<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 August 1, 2000 was 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.
Page
----
Condensed Consolidated Balance Sheets -- As of June 30, 2000 2
and March 31, 2000
Condensed Consolidated Statements of Operations -- For the Three Months 4
Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows -- For the Three Months 5
Ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 6
1
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Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000 (1)
----------- -----------
(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 80,492 $ 218,828
Accounts receivable, net 162,749 79,295
Prepaid expenses 11,191 7,035
Inventory, net 626,425 591,314
----------- -----------
Total current assets 880,857 896,472
Property and equipment:
Leasehold improvements 8,523 8,523
Furniture, fixtures and equipment 654,216 653,753
Vehicles 42,043 42,043
----------- -----------
Total property and equipment 704,782 704,319
Less accumulated depreciation (533,619) (524,451)
----------- -----------
Property and equipment, net 171,163 179,868
Patents, net 204,325 203,857
Debt issuance costs, net 32,662 35,384
Other assets 22,610 14,830
----------- -----------
Total assets $ 1,311,617 $ 1,330,411
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
(1) The March 31, 2000 Condensed Consolidated Balance Sheet was derived
from the audited balance sheet for the year then ended.
2
<PAGE>
Tice Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000 (1)
----------- -----------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Notes payable and current maturities of long-term debt $ 211,299 $ 10,965
Accounts payable 89,675 32,997
Accrued interest 2,192 76,389
Other accrued liabilities 196,726 93,447
Notes payable to related parties, current portion 100,000 50,000
----------- -----------
Total current liabilities 599,892 263,798
Notes payable to related parties, long-term portion 456,722 445,612
Notes payable, long-term portion, net of $66,787 discount 961,619 961,181
----------- -----------
Total liabilities 2,018,233 1,670,591
----------- -----------
Stockholders' deficit:
Capital stock, no par value; 2,000 shares authorized; 13,493 13,493
750 shares issued and outstanding at June 30,
and March 31, 2000
Common Shares, par value $0.01; 30,000,000 shares authorized; 85,126 85,126
8,512,615 shares issued and outstanding at June 30,
and March 31, 2000
Class B Common Shares, convertible, par value $0.01; 7,500 7,500
5,000,000 shares authorized; 750,000 shares issued and
outstanding at June 30, and March 31, 2000
Class D Common Shares, convertible, par value $0.01; -- --
600,000 shares authorized; none issued or outstanding
Preferred Shares, par value $0.01; 10,000,000 shares -- --
authorized; none issued or outstanding
Additional paid in capital 3,221,340 3,221,340
Accumulated deficit (4,034,075) (3,667,639)
----------- -----------
Total stockholders' deficit (706,616) (340,180)
----------- -----------
Total liabilities and stockholders' deficit $ 1,311,617 $ 1,330,411
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
(1) The March 31, 2000 Condensed Consolidated Balance Sheet was derived
from the audited balance sheet for the year then ended.
3
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Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
-----------------------------------------------
For the three months
ended June 30,
2000 1999
--------- ---------
(unaudited)
Operating revenues:
Sales and service $ 110,655 $ 103,478
Royalties 60,000 26,990
--------- ---------
Total operating revenues 170,655 130,468
Operating expenses:
Cost of revenues 152,268 118,712
Research and development 117,189 24,760
Selling, general and administrative 219,061 152,242
--------- ---------
Total operating expenses 488,518 295,714
--------- ---------
Operating loss (317,863) (165,246)
Other income (expense):
Interest expense - related parties (12,860) (14,943)
Interest income (expense) (31,970) 652
Other income 2,257 5,971
--------- ---------
Total other expense, net (42,573) (8,320)
--------- ---------
Loss before income taxes (360,436) (173,566)
Provision for income taxes 6,000 2,699
--------- ---------
Net loss $(366,436) $(176,265)
========= =========
Loss per share (Note 4)
Basic and diluted $ (0.04) $ (0.02)
========= =========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
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Tice Technology, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
<TABLE>
<CAPTION>
For the three months
ended June 30,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Net cash flows from operating activities:
Net loss $ (366,436) $ (176,265)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 18,221 3,423
Increase in cash surrender value of life insurance (1,730) --
Provision for doubtful accounts receivable 3,000 --
Increase in inventory reserve 6,000 --
Changes in operating assets and liabilities:
Receivables (86,454) (28,285)
Prepaid expenses (4,156) (7,792)
Inventory (41,111) (25,277)
Accounts payable and accrued liabilities 96,870 (152,471)
----------- -----------
Net cash used by operating activities (375,796) (386,667)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (463) --
Additions to patents (2,076) (11,307)
Additions to other assets (6,050) --
----------- -----------
Net cash used by investing activities (8,589) (11,307)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable to related parties 50,000 --
Proceeds from notes payable and long-term debt 200,000 1,000,000
Principal payments on notes payable to related parties -- (149,282)
Principal payments on notes payable and long-term debt (3,951) (13,231)
Net proceeds from issuance of stock and stock warrants -- 1,033,248
----------- -----------
Net cash provided by financing activities 246,049 1,870,735
----------- -----------
Net (decrease) increase in cash and cash equivalents (138,336) 1,472,761
Cash and cash equivalents, beginning of period 218,828 24,155
----------- -----------
Cash and cash equivalents, end of period $ 80,492 $ 1,496,916
=========== ===========
</TABLE>
Noncash investing and financing activities:
During the three months ended June 30, 1999, the Company converted $86,183 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 three months ended June 30, 2000, the Company converted $11,110 of
interest into notes payable to related parties.
