SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_______________________
FORM
10-Q
(Mark
One)
T
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the
Securities Exchange
Act of 1934
|
For
the
quarterly period ended December 31, 2006
Or
o
|
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 000-17288
SECURE
ALLIANCE HOLDINGS CORPORATION
(formerly
known as Tidel Technologies, Inc.)
|
Delaware
|
|
75-2193593
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
|
|
|
2900
Wilcrest Drive, Suite 205
|
|
|
|
|
Houston,
Texas
|
|
77042
|
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
Registrant’s
telephone number, including area code: (713) 783-8200
Indicate
by check mark whether the registrant: (1) has filed all reports required
to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirement
for
the past 90 days. YES T
NO
o
Indicate
by check mark whether the registrant is a
large accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes
o No
T
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes o No
T
Indicate
by check mark whether the registrant is a
non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes
T
No
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
T
No
o
The
number of shares of Common Stock outstanding as of the close of business
on
February 14, 2007 was 19,510,285.
SECURE
ALLIANCE HOLDINGS CORPORATION
TABLE
OF CONTENTS
|
Page
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
3
|
|
3
|
|
4
|
|
5
|
|
6
|
|
7
|
|
12
|
|
19
|
|
19
|
PART
II. OTHER INFORMATION
|
|
20
|
|
20
|
|
20
|
|
20
|
|
21
|
Certification
Pursuant to Section 302
|
|
Certification
Pursuant to Section 906
|
|
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(FORMERLY
TIDEL TECHNOLOGIES, INC.)
CONDENSED
BALANCE SHEETS
|
|
December
31,
2006
|
|
September
30,
2006
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,708,935
|
|
$
|
1,264,463
|
|
Certificate
of deposit
|
|
|
7,000,000
|
|
|
—
|
|
Restricted
cash
|
|
|
—
|
|
|
5,400,000
|
|
Marketable
securities held-to-maturity
|
|
|
3,724,575
|
|
|
4,899,249
|
|
Marketable
securities available-for-sale
|
|
|
1,059,648
|
|
|
851,939
|
|
Other
receivables
|
|
|
73,357
|
|
|
220,689
|
|
Prepaid
expenses and other
|
|
|
146,911
|
|
|
132,036
|
|
Assets
held for sale, net of accumulated depreciation of $0 and $1,352,463,
respectively
|
|
|
—
|
|
|
6,312,663
|
|
Total
current assets
|
|
|
13,713,426
|
|
|
19,081,039
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
4,000
|
|
|
4,000
|
|
Total
assets
|
|
$
|
13,717,426
|
|
$
|
19,085,039
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
59,952
|
|
$
|
221,295
|
|
Accrued
interest payable
|
|
|
—
|
|
|
2,000,000
|
|
Shares
subject to redemption
|
|
|
—
|
|
|
5,400,000
|
|
Other
accrued liabilities
|
|
|
52,610
|
|
|
61,610
|
|
Income
tax payable
|
|
|
271,340
|
|
|
88,584
|
|
Liabilities
held for sale
|
|
|
—
|
|
|
3,636,369
|
|
Total
current liabilities
|
|
|
389,902
|
|
|
11,407,858
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, authorized 100,000,000 shares; issued and
outstanding 19,510,285 shares and 38,677,210 shares,
respectively
|
|
|
195,103
|
|
|
386,772
|
|
Additional
paid-in capital
|
|
|
29,857,829
|
|
|
30,782,187
|
|
Accumulated
deficit
|
|
|
(17,479,056
|
)
|
|
(24,043,717
|
)
|
Accumulated
other comprehensive income
|
|
|
759,648
|
|
|
551,939
|
|
Total
shareholders’ equity
|
|
|
13,333,524
|
|
|
7,677,181
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
13,717,426
|
|
$
|
19,085,039
|
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(FORMERLY
TIDEL TECHNOLOGIES, INC.)
