 as well as $79,174 in expenses relating to
stock promotions and stockholder relations were recorded during fiscal 1998
whereas the prior year had no such expenses. Legal and accounting fees also
increased approximately 50.7% to $84,151 in fiscal 1998 from $55,807 in fiscal
1997 as a result of additional expenses incurred with quarterly reporting
requirements. Salary and related expenses increased in the 1998 period as a
result of increases in salaries and related benefits in the fourth quarter of
fiscal 1997 and expenses related to recruiting additional personnel during the
first nine months of the 1998 fiscal year.
Other expenses for the 1998 fiscal year totaled $1,370,013, of which
$1,091,280 non-cash expenses and $187,593 other expenses were due to the
recording of non-recurring registration expenses upon the August 1, 1997
effective date of the registration statement; whereas the 1997 fiscal year
reflected only $107,687 in non-recurring expenses relating to the registration
process. The 1997 fiscal year reflected a $500,363 gain on the sale of rental
property during that period whereas the 1998 period had no comparable gain.
Year Ended March 31, 1997 Compared with Year Ended March 31, 1996
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 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.
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
16
<PAGE>
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.
R&D 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.
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 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.
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.
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
$11,628 in 1996 as compared to $16,830 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) were converted to common stock on August 1, 1997.
17
<PAGE>
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.
Certain amounts in the March 31, 1996 financial statements were
reclassified and grouped to conform to the March 31, 1997 presentation. These
reclassifications included 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.
Inflation
Inflation has not had a significant impact on the Company's operations to
date.
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, and the Company makes
significant expenditures each year for research and development and marketing
new technology.
18
<PAGE>
Net cash provided (used) by operating activities was ($541,206) in 1998,
($110, 993) in 1997 and $17,198 in 1996. The primary cause of the net use of
cash from operations in 1998 was the operating loss of $497,430 offset by
increases and decreases in working capital items.
Net cash provided (used) by investing activities was ($42,579) in 1998,
$695,475 in 1997 and $234,980 in 1996. Primary uses of funds in all years
presented were related to capital expenditures, patents, and notes receivables.
Capital expenditures totaled approximately $7,000 in 1998 compared to
approximately $11,000 in 1997 and $37,000 in 1996. 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". 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.
Net cash provided (used) by financing activities was $533,455 in 1998,
($517,911) in 1997 and ($294,920) in 1996. The cash provided by financing
activities in 1998 was primarily related to proceeds from exercise of employee
stock options and warrants and from notes payable issued to related parties and
others. In all years such amounts were used primarily to make debt repayments
including notes related to the shopping center and airplane that were sold in
1997 and 1996.
The Company's principal commitments at March 31, 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 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 and 2000. 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 February 1997, the FASB issued SFAS 128, Earnings Per Share. 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 statement of operations and requires a reconciliation of the
numerator and denominator of the diluted EPS calculation. The Company adopted
the provisions of SFAS 128 in fiscal year 1998, and accordingly, has restated
all periods presented.
In February 1997, the FASB issued SFAS 129, Disclosure of Information About
Capital Structure, which is effective for periods ending after December 15,
1997. In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income,
and SFAS 131, Disclosure 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. The Company
expects that SFAS 129, 130 and 132 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.
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-digit
year entries will need to be upgraded or replaced to comply with such "Year
2000" requirements.
19
<PAGE>
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 the TES will continue to solve other problems for customers as
they arise in their manufacturing processes. New product developments such as
the label loader/feeder for woven labels and upgrades to existing equipment,
using traditional technology, are expected to keep the traditional product line
competitive as the Company continually develops 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 felling machine, a single needle plain
sewer, and a heavy duty ring spinning machine.
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 funds. 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. See
"Management's Discussion and Analysis - Special Considerations - Lack of Working
Capital".
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
20
<PAGE>
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 licensees.
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 proceeds from notes
payable to be incurred.
As of March 31, 1998, the Company had backlog orders it believed to be firm
totaling approximately $209,000 for equipment using traditional technology.
This backlog of orders is expected to be completed by July 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.
Special Considerations
This section captioned "Special Considerations" and other parts of this
Annual Report on Form 10-K include certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the occurrence or
timing of certain events could differ materially from those described in any of
such forward-looking statements due to a number of factors, including those set
forth below and elsewhere in this Form 10-K. See "Other Factors Relating to
Forward-Looking Statements" below.
Diversification and Long Term Growth. The Company plans to diversify its
business and to seek opportunities for long term growth by developing additional
products for sale to manufacturers in industries other than the apparel industry
as well as additional licensing of the
21
<PAGE>
electronic gearing technology. There is no assurance that the Company will be
successful in these efforts.
