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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended March 31, 2000 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________ to
_____________.
Commission file number 333-11591
Tice Technology, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 62-1647888
(State of Incorporation) (IRS Employer Identification No.)
1808B North Cherry Street
Knoxville, Tennessee 37917
(Address of Principal Executive Offices)
(865)524-8997
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of this Act:
Common Shares, $0.01 par value per share
Common Stock Purchase Warrants
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 5(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value, as of June 26, 2000 (based upon the average bid
and asked prices on such date) of the voting and non-voting common equity held
by non-affiliates of the registrant was $1,692,546.
The number of shares outstanding of each class of the registrant's common
stock as of June 26, 2000 was: 8,512,615 Common Shares, 750,000 Class B Common
Shares and 0 Class D Common Shares.
Exhibit Index on page 55.
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TABLE OF CONTENTS
PAGE
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PART I........................................................................2
Item 1. Business.......................................................2
Item 2. Properties....................................................12
Item 3. Legal Proceedings.............................................12
Item 4. Submission of Matters to Vote of Security Holders.............12
PART II......................................................................12
Item 5. Market For Registrant's Common Equity And Related
Stockholder Matters.........................................12
Item 6. Selected Financial Data.......................................13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....24
Item 8. Financial Statements and Supplementary Data...................24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures........................48
PART III.....................................................................48
Item 10. Directors and Executive Officers of the Registrant............48
Item 11. Executive Compensation........................................50
Item 12. Security Ownership of Certain Beneficial Owners
and Management..............................................52
Item 13. Certain Relationships and Related Transactions................53
PART IV......................................................................55
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................55
SIGNATURES...................................................................57
PART I
Item 1. Business.
The Company
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Tice Technology, Inc. ("Tice Technology") is a holding company that was
formed on June 21, 1996 by Tice Engineering & Sales, Inc. ("Tice") and
Monogenesis Corporation, a closed-end investment company ("Monogenesis"), to
acquire and hold the issued and outstanding stock of Tice. On August 1, 1997,
Tice Technology acquired all of the issued and outstanding stock of Tice in
exchange for 5,450,220 Common Shares and 750,000 Class B Common Shares. Tice
Technology also issued 300,000 Common Shares and 1,000,000 Common Stock Purchase
Warrants (the "Warrants") for $.01 each to Monogenesis, most of which were
distributed to Monogenesis' shareholders. This established Tice Technology's
initial shareholder base of approximately 1,200 institutional investors. Tice
Technology also issued 88,560 Common Shares in satisfaction of certain of Tice's
debts. Upon completion of the
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exchange, Tice became a wholly owned subsidiary of Tice Technology. Tice
Technology's Common Shares trade on the Electronic Bulletin Board under the
symbol TICE. Tice Technology and Tice are sometimes referred to as "us," "we" or
"our."
Tice was incorporated in 1973 and is an engineering firm that provides
engineering and technical solutions for the apparel industry generally through
the development or enhancement of equipment. Tice researches, designs, develops,
tests, manufactures and markets specialized high technology, garment production
line stitching machines and related equipment. During manufacture and assembly,
the arrangement of component parts of a tice(R) product are configured to meet
the purchaser's special production line application requirements. Accordingly,
most of our products are made-to-order pursuant to customer specifications as
indicated on purchase orders received from customers. Generally, a potential
customer outlines a need or problem relating to its manufacturing process, we
review the need as it would apply to the industry as a whole and estimate the
cost to provide the product or service. Once manufactured for the initial
customer, we retrofit the unit to fit specifications for other customers that
may also benefit from the new Tice product that lessens or solves the problem
encountered in their same manufacturing process. We obtain patents on many of
our products which, when patented, we license to other manufacturers to produce
or contract manufacture for our own customers. We generally retain the rights to
the design of all products we design and manufacture.
Prior to October 1996, 95% of Tice's revenues were derived from the sale of
products designed and manufactured by us. The remaining revenues were derived
from rents received from real property and some consulting fees. We sold the
rental real estate on September 30, 1996. The consulting fees are very minor as
independent revenues; traditionally these fees are encompassed in the design and
manufacture of products for a particular customer. In January 1997, Tice granted
a major sewing machine manufacturer, Brother Industries, Ltd. of Nagoya, Japan,
a nonexclusive license to make, assemble, use and sell products incorporating
the patented electronic gearing technology and know-how. In June 1997, we began
receiving income from royalties on sales of machines produced under the license.
Royalty income represented 42% of our revenues for the year ending March 31,
2000. We also manufacture replacement parts for our products and a few minor
attachments and provide consulting services at hourly rates.
During the past seven years, in addition to marketing and selling the
conventional product line that we have sold for some time, we have spent
considerable time developing new technology and obtained four patents, two in
1994, one in 1995 and one in 1998. The bulk of the research efforts since 1993
have been centered on the electronic gearing technology. This technology was
initially developed for the double needle belt loop machine and, by using a
computer and servo motors, eliminates approximately 90% of the mechanical parts
as well as certain other technical problems associated with the previous
machine.
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Our success is dependent on our ability to provide solutions to the sewing
industry (and, to a certain extent, some other industries) through our existing
products or by developing new or enhanced products. We believe the electronic
gearing technology has application to many other types of machines including
machines used in industries other than the sewing industry, such as the
automotive industry. To date, in addition to the double needle belt loop machine
and the lap seam felling machine, we have built "proof of concept" models of the
multi-head buttonhole machine and the plain lock stitch sewing machine.
We believe that the income received from license fees and royalties will
increase over the next several years. This belief is based on forecasts of
increased sales of the equipment produced under license in the December 1997
Bobbin magazine as well as anticipated additional license agreements with other
manufacturers. We also anticipate increased sales revenues in the current fiscal
year upon startup of production of the lap seam felling machine under the joint
development agreement with the denim clothing manufacturer described below.
Products
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Standard Products
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We sell various products mainly to the sewn products industry. Many of our
products are covered by patents that generally provide protection for seventeen
to twenty years from date of issue. Our basic products include:
1) Twin Needle Belt-Loop Sewing Machine -- Patent #5,458,075 issued
October 17, 1995.
2) Ergonomic Stands (pneumatic and electronic) -- Patent #5,313,893
issued May 24, 1994.
3) Single Needle Belt Loop Machines -- Prior patents, if any, have
expired.
4) Button Hole Indexers -- Prior patents, if any, have expired.
5) Takeaway Mechanisms -- Patent #5,303,910 issued April 19, 1994.
6) Indexing Stackers -- (incorporates Takeaway Mechanisms covered under
patent #5,303,910).
7) Label Loader/Folders -- Patent #4,677,923 and #4,979,934 issued July
7, 1987 and December 25, 1990 respectively.
8) Automatic "J" Tackers -- Prior patents, if any, have expired.
9) Belt-Loop Winders -- No patents exist on this product.
10) Needle Positioners -- Prior patents have expired.
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11) Pocket Creasers -- No patents exist on this product.
12) Pneumatic Circuit Boards -- No patents exist on this product although
the circuit boards created were copyrighted from 1976 to 1986.
13) Air Operated Clamp Lifts -- Prior patents have expired.
14) Electronic Gearing Components for Sewing Machines -- Covered by patent
#5,458,075 issued on October 17, 1995, patent #5,839,382 issued on
November 24, 1998, China patent # ZL95195459.9 issued June 12, 1999.
Other international patents applied for.
15) Lap Seam Felling Machine- Patents applied for.
Additional information about our products can be found on our website at
www.ticeengineering.com.
New Product Development
-----------------------
We continue our efforts to develop new products and upgrade existing
products to meet our customer's needs and to provide solutions to problems not
previously addressed by other equipment manufacturers. Our goal with new
products is to provide the customer with benefits such as increased production,
less down-time and maintenance cost, less operator fatigue, less operator
training, and increased flexibility by providing the ability to change equipment
specifications on site.
During the fiscal year ending March 31, 2000, we introduced a new lap seam
felling machine. We completed development and entered into customer evaluations
of the new machine which uses our patented electronic gearing technology. The
machine is designed primarily for fell seaming of denim, work wear, canvas and
other heavy materials. This machine has approximately 90% fewer parts than a
traditional sewing machine, thereby reducing maintenance, down time and the need
for spare parts. In addition, the design of the unit allows the operator to sit
in line with the sewn product thereby reducing ergonomic injury risk and
improving line of sight, production rate and product quality. Significant
reductions in operator training and skills are realized by customers using this
machine. The product uses two independent feed rollers coordinated through
electronics to move the sewn product through the stitching process. The ability
to adjust the sewing speed and the rate in which the material is fed through the
machine are other product benefits.
With respect to the lap seam felling machine, in 1995 Tice entered into a
Joint Development Agreement with a denim clothing manufacturer to develop a
felling machine suitable for inseaming jeans using our electronic gearing
technology. Under the agreement, we retain ownership of the technology, but
grant the manufacturer a nonexclusive, paid-up license to
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the jointly developed felling machine. The manufacturer paid us a fee of
$300,000 to develop the felling machine. In return, in addition to the license,
it had the exclusive right after production of the first felling machine to
purchase the resulting felling machines so long as it purchases a minimum of the
lesser of our entire production or 249 machines during each year. The cost of
each machine to the manufacturer is not to exceed $20,000 per machine. The denim
clothing manufacturer has since waived its exclusive right to purchase the
felling machines we produce. With respect to felling machines sold to any other
company, the manufacturer is entitled to receive a royalty of 4% of the gross
selling price until such time as it has received an amount equal to the amount
paid by it to develop the product plus interest at a rate of 10% per annum.
Although the denim manufacturer put a hold on the project in November 1996 due
to plant reorganizations which limited its ability to take delivery of the
machines, we resumed work on the project independent of the manufacturer in June
1997.
During the fiscal year ending March 31, 2000, sales of Label Loader/Folders
accounted for 28.3% of our product revenues. During the fiscal year ending March
31, 1999, sales of Automatic J-Tackers, Single Needle 'Loop' Machines and Label
Loader/Folders were 17.7%, 21.6% and 20.0% of product revenues, respectively.
During fiscal year ending March 31, 1998, sales of the Label Loader/Folders and
Single Needle Belt Loop Machines contributed 22.5% and 22.4% to product sales
respectively. Sales of Ergonomic Stands represented 12.8% of product sales
revenues in the 1998 period. We expect products containing the electronic
gearing technology to become our dominant products over the next several years.
Patents and Trademarks
----------------------
Tice relies on a combination of patent, trade secret and trademark laws,
confidentiality procedures, and contractual provisions to protect intellectual
property. We patent many of the products we develop. We currently have seven
patents under which we are producing products and are working on designs for
additional products. The patents have expiration dates ranging from 2004 to
2019. We also sell products on which we hold patents that have expired. We are
currently working on obtaining patent protection in countries other than the
U.S. on our electronic gearing technology and have applied for a second U.S.
patent on the technology. In February 1998, we announced that we received a
favorable report regarding the international patents from the International
Preliminary Examining Authority on the electronic gearing technology. The report
indicated that all 46 claims of the application met the requirements for
novelty, inventive step and industrial applicability.
In addition to patents, Tice also holds registered trademarks on the name
"Tice" as well as the name "Tice Technology" and related logo. The registration
certificate for the name "Tice" was obtained from the U.S. Patent and Trademark
Office in 1980 and the registration certificate for the name "Tice Technology"
and related logo was obtained June 10, 1997. The registered name "Tice
Technology" and related logo are required to be prominently displayed on all
equipment, advertisements and printed matter that relate to equipment produced
under license from us that incorporates our patented electronic gearing
technology.
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Research and Development
------------------------
Tice conducts an active and ongoing research, development and engineering
program that focuses on advancing the electronic gearing technology as well as
improving the performance of current products, developing new products both with
and without the electronic gearing technology, and expanding the electronic
gearing technology to serve new markets. When a sewing manufacturer or other
customer comes to us with a production or ergonomic problem, we will generally
consult, build and then manufacture a piece of equipment designed to eliminate
or lessen production or ergonomic problems or enhance production capabilities.
Once the piece of equipment has been designed and produced as required by the
customer, we generally retain rights to the design and then offer the equipment
and technology to the industry as a whole. In many cases, we obtain a patent on
the process to protect our rights. We also have the option to license other
manufacturers to produce and market the product in exchange for license fees and
royalties.
