<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
Commission File Number 333-11591
Tice Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 62-1647888
(State of incorporation) (IRS Employer
Identification Number)
___________________________
1808-B North Cherry Street
Knoxville, Tennessee 37917
(Address of principal executive office)
(865) 524-1070
(Registrant's telephone number, including area code)
___________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
---
The number of shares outstanding of each of the registrants' classes of
common stock on February 1, 2000 were 8,512,615 Common Shares, 750,000 Class B
Common Shares and 0 Class D Common Shares.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Balance Sheets -- As of December 31, 1999 2
and March 31, 1999
Condensed Consolidated Statements of Operations -- For the Three Months 4
and the Nine Months Ended December 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows -- For the Nine Months 5
Ended December 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6
</TABLE>
1
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999 (1)
------------- ----------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 492,007 $ 24,155
Accounts receivable, net 107,481 65,245
Prepaid expenses 24,429 8,097
Inventory, net 689,329 387,654
---------- ---------
Total current assets 1,313,246 485,151
Property and equipment:
Building and improvements 22,802 --
Equipment 617,766 536,254
Furniture and fixtures 38,325 --
Vehicles 114,591 107,751
---------- ---------
Total property and equipment 793,484 644,005
Less accumulated depreciation (581,453) (596,364)
---------- ---------
Property and equipment, net 212,031 47,641
Land held for sale 130,000 130,000
Patents, net 197,532 178,803
Debt issuance costs, net 38,106 --
Other assets 11,290 4,350
---------- ---------
Total assets $1,902,205 $845,945
========== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
(1) The March 31, 1999 Condensed Consolidated Balance Sheet was derived from the
audited balance sheet for the year then ended.
2
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999 (1)
------------ --------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Notes payable and current maturities of long-term debt $ 183,034 $ 214,790
Accounts payable 31,063 233,030
Accrued liabilities 88,884 109,798
Notes payable to related parties, current portion 50,000 197,698
----------- -----------
Total current liabilities 352,981 755,316
Notes payable to related parties, long-term portion 434,772 620,482
Note payable, long-term portion, net of $85,000 discount 958,530 9,424
----------- -----------
Total liabilities 1,746,283 1,385,222
----------- -----------
Stockholders' equity (deficit):
Capital stock, no par value; 2,000 shares authorized; 13,493 13,493
780 shares issued and outstanding at December 31,
and March 31, 1999
Common Shares, par value $.01; 30,000,000 shares authorized; 85,126 59,941
8,512,615 and 5,994,064 shares issued and outstanding
at December 31, and March 31, 1999, respectively
Class B Common Shares, convertible, par value $.01; 7,500 7,500
5,000,000 shares authorized; 750,000 shares issued and
outstanding at December 31, and March 31, 1999
Class D Common Shares, convertible, par value $.01; -- --
600,000 shares authorized; none issued or outstanding
Preferred Shares, par value $.01; 10,000,000 shares -- --
authorized; none issued or outstanding
Additional paid in capital 3,131,340 1,704,161
Accumulated deficit (3,081,537) (2,324,372)
----------- -----------
Total stockholders' equity (deficit) 155,922 (539,277)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,902,205 $ 845,945
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
(1) The March 31, 1999 Condensed Consolidated Balance Sheet was derived from the
audited balance sheet for the year then ended.
3
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
-----------------------------------------------
<TABLE>
<CAPTION>
For the three months For the nine months
ended December 31, ended December 31,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating revenues:
Sales and service $ 64,096 $ 159,007 $ 233,669 $ 503,336
Royalties 90,100 36,146 138,682 111,555
--------- --------- ---------- ---------
Total operating revenues 154,196 195,153 372,351 614,891
Operating expenses:
Cost of revenues 112,099 117,161 352,868 406,493
Research and development 66,063 34,105 117,420 134,052
Selling, general and administrative 205,760 149,695 549,281 425,542
--------- --------- ---------- ---------
Total operating expenses 383,922 300,961 1,019,569 966,087
Operating loss (229,726) (105,808) (647,218) (351,196)
Other income (expense):
Interest expense - related parties (11,950) (17,669) (38,580) (48,321)
Interest expense (43,001) (16,418) (62,173) (22,295)
Gain on sale of fixed assets 1,400 3,274 1,400 3,274
Other income 691 3,860 3,274 3,593
--------- --------- ---------- ---------
Total other expense, net (52,860) (26,953) (96,079) (63,749)
--------- --------- ---------- ---------
Loss before income taxes (282,586) (132,761) (743,297) (414,945)
Provision for income taxes 9,010 3,615 13,868 11,155
--------- --------- ---------- ---------
Net loss $(291,596) $(136,376) $ (757,165) $(426,100)
========= ========= ========== =========
Loss per share (Note 4)
Basic and diluted $ (0.03) $ (0.02) $ (0.09) $ (0.06)
========= ========= ========== =========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
December 31, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Net cash flows from operating activities:
Net loss $ (757,165) $(426,100)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 24,157 10,374
Increase in cash surrender value of life insurance (6,540) (12,600)
Gain on sale of fixed assets (1,400) (3,274)
Changes in operating assets and liabilities:
Receivables (42,236) 50,425
Prepaid expenses (16,732) (3,457)
Inventory (301,675) 39,438
Accounts payable and accrued liabilities (110,556) 25,885
----------- ---------
Net cash used by operating activities (1,212,147) (319,309)
----------- ---------
Cash flows from investing activities:
Proceeds from sale of fixed assets 1,400 3,793
Purchases of property and equipment (170,690) (4,369)
Additions to patents (22,261) (8,929)
----------- ---------
Net cash used by investing activities (191,551) (9,505)
----------- ---------
Cash flows from financing activities:
Proceeds from notes payable to related parties -- 295,040
Proceeds from notes payable and long-term debt 1,048,143 238,543
Principal payments on notes payable to related parties (149,282) (125,816)
Principal payments on notes payable and long-term debt (54,674) (194,036)
Net proceeds from issuance of stock and stock warrants 1,333,200 101,299
Expenses related to placement of associated debt and equity (305,837) --
----------- ---------
Net cash provided by financing activities 1,871,550 315,030
----------- ---------
Net increase (decrease) in cash and cash equivalents 467,852 (13,784)
Cash and cash equivalents, beginning of period 24,155 19,063
----------- ---------
Cash and cash equivalents, end of period $ 492,007 $ 5,279
=========== =========
</TABLE>
Noncash investing and financing activities:
During the nine months ended December 31, 1999, the Company converted $107,299
of accrued salaries and interest into notes payable to related parties; and
$291,425 of notes payable and $5,026 of accrued interest into common stock.
The Company recorded an $85,000 discount associated with the issuance of
warrants in conjunction with the $1,000,000 of long-term notes payable. This
discount was reflected in additional paid-in-capital. During the nine months
ended December 31, 1998, the Company converted $24,707 of accounts payable to a
long-term note payable, and $79,610 of a note receivable from a related party
was applied against a note payable to the related party.
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
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Tice Technology Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements include the
accounts of Tice Technology, Inc. ("TTI") and its wholly owned subsidiary,
Tice Engineering and Sales, Inc. ("TES"). The consolidation of these
entities will collectively be referred to as the Company. All significant
intercompany balances and transactions have been eliminated.
These financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the audited financial statements
of the Company as of and for the period ended March 31, 1999.
The information furnished reflects all adjustments which are necessary for
a fair presentation of the Company's financial position as of December 31,
1999 and the results of its operations and its cash flows for the three
month and nine month periods ended December 31, 1999 and 1998. All such
adjustments are of a normal recurring nature.
2. Results of Operations
The results of operations for the three month and nine month periods ended
December 31, 1999 and 1998 are not necessarily indicative of the results to
be expected for the respective full years.
3. Inventory
Inventory consists of the following:
December 31, March 31,
1999 1999
---- ----
Raw Materials $ 512,493 $ 343,968
Work In Process 199,008 118,103
Finished Goods 97,828 45,583
--------- ---------
809,329 507,654
Reserve for Obsolescence (120,000) (120,000)
--------- ---------
Inventory $ 689,329 $ 387,654
========= =========
6
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4. Loss per Share
Basic and diluted loss per share were computed by dividing net loss
applicable to common stock by the weighted average common shares
outstanding during each period. Basic and diluted loss per share are the
same for both classes of TTI common stock (thus they are not presented
separately) because both have non-cumulative dividend rights of which none
were available for distribution under the terms of the Certificate of
Incorporation. Following is a reconciliation of the numerators and
denominators of the basic and diluted loss per share:
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ending Period Ending
December 31 December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss:
Basic and diluted:
Loss available to
common stockholders $ (291,596) $ (136,376) $ (757,165) $ (426,100)
Shares:
Basic and diluted:
Weighted average common
shares outstanding 9,262,615 6,742,477 8,691,434 6,691,487
</TABLE>
5. Effect of New Accounting Pronouncements
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal quarters
of fiscal years beginning after June 15, 1999. It is not anticipated that
this statement will have a material impact on the Company.