Product Development. As described above (see "Business - New Product
Developments" and "Business - Research and Development"), the Company is in the
process of developing new products, including the label loader/feeder for woven
labels, the felling machine, and the sewing machine capable of three dimensional
stitching of automotive air bags. The Company plans to investigate other new
product development opportunities as part of its effort to expand its product
offerings and market. There are no assurances that the Company will be able to
locate such opportunities or successfully exploit them once located.
Other Factors Relating to Forward-Looking Statements
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform 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, those described in the "Business"
section and elsewhere in "Management's Discussion and Analysis" and the
following:
22
<PAGE>
. 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;
. 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 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tice Technology, Inc. & Subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Tice
Technology, Inc. & subsidiary (the "Company") at March 31, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Knoxville, Tennessee
June 18, 1998
24
<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 the related statements of income,
stockholders' equity and cash flows for the year 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 accounts 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 or completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated May 23, 1996, which
report contained any 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 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 the results of its operations and its cash flows
for the year in the period ended March 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Boring & Goins, PC
Knoxville, Tennessee
April 22, 1997
25
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Balance Sheets
As of March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Cash and cash equivalents $ 19,063 $ 69,393
Accounts receivable 192,615 88,435
Note receivable 11,993 -
Prepaid expenses 9,013 48,408
Inventory, net 394,116 367,603
--------- ---------
Total current assets 626,800 573,839
Property and equipment:
Land 130,000 130,000
Equipment 528,740 521,574
Vehicles 124,599 124,599
--------- ---------
Total property and equipment 783,339 776,173
Less accumulated depreciation (603,700) (590,360)
--------- ---------
Property and equipment, net 179,639 185,813
Patents, net 174,462 159,432
Note receivable from related party 79,610 64,008
Other assets 41,818 24,640
--------- ---------
Total assets $1,102,329 $1,007,732
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Notes payable and current maturities of long-term debt $ 255,039 $ 350,054
Accounts payable 304,448 249,868
Accrued liabilities 38,815 7,132
Notes payable to related parties 8,741 217,542
----------- -----------
Total current liabilities 607,043 824,596
Notes payable to related parties 556,310 -
----------- -----------
Total liabilities 1,163,353 824,596
----------- -----------
Commitments and contingencies (Notes 7, 8 and 10)
Stockholders' equity (deficit):
Capital stock, no par value; 2,000 shares authorized;
780 and 750 shares issued and outstanding at
March 31, 1998 and 1997, respectively 13,493 8,634
Common shares, par value $.01; 30,000,000 shares
authorized; 5,907,639 and 0 shares issued and
outstanding at March 31, 1998 and 1997, respectively 59,076 -
Class B common shares, convertible, par value $.01;
5,000,000 shares authorized; 750,000 and 0 shares
issued and outstanding at March 31, 1998 and 1997,
respectively 7,500 -
Class D common shares, convertible, par value $.01;
600,000 shares authorized, none issued or
outstanding at March 31, 1998 and 1997 - -
Preferred shares, par value $.01; 10,000,000 shares
authorized; none issued or outstanding at March 31,
1998 and 1997 - -
Additional paid-in capital 1,603,727 4,859
Retained earnings (accumulated deficit) (1,744,820) 169,643
----------- -----------
Total stockholders' equity (deficit) (61,024) 183,136
----------- -----------
Total liabilities and stockholders' equity
(deficit) $ 1,102,329 $ 1,007,732
=========== ===========
</TABLE>
27
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Operations
For the years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating revenues:
Sales and service $ 892,713 $ 1,147,281 $1,242,558
License fees 250,000 250,000 -
Royalties 201,518 - -
----------- ----------- ----------
Total operating revenues 1,344,231 1,397,281 1,242,558
Operating expenses:
Cost of revenues 751,093 814,587 699,293
Research and development (net of reimbursements) 208,407 163,204 46,963
Selling, general and administrative 882,161 563,223 481,876
----------- ----------- ----------
Total operating expenses 1,841,661 1,541,014 1,228,132
----------- ----------- ----------
Operating income (loss) (497,430) (143,733) 14,426
Other income (expense):