Tice is in the process of designing the following equipment that uses our
patented electronic gearing technology:
o A chain stitch sewing machine (customer evaluation phase)
o A multi-head button hole machine (proof of concept model completed)
o A single needle plain sewer (proof of concept model completed)
o A multi-head button sewing machine (initial prototype development)
o A sewing machine capable of sewing in three dimensions for use in
sewing automotive air bags (project in initial design phase)
Tice incurred research and development expenses of $193,759, $172,590 and
$208,407 respectively in fiscal years 2000, 1999 and 1998. As the demand for the
Tice electronic gearing technology grows, we are making preparations to meet the
existing and expected future demands by increasing engineering personnel.
Market
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Our customers are primarily, but not exclusively, apparel manufacturers. In
addition to providing products used in apparel manufacturing, we have designed
and built special equipment for Ford Motor Company, Lockheed Aerospace, Camel
Tent and Awning and California Sail and Rigging as well as a number of furniture
manufacturers and medical supply companies. We continually strive to broaden our
customer base by obtaining new customers and by increasing our business with
those existing customers which have historically comprised a small percentage of
our revenue, as well as by developing products for industries outside of the
apparel industry that would benefit from Tice's technology. For example, we are
currently developing a machine
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incorporating the electronic gearing technology to allow three-dimensional
sewing of airbags for the automotive industry.
Tice markets products and services worldwide with the primary concentration
of sales being in North America, South America and Europe. We distribute our
products to end users through direct technical sales persons as well as through
an independent sales and distribution network of approximately 125 dealers. With
respect to the FS-2000, we have entered into an exclusive worldwide distribution
agreement with AMF REECE to sell and support the machine for all territories
outside North America. Both Tice and AMF REECE have the right to sell the
machine in the United States and Mexico, and Tice has an exclusive distribution
agreement in place with another distributor in Canada.
In addition, Tice advertises in one or more of the apparel industry's
international trade magazines and regularly attends apparel industry trade shows
as an exhibitor to display equipment and technology. We exhibited at the IMB
Show in Cologne, Germany in May 1997, at the Bobbin Show in September 1997, at
the Bobbin World Show in Atlanta, Georgia in September 1998, and at the Bobbin
Americas Show in Atlanta, Georgia in September/October, 1999. Our new felling
machine was represented at the IMB Machinery Show held in Germany in June, 2000.
Several of Tice's distributors also display Tice equipment in their booths at
various trade shows. Since January 1999, our distributors have displayed Tice
equipment at the following trade shows: April 1999, Sewn Products Expo in Los
Angeles, California; May 1999, Apparel Sourcing Show, Guatemala City, Guatemala;
May 1999 JIAM (Japan International Apparel Machinery) Show in Tokyo, Japan; and
May 1999, Bobbin Expo in Mexico City. All equipment manufactured by Tice bears
our registered trademark and the applicable patent numbers. Equipment produced
under a license agreement from Tice must be advertised in trade publications and
displayed in trade shows by the licensee with the "Tice Technology(R)"
registered logo, trademark and patent numbers properly displayed.
International sales represented 6%, 13% and 24% of total revenues in the
fiscal years ending March 31, 2000, 1999 and 1998 respectively. The reduced
international sales in the 1999 and 2000 periods were primarily the result of
shipments being held pending resolution of delinquent account balances due from
one of our primary international distributors. Management has reviewed the
distributor's account and has taken measures to insure that the end users of the
equipment will receive ongoing sales, service and support by increasing direct
sales to end users as well as signing additional distributors to cover the
growing Latin American market. All export sales are paid in U.S. funds, either
in advance of shipment or with an irrevocable letter of credit; therefore, there
are no gains or losses included in operations related to foreign currency
exchanges. To better serve international customers, our customer service
department has personnel who are fluent in German, Italian and Spanish.
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Revenue Sources
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Product Revenue
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Historically, Tice has primarily designed and manufactured special
application equipment and attachments for denim (blue jean) and work wear
manufacturers. We also have manufactured equipment for other types of sewing
manufacturers that produce drapery products; upholstery; shoes; sewn medical
supplies; boat, car and aircraft interiors; and general apparel. In fiscal year
2000, we received approximately 39% of our annual product revenue from one
primary customer, Wrangler, Inc. ("Wrangler," d.b.a. "VF Jeanswear"), a denim
and workwear manufacturer. All of Tice's license fee and royalty revenue to date
are from one customer, Brother Industries, Ltd. ("Brother") of Nagoya, Japan.
The loss of either of these customers could materially affect our revenues and
results of operations. However, we believe that, as we further develop uses for
the electronic gearing technology, such as the three-dimensional stitching
machine for automotive airbags, our dependence on a few customers or a
particular segment of the sewing industry will lessen or disappear. We are in
various stages of formal and informal negotiations with other manufacturers of
equipment for the license of the electronic gearing technology.
License and Royalty Revenue
---------------------------
Tice granted Brother a nonexclusive license effective January 1, 1997 to
make, assemble, use and sell products (consisting of up to twelve categories of
industrial sewing machines) incorporating the electronic gearing technology and
know-how and related additional technology which may be developed by Tice. The
license is granted for the term of the applicable patent. We are also required
to provide Brother with technical assistance and training. In return for the
license, if certain conditions are met, in addition to royalties, we are
entitled to license fees for each category of machine developed by Brother using
the technology which, if all machines are developed will total $6,000,000. We
received an initial license fee of $250,000 corresponding to the first category
of machines (the electronic double-needle tacker) on February 25, 1997 and in
April 1997 received a payment of $250,000 corresponding to the second category
of machines (the multi-head embroidery machine). Brother has agreed to pay Tice
$250,000 within thirty days of the date of the first commercial shipment of a
product in any of the remaining ten categories and $250,000 within sixty days of
the date the aggregate net sales of products in a category equals $30,000,000.
As of March 31, 2000, Brother had sold approximately $8 million of
electronic double needle tackers and approximately $23 million of multi-head
embroidery machines using the electronic gearing technology. In addition, we are
entitled to a continuing royalty of 2% of net sales, 1.75% of net sales relating
to additional "know-how" provided by us to Brother and 80% of any sub-license
income of Brother relating to the Tice technology during the life of the patent
or any continuation thereof. Brother is required to pay us additional fees at
our published rates for technical assistance and training.
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All products produced under license from Tice must prominently display the
registered "Tice Technology(R)" trademark on the equipment, service manuals,
advertisements and other related items. Brother has developed machines in two
categories which it is actively advertising and promoting at trade shows and
selling. Royalties on net sales of equipment sold under license are reported at
the end of each six-month period, June and December each year, and are payable
within thirty days after such report. Royalties reported in July 1997 for the
period January 1997 through June 1997 totaled $12,908. Royalties reported in
January 1998 for the period July 1997 through December 1997 totaled $102,664.
Income from royalties was $209,747 for the fiscal year ending March 31, 2000 as
compared to $144,751 for the fiscal year ending March 31, 1999. We believe that
this increase was primarily due to the increased sales of Brother's products in
the Western Hemisphere markets. We anticipate that revenue from license fees and
royalties will increase as Brother introduces more machines using the electronic
gearing technology and as sales of the two existing machines increase.
Backlog
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As of March 31, 2000, Tice had backlog orders believed to be firm totaling
approximately $250,000 of which approximately $22,500 was for equipment that is
part of Tice's standard product line and is expected to be completed by June 30,
2000. The backlog also reflects orders of approximately $228,125 for twelve
FS-2000 Felling Machines. Delivery of the FS-2000 is expected to begin during
the summer of 2000 as a result of the successful completion in June 1999 of the
private placement offering and the completion of the year long final development
and evaluation of the machine. In addition, we have received multiple requests
from different manufacturers for FS-2000 trial units. We also have indications
of interest for additional orders totaling approximately $1,200,000 relating to
products, other than the felling machine, using the electronic gearing
technology upon completion of production models. There is no assurance that
these indications of interest will become firm orders.
Competition
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Management believes that all of the large Japanese and most of the other
manufacturers of equipment for the apparel industry maintain research and
development departments that perform research along the same lines as Tice. All
of these companies are much larger than Tice and have much larger research and
development capabilities. In addition, management estimates that there are four
companies of approximately the same size as Tice that provide similar services
and products. We are also aware of two companies in Europe that perform similar
services, but do not know the size of those companies.
Like Tice, most of these competitors perform research and development at a
customer's request. We have found that our competitors have designed products
(none of which use the electronic gearing technology) similar to our Single
Needle Belt Loop Machine, Ergonomic Stands and Pocket Creasers to which extent
there is direct competition with these Tice products. One of our largest
competitors has licensed the patented electronic gearing technology from Tice as
opposed to trying to develop its own technology. Generally, the market in this
industry is
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targeted through advertising in trade journals and attendance at trade shows
such as the Bobbin Show. The principal methods of competition, in addition to
technology, are price, workmanship, overall machine performance and service
offered.
Manufacturing
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We generally manufacture all prototype and existing products. However, our
general policy has been to outsource the manufacturing of components or
manufacturing processes (such as nickel and chrome plating for the ergonomic
stands) which, for various reasons, create environmental hazards. So far we have
found that it has generally been less expensive to outsource when the
environmental compliance costs are factored in. In the event that we were no
longer able to outsource the component or process, we would most likely change
the component or finishing process. We have no current plans or perceived need
to make any material capital expenditures for environmental control.
Tice's facility has the machining capabilities of sawing, milling, welding,
brazing, sanding, surface grinding, drilling, tapping, threading, turning
(lathe), riveting, bending, heat treating and painting. We maintain an assembly
department which consists of eight assembly stations, each with an assortment of
hand tools, electronic and air-driven power tools, vises, air supply and
electronic requirements. In addition, the assembly department has two stations
designated for the assembly of electronic circuit boards and components. During
manufacture and assembly and prior to shipment, each product manufactured by
Tice goes through a series of quality checks.
Tice maintains an in-house inventory of all parts we manufacture and
approximately 80% of the components supplied by outside vendors. Approximately
25% of components of our products are vendor supplied. We generally use
components supplied by a number of different sources and are therefore not
predominantly dependent on one supplier of any component of any of our products.
In addition, with the exception of a few items such as P.L.C.s (programmable
logic controller, i.e. micro computer), PCs (personal computers), electric
motors and electric switches (which are available from numerous suppliers), we
have the capability of manufacturing most of the components used in our
products. Raw materials, such as aluminum, steel and brass, are also available
from many suppliers.
Employees
---------
As of March 31, 2000, Tice had nineteen full time employees. This number
includes nine hourly and ten salaried employees. We employ machinists, welding
specialists, electronic specialists, assembly personnel, shipping and inventory
personnel, clerical workers, electronic and mechanical engineers and sales and
service personnel. Approximately 50% of our management have been employees of
Tice for at least ten years. Tice considers its relationship with its employees
to be good, and none of its employees currently are represented by a union in
collective bargaining with the company.
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Due to the growing demand for the electronic gearing technology and the
introduction of the FS-2000 felling machine, we expect to increase our workforce
by approximately 50% during the current fiscal year. The additional personnel
will consist of engineers needed for the increased demand on the research and
development department as well as assembly and production workers needed for the
increased production output upon completion of the felling machine.
Item 2. Properties.
Tice Technology's corporate headquarters are located in Knoxville,
Tennessee and are housed in the manufacturing facility leased through its
subsidiary, Tice. The facility consists of approximately 44,000 square feet. Of
that space, the manufacturing area consists of 37,000 square feet, 4,000 of
which constitute research and development operations. The remaining 7,000 square
feet houses the administrative offices. The facility is located in an industrial
area. Tice entered into a five year lease agreement in December 1999. The lease
allows us to terminate the agreement after thirty-six months with no penalty,
but we must reimburse the landlord for any unamortized improvement costs if we
terminate early.
Tice owned approximately six acres of land for possible expansion of
operations. Once we relocated our operations to the above-described facility, we
sold the land in February 2000, resulting in a gain on sale of property.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which Tice Technology or
its subsidiary or to which any of its properties are subject.
Item 4. Submission of Matters to Vote of Security Holders.
No matters were submitted to a vote of security holders of Tice Technology,
Inc. during the fourth quarter of Tice Technology's fiscal year ended March 31,
2000.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters.
Trading of Tice Technology's Common Shares and Warrants is reported on the
Electronic Bulletin Board under the symbols TICE and TICEW, respectively.
Reporting commenced on August 28, 1997, but is sporadic so there is no
established public trading market for Tice Technology's securities.