CONDENSED
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ended
December
31,
|
|
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
Selling,
general and administrative
|
|
|
376,071
|
|
|
1,374,024
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
1,366
|
|
Operating
loss
|
|
|
(376,071
|
)
|
|
(1,375,390
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Reorganization
fee paid to Laurus
|
|
|
(6,508,963
|
)
|
|
—
|
|
Amortization
of debt discount and deferred debt issuance costs
|
|
|
—
|
|
|
(985,827
|
)
|
Interest
income
|
|
|
168,579
|
|
|
—
|
|
Gain
from CCC bankruptcy settlement
|
|
|
—
|
|
|
180,000
|
|
Interest
expense, net
|
|
|
—
|
|
|
(176,584
|
)
|
Total
other expense
|
|
|
(6,340,384
|
)
|
|
(982,411
|
)
|
Loss
from continuing operations
|
|
|
(6,716,455
|
)
|
|
(2,357,801
|
)
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
—
|
|
|
1,189,006
|
|
Gain
on sale of Cash Security business, net of $271,340 income
tax
|
|
|
13,281,116
|
|
|
—
|
|
Total
discontinued operations, net of $271,340 income tax
|
|
|
13,281,116
|
|
|
1,189,006
|
|
Net
income (loss)
|
|
$
|
6,564,661
|
|
$
|
$(1,168,795
|
)
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.34
|
)
|
$
|
(0.11
|
)
|
Income
from discontinued operations
|
|
|
0.67
|
|
|
0.06
|
|
Net
income (loss)
|
|
$
|
0.33
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
19,847,452
|
|
|
20,677,210
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.34
|
)
|
$
|
(0.11
|
)
|
Income
from discontinued operations
|
|
|
0.67
|
|
|
0.06
|
|
Net
income (loss)
|
|
$
|
0.33
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
Weighted
average common and dilutive shares outstanding
|
|
|
20,017,456
|
|
|
20,677,210
|
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(FORMERLY
TIDEL TECHNOLOGIES, INC.)
CONDENSED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
Three
Months Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Net
income (loss)
|
|
$
|
6,564,661
|
|
$
|
(1,168,795
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities available-for-sale
|
|
|
207,709
|
|
|
—
|
|
Unrealized
gain on investment in 3CI
|
|
|
—
|
|
|
139,778
|
|
Comprehensive
income (loss)
|
|
$
|
6,772,370
|
|
$
|
(1,029,017
|
)
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(FORMERLY
TIDEL TECHNOLOGIES, INC.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three
Months Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
6,564,661
|
|
$
|
(1,168,795
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
continuing operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
1,366
|
|
Amortization
of debt discount and financing costs
|
|
|
—
|
|
|
985,827
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable, net
|
|
|
—
|
|
|
15,542
|
|
Notes
and other receivables
|
|
|
147,332
|
|
|
(396
|
)
|
Prepaid
expenses and other assets
|
|
|
(14,875
|
)
|
|
39,946
|
|
Income
Tax Payable
|
|
|
271,340
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(2,258,927
|
)
|
|
830,817
|
|
Net
cash flows provided by (used in) discontinued operations
|
|
|
(13,552,456
|
)
|
|
1,247,078
|
|
Net
cash provided by (used in) operating activities
|
|
|
(8,842,925
|
)
|
|
1,951,385
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Increase
in time deposits
|
|
|
(7,000,000
|
)
|
|
—
|
|
Decrease
in marketable securities held-to-maturity
|
|
|
1,174,674
|
|
|
—
|
|
Net
cash flows provided by discontinued investing activities
|
|
|
16,228,750
|
|
|
—
|
|
Net
cash provided by investing activities
|
|
|
10,403,424
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Redemption
of shares held by Laurus
|
|
|
(6,545,340
|
)
|
|
—
|
|
Proceeds
from exercise of warrants and options
|
|
|
29,313
|
|
|
—
|
|
Repayments
of notes payable
|
|
|
—
|
|
|
(150,000
|
)
|
Decrease
in restricted cash
|
|
|
5,400,000
|
|
|
—
|
|
Net
cash (used in) financing activities
|
|
|
(1,116,027
|
)
|
|
(150,000
|
)
|
Net
increase in cash and cash equivalents
|
|
|
444,472
|
|
|
1,801,385
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,264,463
|
|
|
1,003,663
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,708,935
|
|
$
|
2,805,048
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
—
|
|
$
|
140,455
|
|
Cash
paid for taxes
|
|
$
|
90,000
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities available-for-sale
|
|
$
|
207,709
|
|
$
|
—
|
|
See
accompanying Notes to Condensed Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(FORMERLY
TIDEL TECHNOLOGIES, INC.)