Registration expenses (1,278,873) (107,687) -
Rental income - 28,200 49,575
Rental expense - (29,792) (46,424)
Gain on sale of fixed assets - 500,363 105,593
Interest expense - related parties (49,772) (16,830) (11,628)
Interest expense (44,586) (75,652) (99,235)
Other income (expense) 3,218 (644) 7,451
----------- ----------- ----------
Total other income (expense) (1,370,013) 297,958 5,332
----------- ----------- ----------
Income (loss) before income taxes (1,867,443) 154,225 19,758
Income tax expense 47,020 112,746 4,444
----------- ----------- ----------
Net income (loss) $(1,914,463) $ 41,479 $ 15,314
=========== =========== ==========
Income (loss) per share (Note 11):
Basic $(0.02) $0.01 $0.00
====== ===== =====
Diluted $(0.02) $0.01 $0.00
====== ===== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the years ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Retained Total
Class B Additional Earnings Stockholders'
Capital Common Common Paid In (Accumulated Equity
Stock Shares Shares Capital Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balances, April 1, 1995 $ 8,634 $ - $ - $ - $ 112,850 $ 121,484
Issuance of 30 capital stock warrants - - - 4,859 - 4,859
Net income - - - - 15,314 15,314
------- ----------- ----------- ---------- ------------ -------------
Balances, March 31, 1996 8,634 - - 4,859 128,164 141,657
Net income - - - - 41,479 41,479
------- ----------- ----------- ---------- ------------ -------------
Balances, March 31, 1997 8,634 - - 4,859 169,643 183,136
Exercise of 30 capital stock warrants 4,859 - - (4,859) - -
Issuance of 5,750,220 common shares,
1,000,000 warrants to purchase common
shares and 750,000 Class B common
shares in connection with the effectiveness
of registration statement - 57,502 7,500 1,039,139 - 1,104,141
Conversion of debt into 88,560 common shares - 886 - 264,964 - 265,850
Exercise of 400 common share warrants - 4 - 3,196 - 3,200
Issuance of 43,750 options to purchase
common shares at below fair market value - - - 109,375 - 109,375
Exercise of 28,459 employee common
share options - 284 - 28,175 - 28,459
Conversion of accounts payable into
40,000 common shares - 400 - 158,878 - 159,278
Net loss - - - - (1,914,463) (1,914,463)
------- ----------- ----------- ---------- ------------ -------------
Balances, March 31, 1998 $13,493 $ 59,076 $ 7,500 $1,603,727 $(1,744,820) $ (61,024)
======= =========== =========== ========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended March 31, 1998, 1997 and
1996
<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income (loss) $(1,914,463) $ 41,479 $ 15,314
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 18,550 35,683 51,887
Noncash registration expenses 1,047,000 - -
Noncash compensation expense 109,375 - -
Noncash interest expense 44,280 - -
Increase in cash surrender value of life
insurance (17,178) (9,500) (14,250)
Provision for inventory obsolescence - 120,000 -
Gain on sale of property and equipment - (500,363) (105,593)
Deferred income taxes 47,020 112,746 4,444
Changes in operating assets and liabilities:
Receivables (116,173) 46,626 75,782
Prepaid expenses (7,625) 11,884 (1,033)
Inventory (26,513) (22,606) (137,702)
Accounts payable and accrued liabilities 274,521 53,058 128,349
----------- ----------- ----------
Net cash provided (used) by operating
activities (541,206) (110,993) 17,198
----------- ----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (6,737) (10,974) (37,257)
Proceeds from disposal of property and
equipment - 825,000 349,091
Additions to patents (20,240) (72,323) (60,319)
Additions to note receivable from related
party (15,602) (46,228) (17,780)
Proceeds from sale of investments - - 1,245
----------- ----------- ----------
Net cash provided (used) by investing
activities (42,579) 695,475 234,980
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from notes payable to related parties 652,490 324,000 77,000
Proceeds from notes payable and long-term debt 50,000 940,201 -
Principal payments on notes payable to
related parties (184,741) (252,733) (142,220)
Principal payments on notes payable and
long-term debt (28,953) (1,529,379) (229,700)
Proceeds from issuance of stock and stock
warrants 13,000 - -
Proceeds from exercise of stock options and
warrants 31,659 - -
----------- ----------- ----------
Net cash provided (used) by financing
activities 533,455 (517,911) (294,920)
----------- ----------- ----------
Net increase (decrease) in cash and
cash equivalents (50,330) 66,571 (42,742)
Cash and cash equivalents, beginning of year 69,393 2,822 45,564
----------- ----------- ----------
Cash and cash equivalents, end of year $ 19,063 $ 69,393 $ 2,822
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Notes to Financial Statements
1. Summary of Significant Accounting Policies and Other Disclosures
General Information - Tice Technology, Inc. & Subsidiary ("Tice" or "the
Company") provides engineering and technical solutions, generally through the
development or enhancement of equipment for the apparel industry. Tice
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.