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 year
ended March 31, 2000.
The information furnished reflects all adjustments which are necessary
for a fair presentation of the Company's financial position as of June
30, 2000 and the results of its operations and its cash flows for the
three-month periods ended June 30, 2000 and 1999. All such adjustments
are of a normal recurring nature.
2. Results of Operations
The results of operations for the three-month periods ended June 30,
2000 and 1999 are not necessarily indicative of the results to be
expected for the respective full years.
3. Inventory
Inventory consists of the following:
June 30, March 31,
2000 2000
--------- ---------
Raw Materials $ 261,483 $246,970
Work In Process 267,690 226,346
Finished Goods 163,252 177,998
--------- --------
692,425 651,314
Reserve for Obsolescence (66,000) (60,000)
--------- --------
Inventory $ 626,425 $591,314
========= ========
6
<PAGE>
Notes to Financial Statements, Continued
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:
Three Months
Ending June 30,
2000 1999
---------- ----------
Loss:
Basic and diluted:
Loss available to
common stockholders $ (366,436) $ (176,265)
Shares:
Basic and diluted:
Weighted average common
shares outstanding 9,262,615 7,536,650
5. Effect of New Accounting Pronouncements
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities and in July 1999 issued SFAS 137
which deferred the effective date of SFAS 133, as it pertains to the
Company, to July 1, 2000. This statement has not had a material impact
on the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in
Financial Statements, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed
with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to
revenue recognition policies. It is effective no later than the fourth
quarter of fiscal years beginning after December 15, 1999. This
statement has not had a material impact on the Company.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44") which clarifies the application of
Accounting Principles Board Opinion 25 for certain transactions. The
interpretation addresses many issues related to granting or modifying
stock options including changes in accounting for modifications of
awards
7
<PAGE>
Notes to Financial Statements, Continued
5. Effect of New Accounting Pronouncements, continued
(increased life, reduction of exercise price, etc.). It is effective
July 1, 2000 but certain conclusions cover specific events that occur
after either December 15, 1998 or January 12, 2000. The effects of
applying the interpretation are to be recognized on a prospective basis
from July 1, 2000. FIN 44 has not had a material impact on the Company.
6. Notes Payable and Long-Term Debt
On May 31, 2000, the Company issued a $50,000 promissory note at a 12%
interest rate due April 5, 2001 to an officer to provide working
capital. The note is collateralized by the Company's accounts
receivable and inventory, and has terms similar to the other promissory
notes described below.
During the period of June 23 through July 5, 2000, the Company issued
three promissory notes for an aggregate total of $250,000 to three
outside investors to provide working capital. The terms of each of the
notes are the same, including interest rates of 12% and due dates of
April 5, 2001. The notes are collateralized by the Company's accounts
receivable and inventory.
7. Accounts Receivable Financing Facility
On July 5, 2000, the Company entered into an agreement with an accounts
receivable financing firm to provide up to $250,000 of advances on
customer invoices. The terms of the agreement provide for the lender to
advance up to 75% of the value of assigned invoices at a floating
interest rate, currently 13.5%, plus administrative fees based on the
value of the invoices assigned. These advances will be collateralized
by the Company's trade accounts receivable, inventory and general
intangibles.