NOTES
TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1)
|
Organization
and Summary of Significant Accounting
Policies
|
Organization
and Basis of Presentation
Secure
Alliance Holdings Corporation (the “Company,” “we,” “us,” or “our”) is a
Delaware corporation which, through its wholly-owned subsidiaries, developed,
manufactured, sold and supported automated teller machines (“ATMs”) and
electronic cash security systems, consisting of the Timed Access Cash Controller
(“TACC”) products and the Sentinel products (together, the “Cash Security”
products), which were designed for the management of cash within various
specialty retail markets, primarily in the United States.
We
completed the sale of our ATM business on January 3, 2006 and the sale of
our
Cash Security business on October 2, 2006 as described more fully in our
Annual
Report on Form 10-K for the fiscal year ended September 30, 2006. On October
2,
2006, we became a shell public company and have had substantially no operations
since that time.
The
accompanying condensed consolidated interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America, assuming we continue as a going concern, which
contemplates the realization of the assets and the satisfaction of liabilities
in the normal course of business, and are unaudited. In the opinion of
management, the unaudited condensed consolidated interim financial statements
include all adjustments, consisting only of normal, recurring adjustments,
necessary for a fair presentation of the financial position as of December
31,
2006, the statements of operations and comprehensive loss and the statements
of
cash flows for the three months ended December 31, 2006 and 2005. Although
management believes the unaudited interim disclosures in these condensed
consolidated interim financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in annual audited financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to the rules of the Securities and Exchange Commission (the “SEC”). The
unaudited results of operations for the three months ended December 31, 2006
are
not necessarily indicative of the results to be expected for any quarterly
period or for the entire year ending September 30, 2007. The unaudited
consolidated interim financial statements included herein should be read
in
conjunction with the audited consolidated financial statements and notes
thereto
included in our Annual Report on Form 10-K for the fiscal year ended September
30, 2006.
Securities
held to maturity and securities available for sale
Securities
held to maturity are carried at amortized cost. Securities are designated
as
held to maturity only if the Company has the positive intent and ability
to hold
these securities to maturity. Securities available for sale are carried at
fair
value with the resulting unrealized gains or losses recorded in equity, net
of
tax. Premiums are amortized and discounts are accreted using the interest
method
over the estimated remaining term of the underlying security.
(2)
|
Discontinued
Operations
|
Sale
of ATM Business
On
February 19, 2005, the Company and its wholly-owned subsidiary, Secure Alliance,
L.P., entered into NCR Asset Purchase Agreement with NCR EasyPoint, a wholly
owned subsidiary of NCR Corporation, for the sale of our ATM
Business.
On
December 28, 2005, the holders of 62.2% of our shares of outstanding common
stock approved the NCR Asset Purchase Agreement.
On
January 3, 2006, we completed the ATM Business Sale. The total purchase price
was approximately $10.4 million of which $8.2 million was paid to Laurus
into a
collateral account to be held by Laurus as collateral for the satisfaction
of
all monetary obligations payable to Laurus, $0.5 million was paid into an
escrow
account pending a post closing net asset value adjustment, and the remaining
$1.7 million was paid to the Company to be used for necessary working capital.
This transaction resulted in a book gain of approximately $3.5
million.
We
classified the ATM business as Assets Held for Sale as of December 31,
2005.