Consolidated Financial Statements - The accompanying 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 be collectively referred to as the
Company or Tice. All significant intercompany balances and transactions have
been eliminated.
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). In connection with the transaction, the Company recorded $1,047,000
in registration expenses for the difference between the $3.50 initial share
value and the price paid by Monogenesis for the stock. A portion of the
shares and warrants has been distributed to Monogenesis shareholders.
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 - The Company
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 to establish an allowance for uncollectible accounts.
The Company conducts a substantial portion of its business with three
customers in the sewing industry (Note 6) with approximately $73,000 of total
accounts receivable represented by these customers at March 31, 1998. The
loss of any of these customers without replacement with comparable customers
could materially affect the Company's operations.
31
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
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 lives 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 operating
results.
Patents - Certain legal and other direct expenses incurred in order to
obtain patents on designed and manufactured parts have been capitalized at
their cost to the Company. Amortization is calculated by the straight-line
method over estimated useful lives of the patents, primarily seventeen
years. Amortization expense totaled $5,210, $4,548 and $4,042 during the
years ended March 31, 1998, 1997 and 1996, respectively.
Note Receivable from Related Party - 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 $17,178 and $46,228 in fiscal 1998 and
1997, respectively.
Impairment of Long-Lived Assets - The Company follows the provisions of
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) 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.
Accounting for Stock Based Compensation - The Company follows the provisions
of FASB SFAS No. 123, Accounting for Stock Based Compensation. 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
stock-based compensation awarded to employees.
32
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Earnings Per Share - In February 1997, the FASB issued SFAS 128, Earnings
Per Share. 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 statement of operations and requires a
reconciliation of the numerator and denominator of the diluted EPS
calculation. The Company adopted the provisions of SFAS 128 in fiscal year
1998, and accordingly, has restated all periods presented.
Effect of New Accounting Pronouncements - In February 1997, the FASB issued
SFAS 129, Disclosure of Information About Capital Structure, which is
effective for periods ending after December 15, 1997. In June 1997, the FASB
issued SFAS 130, Reporting Comprehensive Income, and SFAS 131, Disclosure
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. The Company expects that SFAS 129, 130
and 132 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.
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
(Note 7).
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.
33
<PAGE>
Notes to Financial Statements, Continued
2. Inventories
Inventories at March 31 consist of:
1998 1997
Raw materials $ 363,472 $ 306,920
Work in process 66,410 124,810
Finished goods 84,234 55,873
--------- ---------
514,116 487,603
Reserve for obsolescence (120,000) (120,000)
--------- ---------
Inventory, net $ 394,116 $ 367,603
========= =========
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.
3. Notes Payable to Related Parties
Notes payable to related parties consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Notes payable to an officer, renewed and extended on May 31, $556,310 $ 67,706
1998; interest at 10%; due May 31, 2000; subordinate to all
other debt.
8,741 149,836
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 June 26, 1998; $8,117 personally guaranteed by
an officer and majority stockholder.
$565,051 $217,542
======== ========
</TABLE>
On August 1, 1997, $145,770 of the notes payable to employee and outside
director were converted into 48,590 common shares.
34
<PAGE>
Notes to Financial Statements, Continued
4. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note payable to a bank, due August 1, 1998, interest at 9.25% $ 12,000 $ 20,000
payable monthly, vehicle pledged as collateral, personally
guaranteed by an officer and majority stockholder.
Note payable to a bank, dated August 31, 1996, monthly 188,344 206,803
payments of $4,712 with final payment due April 2, 1998,
interest at prime plus 1%, undeveloped property and life
insurance policy pledged as collateral, personally guaranteed
by an officer and majority stockholder.
Notes payable to individuals (business associates) dated June 4,695 123,251
18, 1996 to August 29, 1996, renewable every 90 days,
interest at 10%, principal and interest due June 26,1998.
Note payable to a bank, dated October 2, 1997, interest at 50,000 -
7.25%, principal and interest due October 2, 1998, -------- --------
certificate of deposit pledged as collateral, personally
guaranteed by an officer and majority stockholder.
255,039 350,054
Less current maturities 255,039 350,054
-------- --------
Long-term debt, less current maturities $ - $ -
======== ========
</TABLE>
On August 1, 1997, $119,910 of the notes payable to individuals were
converted into 39,970 common shares.