The following table reflects the high and low bid prices for the Common
Shares and Warrants for each quarter of the fiscal years ended March 31, 2000
and 1999:
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Common Stock
Common Shares Purchase Warrants
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High Low High Low
---- --- ---- ---
4th Quarter, 2000 $ 1.0625 $ 0.375 $ * $ *
3rd Quarter, 2000 $ 1.0625 $ 0.375 $ 0.001 $ 0.001
2nd Quarter, 2000 $ 1.50 $ 0.875 $ 0.08 $ 0.08
1st Quarter, 2000 $ 2.00 $ 0.75 $ 0.001 $ 0.001
4th Quarter, 1999 $ 1.6875 $ 0.75 $ * $ *
3rd Quarter, 1999 $ 1.75 $ 0.125 $ 0.25 $ 0.0625
2nd Quarter, 1999 $ 3.00 $ 0.75 $ 0.625 $ 0.0625
1st Quarter, 1999 $ 5.00 $ 2.00 $ 1.00 $ 0.25
* No trades recorded.
The approximate number of holders of Common Shares of Tice Technology as of
June 15, 2000 was 1,070 (based upon the number of record holders), excluding
stockholders whose Common Shares are held in nominee or street name by brokers.
The approximate number of holders of Warrants as of that same date was
approximately 1,031 (based upon the number of record holders), excluding holders
whose Warrants are held in nominee or street name by brokers.
Tice Technology has never paid cash dividends on any of its outstanding
securities. Any future payment of cash dividends would require Tice to pay cash
dividends to Tice Technology. Tice has also not paid cash dividends to Tice
Technology. We do not anticipate paying cash dividends on any shares in the
foreseeable future. We expect Tice to retain earnings to finance expansion of
business and for general corporate purposes. The declaration and payment of any
dividends on the Common Shares will be at the discretion of our Board of
Directors and will depend on, among other things, earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other factors considered relevant by the
Board of Directors. In addition, under the terms of our line of credit with
First Tennessee Bank, we are prohibited from declaring or paying dividends
without the prior approval of the bank.
Item 6. Selected Financial Data .
The following table summarizes certain selected consolidated financial data
of Tice Technology and Tice and is qualified in its entirety by the more
detailed consolidated financial statements and notes thereto appearing elsewhere
herein. The data have been derived from the audited consolidated financial
statements of Tice Technology.
13
<PAGE>
--------------------------------------------------------------------------------
Statement of Earnings Data:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
(Amounts in thousands except
per share amounts)
------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 499 $ 731 $ 1,344 $ 1,397 $ 1,242
Operating expenses:
Cost of revenues 662 474 751 815 699
Research and development (net) 194 172 208 163 47
Selling, general and administrative (1) 821 560 882 563 482
Warrant extension expense 90 -- -- -- --
-------- ------- ------- ------- -------
Total operating expenses 1,767 1,206 1,841 1,541 1,228
Operating (loss) income (1,268) (475) (497) (144) 14
Total other (expense) income (54) (90) (1,370) 298 5
-------- ------- ------- ------- -------
(Loss) income before taxes (1,322) (565) (1,867) 154 19
Provision for income taxes 21 14 47 113 4
-------- ------- ------- ------- -------
Net (loss) income $ (1,343) $ (579) $(1,914) $ 41 $ 15
======== ======= ======= ======= =======
Net (loss) income per common share
Basic and diluted $ (0.15) $ (0.09) $ (0.30) $ 0.01
</TABLE>
(1) Excludes warrant extension expense of $90,000 in fiscal year 2000
14
<PAGE>
--------------------------------------------------------------------------------
Balance Sheet Data:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
(Amounts in thousands)
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $1,330 $ 846 $1,102 $1,001 $1,431
Total long-term liabilities $1,407 $ 630 $ 556 $ -- $ 661
Total stockholders' (deficit)
equity $ (340) $(539) $ (61) $ 176 $ 142
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
---------------------
Year Ended March 31, 2000 Compared with Year Ended March 31, 1999
-----------------------------------------------------------------
Total operating revenues decreased in fiscal year 2000 by 32% to $499,465
from $730,937 in fiscal year 1999. Product revenues decreased 50% to $289,718 in
fiscal year 2000 from $586,186 in fiscal year 1999 as we worked to complete
development of new products featuring the electronic gearing technology and
sales of traditional products decreased significantly due to increased
competition and limited resources available to effectively market the products
worldwide. In fiscal year 2000, sales of Automatic J-Tackers, Belt Loop
Machines and Label Loaders/Folders generated product sales of $0 (0%), $12,900
(4.5%) and $82,082 (28.3%), respectively, whereas in fiscal year 1999 these
items generated product sales of $103,698 (17.7%), $126,438 (21.6%) and $117,079
(20.0%), respectively. While sales of the traditional products are expected to
continue through the efforts to continually upgrade and customize these products
to meet customer needs, we expect most of our future revenues to be generated
from sales of new products either already developed, currently in development or
to be developed. Also, in addition to product revenue, royalty income increased
45% in fiscal year 2000 to $209,747 from $144,751 in fiscal year 1999 primarily
due to the increase in sales of products in the Western Hemisphere by Tice's
licensee. The licensee did not introduce any new products or meet any set sales
milestones using Tice's electronic gearing technology which would require
payment of the established license fees in fiscal year 2000.
The total operating loss increased approximately 167%, primarily due to
increased operating expenses and decreased operating revenues.
Cost of revenues, as a percentage of total revenues, increased 67% to 132%
in fiscal year 2000, from 65% in fiscal year 1999, primarily due to lower
product revenue and increasing costs of revenues. Costs
15
<PAGE>
of revenues, as a percentage of product sales, increased 148% from 80% of
product sales in fiscal year 1999 to 228% of product sales in fiscal year 2000.
This increase was the result of under utilization of the manufacturing capacity
coupled with increasing costs associated with preparing for production of the
FS-2000, and the write down of certain inventory due to changing market
conditions.
Research and development costs increased 12% to $193,759 in fiscal year
2000 from $172,590 in fiscal year 1999 mainly as the result of higher salary
costs. Minimal new product development activities occurred during fiscal year
1999.
Selling, general and administrative expenses increased 47% to $821,421 in
fiscal year 2000 from $560,009 in fiscal year 1999. This increase was primarily
the result of higher compensation and benefit costs from increases in headcount
and benefit programs ($410,681 in fiscal year 2000 compared to $290,764 in
fiscal year 1999), increased legal and accounting expenses due to the increased
need for such services ($71,238 in fiscal year 2000 compared to $47,975 in
fiscal year 1999), increased advertising and promotion expenses resulting from
the FS-2000 new product introduction ($59,991 in fiscal year 2000 compared to
$30,092 in fiscal year 1999) offset somewhat by lower bad debt costs ($6,723 in
fiscal year 2000 compared to $28,374 in fiscal year 1999).
Tice recorded warrant extension expense in fiscal year 2000 of $90,000 in
conjunction with the extension of the expiration date of the warrants issued in
1997. The warrants were originally set to expire July 31, 1999, but the
expiration date was extended to July 31, 2001 by action of the Board of
Directors.
Other income and expenses for fiscal year 2000 totaled $54,636, comprised
mainly of interest expense of $144,001 offset somewhat by the gain on sale of
fixed assets of $77,762. Interest expense was incurred on notes issued to
finance working capital and operating losses as well as property and equipment.
In fiscal year 1999, interest expense totaled $96,747.
Tice recorded a higher provision for income taxes of $20,975 in fiscal year
2000 compared to $14,174 in fiscal year 1999 due to foreign taxes withheld on
higher royalty payments. Tice was not able to recognize a benefit from the
fiscal year 2000 loss or prior years' losses carried forward.
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998
-----------------------------------------------------------------
Total operating revenues decreased in fiscal year 1999 by 46% to $730,937
from $1,344,231 in fiscal year 1998. Product revenues decreased 34% to $586,186
in fiscal year 1999 from $892,713 in fiscal year 1998 as capital constraints
limited new product introductions featuring Tice's electronic gearing technology
and sales of traditional products decreased significantly due to increased
competition and limited resources available to effectively market the products
worldwide. In fiscal year 1999, sales of the Automatic J-Tackers, Belt Loop
Machines and Label Loaders/Folders generated product revenues of $103,698
(17.7%), $126,438 (21.6%) and $117,079 (20.0%), respectively, whereas in fiscal
year 1998 these items generated product sales of $86,504 (9.8%), $197,804
(22.4%) and $198,089 (22.5%),
16
<PAGE>
respectively. While sales of the traditional products are expected to continue
through the efforts to continually upgrade and customize these products to meet
customer needs, we expect most of our future revenues to be generated from new
products either already developed, currently in development or to be developed.
Also, in addition to product revenue, royalty income decreased 28% in fiscal
year 1999 to $144,751 from $201,518 in fiscal year 1998 primarily due to the
slowdown in the Asian markets for Tice's licensee. And finally, license fees
decreased 100% to none in fiscal year 1999 from $250,000 in fiscal year 1998 as
Tice's licensee did not introduce any new products or meet any set sales
milestones using Tice's electronic gearing technology which would require
payment of the established license fees in fiscal year 1999.
The total operating loss decreased 4%, primarily due to decreased operating
expenses more than offsetting the decreased operating revenues.
Cost of revenues, as a percentage of total revenues, increased 9% to 65%
from 56%, primarily due to the lower royalty income and lack of license fee
income, neither of which have associated costs. Costs of revenues as a
percentage of product sales decreased 3% in fiscal year 1999 from 84% in fiscal
year 1998 to 81% in fiscal year 1999. This decrease was primarily the result of
lower labor and overhead costs due to cost-controlling efforts by management.
Research and development costs decreased 17% to $172,590 in fiscal year
1999 from $208,407 in fiscal year 1998 due to lower salary costs ($124,514 in
fiscal year 1999 compared to $169,755 in fiscal year 1998). Minimal new product
development activities occurred during 1999.
Selling, general and administrative expenses decreased 37% to $560,009 in
fiscal year 1999 from $882,161 in fiscal year 1998. This decrease was primarily
the result of lower compensation and benefit costs from reductions in headcount
and curtailed benefit programs ($290,764 in fiscal year 1999 compared to
$460,882 in fiscal year 1998), reduced advertising and selling costs as Tice was
awaiting the launch of new products ($30,092 in fiscal year 1999 compared to
$81,824 in fiscal year 1998), lower legal and accounting expenses due to a
reduced need for such services ($47,975 in fiscal year 1999 compared to $84,151
in fiscal year 1998), lower recruiting costs due to curtailed hiring of new
personnel ($11,170 in fiscal year 1999 compared to $42,000 in fiscal year 1998)
and lower stock promotion costs ($3,550 in fiscal year 1999 compared to $55,788
in fiscal year 1998). These reductions were offset somewhat by an increase in
allowance for bad debts related to an international distributor of Tice's
products ($28,374 in fiscal year 1999 compared to none in fiscal year 1998).
Other income and expenses for the 1999 fiscal year totaled $90,038,
comprised mainly of interest expense of $96,747. Interest expense was incurred
on notes issued to finance working capital and operating losses as well as
property and equipment. In fiscal year 1998, interest expense totaled $94,358.
Also in 1998, other expenses totaled $1,370,013, of which $1,091,280 non-cash
expenses and $187,593 other expenses were due to the recording of non-recurring
registration expenses upon the August 1, 1997 effective date of the registration
statement. There were no comparable registration expenses in fiscal year 1999.
17
<PAGE>
Tice recorded a lower provision for income taxes of $14,174 in fiscal year
1999 compared to $47,020 in fiscal year 1998 due to foreign taxes withheld on
decreased royalty and licensing fee payments. Tice was not able to recognize a
benefit from the fiscal year 1999 loss or prior years' losses carried forward.
Inflation
---------
Inflation has not had a significant impact on our operations to date.
Liquidity and Capital Resources
-------------------------------
Since its inception, Tice has financed its operations through a combination
of cash flow from operations, bank borrowings, borrowings from individuals and
the sale of common stock. Capital requirements have arisen primarily in
connection with purchases of fixed and intangible assets, and Tice has
historically made significant expenditures each year for research and
development and marketing new technology, particularly in fiscal year 2000
related to the FS-2000 felling machine.
Net cash used by operating activities was $1,533,007 in fiscal year 2000,
$277,111 in fiscal year 1999 and $541,206 in fiscal year 1998. The primary
causes of the net use of cash from operating activities in fiscal year 2000 was
the net loss of $1,343,267 and other increases and decreases in working capital
items, mainly increases in inventory of $143,660. The primary cause of the net
use of cash from operations in fiscal year 1999 was the operating loss of
$579,552 offset by decreases in working capital items. In fiscal year 1998 the
primary cause of the net use of cash was the net loss of $1,914,463 offset by
non-cash expenses related to the stock registration of $1,047,000, non-cash
compensation expenses related to the issuance of employee stock options of
$109,375, and increases and decreases in working capital items.