An
analysis of the discontinued operations of the ATM business is as follows:
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
For
The Quarters Ended
|
|
|
|
December
31, 2006
|
|
December
31, 2005
|
|
Net
sales
|
|
$
|
—
|
|
$
|
3,847,874
|
|
Cost
of sales
|
|
|
—
|
|
|
2,592,268
|
|
Gross
profit
|
|
|
—
|
|
|
1,255,606
|
|
Selling,
general and administrative
|
|
|
—
|
|
|
880,941
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
46,048
|
|
Operating
income
|
|
|
—
|
|
|
328,617
|
|
Non-operating
(income) expense
|
|
|
—
|
|
|
—
|
|
Net
income
|
|
$
|
—
|
|
$
|
328,617
|
|
Sale
of Cash Security Business and Related Agreements with
Laurus
On
September 25, 2006, the holders of a majority of shares of our outstanding
common stock approved the sale of our electronic cash security business,
consisting of (a) timed access cash controllers, (b) the Sentinel products, (c)
the servicing, maintenance and repair of the timed access cash controllers
or
Sentinel products and (d) all other assets and business operations associated
with the foregoing (the “Cash Security Business Sale”) to Sentinel Operating,
L.P., a purchaser led by a management buyout team that included our former
director and Interim Chief Executive Officer, Mark K. Levenick, and our former
director, Raymond P. Landry. The Cash Security Asset Purchase Agreement provided
for a cash purchase price of $15,500,000, less $100,000 as consideration
for the
Buyer assuming certain potential liability in connection with ongoing
litigation, and less a working capital deficit adjustment of $1,629,968,
resulting in a net purchase price of $13,770,032. In addition, Sentinel
Operating L.P. paid a cash adjustment of $2,458,718 to the Company at closing.
The Cash Security Business Sale was completed on October 2, 2006.
We
classified the Cash Security business as a discontinued operation for the
three
months ended December 31, 2005.
Pursuant
to the Agreement Regarding the NCR Transaction and Other Asset Sales, dated
November 26, 2004 (the “Asset Sales Agreement”), by and between the Company and
Laurus Master Fund, Ltd. (“Laurus”), the Company agreed to pay to Laurus a
portion of the excess net proceeds from the ATM business sale and the Cash
Security Business Sale.
On
June
9, 2006, we and Laurus entered into the Laurus Termination Agreement which,
among other things, provided for the payment of a sale fee of $8,508,963
to
Laurus (the “Sale Fee”) in full satisfaction of all amounts payable to Laurus
under the Asset Sales Agreement, including fees payable in respect of the
ATM
Business Sale and the Cash Security Business Sale. The Laurus Termination
Agreement further provided that, upon payment of the Sale Fee and performance
by
the Company of its obligations under the Stock Redemption Agreement described
below, neither the Company nor any of its subsidiaries will have any further
obligation to Laurus. Further, each of the Company and Laurus has granted
each
other and their respective affiliates and subsidiaries reciprocal releases
from
and against any claims and causes of action that may exist.
We
and
Laurus entered a Stock Redemption Agreement on January 12, 2006 and as
subsequently amended. Pursuant to the terms of the Stock Redemption Agreement:
we agreed, among other things, (i) to repurchase from Laurus, upon the closing
of the Cash Security Business Sale, all shares of our common stock held by
Laurus, and (ii) Laurus agreed to the cancellation as of the closing date
of the
Cash Security Business Sale of warrants it holds to purchase 4,750,000 shares
of
our common stock at an exercise price of $.30 per share, and
not
to exercise such warrants prior to the earlier to occur of September 30,
2006
and the date on which the Asset Purchase Agreement is terminated.
Following
the Cash Security Business Sale, on October 2, 2006, the Company applied
the net
purchase price, the cash adjustment, and $5,400,000 in proceeds (together
with
accrued interest of $206,798.72) from the ATM Business Sale, to pay the
following amounts to Laurus: (i) $8,508,963 pursuant to the terms of the
Laurus
Termination Agreement and (ii) $6,545,340 representing the purchase from
Laurus
by the Company of 19,251,000 shares of Company common stock pursuant to the
terms of the Stock Redemption Agreement. Following both such payments to
Laurus,
the Company received $6,781,246 in net proceeds from the Cash Security Business
Sale.
On
October 2, 2006, following the foregoing payments to Laurus pursuant to the
terms of the Laurus Termination Agreement and the Stock Redemption Agreement,
no
further fees remain payable by the Company to Laurus and, to our knowledge,
Laurus does not own any shares of the Company.