5. Income Taxes
The provision for income taxes for the periods ended March 31, 1998, 1997
and 1996, is comprised of:
35
<PAGE>
Notes to Financial Statements, Continued
5. Income Taxes, continued
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current income tax expense:
Federal $ - $ - $ -
State - - -
Deferred income tax expense:
Federal 47,020 100,971 3,175
State - 11,775 1,269
-------- -------- -------
Total expense $ 47,020 $112,746 $ 4,444
======== ======== =======
</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, 1998 and
1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current:
Net operating loss carryforwards $ - $ 12,350
Section 263A cost in ending inventory 41,340 -
Inventory reserves 31,200 -
--------- --------
72,540 12,350
Valuation allowance (72,540) (12,350)
--------- --------
Total current asset $ - $ -
========= ========
Long-term:
Section 263A cost in ending inventory $ - $ 24,440
Inventory reserves - 31,200
Net operating loss carryforwards 215,400 -
Foreign tax credit carryforwards 47,020 -
Stock options 4,200 -
--------- --------
266,620 55,640
Valuation allowance (266,620) (55,640)
--------- --------
Total long-term asset $ - $ -
========= ========
</TABLE>
36
<PAGE>
Notes to Financial Statements, Continued
5. Income Taxes, continued
During 1998, the Company increased its valuation allowance by $271,170 to
$339,160, which is maintained against deferred tax assets. Management
believes that it is more likely than not that the deferred tax asset will
not be realized.
The provision for income taxes at March 31 differs from the "expected"
income tax expense (computed by applying a U.S. corporate income tax rate of
21% and a state effective tax rate of 5%) as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(392,163) $ 55,002 $2,297
State income taxes, net of federal income taxes (93,372) 13,096 766
Permanent differences including nondeductible
registration expenses 261,385 450 1,381
Utilization of state NOLs not previously recorded - (23,792) -
Change in valuation allowance 271,170 67,990 -
--------- -------- ------
Provision for income taxes $ 47,020 $112,746 $4,444
========= ======== ======
</TABLE>
At March 31, 1998, the Company had net operating loss carryforwards of
approximately $775,000 and $875,000 for federal and state purposes,
respectively, available to offset future taxable income. These carryforwards
will expire, if not utilized, in 2011 through 2013. The Company had $47,020
of foreign tax credit carryforwards. These credits will expire, if not
utilized, in 2003.
6. Major Customers and Export Sales
Tice Technology, Inc. had three customers that represented 31%, 20% and 19%
of its revenues in 1998; 33%, 32% and 7% of its revenues in 1997; and 47%,
22% and 11% of its revenues in 1996, respectively.
Approximately 24%, 6% and 4% of the Company's sales were export sales in
fiscal 1998, 1997 and 1996, 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.
37
<PAGE>
Notes to Financial Statements
7. Research and Development Costs and Joint Development Agreement
Research and development costs consist of the following approximate amounts
at March 31:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Salaries $170,000 $108,000 $ 151,000
Travel - 5,000 1,000
Insurance 5,000 3,000 6,000
Payroll taxes 13,000 4,000 12,000
Telephone 4,000 3,000 2,000
Utilities 1,000 1,000 1,000
Materials 15,000 39,000 16,000
Legal and patent fees - - 8,000
-------- -------- ---------
208,000 163,000 197,000
Less reimbursements - - (150,000)
-------- -------- ---------
$208,000 $163,000 $ 47,000
======== ======== =========
</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. Tice incurred total costs related to this agreement of $45,500, $41,903
and $160,633 in fiscal 1998, 1997 and 1996, respectively, which are included
in the research and development costs above.
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, 1998. Under
no circumstances is any portion of the reimbursement refundable. The
equipment related to this agreement is in the pre-production stage and is
considered to be fifty percent (50%) complete.
38
<PAGE>
Notes to Financial Statements
8. 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 is to pay the Company
$250,000 upon the sale of the first class of machine built by the
manufacturer using the technology. In addition, the manufacturer is to 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. In
both 1998 and 1997, the Company earned $250,000 from the sale of two classes
of machines under this license. Royalty income from the sale of the machines
was $201,518 and $0 in 1998 and 1997, respectively.
9. 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 Tice prior to the plan start date.
The Company made contributions of approximately $13,100 and $5,000 in fiscal
1998 and 1997, respectively.
10. Stock Warrants
On May 5, 1995, TES issued thirty stock warrants, valued at $4,895, to
Joseph Walker & Sons, Inc. as a retainer for consulting services provided to
TES in connection with a plan of reorganization. Remaining amounts due
Joseph Walker & Sons, Inc. were either paid or recorded as a payable and
have been expensed in the year services were performed. The warrants were
exercised at a price of $1 per share on August 1, 1997. Upon registration of
TTI's Common Shares with the Securities and Exchange Commission, the thirty
shares were exchanged for 238,470 shares of TTI's Common Shares.