Net cash of $30,156 was provided by investing activities in fiscal year
2000. Net cash used by investing activities was $9,488 in fiscal year 1999 and
$42,579 in fiscal year 1998. The primary source of funds from investing
activities in fiscal year 2000 was the proceeds from the sale of property and
equipment, including land held for expansion, offset somewhat by purchases of
property and equipment and additions to patents. Primary uses of funds in fiscal
year 1999 were related to capital expenditures and patents. Primary uses of
funds in fiscal year 1998 were related to capital expenditures, patents and
notes receivable. Capital expenditures totaled approximately $154,000 in fiscal
year 2000, compared to approximately $3,600 in fiscal year 1999 and
approximately $7,000 in fiscal year 1998. The large increase in capital
expenditures for the recent year was primarily due to preparation for new
product launches and improvements in administrative operations.
Net cash provided by financing activities was $1,697,524 in fiscal year
2000, $291,691 in fiscal year 1999 and $533,455 in fiscal year 1998. Cash
provided by financing activities in fiscal year 2000 was primarily proceeds of
the issuance of long term debt and the issuance of stock and stock warrants,
offset somewhat by principal payments on notes payable and notes payable to
related parties. The cash provided by financing activities in fiscal year 1999
was primarily
18
<PAGE>
proceeds from notes payable issued to related parties and others as well as
proceeds from the issuance of stock and stock warrants, partially offset by
principal payments on notes payable and notes payable issued to related parties.
In fiscal year 1998 the cash provided by financing activities was primarily
proceeds from the exercise of employee stock options and warrants and from notes
payable issued to related parties and others, partially offset by principal
payments on notes payable and notes payable issued to related parties.
Principal commitments at March 31, 2000 consisted primarily of notes
payable to related parties as well as other notes payable, including the long
term debt described below. We used the proceeds of these notes to provide
working capital for operations and for the continuing development of the
electronic gearing technology as well as to fund the costs of license and
royalty agreement negotiations and registration of securities. Several of these
notes were extended to retain working capital. We also leased certain office
equipment. Approximately $445,000 of notes payable to related parties are to
Tice Technology's majority shareholder and are subordinated to all other debts.
Additional notes payable to another related party in the amount of $50,000 are
due quarterly, but are expected to be renewed as they have in the past. We plan
to try to extend the remaining notes payable if available cash is not sufficient
to repay the loans.
In April 1999, Tice Technology entered into a binding letter of intent with
investors to provide $280,000 of additional capital through the purchase of
700,000 restricted Common Shares. The letter of intent also provided for a
private placement of securities of Tice Technology to secure an additional
$2,050,000 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 for costs associated with the offering.
Upon the successful completion of the offering on June 25, 1999, Tice Technology
issued 1,500,000 restricted Common Shares for $0.70 per share and $1,000,000 in
promissory notes. Purchasers of the notes also received warrants to purchase
100,000 restricted Common Shares 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 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. In addition, 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 related interest totaling $296,451 to Common
Shares. In addition, except for a $125,000 payment from the proceeds of the
offering, Tice Technology's majority stockholder agreed to subordinate all
amounts due him to the $1,000,000 in promissory notes. Management believes that
the funds from the offering will allow Tice to complete and launch new products
incorporating the electronic gearing technology as well as hire additional
personnel to sell and support both the existing products and future products.
Finally, Tice obtained a $1,000,000
19
<PAGE>
revolving line of credit for additional working capital resources collateralized
by accounts receivable, inventory and certain fixed assets. Utilization of this
line of credit is contingent on meeting certain covenants required by the bank.
As of March 31, 2000, Tice had no amounts outstanding under the line of credit
and was not in compliance with the restrictive covenants. We do not expect to be
in compliance with the restrictive covenants under the line of credit and will
most likely not be able to borrow under it until our operations become
profitable. Management has been working to develop alternative sources of
working capital.
Subsequent to year end, working in cooperation with the bank providing the
line of credit, we entered into an agreement with an accounts receivable
financing firm. The terms of this agreement call for the accounts receivable
financing firm to advance 75% of the face value of our invoices for a maximum
loan balance of $250,000. The $250,000 limit may be increased at our request
with the consent of the firm. We will pay a variable market rate of interest
plus additional administrative fees based on the value of the invoice to the
firm. The interest rate on June 26, 2000 was 13.5%.
In addition, the Company issued three promissory notes for an aggregate
total of $250,000 to three 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 nine-month terms. The notes are
collateralized by the Company's accounts receivable and inventory.
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 fiscal year 2000.
Management anticipates an increase in revenues and cash flows from
operations 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.
Effect of Recently Issued Accounting Standards
----------------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities, which is
effective for the fiscal quarters of fiscal years beginning after June 15, 1999.
It is not anticipated that this statement will have a material impact on Tice.
In July 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133. SFAS 137 deferred the effective date of SFAS 133, as it pertains to Tice,
until July 1, 2000.
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 for all quarters and years ending after December 15, 1999. Management
believes that SAB 101 will not have a material effect on Tice's financial
position or results of operations.
In April 2000, the FASB 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 such as increased life and reduction of
20
<PAGE>
exercise price. 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. It is not anticipated that this interpretation will
have a material impact on Tice.
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.
Tice's products are not date sensitive. With respect to our internal
systems, we reviewed our systems to assess the impact of the year 2000 and
upgraded them as needed. We believe that the overall cost of compliance did not
exceed $10,000 and expensed such compliance costs when incurred. It is uncertain
whether any of our customers and suppliers will have any ongoing Year 2000
issues that may affect us. As of the date of this filing, we have not
experienced any material adverse effect on our operations or results of
operations relating to Year 2000 issues associated with our systems or those of
third parties with which we have significant business relations. However,
although we believe our critical systems and that of third parties with which we
do business are substantially compliant and no significant issues have
subsequently been uncovered, there is no guarantee that we have identified all
of the risks associated with this issue.
Future Operations
-----------------
Management believes that, although Tice's traditional products will
continue to generate sales revenue and that Tice 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. During fiscal year 2000, we reduced overhead in all areas in
order to lower operating expenses until we completed our financing for
additional working capital and production began on the FS-2000 Felling Machines.
As production increases, we expect that overhead will increase as necessary to
meet production demands.
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 we continually work
on developing products that our competitors have not attempted or have failed to
develop. We believe that these products and upgrades can be completed with the
existing research and development staff. In addition, we believe there is a
great demand for products incorporating the electronic gearing technology. We
are in various stages of design and development on machines using the electronic
gearing technology including a chain stitch machine, 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, except the chain
stitch machine, has been halted but is expected to resume after the introduction
of the FS-2000 felling machine.
Management anticipates that income from license fees and royalty revenues
will increase over the next several years as the existing licensee introduces
new electronically geared equipment to the market, as additional manufacturers
license the technology, and as royalty
21
<PAGE>
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, Tice leased a facility that will provide
sufficient space for its needs in the foreseeable future. Management has decided
that it would be economically feasible to start a second shift and to
subcontract some of the manufacturing processes at such time as the demand
exceeds the capacity of the operations capable in one eight-hour shift, thus
allowing the continued use of the new leased site through a period of high
growth.
Management believes that Tice's future results of operations will be
influenced by a number of factors including general economic conditions,
dependence on key customers, and market acceptance of new technology. Because of
these factors, as well as other factors, historical results should not be relied
on as an indicator of future performance.
Special Considerations
----------------------
This section captioned "Special Considerations" and other parts of this
Annual Report on Form 10-K include certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the occurrence or
timing of certain events could differ materially from those described in any of
such forward-looking statements due to a number of factors, including those set
forth below and elsewhere in this Form 10-K. See "Other Factors Relating to
Forward-Looking Statements" below.
Diversification and Long Term Growth. Tice plans to diversify its business
and to seek opportunities for long term growth by developing additional products
for sale to manufacturers in industries other than the apparel industry as well
as additional licensing of the electronic gearing technology. There is no
assurance that we will be successful in these efforts.
Product Development. As described above, Tice is in the process of
developing new products, including the felling machine and a chain stitch
machine. We plan to investigate other new product development opportunities as
part of our effort to increase our product offerings and expand our markets.
There are no assurances that we will be able to locate such opportunities or
successfully exploit them once located.
Other Factors Relating to Forward-Looking Statements
----------------------------------------------------
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements or events, or timing of events, to
differ materially from any future results, performance or achievements or
events, or timing of events, expressed or implied by such forward-looking
statements. We cannot assure that we will be able to anticipate or respond
timely to the changes which could adversely affect our operating results
22
<PAGE>
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 our
securities.
In the event Tice needs 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, we may be unable to expand our business
or develop new customers as desired and our operating results may be adversely
affected. Debt financing will increase expenses and must be repaid regardless of
operating results. Equity financing could result in dilution to existing
stockholders.
Some of the more prominent known risks and uncertainties of Tice's business
are set forth below. However, this section does not discuss all possible risks
and uncertainties to which Tice and its business are subject, nor can it be
assumed that there are not other risks and uncertainties which may be more
significant.