6. Private Placement Transaction
On April 30, 1999, the Company issued 700,000 Common Shares for an
investment of $280,000, or $0.40 per Common Share. The fair value of the
Common Shares on the date of commitment by the investors was determined to
be $0.70 per Common Share. The difference between the price paid for the
Common Shares and their fair value was considered a cost of the offering
and has been reflected in additional paid-in-capital.
On June 25, 1999, the Company issued 1,500,000 Common Shares for $1,050,000
and notes payable of $1,000,000. The notes bear interest at 10% and mature
four years from issuance. Included with the notes payable were warrants to
purchase 100,000 Common Shares, exercisable within four years at $0.50 per
share. The price paid for each Common Share was $0.70. The fair value of
the shares on the date of issuance was determined to be $1.00 per
7
<PAGE>
share. The difference between the actual price paid for the shares and the
fair value on that date was considered a cost of the offering and has been
reflected in additional paid-in-capital. In addition, the Company incurred
additional costs of approximately $262,000 associated with the stock
issuance that were charged to additional paid-in-capital. Approximately
$43,000 of costs were associated with the issuance of the notes payable.
These costs will be amortized over the four-year term of the notes. The
Company has recorded an $85,000 discount associated with the issuance of
the warrants in the private placement. This discount, to be amortized over
the four year term of the warrants, will represent additional interest
expense to the Company and was determined using the Black-Scholes pricing
model.
In connection with the offering, the Company issued an option to purchase
50,000 restricted Common Shares at $1.00 per share for five years as a
finder's fee. The fair value of the options is considered a cost of the
offering and is reflected in additional paid-in-capital.
As a condition of this transaction, one current Director converted notes
payable and related accrued interest of $195,300 into 217,000 Common Shares
and the new President and Chief Executive Officer converted $101,151 of
notes payable and related accrued interest into 101,151 Common Shares. The
majority stockholder and holder of approximately $434,000 of related party
notes payable agreed to subordination of these notes until the $1,000,000
of notes payable are repaid in full.
7. Line of Credit
On September 27, 1999, the Company entered into an agreement with a
regional bank to provide up to a $1,000,000 revolving line of credit. The
Company's receivables, inventory and certain fixed assets secure this line
of credit. In addition, both the Company's majority stockholder and
President and Chief Executive Officer have personally guaranteed this line
of credit. The Company's majority stockholder and holder of approximately
$434,000 of related party notes agreed to subordination of these notes
until the bank line of credit is repaid in full. The Company must meet
certain debt to equity and eligible collateral requirements to utilize this
line of credit. There was no amount outstanding under this agreement as of
December 31, 1999.
8. Lease Agreement and Reclassification of Land
On November 4, 1999 the Company entered into a five-year lease agreement
for a 44,000 square foot office and manufacturing facility in Knoxville,
Tennessee. The terms of the lease allow the Company to terminate anytime
after thirty-six months with six months notice. If the Company terminates
the lease prior to five years, the Company is obligated for the unamortized
balance of the improvements. At the inception of the lease, the Landlord
incurred $100,000 of improvement cost on behalf of the Company. In
addition, the Company has the right of first refusal for additional space
at the same site. The Company's
8
<PAGE>
obligation under this lease is $10,472 per month for the five-year period.
The Company has terminated the month-to-month lease on its former facility
as of December 31, 1999.
The Company owns land previously held for future expansion. As a result of
the above-mentioned lease of the new office and manufacturing facility, the
Company has now put the land up for sale. The Company has received and
accepted purchase offers for this property in excess of the original cost
of the property.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The following analysis of the financial condition and results of operations
of Tice Technology, Inc. ("TTI") and its subsidiary, Tice Engineering and Sales,
Inc. ("TES"), collectively referred to as the "Company," should be read in
conjunction with the Unaudited Condensed Consolidated Financial Statements and
Notes thereto included herein and the audited financial statements and notes
thereto for the year ended March 31, 1999.
Since 1964, TES has been developing products that provide technical
solutions to problems relating to the manufacturing process of various companies
with a primary concentration in the sewing industry. TES researches, designs,
develops, tests, manufactures and markets specialized high technology, garment
production line stitching machines and related equipment. TES markets its
products worldwide directly to existing customers as well as through its dealer
network. Historically, 95% of TES's customers have been repeat customers with
much of its product line having been produced to address the problems of a
particular customer. TES generally retains the right to market the resulting
equipment to other customers with similar requests. TES also obtains patents on
a majority of its products and licenses its technology on a non-exclusive basis
to customers who want to manufacture various products using the technology
developed and patented by TES. TTI was formed on June 21, 1996, to acquire and
hold all of the issued and outstanding stock of TES. When TTI's registration
statement became effective on August 1, 1997, all the TES shares were exchanged
for shares of TTI. TTI's only activity through August 1, 1997 was in
conjunction with the incorporation and registration process.
9
<PAGE>
Results of Operations
The Company's revenues historically have been generated primarily from the
sales of its products and services, with service revenues representing less than
1% of such revenues. Since TES obtained a patent on its Electronic Gearing
Technology in 1995 and in 1997 began licensing the non-exclusive rights to
manufacture equipment using the technology to other manufacturers, TES has begun
receiving license fees and royalties. The accompanying financial statements
reflect the recording of revenues due from royalties on two categories of
machines sold by the licensee during the period. Management expects that, during
the next two years, license fee revenue, though expected to increase, will be a
smaller portion of total revenues for the Company. The principal reason for the
expected growth in this area is the anticipation of additional earnings under
the license agreement currently in place with Brother Industries, Ltd. of
Nagoya, Japan as well as expected additional license agreements with other
manufacturers to be explored in the future.
The Company's product sales and service revenues have previously been
largely attributable to sales to four primary customers. These four customers
represented 57% of product sales revenue in the first nine months of fiscal
2000, whereas the same four customers represented 71% of product sales revenue
in the first nine months of fiscal 1999. This decrease in the sales revenues
attributable to the four primary customers resulted from decreased sales to two
of such customers. One customer has reduced purchases due to its reorganization
and pending the introduction of the Company's new products. The other primary
customer with decreased sales has been put on credit hold pending resolution of
a disputed account balance. This hold also resulted in decreased international
sales, as one of the primary customers is a Latin American distributor of TES's
products. There are no gains or losses included in operations related to
foreign currency exchanges due to the terms of international sales that require
payment in U.S. currency. Sales to the international distributor are expected
to remain low, but additional distributors have been signed to pursue sales in
this territory. Sales to the other primary customers are expected to remain low
during the current quarter pending delivery of the Company's new products later
in the year.
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items reflected in the Company's
unaudited Condensed Consolidated Statements of Operations.