On August 1, 1997, the Company issued 1,000,000 warrants to Monogenesis
Corporation of which a portion was distributed to Monogenesis shareholders.
The warrants, each of which entitles the holder to purchase one Common Share
of the Company, have an exercise price of $8.00 and expire two years from
the date of issuance. At March 31, 1998, 400 warrants had been exercised.
39
<PAGE>
Notes to Financial Statements, Continued
11. Earnings Per Share
Effective December 31, 1997, the Company adopted SFAS 128. Under SFAS 128,
both basic and diluted income (loss) per share were $(0.02), $0.01 and
$0.00 for the respective years ended March 31, 1998, 1997 and 1996. Basic
income (loss) per share were computed by dividing net income (loss)
applicable to common stock by the weighted average common shares
outstanding during each period. Diluted income (loss) per share were
computed by dividing net income (loss) applicable to common stock plus the
effect of assumed conversion of debt and exercise of warrants 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
income (loss) per share are the same for all classes of the Company's
common stock (thus they are not presented separately) because they 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 income (loss) per share:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income (loss)
Basic:
Income (loss) available to common stockholders $(1,914,463) $ 41,479 $ 15,314
Effect of dilutive securities:
Convertible debt - 17,900 -
----------- ---------- ----------
Diluted:
Income (loss) available to common stockholders
plus assumed conversions $(1,914,463) $ 59,379 $ 15,314
=========== ========== ==========
Shares:
Basic:
Weighted average common shares outstanding 6,229,049 5,962,500 5,962,500
Effect of dilutive securities:
Convertible debt - 59,040 -
Warrants - 170,357 218,625
----------- ---------- ----------
Diluted:
Weighted average common shares outstanding
plus assumed conversions 6,229,049 6,191,897 6,181,125
=========== ========== ==========
</TABLE>
40
<PAGE>
Notes to Financial Statements, Continued
12. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash paid during the period for:
Interest $23,194 $67,240 $94,551
</TABLE>
Noncash investing and financing activities:
In fiscal 1996, TES issued 30 Capital Stock warrants in exchange for
consulting services valued at $4,859.
In fiscal 1998, 1997, and 1996, the Company converted $29,378, $25,222, and
$11,628, 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.
In fiscal 1998, the Company converted $265,850 of debt to business
associates into 88,560 Common Shares. In addition, the Company converted
$159,278 of trade accounts payable owed to vendors into 40,000 Common
Shares.
Also in fiscal 1998, TTI issued 5,450,220 Common Shares and 7,500 Class B
Common Shares in exchange for 780 shares of TES Capital Stock.
13. Stock Options
The Company established a stock option plan in fiscal 1998, to provide
additional incentives to its officers and employees. Eligible persons are
determined by management. Each option granted under the plan shall be
exercisable only during a fixed term from the date of grant as specified by
management, but generally equal to 10 years. Options are fully vested on
the date of grant. In fiscal 1998, the Board of Directors approved the
issuance of up to 54,750 options to acquire common shares of which 43,750
options were granted during the year.
A summary of outstanding options as of March 31, 1998, and changes during
the year ended on March 31, 1998, is presented below:
41
<PAGE>
Notes to Financial Statements, Continued
13. Stock Options, continued
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
<S> <C> <C>
Outstanding at beginning of year - $ -
Granted 43,750 1.00
Exercised (28,459) 1.00
Forfeited - -
-------- -------
Outstanding at end of year 15,291 $ 1.00
======== =======
Options exercisable at year end 15,291 $ 1.00
======== =======
Weighted-average fair value per
share of options granted
during the year 43,750 $ 3.50
======== =======
</TABLE>
The following table summarizes information about stock options at March 31,
1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Average
Number Remaining Number Weighted-Average
Range of Outstanding Contractual Exercisable Exercise
Exercise Price at March 31, 1998 Life at March 31, 1998 Price
<S> <C> <C> <C> <C>
$1.00 15,291 1.33 years 15,291 $1.00
</TABLE>
The Company recorded compensation expense of $109,375 related to options
granted in August 1997, as the exercise price of the options was less than
the initial share value of the Company's common stock at grant date. Had
compensation cost for the Company's plan been determined consistent with
the method of SFAS 123, the Company's net loss would have remained the same
for fiscal 1998.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend growth rate of 0%; expected volatility of 1.327;
risk-free interest rate of 5.71%; and expected lives of two years.
42
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth information concerning each of the Company's
executive officers.