Such other factors include, among others, those described in the "Business"
section and elsewhere in "Management's Discussion and Analysis" and the
following:
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 to successfully negotiate additional licensing
agreements;
o continued dependence on a small number of significant customers for
substantially all of our revenue and the potential loss of one or more
of our principal customers;
o the shortage of qualified and competent engineers and the risk that we
will be unable to retain our key employees and managers, especially in
the event we lose one or more of our principal customers;
o dependence on the apparel industry and the potential failure to
diversify our product and service offerings and to expand our markets
into other industries;
o the unanticipated expense of new product development, the potential
failure 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 or future patents obtained by Tice
will not be enforceable,
23
<PAGE>
the risk that our products will infringe on patents held 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 to
provide competitive timely designs of cost-effective solutions and
products to manufacturers, and the potential adverse effect of
technological change with which we are unable to keep pace.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Tice Technology, Inc. & Subsidiary
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and of cash flows
present fairly, in all material respects, the financial position of Tice
Technology, Inc. and Subsidiary at March 31, 2000 and March 31, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2000 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Knoxville, Tennessee
May 6, 2000 except as to Note 19
for which the date is July 5, 2000
25
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Balance Sheets
As of March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Assets
Cash and cash equivalents $ 218,828 $ 24,155
Accounts receivable, less allowance for doubtful
accounts of $15,000 and $26,000 at March 31,
2000 and 1999, respectively 79,295 65,245
Prepaid expenses 7,035 8,097
Inventory, net 591,314 387,654
------------- -------------
Total current assets 896,472 485,151
Property and equipment:
Leasehold improvements 8,523 --
Furniture, fixtures and equipment 653,753 536,254
Vehicles 42,043 107,751
------------- -------------
Total property and equipment 704,319 644,005
Less accumulated depreciation (524,451) (596,364)
-------------- -------------
Property and equipment, net 179,868 47,641
Land held for sale -- 130,000
Patents, net 203,857 178,803
Debt issuance costs, net 35,384 --
Other assets 14,830 4,350
------------- -------------
Total assets $ 1,330,411 $ 845,945
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Liabilities and Stockholders' Deficit
Notes payable and current maturities of long-term debt $ 10,965 $ 214,790
Accounts payable 32,997 233,030
Accrued interest 76,389 3,887
Other accrued liabilities 93,447 105,911
Notes payable to related parties, current portion 50,000 197,698
------------- -------------
Total current liabilities 263,798 755,316
Notes payable to related parties, long-term portion 445,612 620,482
Note payable, long-term portion, net of $71,510 discount 961,181 9,424
------------- -------------
Total liabilities 1,670,591 1,385,222
Commitments and contingencies (Notes 12, 13 and 15)
Stockholders' deficit:
Capital stock, no par value; 2,000 shares authorized; 750 shares
issued and outstanding at March 31, 2000 and 1999 13,493 13,493
Common Shares, par value $.01; 30,000,000 shares
authorized; 8,512,615 and 5,994,064 shares issued
and outstanding at March 31, 2000 and 1999,
respectively 85,126 59,941
Class B Common Shares, convertible, par value $.01;
5,000,000 shares authorized; 750,000 shares issued
and outstanding at March 31, 2000 and 1999 7,500 7,500
Class D Common Shares, convertible, par value $.01;
600,000 shares authorized, none issued or outstanding
at March 31, 2000 and 1999 -- --
Preferred Shares, par value $.01; 10,000,000 shares
authorized; none issued or outstanding at March 31,
2000 and 1999 -- --
Additional paid in capital 3,221,340 1,704,161
Accumulated deficit (3,667,639) (2,324,372)
------------- -------------
Total stockholders' deficit (340,180) (539,277)
------------- -------------
Total liabilities and stockholders' deficit $ 1,330,411 $ 845,945
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
27
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Operations
For the years ended March 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Operating revenues:
Sales and service $ 289,718 $ 586,186 $ 892,713
License fees -- -- 250,000
Royalties 209,747 144,751 201,518
------------- ------------- -------------
Total operating revenues 499,465 730,937 1,344,231
Operating expenses:
Cost of revenues 661,941 473,678 751,093
Research and development 193,759 172,590 208,407
Selling, general and administrative (excludes 821,421 560,009 882,161
warrant extension expense of $90,000 in 2000)
Warrant extension expense 90,000 -- --
------------- ------------- ------------
Total operating expenses 1,767,121 1,206,277 1,841,661
------------- ------------- -------------
Operating loss (1,267,656) (475,340) (497,430)
Other income (expense):
Registration expenses -- -- (1,278,873)
Gain on sale of fixed assets 77,762 3,274 --
Interest expense - related parties (50,667) (65,690) (49,772)
Interest expense (93,334) (31,057) (44,586)
Other income 11,603 3,435 3,218
------------- ------------- -------------
Total other income (expense) (54,636) (90,038) (1,370,013)
------------- ------------- -------------
Loss before income taxes (1,322,292) (565,378) (1,867,443)
Provision for income taxes 20,975 14,174 47,020
------------- ------------- -------------
Net loss $ (1,343,267) $ (579,552) $ (1,914,463)
============= ============= =============
Loss per share (Note 16):
Basic and diluted $ (0.15) $ (0.09) $ (0.30)
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Stockholders' Deficit
For the years ended March 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Retained Total
Class B Additional Earnings Stockholders'
Capital Common Common Paid In (Accumulated Equity
Stock Shares Shares Capital Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Balances, April 1, 1997 $ 8,634 $ - $ - $ 4,859 $ 169,643 $ 183,136
Exercise of 30 capital stock warrants 4,859 - - (4,859) - -
Issuance of 5,750,220 Common Shares, 1,000,000
warrants to purchase Common Shares and
750,000 Class B Common Shares in connection
with the effectiveness of registration statement - 57,502 7,500 1,039,139 - 1,104,141
Conversion of debt into 88,560 Common Shares - 886 - 264,964 - 265,850
Exercise of 400 Common Share warrants - 4 - 3,196 - 3,200
Issuance of 43,750 options to purchase
Common Shares at below fair market value - - - 109,375 - 109,375
Exercise of 28,459 employee Common Share options - 284 - 28,175 - 28,459
Conversion of accounts payable into
40,000 Common Shares - 400 - 158,878 - 159,278
Net loss - - - - (1,914,463) (1,914,463)
--------- ------- ------- ---------- ----------- ----------
Balances, March 31, 1998 13,493 59,076 7,500 1,603,727 (1,744,820) (61,024)
Retirement of 375 Common Shares without reissue - (3) - 3 - -
Issuance of 77,500 Common Shares - 775 - 89,225 - 90,000
Exercise of 5,300 employee Common Share options - 53 - 5,247 - 5,300
Conversion of accounts payable into
4,000 Common Shares - 40 - 5,959 - 5,999
Net loss - - - - (579,552) (579,552)
--------- ------- ------- ---------- ----------- ----------
Balances, March 31, 1999 13,493 59,941 7,500 1,704,161 (2,324,372) (539,277)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
29
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Stockholders' Deficit, continued
For the years ended March 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Retained Total
Class B Additional Earnings Stockholders'
Capital Common Common Paid In (Accumulated Equity
Stock Shares Shares Capital Deficit) (Deficit)
<S> <C> <C> <C> <C> <C> <C>
Issuance of 700,000 Common Shares in a
private placement, net of offering costs - 7,000 - 273,000 - 280,000
Issuance of 1,500,000 Common Shares in a
private placement, net of offering costs - 15,000 - 772,713 - 787,713
Conversion of related-party debt and accrued
interest into 318,151 Common Shares - 3,181 - 293,270 - 296,451
Exercise of 400 Common Share warrants - 4 - 3,196 - 3,200
Extension of expiration of 998,000 warrants - - - 90,000 - 90,000
Issuance of 100,000 Common Share warrants
in a private placement - - - 85,000 - 85,000
Net loss - - - - (1,343,267) (1,343,267)
--------- ------- ------- ---------- ----------- ----------
Balances, March 31, 2000 $ 13,493 $85,126 $ 7,500 $3,221,340 $(3,667,639) $ (340,180)
========= ======= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
30
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended March 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Net cash flows from operating activities:
Net loss $(1,343,267) $(579,552) $(1,914,463)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 41,980 14,289 18,550
Noncash registration expenses -- -- 1,047,000
Noncash compensation expense -- -- 109,375
Noncash interest expense -- -- 44,280
Noncash warrant extension expense 90,000 -- --
Increase in cash surrender value of life insurance (10,770) (2,572) (17,178)
Provision for doubtful accounts receivable 6,723 28,374 --
Reduction in inventory reserve (60,000) -- --
Gain on sale of property and equipment (77,762) (3,274) --
Changes in operating assets and liabilities:
Receivables (20,773) 110,989 (116,173)
Prepaid expenses 1,353 916 (7,625)
Inventory (143,660) 6,462 (26,513)
Accounts payable and accrued liabilities (16,831) 147,257 321,541
---------------- --------------- ------------
Net cash used by operating activities (1,533,007) (277,111) (541,206)
---------------- --------------- ------------
Cash flows from investing activities:
Purchases of property and equipment (154,072) (3,644) (6,737)
Proceeds from disposal of property and equipment 207,761 3,793 --
Additions to patents (23,533) (9,637) (20,240)
Additions to note receivable from related party -- -- (15,602)
-------------- -------------- ------------
Net cash provided (used) by investing activities 30,156 (9,488) (42,579)
--------------- --------------- -------------
Cash flows from financing activities:
Proceeds from loan on life insurance -- 40,040 --
Proceeds from notes payable to related parties -- 335,941 652,490
Proceeds from notes payable and long-term debt 1,004,593 5,207 50,000
Principal payments on notes payable to related parties (149,282) (174,058) (184,741)
Principal payments on notes payable and long-term debt (228,700) (10,739) (28,953)
Net proceeds from issuance of stock and stock warrants 1,067,713 90,000 13,000
Proceeds from exercise of stock options and warrants 3,200 5,300 31,659
--------------- --------------- ------------
Net cash provided by financing activities 1,697,524 291,691 533,455
--------------- --------------- ------------
Net increase (decrease) in cash and cash equivalents 194,673 5,092 (50,330)
Cash and cash equivalents, beginning of year 24,155 19,063 69,393
--------------- --------------- ------------
Cash and cash equivalents, end of year $ 218,828 $ 24,155 $ 19,063
=============== =============== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE>
TICE TECHNOLOGY, INC. & SUBSIDIARY
Notes to Financial Statements
1. Summary of Significant Accounting Policies and Other Disclosures
General Information - Tice Technology, Inc. & Subsidiary ("Tice" or "the
Company") provides engineering and technical solutions, generally through
the development or enhancement of equipment for the apparel industry. Tice
researches, designs, develops and tests specialized high technology,
garment production line stitching machines and related equipment, which
when patented, it manufactures for its own customers or licenses the
technology to other manufacturers for their production.
Consolidated Financial Statements - The accompanying consolidated financial
statements include the accounts of Tice Technology, Inc. ("Tice
Technology") and its wholly owned subsidiary, Tice Engineering and Sales,
Inc. ("Tice"). The consolidation of these entities will be collectively
referred to as the Company or Tice. All significant intercompany balances
and transactions have been eliminated.
On August 1, 1997, Tice Technology acquired all of the issued and
outstanding stock of Tice including 750 shares outstanding at March 31,
1997 and 30 shares issued in connection with the exercise of warrants
subsequent to March 31, 1997, from the shareholders of Tice in exchange for
5,450,220 Common Shares and 750,000 Class B Common Shares. In addition,
Monogenesis Corporation purchased 300,000 Common Shares and 1,000,000
warrants to purchase Common Shares at par value ($.01). In connection with
the registration of the securities issued, the Company recognized
$1,047,000 in registration expenses for the difference between the $3.50
initial share value and the price paid by Monogenesis for the stock. A
portion of the shares and warrants was subsequently distributed by
Monogenesis to its shareholders.
Cash and Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less as
cash equivalents.
Trade Accounts Receivable and Concentrations of Credit Risk - The Company
conducts a substantial portion of its business with three customers in the
sewing industry (Note 6) with approximately $11,000 of total accounts
receivable represented by these customers at March 31, 2000.
Inventories - Inventories are stated at lower of cost or market. Cost is
determined using the first-in, first-out method.
32
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over
the estimated useful lives of the assets. The estimated useful lives of
leasehold improvements is 5 years, equipment 5 to 7 years, furniture and
fixtures 10 years and vehicles 5 years. Routine repair and maintenance
costs are expensed as incurred. Costs of major additions, replacements and
improvements are capitalized. Gains and losses from disposals are included
in operating results.
Patents - Certain legal and other direct expenses incurred in order to
obtain patents on designed and manufactured parts and equipment have been
capitalized at their cost to the Company. Amortization is calculated using
the straight-line method over the estimated useful lives of the patents,
primarily seventeen and twenty years. Amortization expense totaled $6,348,
$5,296 and $5,210 during fiscal years 2000, 1999 and 1998, respectively.
Impairment of Long-Lived Assets - The Company follows the provisions of
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, which (i)
requires that long-lived assets to be held and used be reviewed for
impairment whenever events or circumstances indicate that the carrying
value of an asset may not be recoverable, (ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or
the fair value less costs to sell, and (iii) provides guidelines and
procedures for measuring impairment losses that are different from
previously existing guidelines and procedures in that recoverability is
assessed based on estimates of undiscounted expected future cash flows of
the asset being evaluated. No such impairment has been incurred to date.
Accounting for Stock Based Compensation - The Company records all
stock-based compensation awarded to vendors at the fair value of the
services received. As permitted by SFAS 123, the Company has chosen to
apply APB Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for stock-based compensation awarded to
employees.
Comprehensive Income (Loss) - SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting comprehensive income (loss) and its
components in financial statements. Comprehensive income (loss), as
defined, includes all changes in equity during a period from non-owner
sources. The Company has no items of other comprehensive income and,
therefore, the comprehensive loss equals the net loss.
33
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Effect of New Accounting Pronouncements - In June 1998, the FASB issued
SFAS 133, Accounting for Derivative Instruments and Hedging Activities. It
is not anticipated that this statement will have a material impact on the
Company. In July 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB no. 133. SFAS 137 deferred the effective date of SFAS 133, as
it pertains to the Company, until July 1, 2000.
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 for all quarters and years ending
after December 15, 1999. Management believes that the impact of SAB 101
will not have a material effect on the financial position or results of
operations of 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
(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. It is not anticipated that this interpretation will have a material
impact on the Company.
Research and Development Costs - Research and development ("R&D") costs,
including work performed under contracts to perform R&D for others
(development agreements), are expensed as incurred, net of reimbursements
(Note 7).
Income Taxes - The asset and liability method is used in accounting for
income taxes, whereby deferred tax assets and liabilities are determined
based upon the differences between financial reporting and tax bases of
assets and liabilities and are measured based on enacted tax rates and laws
when the differences are expected to reverse.
Revenue Recognition and Deferred Revenue - The Company generally recognizes
revenue at the time related products are shipped or at the time services
are rendered. License fees and related royalties are recognized as earned
based on sales of equipment by the manufacturer using the Company's
technology.
34
<PAGE>
Notes to Financial Statements, Continued
1. Summary of Significant Accounting Policies and Other Disclosures, continued
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2. Inventories
Inventories at March 31 consist of:
2000 1999
Raw materials $246,970 $ 343,968
Work in process 226,346 118,103
Finished goods 177,998 45,583
-------- ---------
651,314 507,654
Reserve for obsolescence (60,000) (120,000)
-------- ---------
Inventory, net $591,314 $ 387,654
======== =========
3. Notes Payable to Related Parties
Notes payable to related parties consist of the following at March 31:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Notes payable to an officer, dated May 31, 1998 to March 31, 2000; $445,612 $ 472,174
interest accrued at 10%; due May 31, 2000 to March 31, 2002;
subordinate to all other debt.
Notes payable to employee and outside director (business -0- 196,006
associates), dated December 15, 1996 to December 31, 1998; interest
accrued at 10%; $4,581 was repaid May 12, 1999 and $191,425 was
converted to stock on April 30, 1999.