10
<PAGE>
<TABLE>
<CAPTION>
Percentage of Total Revenues
For the Three Months Ended For the Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Operating revenues:
Sales and service 41.6% 81.5% 62.8% 81.9%
Royalties 58.4% 18.5% 37.2% 18.1%
------ ------ ------ ------
Total operating revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of revenues 72.7% 60.0% 94.8% 66.1%
Research and development 42.9% 17.5% 31.5% 21.8%
Selling, general and administrative 133.4% 76.7% 147.5% 69.2%
------ ------ ------ ------
Total operating expenses 249.0% 154.2% 273.8% 157.1%
Operating loss (149.0%) (54.2%) (173.8%) (57.1%)
Other expense:
Interest expense - related parties (7.7%) (9.1%) (10.4%) (7.9%)
Interest expense (27.9%) (8.4%) (16.7%) (3.6%)
Gain on sale of fixed assets 0.9% 1.7% 0.4% 0.5%
Other income 0.4% 2.0% 0.9% 0.6%
------ ------ ------ ------
Total other expense (34.3%) (13.8%) (25.8%) (10.4%)
------ ------ ------ ------
Loss before income taxes (183.3%) (68.0%) (199.6%) (67.5%)
Provision for income taxes 5.8% 1.9% 3.7% 1.8%
------ ------ ------ ------
Net loss (189.1%) (69.9%) (203.3%) (69.3%)
====== ====== ====== ======
</TABLE>
Three Months Ended December 31, 1999 and December 31, 1998
Total Operating Revenues. Total revenues for the third quarter of
------------------------
fiscal 2000, which ended December 31, 1999, decreased by $40,957 to
$154,196 from $195,153 in the third quarter of the previous year. This
decrease was largely the result of an approximate 60% reduction in sales
and service revenues to $64,096 in the third quarter of fiscal 2000 from
$159,007 in the third quarter of fiscal 1999. Decreased sales and service
revenues reflect declining sales of the Company's traditional products, the
result of slower market conditions and increased competition, the Company's
decision to refocus its marketing away from the traditional products, and
customers awaiting new products using the Company's Electronic Gearing
Technology. The Company anticipates introducing products using the
Electronic Gearing Technology beginning in the fourth
11
<PAGE>
quarter of fiscal 2000. In the third quarter of fiscal 2000, there were no sales
of Automatic J-Tackers or Single Needle Belt Loop Machines and $21,318 (33%) in
sales of the Label Loader/Folders as compared to $3,590 (2%), $21,976 (14%) and
$90,997 (57%) , respectively, in the same period last year. Royalty income
increased by 149% due to increased sales by the licensee, particularly in
Western Hemisphere markets.
Cost of Revenues. Cost of revenues decreased approximately 4% to
----------------
$112,099 in the third quarter of fiscal 2000 from $117,161 in the third quarter
of fiscal 1999. Cost of revenues, though decreased, comprised a large percentage
of sales and service revenues as a result of constant levels of total overhead
costs allocated to cost of revenues coupled with declining sales and service
revenues. Although in the recent past the Company has reduced staff and cut
operating expenses, management believes that further reductions to manufacturing
salaries and overhead at this time would be detrimental to future operations,
especially in light of anticipated product introductions in the fourth quarter
of fiscal 2000.
Research and Development. Research and development costs increased
------------------------
approximately 94% to $66,063 in the third quarter of fiscal 2000 from $34,105 in
the third quarter of fiscal 1999 due to increased spending over previous
reductions in salary and benefits costs. Spending for research and development
is expected to increase as the Company continues to undertake new development
opportunities.
Selling, General and Administrative. Selling, general and
-----------------------------------
administrative expenses increased approximately 37% to $205,760 in the third
quarter of fiscal 2000 from $149,695 in the third quarter of fiscal 1999 due to
increased salary and benefit costs associated with new management, increased
marketing activities related to new product introductions anticipated in the
fourth quarter of fiscal 2000 and increased expenses related to key man life
insurance.
Operating Loss. The Company had an operating loss of $229,726 in the
--------------
third quarter of fiscal 2000 as compared to an operating loss of $105,808 in the
third quarter of fiscal 1999. The increase in the net operating loss is
primarily attributable to reduced sales and service revenue not proportionally
offset with reduced cost of revenues and increased royalties, coupled with
increased research and development expenses and increased selling, general and
administrative expenses.
Interest Expense and Interest Expense - Related Parties. Interest
-------------------------------------------------------
expense increased in the third quarter of fiscal 2000 to $43,001 from $16,418 in
the third quarter of fiscal 1999 primarily reflecting the cost of new debt
funding secured by the Company at the end of the first quarter of fiscal 2000.
Interest expense is net of interest income received by the Company from the
investment of the new debt and equity funds. Interest expense-related parties
decreased due to both the retirement of certain notes payable to a shareholder,
and the conversion of certain other notes payable into Common Shares.
Net Loss. The Company had a net loss of $291,596 in the third quarter
--------
of fiscal 2000 as compared to a net loss of $136,376 for the third quarter of
fiscal 1999. The increase in net loss
12
<PAGE>
between the two periods is mainly attributable to reduced sales and service
revenues not proportionally offset with reduced cost of revenues and increased
royalties, increased research and development expenses, increased selling,
general and administrative expenses and increased interest expense.
Nine Months ended December 31, 1999 and December 31, 1998
Total Operating Revenues. Total revenues for the nine months ended
------------------------
December 31, 1999 decreased $242,540 to $372,351 from $614,891 in the nine
months ended December 31, 1998. This decrease was primarily the result of an
approximate 54% reduction in sales and service revenues to $233,669 in the nine
months ended December 31, 1999 from $503,336 in the same period of the prior
year. Decreased sales and service revenues reflect declining sales of the
Company's traditional products, the result of slower market conditions and
increased competition, the Company's decision to refocus it's marketing away
from the traditional products, and customers awaiting new products utilizing the
Company's Electronic Gearing Technology. The Company anticipates introducing
products incorporating the Electronic Gearing Technology beginning in the fourth
quarter of fiscal 2000. In the nine months ended December 31, 1999, there were
no sales of Automatic J-Tackers, $68,214 (29%) in sales of the Label
Loader/Folders and $12,900 (6%) in sales of the Single Needle Belt Loop machine
as compared to $80,625 (16%), $111,558 (22%) and $117,153 (23%), respectively,
in the same period last year. Royalty income increased 24% in the nine months
ended December 31, 1999 compared to the same period of the prior year due to
increased product sales by the licensee, particularly in Western Hemisphere
markets.
Cost of Revenues. Cost of revenues decreased approximately13% to $352,868
----------------
in the nine months ended December 31, 1999 from $406,493 in the same period of
the prior year. Cost of revenues, though decreased, comprise a larger percentage
of sales and service revenues as a result of constant levels of total overhead
costs allocated to cost of revenues coupled with declining sales and service
revenues. Although in the recent past the Company has reduced staff and cut
operating expenses, management believes that further reductions to manufacturing
salaries and overhead would be detrimental to future operations, especially in
light of anticipated product introductions in the fourth quarter of fiscal 2000.
Research and Development. Research and development costs decreased
------------------------
approximately 12% to $117,420 in the nine months ended December 31, 1999 from
$134,052 in the same period of the prior year due to reductions in salary and
benefit costs. Spending for research and development is anticipated to increase
as the Company undertakes new product development opportunities.
Selling, General and Administrative. Selling, general and administrative
-----------------------------------
expenses increased by approximately 29% to $549,281 in the nine months ended
December 31, 1999 from $425,542 in the same period of the prior year due to
increased salary and benefit costs associated with new management, increased
marketing activities related to new product introductions anticipated in the
fourth quarter of fiscal 2000 and increased expenses related to key man life
insurance.
13
<PAGE>
Operating Loss. The Company had an operating loss of $647,218 in the nine
--------------
months ended December 31, 1999 as compared to an operating loss of $351,196 in
the same period of the prior year. The increase in the net operating loss is
primarily attributable to reduced sales and service revenue not proportionally
offset with reduced cost of revenues and increased royalties, coupled with
increased selling general and administrative expenses.
Interest Expense and Interest Expense - Related Parties. Interest expense
-------------------------------------------------------
increased in the nine months ended December 31, 1999 to $62,173 from $22,295 in
the same period of fiscal 1999 reflecting the cost of new debt funding secured
by the Company at the end of the first quarter of fiscal 2000. Interest expense
is net of interest income received by the Company from the investment of the new
debt and equity funding. Interest expense - related parties decreased due to
both the retirement of certain notes payable to a shareholder, and the
conversion of certain notes payable to Common Shares.
Net Loss. The Company had a net loss of $757,165 in the nine months ended
--------
December 31, 1999 compared to a net loss of $426,100 for the same period of the
prior year. The increase in net loss between the two periods is mainly
attributable to reduced sales and service revenues not proportionally offset
with reduced cost of revenues and increased royalties, increased selling,
general and administrative expenses and increased interest expense.
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. These expenditures have been reduced in each of the last two
fiscal years, but are expected to increase in fiscal 2000 and beyond. See
"Future Operations."
Net cash used by operating activities was $1,212,147 in the nine months
ended December 31, 1999 and $319,309 in the same period of the prior year. The
primary causes of the net use of cash from operations in the nine months ended
December 31, 1999 was the operating loss of $757,165, a reduction in accounts
payable and accrued liabilities by $110,556, an increase in inventories of
$301,675 and other increases and decreases in working capital. The primary
cause of the net use of cash in the nine months ended December 31, 1998 was the
net loss of $426,100 offset by increases and decreases in working capital items.