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, 2000.
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
8
<PAGE>
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.
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 been
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 several customers. One customer represented 34%
of product sales revenue in the first three months of fiscal year 2001, whereas
the same customer represented 55% of product sales revenue in the first three
months of fiscal year 2000. 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. Domestic sales accounted for 97% of
product sales during the first three months of fiscal year 2001, but
international sales are expected to increase as additional distributors have
been signed to pursue sales internationally. 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.
9
<PAGE>
Percentage of Total Revenues
For the Three Months
Ended June 30,
2000 1999
--------- ---------
Operating revenues:
Sales and service 64.8% 79.3%
Royalties 35.2% 20.7%
------- -------
Total operating revenues 100.0% 100.0%
Operating expenses:
Cost of revenues 89.2% 91.0%
Research and development 68.7% 19.0%
Selling, general and administrative 128.4% 116.7%
------- -------
Total operating expenses 286.3% 226.7%
------- -------
Operating loss (186.3%) (126.7%)
Other expense:
Interest expense - related parties (7.5%) (11.5%)
Interest income (expense) (18.7%) 0.5%
Other income 1.3% 4.7%
------- -------
Total other expense (24.9%) (6.3%)
------- -------
Loss before income taxes (211.2%) (133.0%)
Provision for income taxes 3.5% 2.1%
------- -------
Net loss (214.7%) (135.1%)
======= =======
Three Months Ended June 30, 2000 and June 30, 1999
--------------------------------------------------
Total Operating Revenues. Total operating revenues for the three months
ended June 30, 2000 increased by 31% to $170,655 from $130,468 in the same
period of the previous year. This increase was the result of a 7% increase in
sales and service revenue to $110,655 in the first quarter of fiscal year 2001
from $103,478 in the same period of the previous fiscal year primarily due to
increased sales of the Company's traditional product lines. In addition, royalty
income increased 122% to $60,000 in the first quarter of fiscal year 2001 from
$26,990 in the same period of the previous fiscal year. This increase is due to
improving sales by the Company's licensee of products using the Company's
patented Electronic Gearing Technology.
Sales of the Company's traditional products remain depressed from
historical levels due to increased competition from other manufacturers and
reduced marketing and development efforts
10
<PAGE>
by the Company related to the traditional product lines. Sales of label
loaders/folders and needle positioners accounted for 35% and 10%, respectively,
of the Company's sales and service revenues during the first quarter of fiscal
year 2001, compared to 45% and 5% during the same period of the previous year.
No other products accounted for more than 10% of the Company's sales and service
revenues. The Company has focused its efforts on the development and market
introduction of new products utilizing Electronic Gearing Technology, primarily
the FS-2000. The Company anticipates increasing revenues as a result of new
products utilizing Electronic Gearing Technology during fiscal year 2001.
Cost of Revenues. Cost of revenues increased by 28% for the three
months ended June 30, 2000 to $152,268 from $118,712 during the same period of
the previous fiscal year. This increase is primarily the result of increased
salaries and overhead associated with anticipated increases in levels of
production. The Company anticipates increased production levels of products
utilizing Electronic Gearing Technology during fiscal year 2001.
Research and Development. Research and development costs increased 373%
to $117,189 in the three months ended June 30, 2000 from $24,760 during the same
period of the previous fiscal year. This increase is the result of increased
salaries, increased travel expenses and increased allocation of costs associated
with the Company's efforts to complete development of the FS-2000 and CS-2000,
products utilizing Electronic Gearing Technology. Once these products are
completed, the level of cost and effort for research and development is
anticipated to somewhat decrease.
Selling, General and Administrative. Selling, general and
administrative expenses increased 44% during the first quarter of fiscal year
2001 to $219,061 from $152,242 during the same period of the previous fiscal
year. This increase is primarily the result of higher salary and benefit costs,
increased travel expenses and increased investor relations costs.
Operating Loss. The Company's operating loss for the first quarter of
fiscal year 2001 increased by 92% to $317,863 from $165,246 from the same period
of the previous year. The increased loss is mainly attributable to increased
costs of revenues, research and development costs and selling, general and
administrative expenses offset somewhat by increased operating revenues.
Interest Income (Expense) and Interest Expense-Related Parties.