Note payable to officer, dated March 19, 1999; interest accrued at -0- 100,000
10%; amounts outstanding were converted to stock on April 30, 1999.
</TABLE>
35
<PAGE>
Notes to Financial Statements, Continued
3. Notes Payable to Related Parties, continued
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Note payable to immediate family member of an officer, dated May 27, 50,000 50,000
1998 and last renewed February 20, 2000; renewable every 90 days; -------- --------
interest at 10% due monthly; principal due May 19, 2000.
Total 495,612 818,180
Less current maturities 50,000 197,698
-------- --------
Long term debt, less current maturities $445,612 $620,482
======== ========
</TABLE>
4. Notes Payable and Long-Term Debt
Notes payable and long-term debt consist of the following at March 31:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Note payable to a bank dated May 15, 1998, renewed through December $ -0- $190,502
17, 2000; interest accrued at 9.5%; amount was repaid February 29,
2000.
Notes payable dated June 25, 1999, net of $71,510 discount; principal 928,489 -0-
due on June 25, 2003; interest accrued at 10% with the first interest
payment due June 25, 2000 and quarterly thereafter each year;
collateralized by certain patents related to electronic gearing technology.
Other notes payable and capitalized lease obligations 43,657 33,712
-------- --------
Total 972,146 224,214
Less current maturities 10,965 214,790
-------- --------
Long-term debt, less current maturities $961,181 $ 9,424
======== ========
</TABLE>
36
<PAGE>
Notes to Financial Statements, Continued
5. Income Taxes
The provision for income taxes for the periods ended March 31, 2000, 1999
and 1998, is comprised of:
2000 1999 1998
Current income tax expense:
Federal $ - $ - $ -
State - - -
Foreign 20,975 14,174 47,020
Deferred income tax expense:
Federal - - -
State - - -
------- ------- -------
Total expense $20,975 $14,174 $47,020
======= ======= =======
The components of temporary differences and the approximate tax effects are
as follows:
2000 1999
Current:
Section 263A cost in ending inventory $ 43,735 $ 44,545
Accrued vacation 2,702 -
Inventory reserves 15,600 31,200
Accounts receivable reserve 3,900 6,760
---------- ----------
65,937 82,505
Valuation allowance (65,937) (82,505)
---------- ----------
Total net current deferred tax asset $ - $ -
========== ==========
Long-term:
Net operating loss carryforwards $689,913 $348,277
Foreign tax credit carryforwards 82,169 61,194
Stock based compensation - 758
Warrants 23,400 -
---------- ----------
795,482 410,229
Valuation allowance (795,482) (410,229)
---------- ----------
Total net long term deferred tax asset $ - $ -
========== ==========
During fiscal year 2000, the Company increased its valuation allowance by
$368,683 to $861,418, which is maintained against deferred tax assets.
Management is unable to currently assert that it is more likely than not
that the deferred tax asset will be realized.
37
<PAGE>
Notes to Financial Statements, Continued
5. Income Taxes, continued
The provision for income taxes at March 31 of each year differs from the
"expected" income tax expense (using a Federal income tax rate of 21%) as a
result of the following:
2000 1999 1998
Computed "expected" benefit $(282,086) $(121,706) $(392,163)
State income taxes, net of federal
income taxes (67,163) (28,978) (93,372)
Permanent differences 7,453 2,531 261,385
Change in valuation allowance 368,683 153,574 271,170
Other (5,912) 8,753 -
--------- --------- ---------
Provision for income taxes $ 20,975 $ 14,174 $ 47,020
At March 31, 2000, the Company had net operating loss carryforwards of
approximately $2,634,215 and $2,734,547 for federal and state purposes,
respectively, available to offset future taxable income. These
carryforwards will expire, if not utilized, in 2011 through 2015.
The Company had $82,169 of foreign tax credit carryforwards
at March 31, 2000. These credits will expire, if not utilized, in 2002
through 2005.
6. Major Customers and Export Sales
The Company had one customer that represented 39% of its product revenues
in fiscal year 2000; three customers that represented 31%, 22% and 12%,
respectively, of its product revenues in fiscal year 1999; and three
customers that represented 31%, 20% and 19%, respectively, of its product
revenues in fiscal year 1998.
Approximately 6%, 13% and 24% of the Company's product sales were export
sales in fiscal years 2000, 1999 and 1998, respectively. All export sales
are paid in U.S. funds either in advance of shipment or with an irrevocable
letter of credit and, therefore, there are no gains or losses included in
operations related to foreign currency exchanges.
7. Research and Development Costs and Joint Development Agreement
Research and development costs consist of the following approximate amounts
for the periods ended March 31:
2000 1999 1998
Salaries $174,000 $125,000 $170,000
Travel 2,000 - -
Insurance 4,000 5,000 5,000
Payroll taxes 13,000 9,000 13,000
Telephone 3,000 3,000 4,000
Utilities 2,000 1,000 1,000
Depreciation 5,000 - -
Materials (9,000) 30,000 15,000
-------- -------- --------
$194,000 $173,000 $208,000
======== ======== ========
38
<PAGE>
Notes to Financial Statements, Continued
7. Research and Development Costs and Joint Development Agreement, continued
In December 1994, the Company entered into an agreement with a denim
clothing manufacturer to develop a specialized sewing machine for the
manufacture of jeans. This agreement was accounted for by the Company in
accordance with SFAS 68. The manufacturer reimbursed the Company a total of
$300,000 for research and development costs, providing $150,000 in both
fiscal years 1996 and 1995. Tice incurred total costs related to this
agreement of $18,600, $45,500 and $41,903, respectively, in fiscal years
1999, 1998 and 1997 which are included in the research and development
costs above. Tice incurred no costs related to this agreement during fiscal
year 2000. The Company has the right to sell the specialized sewing
machines to third parties. However, for the two-year period following the
sale of the first such sewing machine to a third party, the Company is
required to pay royalties to the manufacturer at the rate of 4% of the
gross selling price up to the total amount reimbursed to the Company
($300,000) for research and development costs, plus 10% interest. The
Company has sold no machines to third parties as of March 31, 2000. Under
no circumstances is any portion of the $300,000 reimbursement refundable to
the manufacturer. The equipment related to this agreement is currently
undergoing field evaluation by customers with expected shipment of the
first machines in the second quarter of fiscal year 2001.
8. License and Royalty Agreement
In June 1996, the Company entered into a nonexclusive license and royalty
agreement with a sewing machine manufacturer to use the electronically
geared sewing machine technology developed and patented by the Company.
Under the terms of the agreement, the manufacturer is to pay the Company
$250,000 upon the sale of the first class of machine built by the
manufacturer using the technology. In addition, the manufacturer is to pay
the Company an additional $250,000 plus royalties of 2% of the sales price
for sales of each class of sewing machine produced and sold by the
manufacturer using the Company's technology. The manufacturer has no
obligation to apply the Company's technology to additional classes of
industrial sewing machines. In fiscal year 1998, the Company earned
$250,000 from the sale of one class of machines under this license. Royalty
income from the sale of the machines produced under this agreement was
$209,747, $144,751 and $201,518, respectively, in fiscal years 2000, 1999
and 1998.
9. 401(k) Plan
The Company's 401(k) plan is available to all full-time and part-time
employees who have completed six months of continuous employment with the
Company. The Company can make a discretionary matching contribution which
is determined by the Board of Directors at the beginning of each plan year.
The matching contribution vests at 20% per year over a five-year period.
Each year, employees must work a minimum of 1,000 hours. Vesting at the
plan start date is retroactive to the date of employment for individuals
employed by Tice prior to the plan start date. The Company made
contributions of $3,936, $3,485 and $13,122, respectively, in fiscal years
2000, 1999 and 1998.
39
<PAGE>
Notes to Financial Statements, Continued
10. Stock Warrants
On August 1, 1997, the Company issued 1,000,000 warrants to Monogenesis
Corporation of which a portion was distributed to Monogenesis shareholders.
The warrants, each of which entitles the holder to purchase one Common
Share of the Company, have an exercise price of $8.00 and were to expire
two years from the date of issuance. As of March 31, 2000, 800 warrants had
been exercised and 1,200 warrants had been cancelled.
In February 2000, the Company extended the expiration date of the 1997
warrants to July 31, 2001. The Company recorded $90,000 of expense and
additional paid-in capital. In connection with the extension, the Company
obtained a no-action letter from the Securities and Exchange Commission
("SEC") stating that the SEC would not object to the Company's extension of
the exercise period of the warrants and deferral of 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. The Company cannot permit a holder of the warrants to
exercise them until the Company files an amended registration statement and
delivers a current prospectus to warrant holders. There is no restriction
as to buying, selling or trading of these warrants; however, all
restrictive conditions outlined above apply to any new holders of these
warrants as well.
On June 25, 1999, the Company issued 100,000 warrants to holders of notes
payable issued in a private placement transaction (Note 11). The warrants,
each of which entitles the holder to purchase one Common Share of the
Company, have an exercise price of $.50 and expire four years from the date
of issuance.
11. Private Placement Transaction
On April 30, 1999, the Company issued 700,000 Common Shares for net
proceeds 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%, mature
four years from issuance and are secured by certain patents related to the
Company's electronic gearing technology. Included with the notes payable
were warrants to purchase 100,000 common shares (Note 10). 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 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
40
<PAGE>
Notes to Financial Statements, Continued
11. Private Placement Transaction, continued
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 notes, 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 conditions of the above-referenced transactions, the Company appointed a
new President and Chief Executive Officer and entered into a three-year
employment agreement and an incentive stock option agreement with the new
employee. Also, the Company entered into a three-year employment agreement
with the majority stockholder as Executive Vice President and Chief
Technology Officer, who will remain as Chairman of the Board of Directors.
The Company appointed the new President and Chief Executive Officer to the
Board of Directors, and appointed two representatives of the outside
investment firm to the Board of Directors, filling seats opened by the
resignation of two then-current Directors. One current Director converted
related party notes payable and accrued interest of $195,300 into 217,000
Common Shares and the new President and Chief Executive Officer converted
$101,151 of related party notes payable and accrued interest into 101,151
common shares.
12. Lease Commitments
On August 27, 1999, the Company entered into an agreement to lease a
delivery truck. On December 6, 1999, the Company entered into an agreement
to lease an office and manufacturing facility in Knoxville, Tennessee (Note
15). Minimum future rental payments under the Company's operating leases at
March 31, 2000 are as follows:
2001 $134,201
2002 134,201
2003 134,201
2004 134,201
2005 97,098
Rental expense for operating leases was $97,781, $81,276 and $67,915 for
fiscal years 2000, 1999 and 1998, respectively.
13. Contingent Liabilities
The Company is subject to claims in the ordinary course of business.
Management
41
<PAGE>
Notes to Financial Statements, Continued
13. Contingent Liabilities, continued
believes the ultimate resolution of these matters will have no material
impact on the financial condition, results of operations or cash flows of
the Company.
14. 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
interest rate is the bank's daily base rate and interest is payable
quarterly. The line of credit is collateralized by the Company's
receivables, inventory and certain fixed assets. In addition, both the
Company's majority stockholder and President and Chief Executive Officer
have personally guaranteed this line of credit. The Company must maintain
compliance with certain covenants to utilize the line of credit, including
meeting certain debt to equity and eligible collateral requirements. There
was no amount outstanding under this agreement as of March 31, 2000.
The Company's majority stockholder and holder of approximately $445,000 of
related party notes agreed to subordination of these notes until the
$1,000,000 of notes payable and the bank line of credit are repaid in full.
15. Lease Agreement and Sale 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 landlord improvements. At the inception of the lease, the
landlord incurred $100,000 of improvement costs 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 obligation under the lease is $10,472
per month for the five-year period. The Company relocated its manufacturing
operations and administrative offices to the new location during December
1999 and terminated the month-to-month lease on its former facility as of
December 31, 1999.
In 1988, the Company had acquired land for future expansion. As a result of
the above-mentioned lease, the Company sold the land in February 2000 and
recognized a $ 62,000 gain.
42
<PAGE>
Notes to Financial Statements, Continued
16. Loss Per Share
Basic and diluted loss per share was computed by dividing net loss
applicable to common stock by the weighted average common shares
outstanding during each period. Potential common shares are not included in
the computation of diluted per share amounts in periods when the Company
reports a loss. Potentially dilutive common equivalent shares were 0, 3,550
and 13,130 for fiscal years 2000, 1999 and 1998, respectively. Basic and
diluted loss per share are the same for all classes of the Company's common
stock (thus they are not presented separately) because they have
noncumulative dividend rights of which none were available for distribution
under the terms of the Certificate of Incorporation.