Net cash used by investing activities was $191,551 in the nine months ended
December 31, 1999 and $9,505 in the 1998 period. Primary uses of funds were
patents and capital expenditures in both periods. Capital expenditures were
$170,690 in the nine months ended December 31, 1999 (delivery vehicle, computer
equipment and leasehold improvements) and $4,369 in the same period of the prior
year. Capital expenditures are expected to increase over the next year during
which time
14
<PAGE>
the Company expects to increase spending for capital expenditures related to new
product introductions.
Net cash provided by financing activities was $1,871,550 in the nine months
ended December 31, 1999 and $315,030 in the same period of the prior year. The
cash provided by financing activities in the nine months ended December 31, 1999
was primarily related to the proceeds of the private placement of stock of
$1,330,000 and notes payable of $1,000,000 offset somewhat by expenses related
to issuance of the stock and associated debt of $305,837, principal payments on
notes payable to related parties of $149,282 and other reductions of notes
payable and long-term debt. The cash provided by financing activities in the
nine months ended December 31, 1998 was primarily related to proceeds from notes
payable issued to related parties of $295,040, proceeds of notes payable of
$238,543 and proceeds from the issuance of stock of $101,299, reduced by
principal payments on notes payable to related parties of $125,816 and principal
payments on notes payable and long-term debt of $194,036.
The Company's principal commitments at December 31, 1999 consisted
primarily of notes payable to related parties as well as other notes payable. Of
the other notes payable, $1,000,000 in principal have a maturity of June 2003.
$434,772 of the notes payable to related parties are subordinated to other notes
payable and cannot be repaid until they have been paid in full. Also, the other
notes payable include approximately $172,000 payable to a bank which will mature
in December 2000. This note is secured by land owned by the Company. The
Company has used a portion of 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, registration of securities of the Company and ongoing regulatory
compliance.
During the nine months ended December 31, 1999, the Company entered into an
agreement with investors to provide the Company $280,000 of additional capital
through the purchase of 700,000 restricted Common Shares and completed a private
placement for the Company to secure an additional $2,050,000 of funds to be used
mainly for working capital, capital expenditures, additional patent work,
retirement of certain notes payables to a shareholder, payment of existing
accounts payable and costs associated with the offering. Upon the successful
completion of the offering on June 25, 1999, the Company issued 1,500,000
restricted Common Shares for $0.70 per share and $1,000,000 in promissory notes.
The notes include warrants to purchase 100,000 restricted Common Shares of the
Company at $0.50 per share for 48 months. The notes bear interest at 10% per
annum. The interest accrued during the first year is payable at the end of the
first year. Thereafter, accrued interest is payable quarterly. The notes may
be prepaid without penalty and are secured by the patents on the Electronic
Gearing Technology.
In connection with the offering, the placement agent received a commission
of 10% on the proceeds of the sale of the notes and the shares. The finder
received a fee of 3% of the funds raised (including the initial $280,000) and
options to purchase 50,000 restricted Common Shares at $1.00 per share for five
years.
15
<PAGE>
As part of this agreement, two related party note holders agreed to convert
their existing notes payable and interest thereon totaling $296,451 to 318,151
Common Shares of the Company. In addition, except for a $125,000 payment from
the proceeds of the offering, the Company's majority stockholder agreed to
subordinate all amounts due him to the $1,000,000 in new notes payable.
Management believes that the funds from the recent private placement will allow
the Company to complete and market new products utilizing the Electronic Gearing
Technology as well as hire additional personnel to sell and support both the
existing products and future products. Finally, the Company has reached an
agreement with a regional bank to provide the Company with a $1,000,000
revolving line of credit for additional working capital resources to be secured
by the Company's accounts receivable, inventory and fixed assets.
Year 2000 Issues
Some computer systems and software products were coded to accept only two-
digit entries to represent years. For example, the year "1997" would be
represented by "97". Systems and products now need to be able to accept four-
digit entries to distinguish years beginning with 2000 from prior years.
The Company's products are not date sensitive. With respect to its
internal systems, the Company reviewed its systems to assess the impact of the
year 2000 and upgraded systems. The Company believes that the overall cost of
compliance did not exceed $10,000 and expensed such compliance costs when
incurred. It is uncertain whether the Company's customers and suppliers will
have any ongoing Year 2000 issues that may affect the Company. As of the date
of this filing, the Company has not experienced any material adverse effect on
its operations or results of operations relating to Year 2000 issues associated
with its systems or those of third parties with which it has significant
business relations. However, although the Company believes its critical systems
and that of third parties with which it does business are substantially
compliant and no significant issues have subsequently been uncovered, there is
no guarantee that the Company has identified all of the risks associated with
this issue.
Future Operations
Now that the Company has completed its earlier private placement and
subsequent agreement with a regional bank for a line of credit for additional
working capital, management believes its customers and potential customers are
anticipating the introduction of new products into the market place. These new
products, if successfully developed, will include the Company's Electronic
Gearing Technology in sewing applications. Management believes that, although
its traditional products will continue to generate sales revenue and that TES
will continue to solve other problems for customers as they arise in their
manufacturing processes, the majority of future revenues are dependent on
anticipated new product introductions. Management previously reduced overhead
in all areas in order to lower operating expenses until the Company completed
its financing and until production begins on the FS-2000 Felling Machines which
uses the Electric Gearing Technology.
16
<PAGE>
At that time, management expects that overhead will increase as necessary to
meet production demands of the Felling Machine production activities.
Recent new product developments such as the Label Loader/Folder for woven
labels and upgrades to existing equipment, using traditional technology, are
expected to keep the traditional product line competitive as the Company
continually works on developing products that its competitors have not attempted
or have failed to develop. Management believes that these products and upgrades
can be completed with the existing research and development staff. In addition,
there is a great demand for products incorporating the Electronic Gearing
Technology. In addition to the FS-2000 felling machine and the CS-2000 chain
stitch machine described below, the Company is in various stages of design and
development of machines using the Electronic Gearing Technology including a
three-dimensional stitching machine for automotive air bags, a multi-head
buttonhole machine, a multi-head button sewing machine, a single needle plain
sewer and a keyhole buttonhole machine. Research and development of these items
has been halted but is expected to resume as soon as production begins on the
FS-2000 Felling Machine and additional engineering personnel are added and
trained.
The Company anticipates that income from license fees and royalty revenues
will increase over the next several years as its existing licensee introduces
new electronically geared equipment to the market, as additional manufacturers
license the technology and as royalty revenues increase based on increased sales
of products by the current licensee and royalties are generated by potential
additional licensees.
To provide for continued growth, the Company has leased a manufacturing
facility that will provide sufficient space for the Company's needs. The
Company relocated to the new facility in December 1999. Management believes
that the new facility, with approximately 44,000 square feet, can accommodate
its planned production and administrative needs well into the future. In
addition, the Company owns approximately six acres of undeveloped land where the
Company planned to construct a facility. The Company is now attempting to sell
this property. Other suitable land is available should the Company decide to
build at some future date.
As of December 31, 1999, the Company had backlog orders it believes to be
firm totaling approximately $244,000 of which approximately $30,000 is for
equipment that is part of the Company's standard product line and is expected to
be completed by March 31, 2000. The backlog also reflects orders of
approximately $214,000 for eleven FS-2000 Felling Machines. Delivery of the FS-
2000 is expected to begin in the fourth quarter of fiscal 2000 as a result of
the successful completion in June 1999 of the Company's private placement
offering. In addition, the Company has received requests from 69 different
manufacturers for a FS-2000 trial unit. The Company also has indications of
interest for additional orders totaling approximately $1,200,000 relating to
products, other than the Felling Machine, using the Electronic Gearing
Technology and $490,000 for new products currently being developed using
traditional technology. One such product, the CS-2000 chain stitch machine, is a
modified version of the FS-2000. This model is in development and
17
<PAGE>
the Company has received indications of interest from multiple customers for
this machine. There is no assurance that these indications of interest will
become firm orders.
Although the Company has no present acquisition agreement or arrangements,
management may make strategic acquisitions in the future which may or may not be
in related industries, using stock, cash, debt or a combination thereof.
Depending on the terms of the acquisition, the Company may need to incur
additional indebtedness or issue equity securities to make any such acquisition.
Management has not identified any particular targets for acquisition.
The Company believes that future results of operations will be influenced
by a number of factors including general economic conditions, dependence on key
customers and market acceptance of new technology. Because of these factors, as
well as other factors, historical results should not be relied on as an
indicator of future performance.
FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform 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 quarter. 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
In the event the Company needed additional financing, 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 inherent in the
Company's business are set forth below. However, this section does not discuss
all possible risks and uncertainties to which the Company 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:
18
<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;
. the 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 software 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;
. the 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 and that TES's products will not infringe on
patents owned by others, or the risk that competitors will develop similar
or functionally similar products; and
. the potential adverse effect of competition, the potential failure by the
Company to provide competitive timely designs of cost-effective solutions
and products to manufacturers, and the potential adverse effect of
technological change with which the Company is unable to keep pace.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
TTI has extended the expiration date of its Common Stock Purchase Warrants
(the "Warrants"). The original expiration date was July 31, 1999, which has
been extended to July 31,
19
<PAGE>
2001. TTI obtained a no-action letter from the SEC stating that the SEC will not
object if TTI extends the exercise period of the Warrants and defers filing a
post-effective amendment to its registration statement covering the sale of
stock underlying the warrants until exercise of the warrants is likely, i.e.
when the market price of the shares more closely matches the exercise price of
the Warrants. However, TTI must file an amended registration statement and
deliver a current prospectus to warrant holders prior to permitting a holder to
exercise any warrants.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits Index
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
I. Articles of Incorporation and Bylaws 3
(i) Certificate of Incorporation of Tice Technology, Inc. (i) +
-
(ii) Bylaws of Tice Technology, Inc. (ii) +
-
II. Instruments Defining Rights of Security Holders 4
(i) Common Stock Purchase Warrant Agreement Between Tice X
Technology, Inc. and Warrant Agent.
(ii) Amendment to Common Stock Purchase Warrant 23
Agreement between Tice Technology, Inc. and Warrant
Agent.
(iii) Form of Promissory Note Issued in Connection with Private #
Placement Closed on June 25, 1999
(iv) Warrant Agreement relating to Rights to Purchase up to #
100,000 Common Shares of Tice Technology, Inc. Received by
Holders of the Promissory Notes
(v) Security Agreement Pledging Patents as Security for #
Promissory Notes
(vi) Registration Rights Agreement Giving Purchasers under the #
Private Placement Closed on June 25, 1999 Certain Demand and
Piggyback Registration Rights
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
(vii) Option Agreement Relating to Option to Purchase Up to #
50,000 Common Shares of Tice Technology, Inc. Granted to Finder.
(viii) Incentive Stock Option Plan and Agreement Between Charles
R. West and Tice Technology, Inc. #
III. Material Contracts
(i) Warehouse Sublease Agreement Between The Innovo Group, Inc. 25
and Tice Engineering & Sales, Inc.
IV. Financial Data Schedule 27 39
</TABLE>
+ Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the
- -
Registration Statement on Form S-1 of Tice Technology, Inc. which became
effective August 1, 1997.
x Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the above
described Registration Statement.
# Previously filed as an exhibit to Form 10-K for the year ended March 31,
1999.
(b) The Company did not file any reports on Form 8-K during the third quarter
of fiscal 2000.
21
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tice Technology, Inc.
By: /s/ Charles R. West
----------------------------------------------------------
Charles R. West, President and Chief Executive Officer
Date: February 14, 2000
----------------------------------------------------------
By: /s/ David G. Camp
----------------------------------------------------------
David G. Camp, Chief Financial Officer
Date: February 14, 2000
----------------------------------------------------------
<PAGE>
Amendment to Common Stock
Purchase Warrant Agreement
--------------------------
This Amendment (the "Amendment") to the Common Stock Purchase Warrant
Agreement (the "Warrant Agreement") is made as of February 9, 2000 between Tice
Technology, Inc. (the "Company") and Reliance Trust Company (the "Warrant
Agent"), the successor warrant agent to Mid-America Bank of Louisville and Trust
Company.
WHEREAS, the Company has determined to extend the expiration date of the
Common Stock Purchase Warrants (the "Warrants") issued pursuant to the Warrant
Agreement on August 1, 1997; and
WHEREAS, in connection with such extension, the parties amend the Warrant
Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. In connection with the amendment of this Warrant Agreement, the
Company shall notify the holders of the Warrants of the extension of the
expiration date and may prepare new certificates representing the Warrants
reflecting the extension of the expiration date. The Warrant Agent shall
distribute the notice and, if prepared, such revised certificates to the holders
of record of the Warrants and the Company shall pay the Warrant Agent the agreed
upon price for such services.
2. Section 2.02 of the Agreement is amended to read as follows:
2.02. Duration of Warrants. Warrants may be exercised only on or
before July 31, 2001 (the "Expiration Date"). Notwithstanding the
foregoing, if notice has been given as provided in Article III hereof
in connection with the liquidation, dissolution or winding up of the
Company, the Warrants shall expire at the close of business on the
third full business day before the date specified in the notice as the
record date for determining holders of stock entitled to receive any
distribution upon the liquidation, dissolution or winding up;
provided, however, that such date is at least 5 business days after
the date of the notice.
3. The addresses to which notice should be given in Section 7.04 are
hereby changed as follows:
To the Company: Tice Technology, Inc.
1808-B North Cherry Street
Knoxville, Tennessee 37917
Attn.: President
<PAGE>
To the Warrant Agent: Reliance Trust Company
3384 Peachtree Road, Suite 900
Atlanta, Georgia 30326-1106
Attn.: Donald McKinney
4. All references to the Warrant Agent and its location shall be changed
to Reliance Trust Company in Atlanta, Georgia.
5. All other provisions of the Warrant Agreement shall remain the same
and in full force and effect.
WITNESS the signatures of the parties to this Amendment as of the date
first above written.
Tice Technology, Inc. Reliance Trust Company
By: /s/Charles R. West By: /s/Donald L. McKinney
------------------ ---------------------
Title: President and CEO Title: Senior Vice President
------------------ ---------------------
2
<PAGE>
WAREHOUSE SUBLEASE AGREEMENT
BY AND BETWEEN
THE INNOVO GROUP, INC.
AND
TICE ENGINEERING & SALES, INC.
DATED: DECEMBER _______, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Premises............................................................. 2
2. Term................................................................. 2
3. Early Termination.................................................... 3
4. Minimum Rent......................................................... 3
5. Reimbursement of Renovation Costs.................................... 3
6. Tenant's Use and Operation........................................... 3
7. Utilities............................................................ 4
8. Landlord's Duty to Repair............................................ 4
9. Tenant's Duty to Repair; Alterations................................. 4
10. Hazardous Substances................................................. 4
11. Surrender of Leased Premises......................................... 5
12. Property of Tenant................................................... 5
13. Waiver of Subrogation................................................ 5
14. Insurance and Indemnity.............................................. 5
15. Partial Destruction.................................................. 5
16. Substantial Destruction.............................................. 6
17. Right of Termination................................................. 6
18. Eminent Domain....................................................... 7
19. Rights of Landlord's Lender.......................................... 7
20. Quiet Enjoyment...................................................... 7
21. Subordination........................................................ 8
22. Indemnity... ........................................................ 8
23. Attorney's Fees and Expenses......................................... 8
24. Tenant Assignment and Subletting..................................... 8
25. Events of Default and Remedies....................................... 8
26. Notices..............................................................10
27. Successors...........................................................10
28. Governing Law........................................................10
29. Landlord's Exculpatory Clause........................................10
30. Entire and Binding Agreement.........................................11
31. Addenda..............................................................11
EXHIBITS
A. Site Plan............................................................12
B. Legal Description....................................................13
</TABLE>
1
<PAGE>
WAREHOUSE SUBLEASE AGREEMENT
THIS WAREHOUSE SUBLEASE AGREEMENT is made and entered into this _____ day
of December, 1999, by and between THE INNOVO GROUP, INC., a Delaware
corporation, (referred to as "Landlord"), and TICE ENGINEERING & SALES, INC., a
Tennessee corporation (referred to as "Tenant").
W I T N E S S E T H:
1. Premises: Landlord hereby subleases to Tenant, and Tenant subleases and
--------
accepts, the Premises containing approximately Forty-Four Thousand (44,000)
square feet of warehouse space with such warehouse space outlined and
designated on the site plan attached hereto as Exhibit A which is
incorporated herein by reference (such space is referred to collectively
hereinafter as the "Leased Premises"). The Leased Premises are part of the
approximately 300,000 square foot warehouse complex known as "Levi Place"
(which includes the warehouse space shown on the attached site plan and two
separate office buildings totaling approximately 9,000 square feet and
located adjacent to such warehouse space) formerly owned by Levi Strauss &
Company (such complex, including the two office buildings, is referred to
hereinafter collectively as the "Warehouse"). The location of the
Warehouse is on North Cherry Street in Knoxville, Tennessee and the legal
description of the land upon which the Warehouse is located is attached
hereto as Exhibit B (such land referred to hereinafter as the "Land").