We
classified the Cash Security business as a discontinued operation for the
three
months ended December 31, 2005. We classified the Cash Security business
as
Assets Held for Sale as of September 30, 2006.
An
analysis of the discontinued operations of the Cash Security business is
as
follows:
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
December
31, 2006
|
|
September
30, 2006
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
$
|
2,048,275
|
|
Trade
accounts receivable, net of allowance of approximately $0 and $45,000,
respectively
|
|
|
—
|
|
|
1,591,522
|
|
Inventories
|
|
|
—
|
|
|
2,051,764
|
|
Prepaid
expenses and other
|
|
|
—
|
|
|
73,089
|
|
Total
current assets
|
|
|
—
|
|
|
5,764,650
|
|
Property,
plant and equipment, at cost
|
|
|
—
|
|
|
316,608
|
|
Accumulated
depreciation
|
|
|
—
|
|
|
(18,595
|
)
|
Net
property, plant and equipment
|
|
|
—
|
|
|
298,013
|
|
Other
assets
|
|
|
—
|
|
|
250,000
|
|
Total
assets
|
|
$
|
—
|
|
$
|
6,312,663
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current
maturities
|
|
$
|
—
|
|
$
|
1,981
|
|
Accounts
payable
|
|
|
—
|
|
|
1,514,731
|
|
Other
accrued expenses
|
|
|
—
|
|
|
2,098,675
|
|
Total
current liabilities
|
|
|
—
|
|
|
3,615,387
|
|
Long-term
debt, net of current maturities
|
|
|
—
|
|
|
20,982
|
|
Total
liabilities
|
|
$
|
—
|
|
$
|
3,636,369
|
|
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
For
Three Months Ended
|
|
|
|
December
31, 2006
|
|
December
31, 2005
|
|
Net
sales
|
|
$
|
—
|
|
$
|
4,745,876
|
|
Cost
of sales
|
|
|
—
|
|
|
2,888,459
|
|
Gross
profit
|
|
|
—
|
|
|
1,857,417
|
|
Selling,
general and administrative
|
|
|
—
|
|
|
1,004,460
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
(7,526
|
)
|
Operating
income
|
|
|
—
|
|
|
860,483
|
|
Non-operating
expense
|
|
|
—
|
|
|
94
|
|
Net
income
|
|
$
|
—
|
|
$
|
860,389
|
|
(3)
|
Accounting
policies related to Discontinued Operations which are Classified
as Assets
Held for Sale and discontinued
operations
|
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the standard
cost method and includes materials, labor and production overhead which
approximates an average cost method. Reserves are provided to adjust any
slow
moving materials or goods to net realizable values.
Warranties
Certain
products are sold under warranty against defects in materials and workmanship
for a period of one to two years. A provision for estimated warranty costs
is
included in accrued liabilities and is charged to operations at the time
of
sale.
Accounts
Receivable
We
had
significant investments in billed receivables as of September 30, 2006 and
2005.
Billed receivables represent amounts billed upon the shipments of our products
under our standard contract terms and conditions. Allowances for doubtful
accounts and estimated non-recoverable costs primarily provide for losses
that
may be sustained on uncollectible receivables and claims. In estimating the
allowance for doubtful accounts, we evaluate our contract receivables and
thoroughly review historical collection experience, the financial condition
of
our customers, billing disputes and other factors. When we ultimately conclude
that a receivable is uncollectible, the balance is charged against the allowance
for doubtful accounts.
Revenue
Recognition
Revenues
are recognized at the time products are shipped to customers. We have no
continuing obligation to provide services or upgrades to our products, other
than a warranty against defects in materials and workmanship. We only recognize
such revenues if there is persuasive evidence of an arrangement, the products
have been delivered; there is a fixed or determinable sales price and a
reasonable assurance of our ability to collect from the customer.
Our
products contain imbedded software that is developed for inclusion within
the
equipment. We have not licensed, sold, leased or otherwise marketed such
software separately. We have no continuing obligations after the delivery
of our
products and we do not enter into post-contract customer support arrangements
related to any software embedded into our equipment.
Research
and Development Cost
Research
and development costs are expensed as incurred. Research and development
costs
charged to expense were $0 and $474,830 for the quarter ending December 31,
2006
and 2005 respectfully.