Following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share:
2000 1999 1998
Loss:
Basic and diluted:
Loss available to common $(1,343,267) $(579,552) $(1,914,463)
stockholders
Shares:
Basic and diluted:
Weighted average common 8,833,449 6,701,752 6,314,804
shares outstanding
17. Supplemental Disclosure of Cash Flow Information
2000 1999 1998
Cash paid during the period for:
Interest $33,193 $45,818 $23,194
Noncash investing and financing activities:
In fiscal years 2000, 1999 and 1998, the Company converted $43,139, $50,929
and $29,378, respectively, of accrued interest into notes payable to
business associates and officers.
In fiscal year 1998, the Company converted $265,850 of debt to business
associates into 88,560 Common Shares. In addition, the Company converted
$159,278 of trade accounts payable owed to vendors into 40,000 Common
Shares.
Also in fiscal year 1998, Tice Technology issued 5,450,220 Common Shares
and 7,500 Class B Common Shares in exchange for 780 shares of Tice
Engineering Capital Stock.
43
<PAGE>
Notes to Financial Statements, Continued
17. Supplemental Disclosure of Cash Flow Information, continued
In fiscal year 1999, the Company canceled a split dollar life insurance
policy and the corresponding related party note receivable of $79,610 was
applied against outstanding notes payable to a related party.
In fiscal year 1999, the Company converted $24,707 of accounts payable into
notes payable. In addition, $19,926 of accounts payable, $50,000 of notes
payable, and $50,000 of accrued salaries payable were converted to a note
payable to a related party.
Also in fiscal year 1999, the Company converted $5,999 of trade accounts
payable owed to vendors into 4,000 Common Shares.
In fiscal year 2000, the Company converted $5,026 of accrued interest
payable to related parties and $291,425 of notes payable to related parties
into 318,151 Common Shares. Also, the Company converted $75,000 of accrued
officer salary and $43,139 of accrued interest payable into notes payable
to related parties.
Also in fiscal year 2000, the Company recorded $90,000 of expense and
additional paid-in-capital in conjunction with the extension of the
expiration date of 998,000 warrants.
Also in fiscal year 2000, the Company recorded an $85,000 discount
associated with the fair value of warrants issued in conjunction with the
$1,000,000 of long term notes payable. This fair value of the warrants was
reflected in additional paid in capital and will be amortized into interest
expense over the four year term of the notes.
18. Stock Options
The Company established a stock option plan in fiscal 1998 to provide
additional incentives to its officers and employees. Eligible persons are
determined by management. Each option granted under the plan shall be
exercisable only during a fixed term from the date of grant as specified by
management, but generally equal to 10 years. Options are fully vested on
the date of grant. In fiscal year 1998, the Board of Directors approved the
issuance of up to 54,750 options to acquire Common Shares of which 43,750
options were granted during fiscal year 1998 and became fully vested upon
the effective date of the registration statement. No additional options
were granted under this plan during fiscal year 1999 and 11,000 additional
options were granted during fiscal year 2000.
The Company established an additional stock option plan in fiscal year 1999
as a means to attract, retain and motivate its employees, non-employee
board members and independent contractors. Eligible persons are determined
by management. Each option granted under the plan shall be exercisable only
during a fixed term from the date of grant as specified by management, but
generally not to exceed 10 years. Vesting requirements of the option are
determined by management, but are generally not less than one year
44
<PAGE>
Notes to Financial Statements, Continued
18. Stock Options, continued
from the date of grant. The exercise prices of the options are at least
fair market value on the date of grant. The stockholders approved the
issuance of up to 100,000 options to acquire Common Shares. During fiscal
year 2000, options to purchase 60,000 shares were granted.
In fiscal year 2000, the Company established an incentive stock option plan
in conjunction with the appointment of a new President and Chief Executive
Officer. The Company granted the employee options to purchase 690,071
Common Shares of the Company. Under the plan, options to purchase 230,024
shares vest on the first anniversary and are exercisable at a price of
$1.00 per share, options to purchase 230,024 shares vest on the second
anniversary and are exercisable at a price of $3.50 per share, and the
remaining options to purchase 230,023 shares vest on the third anniversary
and are exercisable at a price of $7.00 per share. All options under the
plan must be exercised within five years of vesting or they will expire.
A summary of outstanding options as of March 31, 2000 and changes during
the years ended March 31, 2000, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average of Average Stock Average
Exercise Grant Date Options Exercise
Shares Prices Fair Value Exercisable Price
<S> <C> <C> <C> <C> <C>
Under option at April 1, 1997 -- -- --
Options granted 43,750 $1.00 $3.50
Options exercised (28,459) 1.00
Options forfeited --
---------
Under option at April 1, 1998 15,291 15,291 $1.00
Options granted --
Options exercised (5,300) 1.00
Options forfeited (713) 1.00
---------
Under option at April 1, 1999 9,278 9,278 1.00
Options granted 761,071 3.57 1.24
Options exercised --
Options forfeited (9,278) 1.00
---------
Under option at March 31, 2000 761,071 71,000 3.57
</TABLE>
The following table summarizes information about stock options at March 31,
2000:
45
<PAGE>
Notes to Financial Statements, Continued
18. Stock Options, continued
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 3/31/00 Life (months) Price at 3/31/00 Price
<S> <C> <C> <C> <C> <C>
$ .94 - 1.00 301,024 48.16 $ .99 71,000 $ .99
3.50 230,024 50.00 3.50 -- --
7.00 230,023 50.00 7.00 -- --
</TABLE>
The weighted average remaining contractual life of outstanding options at
March 31, 2000 was 4.11 years. The fair value of each option granted is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions: dividend growth rate of
0%; expected volatility of 177%; risk-free interest rate of 4.87%; and
expected lives of two to five years.
Had compensation expense for the Company's plan been determined based on
the fair value at the grant dates for awards under the plan consistent with
the method of SFAS 123, the Company's net loss and loss per share for
fiscal year 2000 would have been reduced to the pro forma amounts of
$(1,752,809) and $(0.20), respectively. The Company's net loss would have
remained unchanged for fiscal years 1999 and 1998. In fiscal year 1998, the
Company recorded compensation expense of $109,375 related to options
granted in August 1997, as the exercise price of the options was less than
the initial share value of the Company's common stock at grant date.
19. Subsequent Events
On May 31, 2000, the Company issued a $50,000 promissory note at a 12%
interest rate for a term of nine months 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 nine-month terms. The notes
are collateralized by the Company's accounts receivable and inventory.
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 firm 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 invoices
assigned. The loans will be collateralized by the Company's trade
46
<PAGE>
Notes to Financial Statements, Continued
19. Subsequent Events, continued
accounts receivable, inventory and general intangibles.
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
fiscal year 2000.
Management anticipates an increase in revenues and cash flows from
operations 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.
47
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following are the executive officers and directors of Tice Technology.
Brief descriptions of their experience follow.
Name Position
---- --------
William A. Tice Chairman of the Board, Chief Technology Officer,
Executive Vice President, Director
Charles R. West President, Chief Executive Officer, Director (1)
David G. Camp Chief Financial Officer, Secretary/Treasurer
Michael A. Atkins Director (2)
Billie Joe Clayton Director
Patrick L. Martin Director (2)
(1) In connection with the employment of Mr. West, Mr. Tice, the holder of a
majority of the issued and outstanding Common Shares and all of the Class B
Common Shares, agreed to vote the number of his shares necessary to elect
Mr. West a director so long as Mr. West's employment agreement remains in
effect.
(2) In connection with their purchase of shares on April 30, 1999 and the
private placement offering of debt and equity completed on June 25, 1999,
Mr. Tice agreed to elect two designees of the initial purchasers in the
private placement (Michael A. Atkins, Patrick L. Martin, and LandOak
Securities L.L.C., of which Mr. Atkins and Mr. Martin are members) for so
long as they, together with the initial investors under the private
placement, own at least 10% of Tice Technology's outstanding common stock.
In addition, if the 10% requirement is no longer met, so long as such
persons own at least 5% of Tice Technology's outstanding common stock or
the promissory notes sold in the private placement remain outstanding, Mr.
Tice agreed to elect one of their designees a director. Mr. Atkins and Mr.
Martin are the initial designees.
William A. Tice, age 55, has been a director of Tice Technology since its
incorporation in June 1996. He has served as President and currently serves as
Chairman of the Board, Executive Vice President, Chief Technology Officer and a
director of Tice Technology. Mr. Tice has served as President and has been a
director of
48
<PAGE>
Tice Engineering and Sales since 1972 when he purchased the business from
his father. Mr. Tice received Associate Degrees in Accounting and Business
Administration from Knoxville Business College in 1973. He has over 30 years
experience in the sewing industry.
Charles R. West, age 43, was elected President, Chief Executive Officer and
a director of Tice Technology effective May 1, 1999. From August 1995 to April
1999, Mr. West was a managing partner of Venture Alliance, LLC, a venture
capital firm in Knoxville, Tennessee, during which time he oversaw the launch of
three out of the firm's eight start-up businesses. In each of the three, he
acted as Chief Executive Officer until permanent management was located. Prior
to working with Venture Alliance, LLC, from 1986 to 1995, Mr. West was President
and Chief Executive Officer of MasterCraft Boat Company in Vonore, Tennessee. He
was Executive Vice President and General Manager of that company from 1985 to
1986 and Vice President - Finance from 1982 to 1985. Mr. West is a certified
public accountant and received a B.S. in Business Administration from The
University of Tennessee in Knoxville in 1979.
David G. Camp, age 53, was elected Chief Financial Officer and
Secretary/Treasurer of Tice Technology effective January 3, 2000.
From January 1, 1999 to December 31, 1999, Mr. Camp was Chief Financial Officer
of Functional Pathways of Tennessee, a health care company. From January 1, 1995
to December 31, 1998, Mr. Camp was Chief Financial Officer of Pennant Foods
Corp., one of the largest Wendy's restaurant franchise groups in the world.
Prior to that he held the positions of Vice President of Finance of
International House of Pancakes, Inc. and Serv-a-Portion, Inc., a food
processing company. Mr. Camp is a certified public accountant and received a
B.S. in Business Administration from Oregon State University in 1969.
Michael A. Atkins, age 39, was elected a director of Tice Technology in May
1999. Since March of 1983, Mr. Atkins has been employed by The Lanrick Group,
Inc. in Knoxville, Tennessee where he provides financial planning and services.
Mr. Atkins received a B.S. from Auburn University in Auburn, Alabama in 1982 and
a Masters in Financial Planning from The College of Financial Planning in
Denver, Colorado in 1994.
Billie Joe Clayton, age 63, became a director of Tice Technology and Tice
in August 1996. Mr. Clayton is currently the Chief Executive Officer of Clayton
Motors, Inc. and affiliated companies and has held such position since 1961. He
is also a director and Vice Chairman of the Board of Clayton Homes, Inc. and has
held such positions since 1985. He is a Regional Director for First Tennessee
Bank.
Patrick L. Martin, age 47, was elected a director of Tice Technology in May
1999. Since August of 1981, Mr. Martin has been employed by The Lanrick Group,
Inc. in Knoxville, Tennessee where he provides financial planning and services.
Mr. Martin received a B.A. from the University of Tennessee in Knoxville in
1974 and a Masters in Financial Planning from The College of Financial Planning
in Denver, Colorado in 1995.
49
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Tice Technology's directors, officers, and persons who
beneficially own more than ten percent of the Common Shares (each, a "Reporting
Person") to file reports of ownership and changes of ownership with the
Securities and Exchange Commission. Copies of all filed reports are required to
be furnished to the Company pursuant to the Exchange Act. Based solely upon a
review of the forms and amendments thereto furnished to the Company during the
fiscal year ended March 31, 2000, we believe that each Reporting Person complied
with all applicable filing requirements during such fiscal year.
Item 11. Executive Compensation
Effective on May 1, 1999, Tice Technology entered into employment
agreements with William A. Tice to serve as its Chairman of the Board and
Executive Vice President and Charles R. West to serve as President and Chief
Executive Officer. Both agreements are for a term beginning on May 1, 1999 and
ending on April 30, 2002 with automatic one-year renewal terms unless terminated
on three-months notice by either party after the initial term. The agreements
may be earlier terminated in the event of the death, permanent disability or,
upon sixty-days notice, the gross misconduct, material dishonesty or felony
conviction of the employee.