The Land and the Warehouse are referred to collectively hereinafter as the
"Project." A certain portion of the Project is deemed common area (the
"Common Area"), such Common Area to include but not be limited to certain
parking areas, driveways, entrances and exits thereto, service roads,
loading facilities, sidewalks, ramps, landscaped areas, exterior stairways,
restroom facilities, and all other uses in common by the Tenant and all the
Tenants in the Project, however, those elements of parking, driveways,
entrances and exits, loading facilities, and restroom facilities that are
located within the Leased Premises shall not be deemed to be common areas.
Tenant shall have first right of refusal to sublease space in the Warehouse
adjacent to the Leased Premises on the same terms and conditions as
contained herein, subject to the pre-existing rights of other Tenants in
the Project. The Tenant shall exercise such right within thirty (30) days
upon receiving notification from Landlord that such space is being
requested by a third party by sending its request for such space to the
Landlord in writing by certified mail, return receipt requested.
2. Term: The original term of this Sublease shall be for a period of five (5)
----
years (the "Base Term") from the Commencement Date hereinafter provided
unless sooner terminated hereby. Said term, and Tenant's obligation to pay
rent, shall commence on the earlier of the following days (referred to as
"Commencement Date"): (a) the date which is thirty (30) days after Tenant
has been notified in writing by Landlord that the Leased Premises are ready
for occupancy, or (b) the
2
<PAGE>
date on which Tenant shall open the Leased Premises for business. In the
event the expiration of the thirty (30) day period does not occur on the
first day of the month or Tenant shall have opened the Leased Premises for
business on a day other than the first day of the month, then the term
shall commence on the first day of the month next succeeding; provided,
however, the Tenant shall pay rent for the fractional month on a per diem
basis (calculated on the basis of a thirty day month) until the first day
of the month when the term commences, and thereafter the rent shall be paid
in equal monthly installments in advance on the first day of each month
during the term of this Sublease. Tenant shall pay any rental payment for a
fractional month on the first (1st) day of the month succeeding such
fractional month. Notwithstanding the foregoing, if the Tenant has complied
with all the terms and provisions of this Sublease and is not in default in
any respect hereunder, Tenant shall have an option (the "Option") to
sublease the Leased Premises after the termination of the Base Term for one
(1) additional five (5) year period upon the same terms and conditions set
forth herein (each such five year period referred to hereinafter
individually as an "Option Term"); provided, however, Minimum Rent during
the Option Term shall be One Hundred Ten Percent (110%) of the Minimum Rent
of the Base. The Tenant shall exercise the Option by giving notice to the
Landlord in writing by certified mail, return receipt requested, not less
than one hundred twenty (120) days before the expiration of the Base Term
and thereafter, not less than one hundred twenty (120) days prior to the
expiration of any Option Term.
3. Early Termination: Tenant shall have right of early termination at the
-----------------
end of three (3) years by giving notice to the Landlord in writing by
certified mail, return receipt requested, not less than six (6) months
before three years after the Commencement Date of this Sublease. In the
event of such early termination, all remaining unamortized renovation costs
will be due and payable by Tenant in a lump sum upon the early termination
date.
4. Minimum Rent: Tenant shall pay to the Landlord as minimum rent an annual
------------
amount equal to $2.30 times the total square footage of the Leased Premises
(the "Minimum Rent"), to include charges for real estate taxes and casualty
insurance premiums. All Minimum Rent shall be paid in advance in equal
monthly installments on the first day of each month at the address of the
Landlord stated herein without demand, setoff or deduction. Minimum Rent
for any partial months shall be prorated.
5. Reimbursement of Renovation Costs: Tenant shall reimburse Landlord for
---------------------------------
agreed upon renovations to the Leased Premises up to a maximum of One
Hundred Thousand Dollars ($100,000). Cost of renovations shall be
reimburseable to Landlord to be amortized at Eight and One-half Percent
(8.25%) over the Base Term of the five-year lease.
6. Tenant's Use and Operation: The Leased Premises shall be used and
--------------------------
occupied by Tenant solely as an office, warehouse and light manufacturing
facility and for no other use without Landlord's prior written consent.
Tenant shall comply with all
3
<PAGE>
rules, regulations and laws of any governmental authority with respect to
use and occupancy of the Leased Premises.
7. Utilities: Electrical utility costs for lighting, manufacturing, plant and
---------
office operations for the Leased Premises will be separately metered and
shall be the responsibility of the Tenant upon separation of the meters on
approximately March 1, 2000 (utilities will be prorated between Landlord
and Tenant from Commencement Date until utilities are separately metered) .
Tenant shall make all deposits, and promptly pay all such utility charges
in connection with the Leased Premises as the same shall become due and
payable during the term of this Sublease. Electrical utility costs of the
chilling units and remaining utilities of gas, sewer and water will be pro-
rated by Landlord, and the Tenant shall pay promptly as in when the same
shall become due its Pro-Rata Share of all such utilities and all taxes or
charges on such utility services which are used on or attributable to the
Leased Premises which are not paid directly by the Tenant.
Tenant's "Pro-Rata Share" shall be a fraction, (i) the numerator of which
shall be the number of square feet of the Warehouse leased by Tenant and
(ii) the denominator of which shall be the total number of square feet in
the Warehouse. Tenant shall pay its Pro-Rata Share of the above expenses
within twenty (20) days after receipt of a bill.
8. Landlord's Duty to Repair: Landlord shall keep and maintain in good
-------------------------
repair the foundation, exterior walls, roof, plumbing, main electrical
system, HVAC, and Common Areas of the Warehouse and the structural portions
of the Warehouse. Landlord shall have a reasonable time to begin repairs
and in the event that Landlord fails to begin and make reasonable efforts
towards the repairs then Tenant may withhold rent payments without penalty
until reasonable maintenance has been successfully completed.
9. Tenant's Duty to Repair; Alterations: Except for the repairs to be
------------------------------------
performed by Landlord, Tenant shall keep and maintain in good order,
condition and repair the Leased Premises. Tenant shall be responsible for
damages to the Leased Premises as a result of Tenant's negligence.
10. Hazardous Substances: Tenant shall not generate, store, treat, dispose of,
--------------------
install or otherwise permit any Hazardous Substances on, in, or under or in
any way related to the Leased Premises, or any other portion of the Project
or cause or permit any such generation, storage, treatment, disposal,
installation or other use with respect thereto except in accordance with
all laws, rules and regulations. Tenant shall fully indemnify and hold
Landlord harmless from any liability, damage, cost or expense that Landlord
might otherwise suffer from Tenant's failure to fully comply with this
provision. This indemnity shall survive expiration or other termination of
this Sublease. As used herein, "Hazardous Substances" means and includes
any substances, materials, elements or compounds that are listed as
Hazardous Substances on any list adopted or maintained by any federal,
state or local governmental authority or agency.
4
<PAGE>
11. Surrender of Leased Premises: At the termination of the Base Term or any
----------------------------
Option Term, if applicable, the Tenant does agree to deliver the Leased
Premises in the same condition as received by it on the Commencement Date
(subject to the removals hereinafter required), reasonable wear and tear
excepted, and shall surrender all keys for the Leased Premises to Landlord
at the place then fixed for the payment of rent and shall inform Landlord
of all combination locks, safes and vaults, if any, in the Leased Premises.
Any items remaining in the Leased Premises on the termination date of this
Sublease shall be deemed abandoned for all purposes and shall become the
property of Landlord and the latter may dispose of the same without
liability of any type or nature. Any renovations or changes to the Leased
Premises made by Tenant may be abandoned if their installation was approved
by Landlord prior to their installation.
12. Property of Tenant: Tenant's property on the Leased Premises shall be at
------------------
the sole risk and hazard of Tenant. Landlord shall not be liable or
responsible for any loss of or damage to Tenant or Tenant's property.
13. Waiver of Subrogation: If any property owned by Tenant and located on the
---------------------
Leased Premises is damaged or destroyed by an insured peril, Landlord shall
not have any liability to Tenant, nor to any insurer of Tenant, for such
damage or destruction. Tenant shall require all policies of risk insurance
carried by it on its property on the Leased Premises to contain a provision
in and by which the insurer shall waive its rights of subrogation against
Landlord.