Shipping
and Handling Cost
There
was
no Shipping and handling costs billed to customers during the quarter ended
December 31, 2006 and a total of $130,701 for the quarter ended December
31,
2005. We incurred no shipping and handling costs for the quarter ended December
31, 2006 and $132,462 for the quarter ended December 31, 2005. The net expense
of $1,761 is included in selling expenses in the accompanying statement of
operations for the quarter ended December 31, 2005.
The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computation:
|
|
Three
months ended
December
31,
|
|
|
|
2006
|
|
2005
|
|
Net
Income (loss) (numerator for basic earnings per share)
|
|
$
|
6,564,661
|
|
$
|
(1,168,795
|
)
|
Weighted
average common shares outstanding (denominator for basic earnings per
share)
|
|
|
19,847,452
|
|
|
20,667,210
|
|
Dilutive
shares outstanding
|
|
|
170,004
|
|
|
—
|
|
Weighted
average common and dilutive shares outstanding (denominator
for diluted earnings per share)
|
|
|
20,017,456
|
|
|
20,667,210
|
|
Basic
earnings per share
|
|
$
|
.33
|
|
$
|
(0.05
|
)
|
Diluted
earnings per share
|
|
$
|
.33
|
|
$
|
(0.05
|
)
|
Earnings
per share data for all periods presented have been computed pursuant to SFAS
No.
128, “Earnings Per Share” that requires a presentation of basic earnings per
share (basic EPS) and diluted earnings per share (diluted EPS). Basic EPS
excludes dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during
the period. Diluted EPS reflects the potential dilution that could occur
if
securities and other contracts to issue common stock were exercised or converted
into common stock. As of December 31, 2006, we had no outstanding options,
and
we had outstanding warrants to purchase 697,500 shares with exercise prices
ranging from $.40 to $.68 per share. Included in the computation of diluted
EPS
for the three months ended December 31, 2006 are options to purchase 623,150
shares to purchase common stock at a weighted average of $1.27 per share.
Excluded from the computation of diluted EPS for the three months ended December
31, 2005 were options to purchase 1,092,730 shares to purchase common stock
at a
weighted average of $1.22 per share. Excluded from computation of diluted
EPS
for the three months ended December 31, 2005 were 5,890,000 warrants, with
a
remaining exercise price ranging from $.30 to $.40, as they would also be
anti-dilutive.
(5)
|
Marketable
Securities Available- for-
Sale
|
We
own
2,022,000 of the common stock of Cashbox plc pursuant to our exercise of
the
Share Warrant Agreement in September 2005. On or about March 27, 2006, shares
of
Cashbox plc began trading on the AIM Market of the London Stock Exchange
(the
“Exchange”). Prior to Cashbox plc going public, we considered their shares not
marketable, thus the shares were carried at cost. Since the shares are now
public and market value is readily available, we determined the market value
of
the shares as of June 30, 2006 and pursuant to SFAS No. 115 “Accounting for
Investments in Equity and Debt Securities” we classified these shares as
available for sale. Pursuant to the SFAS No. 115 the unrealized change in
fair
value during the three months ended December 31, 2006 was excluded from earnings
and recorded net of tax as other comprehensive income.
As
of
December 31, 2006, our common stock in Cashbox plc was recorded at a fair
value
of $1,059,648. Unrealized gains on these shares of common stock, which were
added to stockholders' equity as of December 31, 2006, were
$759,648.
As
of
December 31, 2006 we were restricted from selling any shares until the second
anniversary of its admission to the Exchange unless we (i) consult with
Cashbox’s primary broker prior to the disposal of any shares and (ii) effect the
disposal of the shares through Cashbox’s primary broker from time to time and in
such manner as such broker may require with a view to the maintenance of
an
orderly market in the shares of Cashbox.