Interest expense, net of interest income, increased by $32,622 during the three
months ended June 30, 2000 from the same period the previous year, primarily as
a the result of the issuance of $1,000,000 of long-term notes payable by the
Company in conjunction with a private placement during the first quarter of
fiscal year 2000. Interest expense-related parties decreased by $2,083 due to
the conversion of certain notes payable-related parties to equity and the
retirement of a portion of the notes payable-related parties, both occurring
during the past fiscal year as a part of the Company's private placement.
11
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Net Loss. The Company's net loss increased to a net loss of $366,436
during the three months ended June 30, 2000 from a net loss of $176,265 during
the same period of the previous year due to an increased operating loss and
increased other expenses, mainly 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, borrowings from
individuals and sale of stock. The Company's capital requirements have arisen
primarily in connection with purchases of fixed and intangible assets and
significant expenditures for research and development and marketing new
technology. These expenditures increased during the past fiscal year, and are
expected to increase in fiscal 2001 and beyond. See "Future Operations."
Net cash used by operating activities was $375,796 during the first
quarter of fiscal year 2001 and $386,667 during the same period of the previous
fiscal year. The primary uses of cash from operating activities during the three
months ended June 30, 2000 were the net loss of $366,436, increased receivables
of $86,454 and increased inventory of $41,111 offset somewhat by increased
accounts payable and accrued liabilities of $96,870 as well as other increases
and decreases in working capital items and non-cash items. The primary uses of
cash during the three months ended June 30, 1999 were the net loss of $176,265,
the reduction of accounts payable and accrued liabilities of $152,471, increased
receivables of $28,285 and increased inventory of $25,277.
Net cash used by investing activities was $8,589 during the first
quarter of fiscal year 2001 and $11,307 during the same period of the previous
fiscal year. The primary use of cash by investing activities during the three
months ended June 30, 2000 was the increase of other assets of $6,050 and the
addition of $2,076 of patent costs. The use of cash by investing activities
during the three months ended June 30, 1999 was the addition of $11,307 of
patent costs. Capital expenditures for the three months ending June 30, 2000 and
June 30, 1999 were $463 and $0, respectively.
Net cash provided by financing activities was $246,049 during the first
quarter of fiscal year 2001 and $1,870,735 during the same period of the
previous fiscal year. The primary sources of cash provided by financing
activities during the three months ended June 30, 2000 were proceeds from the
issuance of notes payable ($200,000) and notes payable-related parties
($50,000). The primary sources of cash provided by financing activities during
the three months ended June 30, 1999 were the proceeds from the issuance of
$1,000,000 of long-term notes payable and $1,033,248 of stock and stock
warrants, offset somewhat by the principal payments on notes payable and notes
payable-related parties.
The Company's principal commitments at June 30, 2000 consisted
primarily of notes payable to related parties, other notes payable, accounts
payable and other accrued liabilities. Other notes payable, including both the
short-term and long-term portions, were $1,172,918, net of $66,787 of debt
discount. Of the other notes payable, $1,000,000 in principal have a maturity of
June 2003. Total notes payable-related parties,
12
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including both the short-term and long-term portions, were $556,722, of which
$456,722 is subordinated to other notes payable and cannot be repaid until such
other notes payable have been paid in full. 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. Accounts payable
and other accrued liabilities were $286,401 as of June 30, 2000.
During fiscal year 2000, the Company entered into an agreement with
investors to provide $280,000 of additional capital through the issuance of
700,000 restricted Common Shares which was completed on April 30, 1999.
Additionally, the Company completed a private placement to secure an additional
$2,050,000 to be used primarily for working capital, capital expenditures,
patent work, retirement of certain notes payables to a shareholder, payment of
existing accounts payable and payment of 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 included warrants to purchase 100,000 restricted
Common Shares at $0.50 per share for 48 months. The notes bear interest at 10%
per annum with interest accruing during the first year, payable June 25, 2000
and quarterly thereafter. The notes may be prepaid without penalty and are
collateralized 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.
As part of this agreement, two related party note holders agreed to
convert their existing notes payable and interest thereon totaling $296,451 into
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 private placements 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 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 collateralized by the
Company's accounts receivable, inventory and certain fixed assets. Utilization
of the line of credit is contingent on meeting certain covenants. As of June 30,
2000, the Company had no amounts outstanding under the line of credit and was
not in compliance with the restrictive covenants.