14. Insurance and Indemnity: Tenant agrees to indemnify and save harmless the
-----------------------
Landlord against all claims for damages to persons or property by reason of
the use or occupancy of the Leased Premises, and all expenses incurred by
Landlord, including attorney fees and court costs, unless caused by
Landlord negligence. Tenant further agrees that it will at all times
during the term of this Sublease, at its expense, maintain and keep in
force, liability and product insurance in the amount of One Million Dollars
($1,000,000.00) for injury to one (1) persons, and One Million Dollars
($1,000,000.00) for injuries in one (1) casualty and One Hundred Thousand
($100,000.00) for damage to property to indemnify the Landlord or the
Tenant from any kind of accident or casualty whereby any person may be
injured or killed in or at the Leased Premises. Tenant shall deliver to
Landlord a certificate of such insurance from an insurance company
satisfactory to Landlord. The policy shall further provide that it may not
be cancelled without the Landlord first having received thirty (30) days
notice of any cancellation.
Landlord agrees that it will at all times during the term of this Sublease,
at its expense, maintain and keep in force casualty loss insurance coverage
on the Leased Premises.
15. Partial Destruction: If the Leased Premises are partially destroyed by
-------------------
fire or any other casualty (as reasonably determined by Landlord), and if
two or more years remain on the Base Term or any Option Term, Landlord
shall restore or
5
<PAGE>
repair the Leased Premises with reasonable diligence. In the event of such
restoration or repair, Landlord shall expend such sums as required to
repair or restore the Leased Premises to the condition it was in
immediately prior to the date of the destruction; provided, Landlord shall
not be obligated to expend any sums for repair or replacement of Tenant's
property nor shall Landlord be obligated to expend sums in excess of the
insurance proceeds received by Landlord as a result of such damage or
destruction. A just and proportionate part of the rent payable by Tenant,
to the extent that such damage or destruction renders the Leased Premises
untenantable, shall abate from the date of such damage or destruction until
the Leased Premises are repaired.
In the event of a loss from fire or other casualty where the terms of this
Lease do not require the Landlord to restore or repair the Warehouse,
Landlord shall have an election not to rebuild or recondition the Leased
Premises, which election shall be exercised by written notice thereof to
Tenant, given within sixty (60) days from date of said loss. If Landlord
exercises such election, this Lease shall cease and terminate, effective on
the date of such loss, and Tenant shall pay the accrued rent up to the date
of such loss, or Landlord, if the rent has been paid beyond such date, will
refund to Tenant the proportionate part of any such rent prepaid, and
thereupon this lease shall become null and void, with no further obligation
on the part of either party hereto, even though the building may at a later
date be rebuilt, restored or reconditioned. No damage or destruction shall
allow Tenant to surrender possession of the Leased Premises, nor affect
Tenant's liability for the payment of rent, except as specifically provided
in this Sublease.
If Landlord is required or elects to repair or rebuild the Leased Premises
as herein provided, Landlord's obligation hereunder shall be limited to
that work specifically designated herein as being Landlord's
responsibility. Tenant shall repair or replace its merchandise, trade
fixtures, furnishings, and equipment.
16. Substantial Destruction: If the Leased Premises are substantially
-----------------------
destroyed by fire or other casualty (as reasonably determined by Landlord),
then Landlord shall have the option to terminate this Sublease by giving
Tenant written notice within sixty (60) days after such destruction, and
any unearned rent shall be apportioned and returned to Tenant. If Landlord
does not elect to cancel this Sublease, then the same shall remain in full
force and effect and Landlord shall proceed with all reasonable diligence
to repair the Leased Premises. In the event of such restoration or repair,
Landlord shall expend such sums as required to repair or restore the
building to the condition it was in immediately prior to the date of the
destruction; provided, Landlord shall not be obligated to expend any sums
in excess of the insurance proceeds received by Landlord as a result of
such damage or destruction. If such damage or destruction renders the
Leased Premises untenantable, rent payable by Tenant shall abate from the
date of such damage or destruction until the Leased Premises are repaired.
17. Right of Termination: Notwithstanding anything else to the contrary
--------------------
contained in this Sublease, Landlord, at its option, may terminate this
Sublease on sixty
6
<PAGE>
(60) days' notice to Tenant after the occurrence of any one of the
following: (i) the Leased Premises or the Warehouse shall be damaged or
destroyed as a result of an occurrence that is not covered by Landlord's
insurance; (ii) the Leased Premises or the Warehouse shall be damaged or
destroyed and the cost to repair the same shall amount to more than twenty-
five percent (25%) of the cost of replacement thereof; (iii) the Leased
Premises shall be damaged or destroyed during the last two (2) years of the
Base Term or Option Term, if applicable; or (iv) any or all of the
buildings or Common Areas of the Project are damaged (whether or not the
Leased Premises are damaged) to such an extent that, in the sole judgment
of Landlord, the Warehouse cannot be operated as an economically viable
unit. Tenant shall have reasonable time, which shall not be less than
ninety (90) days, to vacate the premises in the event of termination under
this provision.
18. Eminent Domain: If a portion of the Leased Premises shall be taken for
--------------
public improvements or otherwise under the exercise of the right of
eminent domain, and the Leased Premises shall continue to be reasonably
suitable for the use which is herein authorized then the rental herein
provided shall be reduced from the date of such taking in direct proportion
to the reduction in usefulness of the Leased Premises. If the Leased
Premises, or a part thereof, sufficient to render the Leased Premises
wholly unfit for the use herein authorized, shall be condemned or acquired
in the exercise of the right of eminent domain, Tenant shall have the
right, at Tenant's option, to terminate and cancel this Lease on thirty
(30) days' prior written notice to Landlord, such notice to be given within
sixty (60) days of the date of the taking, and Tenant shall be liable only
for rents, reduced as provided herein as applicable, and other charges
accrued and earned to the date of surrender of possession of the Leased
Premises to Landlord and for the performance of other obligations maturing
prior to said date. Tenant shall not be entitled to participate in or
receive any part of the damages or award which may be paid to or awarded
Landlord by reason of a taking except where said award shall provide for
moving or other reimbursable expenses for Tenant under applicable statute.
19. Rights of Landlord's Lender: Notwithstanding anything contained herein
---------------------------
to the contrary, the obligation of Landlord with respect to repairing or
rebuilding the Leased Premises is subject to the prior right of Landlord's
lender to receive insurance proceeds as a result of a fire or other
casualty, with any obligation of Landlord to be limited to the extent
insurance proceeds are received by Landlord for such repair or rebuilding.
20. Quiet Enjoyment: Landlord agrees that, if the Minimum Rent and other
---------------
expenses required to be paid by Tenant pursuant to the terms of this
Sublease are being paid in the manner and at the time prescribed and the
covenants and obligations of the Tenant are being all and singularly kept,
fulfilled and performed, Tenant shall lawfully and peaceably have, hold,
possess, use and occupy and enjoy the Leased Premises so long as this
Sublease remains in force, without hindrance,
7
<PAGE>
disturbance or molestation from Landlord, subject to the specific
provisions of this Sublease.
21. Subordination: Subject to the Tenant's rights of quiet enjoyment as
-------------
heretofore provided, Tenant hereby subordinates all of its interest under
this Sublease to the lien of any deed of trust or mortgage now or hereafter
in force against the real estate or buildings of which the Leased Premises
are a part.
22. Indemnity: Tenant shall indemnify and hold Landlord harmless from and
---------
against all and any liability and expense of any kind, including reasonable
attorneys' fees, arising from injuries or damages to persons or property
in, on or about the Leased Premises arising out of or resulting in any way
from any act or omission of Tenant, its agents, invitees, servants and
employees, in the use of the Leased Premises. Tenant's property on the
Premises shall be at the sole risk and hazard of Tenant. Landlord shall
not be liable or responsible for any loss of or damage to Tenant or
Tenant's property.
Landlord shall indemnify and hold Tenant harmless from and against all and
any liability and expense of any kind, including reasonable attorneys'
fees, arising from injuries or damages to persons or property in, on or
about the Leased Premises arising out of or resulting in any way from any
act or omission of Landlord, its agents, invitees, servants and employees,
in connection with its ownership of the Leased Premises.
23. Attorneys' Fees and Expenses: If Landlord or Tenant engages legal counsel
----------------------------
for the enforcement of any of the terms of this Lease as a result of a
default by the other party, whether for suit or other legal services
required to secure compliance on the part of Landlord or Tenant, the
defaulting party shall pay to the non-defaulting party upon demand said
reasonable attorneys' fees and any other reasonable expenses incurred by
such non-defaulting party.