It
is the
present intention of the Company to review its financial position and consider
all available alternatives including without limitation the acquisition of
a new
business or alternatively, the possible dissolution of the Company and
liquidation of its assets, the discharge of any remaining liabilities, and
the
eventual distribution of the remaining assets to stockholders. Although
management currently does not expect to liquidate the Company, if it later
determines that liquidation is in the best interest of stockholders, such
action
will require the approval of the holders of a majority of the Company’s then
outstanding shares of common stock. If liquidation does occur there can be
no
assurances as to the amount of liquidation proceeds that might eventually
be
distributed to stockholders.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS
OF OPERATIONS
You
should read the following discussion and analysis together with
our consolidated
financial statements and notes thereto and the discussion “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
“Risk Factors” and “Forward-Looking Statements” included in our 2006
Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2006.
The
following information contains
forward-looking statements, which are subject to risks and uncertainties.
Should one or more of these risks or uncertainties materialize, actual
results may differ from those expressed or implied by the forward-looking
statements.
General
On
October 2, 2006 we completed the Cash Security Business Sale. The Cash Security
Asset Purchase Agreement provided for a cash purchase price of $15,500,000,
less
$100,000 as consideration for the buyer, Sentinel Operating, L.P. assuming
certain potential liability in connection with ongoing litigation and less
a
working capital deficit adjustment of $1,629,968, which resulted in a net
purchase price of $13,770,032. In addition, Sentinel Operating, L.P. paid
a cash
adjustment of $2,458,718 to us at closing. We applied the net purchase price,
the cash adjustment, and $5,400,000 in proceeds (together with accrued interest
of $206,798.72) from the ATM Business Sale, to pay the following amounts
to
Laurus: (i) $8,508,963 pursuant to the terms of the Laurus Termination Agreement
and (ii) $6,545,340 representing the purchase from Laurus by us of 19,251,000
shares of our common stock pursuant to the terms of the Stock Redemption
Agreement. Following both such payments to Laurus, we received $6,781,245
in net
proceeds from the Cash Security Business Sale.
At
December 31, 2006, we had approximately $12.4 million of cash, cash equivalents,
certificates of deposit and marketable securities held-to-maturity.
Results
of Operations
Since
October 2, 2006, we have had substantially no operations.
Operating
Segments
We
conducted business within one operating segment, principally in the United
States.
Product
Net Sales for ATM Business and Cash Security Business
A
breakdown of net sales by individual product line is provided in the following
table:
|
|
December
31, 2006
|
|
December
31, 2005
|
|
ATM
Business
|
|
$
|
—
|
|
$
|
3,847,874
|
|
Cash
Security Business:
|
|
|
|
|
|
|
|
TACC
|
|
|
—
|
|
|
901,104
|
|
Sentinel
|
|
|
—
|
|
|
3,361,715
|
|
Parts
& Other
|
|
|
—
|
|
|
483,057
|
|
Total
Cash Security Business
|
|
$
|
—
|
|
$
|
4,745,876
|
|
Gross
Profit, Operating Expenses and Non-Operating Items
Continuing
Operations
Due
to
the sale of our ATM business and our Cash Security business, the results
of
continuing operations consist of corporate overhead and debt-related
costs.