Compensation under both agreements, in addition to benefits provided to
other key employees, reimbursement of certain expenses and provision of an
automobile or automobile allowance, is a base salary of $150,000 (subject to
annual reviews and increases by the Board of Directors) and, beginning in the
fiscal year ending March 31, 2001, a target bonus of up to 50% of base salary
payable in accordance with annual goals and objectives set by the Board of
Directors. Both agreements also provide that if the employee is terminated
without cause, he will be entitled to receive severance pay equal to one-year of
his then current base salary plus the target bonus of 50% of base pay, payable
in a lump sum within fifteen days of termination. Benefits and perquisites
continue for one-year after termination without cause.
In addition to the compensation described above, Mr. West received
incentive stock options to purchase Common Shares in an amount that will, if
fully exercised, together with shares he received in payment of a loan to the
Company, bring his cumulative ownership to approximately 8% of the fully diluted
outstanding Common Shares of Tice Technology. The options allow for purchases of
up to 690,071 Common Shares. One-third of the options vested on the first
anniversary of employment and have an exercise price of $1.00 per share,
one-third will vest on the second anniversary with an exercise price of $3.50
per share and the remainder will vest on the third anniversary with an exercise
price of $7.00 per share. The options will be exercisable for five years from
the date they vest.
50
<PAGE>
The following table sets forth the compensation of the previous President
and Chief Executive Officer, William A. Tice, for the fiscal years ended March
31, 2000, 1999, and 1998 and for Mr. West for the fiscal year ended March 31,
2000.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation ------
------------------- Other Annual Securities
Name and Fiscal Compensation Underlying Options
Principal Position Year Salary ($)(1) Bonus ($) ($)(2) / SARs (#)
<S> <C> <C> <C> <C> <C>
Charles R. West, President, Chief 2000 137,500 -0- 14,492 690,071
Executive Officer
William A. Tice, Executive Vice 2000 137,500 -0- 10,036 -0-
President, Chief Technology
Officer 1999 100,000 -0- 7,442 -0-
1998 130,000 -0- 30,319 -0-
</TABLE>
(1) The salaries listed for fiscal year 2000 are for eleven months beginning
May 1, 1999. Mr. Tice did not receive a salary in April 1999 and Mr. West
did not begin employment until May 1, 1999. The entire fiscal year 1999
salary for Mr. Tice was accrued and $25,000 of that salary was converted to
a note payable as subordinate debt in fiscal year 1999 and $75,000 was
converted to a note payable as subordinate debt in fiscal year 2000. The
1998 salary includes $25,000 of accrued payroll that was converted to a
note payable as subordinate debt.
(2) Other annual compensation includes for Mr. West an automobile allowance of
$11,000, health insurance premiums of $2,367 and 401(k) Plan match of
$1,125 which is the same percentage of employer contribution match offered
to other employees. For Mr. Tice, other annual compensation includes an
automobile allowance (for fiscal year 2000, $8,000; and for fiscal years
1999 and 1988, $0.00), life insurance premiums on split dollar (for fiscal
years 2000 and 1999, $0.00; and for fiscal year 1998, $15,602), regular
life insurance (for fiscal year 2000, $0.00; for fiscal year 1999, $5,266;
and for fiscal year 1998, $9,695), health insurance premiums (for fiscal
year 2000, $911; for fiscal year 1999, $2,176; and for fiscal year 1998,
$2,022), and 401(k) Plan match (for fiscal year 2000, $1,125; for fiscal
year 1999, $0.00; and for fiscal year 1998, $3,000) which is the same
percentage of employer contribution match offered to other employees. Tice
provided Mr. Tice with the use of a 1989 Mercedes 420 SEL through July 1999
during which time he paid the expenses of operation. Mr. Tice also receives
interest on certain notes reflecting funds loaned to Tice as subordinate
debt. In fiscal year 2000, all such interest was accrued and added to the
balance of the notes.
51
<PAGE>
Option/SAR Grants in Last Fiscal Year
-------------------------------------
<TABLE>
<CAPTION>
Alternative Grant
Individual Grants Date Value
---------------- ----------
Number of % of Total Options /
Securities SARs Granted to Exercise
Underlying Employees in or Base Expiration Grant Date
Name Options / SARs Fiscal Year Price ($/Sh) Date Present Value($)
---- -------------- ----------- ------------ ---- ----------------
<S> <C> <C> <C> <C> <C>
Charles R. West 230,024(1) 1.00 5/31/05 299,031
230,024(2) 98% 3.50 5/31/06 289,830
230,023(3) 7.00 5/31/07 282,928
</TABLE>
(1) These options vested on May 31, 2000.
(2) These options vest on May 31, 2001 assuming that Mr. West continues to be
employed by Tice Technology and certain other conditions are met.
(3) These options vest on May 31, 2002 assuming that Mr. West continues to be
employed by Tice Technology and certain other conditions are met.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to ownership of
issued and outstanding stock and warrants of Tice Technology by management and
5% or greater shareholders as of June 1, 2000:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Total Number of Percent
Securities Owned of
Name and Address Title of Class Beneficially Class (1)
---------------- -------------- ------------ ---------
<S> <C> <C> <C>
William A. Tice (1) Common Shares 5,786,025 61%
5315 Kesterbrooke Blvd Class B Common Shares 750,000 100%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
-----------------------------------------------------------------------------------------------------
Michael A. Atkins Common Shares 327,815 3%
1033 Spyglass Way Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
-----------------------------------------------------------------------------------------------------
Patrick L. Martin Common Shares 326,838 3%
30 Riverdell Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
-----------------------------------------------------------------------------------------------------
Billie Joe Clayton Common Shares 258,900 3%
817 Laurel Hill Road Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
-----------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Total Number of Percent
Securities Owned of
Name and Address Title of Class Beneficially Class (1)
---------------- -------------- ------------ ---------
<S> <C> <C> <C>
Charles R. West (2) Common Shares 331,175 3%
3516 Navigator Place Class B Common Shares -0- 0%
Knoxville, TN Common Stock Purchase Warrants -0- 0%
-----------------------------------------------------------------------------------------------------
Monogenesis Corporation Common Shares 8,000 *%
Drawer 88, Walker Creek Rd. Class B Common Shares -0- 0%
Walker, WV 26180-9948 Common Stock Purchase Warrants 188,000 19%
-----------------------------------------------------------------------------------------------------
Directors and Officers Common Shares 7,030,753 74%
As a Group (3) Class B Common Shares 750,000 100%
Common Stock Purchase Warrants -0- 0%
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Tice is Chairman of the Board, Executive Vice President, and a director
of Tice Technology. The number of Common Shares listed for Mr. Tice
includes 750,000 Common Shares which he would receive if he converted his
Class B Common Shares.
(2) Mr. West is President and Chief Executive Officer of Tice Technology. The
number of Common Shares listed for Mr. West includes the 230,024 shares he
would receive if he exercised his stock options which have vested.
(3) The number of Common Shares listed for directors and officers as a group
include the 750,000 Common Shares that Mr. Tice would receive if he
converted his Class B Common Shares and the 230,024 Common Shares that Mr.
West would receive if he exercised his options which have vested.
Item 13. Certain Relationships and Related Transactions
Management believes that all of the transactions listed below are at least
as fair as a similar transaction with an unaffiliated third party would have
been.
53
<PAGE>
During fiscal years 1996 through 1999, Mr. Tice loaned Tice money at an
annual interest rate of 10%. Tice currently owes him approximately $445,000.
Related to those loans, interest of $43,139 was accrued and not paid during
fiscal year 2000. For fiscal years 1999 and 1998 he received interest totaling
$50,929 and $21,092, respectively. Mr. Tice has agreed in the letter of intent
entered into with The Lanrick Group, Inc. that Tice will not make any payments
of the remaining amounts owed to him until the debt issued in the private
placement is paid in full. Mr. Tice has also agreed that the debt to him will be
subordinated to all other debts.
Daisy L. Tice, Mr. Tice's mother, loaned the Company $50,000 at an interest
rate of 10% per annum, renewable in ninety day increments. Interest is payable
monthly.
Mr. West loaned the Company $100,000 at an interest rate of 10% per
annum and converted the principal and interest through April 30, 1999 into
101,151 Common Shares of Tice Technology at a rate of $1.00 per share. Mr. West
loaned the Company an additional $50,000 on May 31, 2000 at an interest rate of
12% and a term of nine months to provide additional working capital. The loan is
collateralized by accounts receivable and inventory. The terms of Mr. West's
note are similar to the terms of three promissory notes in the aggregate total
of $250,000 that were issued to outside investors several weeks later.
Mr. Atkins and Mr. Martin are members and owners of The Lanrick Group, Inc.
which entered into an agreement with Tice Technology under which they purchased
Common Shares for $0.40 per share and became directors of Tice Technology. A
related party, LandOak Securities, LLC, also purchased 100,000 Common Shares for
$0.40 per share pursuant to the agreement. Under the agreement, so long as the
holders of securities sold by Mr. Atkins, Mr. Martin or their representatives
own on a fully diluted basis more than 10% of Tice Technology, Mr. Tice agrees
to elect two of their nominees to the Board of Directors of Tice Technology. In
addition, if the 10% requirement is no longer met, so long as the ownership on a
fully diluted basis exceeds 5% or the promissory notes sold in the private
placement closed on June 25, 1999 remain outstanding, Mr. Tice agrees to elect
one of their nominees to the Board of Directors. They are also entitled to
demand registration and piggyback registration rights. The Lanrick Group, Inc.
sold the securities offered in the private placement for a commission of 10% of
the amount sold and received $197,000 in commissions when the offering closed.
Tice Technology also reimbursed The Lanrick Group, Inc. $10,000 for legal costs
associated with the transactions described in the letter of intent. Tice
Technology also agreed to cause Mr. West to be elected President and Chief
Executive Officer of Tice Technology and enter into an employment agreement with
him. Mr. Tice and Mr. West agreed that they would not receive any payouts from
Tice Technology except the compensation approved by the Board of Directors.
Mr. Clayton loaned Tice funds at an interest rate of 9.5% per annum and
converted the principal and interest through April 30, 1999 into 217,000 Common
Shares of Tice Technology at a rate of $0.90 per Common Share.
54
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements (See Item 8)
(i) Reports of Independent Accountants
(ii) Consolidated Balance Sheets - March 31, 2000 and 1999
(iii) Consolidated Statements of Operations - For the years ended
March 31, 2000, 1999 and 1998.
(iv) Consolidated Statements of Changes in Stockholders' Deficit -For
the years ended March 31, 2000, 1999 and 1998
(v) Consolidated Statements of Cash Flow - For the years ended March
31, 2000, 1999 and 1998
(iv) Notes to Financial Statements
(2) None
(3) 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. +
(ii) Bylaws of Tice Technology, Inc. +
II. Instruments Defining the 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 o
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>
55
<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
III. Material Contracts 10
(i) Employment Agreement Between William A. Tice and Tice #
Technology, Inc.
(ii) Employment Agreement Between Charles R. West and Tice #
Technology, Inc.
(iii) Incentive Stock Option Plan and Agreement between Charles R. #
West and Tice Technology, Inc.
(iv) Warehouse Sublease Agreement Between the Innovo Group, Inc. o
and Tice Engineering & Sales, Inc.
IV. Subsidiaries of the Registrant 21 *
V. Financial Data Schedule 27 58
----------------------------------------------------------------------------------------------------------------
</TABLE>
* Included in original filing of Registration Statement by Tice Technology,
Inc. effective on August 1, 1997 and incorporated by reference herein.
+ Included in Pre-Effective Amendment No. 1 to the Registration Statement and
incorporated by reference herein.
x Included in Pre-Effective Amendment No. 2 to the Registration Statement and
incorporated by reference herein.
# Included in Form 10-K of Tice Technology, Inc. for the period ended March
31, 1999.
o Included in Form 10-Q of Tice Technology, Inc. for the period ended
December 31, 1999.
(b) No reports on Form 8-K were filed during the last quarter of the
fiscal year ended on March 31, 2000.
56
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 on July 12, 2000
----------------------------------------------------------
Charles R. West, President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ William A. Tice on July 12, 2000
---------------------------------------------------------------
William A. Tice, Chairman of the Board, Director
/s/ Charles W. West on July 12, 2000
---------------------------------------------------------------
Charles R. West, President, Chief Executive Officer, Director
/s/ David G. Camp on July 12, 2000
---------------------------------------------------------------
David G. Camp, Chief Financial Officer
/s/ Michael A. Atkins on July 12, 2000
---------------------------------------------------------------
Michael A. Atkins, Director
/s/ Patrick L. Martin on July 12, 2000
---------------------------------------------------------------
Patrick L. Martin, Director
57