<TABLE>
<CAPTION>
Name Position with Registrant
---- ------------------------
<S> <C>
William A. Tice President, Chairman of the Board,
Director
Karen A. Walton Vice President, Secretary/Treasurer,
Director
Sarah Y. Sheppeard Director
Billie Joe Clayton Director
</TABLE>
William A. Tice, age 53, has been a Director of TTI since its incorporation
in June 1996. He currently serves as President, Chairman of the Board, and a
Director of both TTI and TES. He has held these positions with TES since 1972
when he purchased the business from his father. Mr. Tice received Associate
Degrees in Accounting and Business Administration from Knoxville Business
College in 1973. He has over 30 years experience in the sewing industry.
Karen A. Walton, age 37, has been a Director of TTI since its incorporation
in June 1996. She currently serves as Vice President, Secretary/Treasurer, CFO,
and a Director of both TTI and TES. She 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 of TES in
1988. Ms. Walton became a Licensed Public Accountant in 1989, but due to her
employment with a single company has ceased maintaining the license. Ms. Walton
received 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 TTI since its
incorporation in June 1996 and 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.
43
<PAGE>
Billie Joe Clayton, age 61, became a Director of TTI and TES in August
1996. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers, and persons who
beneficially own more than ten percent of the Common Shares (each, a "Reporting
Person") to file reports of ownership and changes of ownership with the
Securities and Exchange Commission. Copies of all filed reports are required to
be furnished to the Company pursuant to the Exchange Act. Based solely upon a
review of the forms and amendments thereto furnished to the Company during the
fiscal year ended March 31, 1998, the Company believes that each Reporting
Person complied with all applicable filing requirements during such fiscal year
with the exception that: (i) William A. Tice, who is an executive officer and
director, inadvertently failed to timely file six Form 4s relating to forty-one
transactions and filed an amended Form 4 to reflect one transaction
inadvertently left off a timely filed Form 4; (ii) Karen A. Walton, who is an
executive officer and director, inadvertently failed to timely file one Form 4
relating to four transactions; and (iii) Billie Joe Clayton, who is a director,
inadvertently failed to timely file one Form 4 relating to two transactions.
Item 11. Executive Compensation.
The following table sets forth the compensation of the President (the Chief
Executive Officer) for the fiscal years ending March 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation
-------------------
Name and Other Annual
Principal Position Year Salary ($)(1) Bonus ($) Compensation ($)(2)
------------------ ---- ------------- --------- -------------------
<S> <C> <C> <C> <C>
William A. Tice, President, 1998 130,000 -0- 30,319
Chief Executive Officer 1997 105,000 -0- 58,097
1996 75,000 -0- 29,600
</TABLE>
(1) The 1998 salary includes $25,000 of accrued payroll that will be either
paid or converted to a note payable as subordinate debt in the current
fiscal year as cash flow permits.
(2) Other annual compensation includes life insurance premiums on split dollar
(for 1998, $15,602; for 1997, $46,228; and for 1996, $17,780), regular life
insurance (for 1998, $9,695; for 1997, $9,695; and for 1996 $9,695), health
insurance premiums (for 1998, $2,022; for 1997, $1,274; and for 1996,
$2,125), and 401(k) Plan match (for 1998, $3,000; and for 1997, $900) which
is the same percentage of employer contribution match offered to other
employees. The Company 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 as subordinate debt.
44
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information with respect to ownership of
issued and outstanding stock and warrants of the Company by management and 5% or
greater shareholders as of June 30, 1998:
<TABLE>
<CAPTION>
Total Number of Percent
Securities Owned of
Name and Address Title of Class Beneficially Class (1)
---------------- -------------- ------------ ---------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William A. Tice (1) Common Shares 5,801,610 87%
7610 Breckenridge Ln. Class B Common Shares 750,000 100%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ------------------------------------------------------------------------------------------------------
Billie Joe Clayton (2) Common Shares 41,900 *%
817 Laurel Hill Road Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ------------------------------------------------------------------------------------------------------
Karen Ann Walton (3) Common Shares 10,837 *%
7633 Breckenridge Ln. Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
- ------------------------------------------------------------------------------------------------------
P. Bradley Walker (4) Common Shares -0- 0%
Drawer 88, Walker Creek Rd. Class B Common Shares -0- 0%
Walker, WV 26180-9948 Common Stock Purchase Warrants 88,000 8.8%
- ------------------------------------------------------------------------------------------------------
Walker Group, The Common Shares -0- 0%
Drawer 88, Walker Creek Rd. Class B Common Shares -0- 0%
Walker, WV 26180-9948 Common Stock Purchase Warrants 52,000 5.2%
- ------------------------------------------------------------------------------------------------------
Monogenesis Corporation Common Shares 30,500 *%
Drawer 88, Walker Creek Rd. Class B Common Shares -0- 0%
Walker, WV 26180-9948 Common Stock Purchase Warrants 188,000 18.8%
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
(1) Mr. Tice is President, Chairman of the Board and a director of the Company.