In June 2000, the Company issued two promissory notes for an aggregate
total of $200,000 to two outside investors and a $50,000 promissory note to an
officer to provide working capital. The terms of each of the notes are the same,
including interest rates of 12% and due dates of April 5, 2001. The notes are
collateralized by the Company's accounts receivable and inventory. In July,
2000, the
13
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Company issued a promissory note for an additional $50,000 to provide working
capital, under the same terms as above. In addition, the Company is attempting
to raise up to $350,000 of additional equity through a private placement of
stock.
In July 2000, the Company entered into an agreement with an accounts
receivable financing firm. The terms of this agreement call for the lender to
advance 75% of the face value of the Company's invoices for a maximum loan
balance of $250,000. The $250,000 limit may be increased at the Company's
request with the consent of the lender. The Company will pay a variable market
rate of interest plus additional administrative fees based on the value of the
invoice. The interest rate on June 30, 2000 was 13.5%.
During fiscal year 2000, the Company increased the number of employees,
office and manufacturing space and product development capabilities to prepare
for anticipated growth in its business. This growth has been slower to develop
than anticipated, due primarily to a longer development cycle for new products.
Accordingly, the Company incurred an operating loss for the first quarter of
fiscal year 2001.
Management anticipates an increase in revenues and cash flows from
operations later in fiscal year 2001 which, it believes, along with borrowings
available from the accounts receivable financing facility recently signed and
additional short term borrowings recently obtained, will be sufficient to meet
anticipated cash needs for working capital and capital expenditures for the next
year. However, there can be no assurance that the Company will be able to meet
its operating plans, achieve profitability, or raise additional equity
financing.
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.
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<PAGE>
Future Operations
-----------------
Since the Company completed its private placement during last fiscal
year and agreements both with an accounts receivable financing firm for
additional working capital and additional working capital through the issuance
of new notes payable, 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. Since then overhead has increased in
anticipation of production and development demands related to the Felling
Machine.
Recent upgrades to existing equipment which uses 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 CS-2000 Chain Stitch Machine.
To provide for growth opportunities, the Company entered into two
distribution agreements for the FS-2000 Felling Machine. One, a worldwide
distribution agreement, gives the Company access to international markets that
it currently does not have the expertise in which to expand. The second gives
the Company access to the Canadian market through an established sales channel.
The Company will continue to sell directly to domestic customers.
The Company anticipates that income from license fees and royalty
revenues will increase over the next several years as its existing licensee
increases the sales of currently licensed products and introduces new
electronically geared equipment to the market, and as additional manufacturers
license the technology.
To provide for continued growth, the Company leased a manufacturing
facility that will provide sufficient space for the Company's needs. The Company
relocated to the new facility in
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<PAGE>
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.
As of June 30, 2000, the Company had backlog orders it believes to be
firm totaling approximately $334,000 of which approximately $120,000 is for
equipment that is part of the Company's standard product line and is expected to
be completed by September 30, 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 second quarter of fiscal year 2001 as a
result of continuing product development efforts. In addition, the Company has
received requests from in excess of 75 different manufacturers for FS-2000 trial
units and information about the FS-2000. 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 to be used for more continuous-run sewing. This
model is in development and 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.
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 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
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
16
<PAGE>
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:
o 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;
o the potential failure by the Company to successfully negotiate
additional licensing agreements;
o 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;
o 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;
o 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;
o 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;
o 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
o 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.
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<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On April 15, 2000, the Company issued options to purchase up to 20,000
Common Shares to its investor relations firm as compensation for services
performed. The options have a three year exercise period and an exercise price
of $0.50 per share.
The Company's line of credit with First Tennessee Bank prohibits the
Company from declaring or paying dividends without the prior approval of the
bank.
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 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
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Table Number Number
------------ ------
<S> <C> <C>
(vi) Registration Rights Agreement Giving Purchasers under the #
Private Placement Closed on June 25, 1999 Certain Demand and
Piggyback Registration Rights
(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.
IV. Financial Data Schedule 27 22
</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, 2000.
(b) The Company did not file any reports on Form 8-K during the first
quarter of fiscal 2001.
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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: August 9, 2000
By: /s/ David G. Camp
--------------------------------------
David G. Camp, Chief Financial Officer
Date: August 9, 2000