24. Tenant Assignment and Subletting: Neither Tenant, any court officer
--------------------------------
thereof nor any receiver or trustee in bankruptcy shall assign or transfer
this lease or any part thereof, or interest therein, or sublet the Leased
Premises or any part thereof without Landlord's prior written consent which
shall not be unreasonably withheld. Tenant shall always remain liable for
any default of any assignee, transferee or subtenant.
25. Events of Default and Remedies: The occurrence of any of the following
------------------------------
shall be an Event of Default:
a. Failure by Tenant to pay in full any rent payment or other sum payable
hereunder within ten (10) days of the date such payment is due;
b. Failure by Tenant to perform of any of the terms or conditions of this
Sublease, other than the payment of money, of for a period of thirty
(30) days after notice thereof to Tenant by Landlord;
8
<PAGE>
c. The abandonment of the Leased Premises as a going business by Tenant
for any period exceeding thirty (30) consecutive days, regardless of
whether Tenant continues to pay all rent.
In any of these Events of Default the Tenant's right to cure such Default shall
exist for Fifteen (15) days for any active Default. Upon the expiration of the
cure period after the occurrence of an Event of Default and exercise of such
remedies, Landlord may immediately or at any time thereafter re-enter the Leased
Premises and remove all persons and all or any property therefrom by any
suitable action or proceedings at law or in equity, or by force or otherwise,
without being liable for any prosecution therefor or damages therefrom except in
the case of negligence or willful actions of destruction, and repossess and
enjoy the Leased Premises, together with all additions, alterations and
improvements. Such re-entry shall not relieve Tenant from the obligation to make
the rental payments required by this Sublease at the time and in the manner
provided herein. Upon such re-entry Landlord may, but shall not be required to,
repair, remodel and/or change the character of the Leased Premises as Landlord
may see fit, and/or at any time relet the Leased Premises in whole or in part,
as the agent of Tenant, or otherwise, in the name of Landlord or of Tenant, as
Landlord shall see fit, and Landlord may receive the rents therefor, applying
the same first to the payment of such reasonable expenses as Landlord may have
incurred in entering, dispossessing, reletting, repairing or altering the Leased
Premises and then to the fulfillment of the covenants of Tenant herein,
including but not limited to, the rental payments required hereunder, retaining
any balances until the date the term of this Sublease would otherwise have
expired as security for the payment of all obligations of Tenant which may arise
and be unpaid during such period. If Landlord, after such re-entry, shall be
unable to obtain sufficient rent from the Leased Premises to pay the amount of
expenses hereinabove specified in addition to the payment of the rent required
hereunder, and fulfillment of the covenants of Tenant herein, Tenant shall pay
to Landlord such difference at the end of each month during the remainder of the
term. In attempting to relet the Leased Premises, Landlord shall be the sole
judge as to whether or not a proposed tenant is suitable and acceptable.
Landlord shall not, by receiving partial payments of rent in arrears, be deemed
to have waived any rights herein for non-payment of rent, or for any other
default on the part of Tenant. In addition to all of the remedies granted
Landlord in this respect, Landlord shall also have the right to invoke any
remedy allowed at law or equity to enforce Landlord's rights hereunder or any of
them, as if re-entry and other remedies were not herein provided for.
No remedy herein conferred upon or reserved to Landlord is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative, and shall be in addition to every other remedy given
under this agreement or now or hereafter existing at law or in equity or by
statute. No delay or omission by Landlord to exercise any right or power
accruing upon any default of Tenant shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right and power may be
exercised by Landlord at any
9
<PAGE>
time, from time to time and as often as may be deemed expedient. In order
to entitle Landlord to exercise any remedy reserved to it hereunder, it
shall not be necessary to give any notice, other than such notice as is
expressly required by this agreement.
26. Notices: All notices required or permitted by the terms of this Sublease
-------
must be given by hand-delivery, by telecopier (confirmed by U.S. Mail
delivery) or United States registered or certified mail addressed to Tenant
at the Leased Premises or as listed below and addressed to Landlord at:
Landlord:
The Innovo Group, Inc.
1808-A North Cherry Street
Knoxville, Tennessee 37917
Telephone: (423) 546-1110
Telecopier: (423) 546-9277
Tenant:
Tice Engineering & Sales, Inc.
1808-B North Cherry Street
Knoxville, TN 37917
Telephone: (423) 922-7501
Telecopier: (423) 922-3134
The date when such notice shall be deemed to have been given shall be the
date when it is deposited in the United States Mail, postage prepaid, in
accordance with the provisions of this paragraph. Any address herein
specified may be changed from time to time by either party by written
notice given to the other party as above provided.
27. Successors: The provisions, covenants and conditions of this Sublease
----------
shall bind and inure to the benefit of the legal representatives,
successors and assigns of each of the parties, except that no assignment or
subletting by Tenant without the written consent of Landlord shall vest any
right in the assignee or sublessee of Tenant.
28. Governing Law: The Sublease shall be governed by, and construed in
-------------
accordance with, the laws of Tennessee.
29. Landlord's Exculpatory Clause: In the event of a breach or default by
-----------------------------
Landlord of any of its obligations under this Lease, Tenant shall look
solely to any right of offset allowed by law against any amounts due
hereunder or to the equity of the Landlord in the Leased Premises for the
satisfaction of Tenant's remedies, it being understood and agreed that the
exculpation of Landlord (and its successors and assigns) shall be absolute.
In the event of any sale of such land or interest, or
10
<PAGE>
assignment of Landlord's rights under this Sublease, Landlord shall be and
hereby is released of all obligations of Landlord hereunder. It shall be
deemed, without further agreement between the parties or their successors
in interest, that the successor to Landlord's interest has assumed all
obligations of Landlord hereunder. It is specifically understood and agreed
that there shall be no personal liability of Landlord in respect to any of
the covenants, conditions, or provisions of this Sublease.
30. Entire and Binding Agreement: This Lease contains all of the agreements
----------------------------
between the parties hereto, and it may not be modified in any manner other
than by agreement signed by all parties hereto or their successors in
interest. In the event Tenant violates this covenant, Landlord reserves the
right to either (i) terminate this Sublease, or (ii) revoke any rental or
other concessions granted hereunder.
31. Addenda: All addenda and exhibits attached hereto are made a part of this
-------
Sublease for all purposes.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of the day
and date first above written.
LANDLORD:
THE INNOVO GROUP, INC.
By: /s/ Samuel J. Furrow
-----------------------------------
Name: Samuel J. Furrow
Title: CEO
TENANT:
TICE ENGINEERING & SALES, INC.
By: /s/ Charles R. West
-----------------------------------
Name: Charles R. West
Title: President
11
<PAGE>
EXHIBIT A
SITE PLAN
12
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
A 17.022 acre parcel located on the east side of Cherry Street in
Knoxville, Tennessee, bordered on the south by Hoitt Avenue, containing a
warehouse building of approximately three hundred thousand (300,000) square feet
and two office buildings of approximately four thousand five hundred (4,500)
square feet each, all as depicted on boundary survey dated July 9, 1998,
prepared by Site, Incorporated.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE TICE
TECHNOLOGY INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-2000
<PERIOD-START> OCT-01-1999 APR-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 492,007 492,007
<SECURITIES> 0 0
<RECEIVABLES> 107,481 107,481
<ALLOWANCES> 0 0
<INVENTORY> 689,329 689,329
<CURRENT-ASSETS> 1,313,246 1,313,246
<PP&E> 793,484 793,484
<DEPRECIATION> 581,453 581,453
<TOTAL-ASSETS> 1,902,205 1,902,205
<CURRENT-LIABILITIES> 352,981 352,981
<BONDS> 1,393,302 1,393,302
0 0
0 0
<COMMON> 106,119 106,119
<OTHER-SE> 49,803 49,803
<TOTAL-LIABILITY-AND-EQUITY> 1,902,205 1,902,205
<SALES> 64,096 233,669
<TOTAL-REVENUES> 154,196 372,351
<CGS> 112,099 352,868
<TOTAL-COSTS> 383,922 1,019,569
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 54,951 100,753
<INCOME-PRETAX> (282,586) (743,297)
<INCOME-TAX> 9,010 13,868
<INCOME-CONTINUING> (229,726) (647,218)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (291,596) (757,165)
<EPS-BASIC> (0.03) (0.09)
<EPS-DILUTED> (0.03) (0.09)
</TABLE>