See "Management." The number of Common Shares listed for Mr. Tice includes
750,000 Common Shares which he would receive if he converted his Class B
Common Shares.
(2) Mr. Clayton became a director of the Company in 1996. These are the Common
Shares that Mr. Clayton received upon conversion of certain debt to equity.
See "Management - Certain Transactions."
(3) Ms. Walton is Vice President, Secretary/Treasurer and a director of the
Company. See "Management." The shares listed are composed of 5,537 shares
which she received upon exercise of part of an employee stock option
granted August 1, 1997. The balance, 5,300 shares, are shares which Ms.
Walton is entitled to receive if she exercises the balance of the employee
options granted to her to date. The terms and conditions of the options are
the same as for other employees who hold options.
45
<PAGE>
(4) The Warrants reflected for Mr. Walker include the Warrants held by The
Walker Group, Inc.
Item 13. Certain Relationships and Related 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 the Company money on which
debt he has received interest at a rate of 10% per annum. For fiscal years
ending March 31, 1998, 1997 and 1996 he received interest totaling $21,092,
$7,322 and $11,628 respectively.
Ms. Sheppeard is corporate counsel for the Company and provides legal
services to Mr. Tice from time to time.
Mr. Clayton loaned the Company $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 Company at a rate of $3.00 per share.
Mr. John Burchill who is an employee and general manager of the Company
loaned the Company $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 Company at a rate of $3.00 per share.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements (See Item 8)
(i) Reports of Independent Accountants
(ii) Consolidated Balance Sheets - March 31, 1998 and 1997
(ii) Consolidated Statements of Operations - For the years ended
March 31, 1998, 1997 and 1996.
(iv) Consolidated Statements of Changes in Stockholders' Equity -
For the years ended March 31, 1998, 1997 and 1996
(v) Consolidated Statements of Cash Flow - For the years ended
March 31, 1998, 1997 and 1996
(iv) Notes to Financial Statements
(2) None
(3) Exhibits Index
46
<PAGE>
<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, Inc. +
- ------------------------------------------------------------------------------------------------------
(ii) Bylaws of Tice Technology, Inc. +
- ------------------------------------------------------------------------------------------------------
III. Instruments Defining the Rights of Security Holders 4
- ------------------------------------------------------------------------------------------------------
(i) Common Stock Purchase Warrant Agreement Between Tice x
Technology, Inc. and Warrant Agent
- ------------------------------------------------------------------------------------------------------
IV. 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.
- ------------------------------------------------------------------------------------------------------
V. Subsidiaries of the Registrant 21 *
- ------------------------------------------------------------------------------------------------------
VI. Financial Data Schedule 27 49
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Included in original filing of Registration Statement by Tice Technology,
Inc. effective on August 1, 1997 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.
47
<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.
/s/ William A. Tice
By: ___________________________________________________________ on July 15, 1998
William A. Tice, President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ William A. Tice
_______________________________________________________________ on July 15, 1998
William A. Tice, President, Chief Executive Officer, Director
/s/ Karen A. Walton
_______________________________________________________________ on July 15, 1998
Karen A. Walton, Chief Financial Officer, Director
/s/ Billie Joe Clayton
_______________________________________________________________ on July 15, 1998
Billie Joe Clayton, Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Financial Statements of Tice Technology, Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 19,063
<SECURITIES> 0
<RECEIVABLES> 204,608
<ALLOWANCES> 0
<INVENTORY> 394,116
<CURRENT-ASSETS> 626,800
<PP&E> 783,339
<DEPRECIATION> 603,700
<TOTAL-ASSETS> 1,102,329
<CURRENT-LIABILITIES> 607,043
<BONDS> 0
0
0
<COMMON> 80,069
<OTHER-SE> (141,093)
<TOTAL-LIABILITY-AND-EQUITY> 1,102,329
<SALES> 892,713
<TOTAL-REVENUES> 1,344,231
<CGS> 751,093
<TOTAL-COSTS> 1,841,661
<OTHER-EXPENSES> 1,278,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,358
<INCOME-PRETAX> (1,867,443)
<INCOME-TAX> 47,020
<INCOME-CONTINUING> (497,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,914,463)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