An
analysis of continuing operations and assets and liabilities is provided
in the
following tables:
CONTINUING
OPERATIONS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
December
31,
2006
|
|
September
30,
2006
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,708,935
|
|
$
|
1,264,463
|
|
Certificate
of deposit
|
|
|
7,000,000
|
|
|
—
|
|
Restricted
cash
|
|
|
—
|
|
|
5,400,000
|
|
Marketable
securities held-to-maturity
|
|
|
3,724,575
|
|
|
4,899,249
|
|
Marketable
securities available-for-sale
|
|
|
1,059,648
|
|
|
851,939
|
|
Trade
account receivable
|
|
|
—
|
|
|
—
|
|
Other
receivables
|
|
|
73,357
|
|
|
220,689
|
|
Prepaid
expenses and other
|
|
|
146,911
|
|
|
132,036
|
|
Total
current assets
|
|
$
|
13,713,426
|
|
$
|
12,768,376
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
59,952
|
|
$
|
221,295
|
|
Accrued
interest payable
|
|
|
—
|
|
|
2,000,000
|
|
Shares
subject to redemption
|
|
|
—
|
|
|
5,400,000
|
|
Income
tax payable
|
|
|
271,340
|
|
|
88,584
|
|
Other
accrued liabilities
|
|
|
52,610
|
|
|
61,610
|
|
Total
current liabilities
|
|
$
|
383,902
|
|
$
|
7,771,489
|
|
CONTINUING
OPERATIONS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Quarter
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
Selling,
general and administrative
|
|
|
376,071
|
|
|
1,374,024
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
1,366
|
|
Operating
loss
|
|
|
(376,071
|
)
|
|
(1,375,390
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
Reorganization
fee paid to Laurus
|
|
|
(6,508,963
|
)
|
|
—
|
|
Amortization
of debt discount and deferred debt issuance costs
|
|
|
—
|
|
|
(985,827
|
)
|
Interest
income
|
|
|
168,579
|
|
|
—
|
|
Gain
from CCC bankruptcy settlement
|
|
|
—
|
|
|
180,000
|
|
Interest
expense, net
|
|
|
—
|
|
|
(176,584
|
)
|
Total
other expense
|
|
|
(6,340,384
|
)
|
|
(982,411
|
)
|
Continuing
loss before taxes
|
|
|
(6,716,455
|
)
|
|
(2,357,801
|
)
|
Net
loss from continuing operations
|
|
$
|
(6,716,455
|
)
|
$
|
(2,357,801
|
)
|
Quarter
Ended December 31, 2006 Compared with the Quarter Ended December 31,
2005
Selling,
general and administrative expenses
for the quarter ended December 31, 2006 decreased by approximately $1.0 million
due lower professional fees as a result of the sales of the ATM business
and the
Cash Security business.
Depreciation
and amortization for
the
quarter ended December 31, 2006 and December 31, 2005 was $0 and $1,366,
respectively. The decrease was due to the closure of the corporate office
on
March 31, 2006.
Interest
expense
was $0
for the quarter ended December 31, 2006 compared with $176,584 for the quarter
ended December 31, 2005. The decrease was the result of the repayment of
all
indebtedness due to Laurus on January 12, 2006.
Income
tax expense (benefit).
In
assessing the realizability of deferred tax asset, management considers whether
it is more likely than not, that some portion or all of the deferred tax
assets
will be realized. We recorded a tax provision of $271,340 for the quarter
ended
December 31, 2006. We had established a valuation allowance for deferred
tax
assets to the extent such amounts are not utilized to offset existing deferred
tax liabilities reversing in the same periods This allowance has been removed
due to the net income during the first quarter of 2007.
We
recorded a net (loss) from continuing operations of $(6,716,455) and
$(2,357,801) for the quarters ended December 31, 2006 and December 31, 2005,
respectively.
Discontinued
Operations (ATM Business)
An
analysis of the discontinued operations of the ATM business is as follows:
DISCONTINUED
OPERATIONS — ATM BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Quarters
Ended
|
|
|
|
December
31, 2006
|
|
December
31, 2005
|
|
Net
sales
|
|
$
|
—
|
|
$
|
3,847,874
|
|
Cost
of sales
|
|
|
—
|
|
|
2,592,268
|
|
Gross
profit
|
|
|
—
|
|
|
1,255,606
|
|
Selling,
general and administrative
|
|
|
—
|
|
|
880,941
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
46,048
|
|
Operating
loss
|
|
|
—
|
|
|
328,617
|
|
Non-operating
(income) expense
|
|
|
—
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
—
|
|
$
|
328,617
|
|
Quarter
ended December 31, 2006 compared with Quarter ended December 31,
2005
Net
Sales from
the
ATM business were $0 for the quarter ended December 31, 2006 compared with
$3.8
million for the quarter ended December 31, 2005. The decrease was a result
of
the sale of the ATM business on January 3, 2006.
Gross
profit on
net
sales and profit as a percentage of sales were $0 for the quarter ended December
31, 2006 compared with $1.3 million for the quarter ended December 31, 2005,
respectively. The decrease was a result of the sale of the ATM business on
January 3, 2006.
Selling,
general and administrative expenses
for the quarter ended December 31, 2006 were $0 compared with $0.9 million
for
the same period last year. The decrease was a result of the sale of the ATM
business on January 3, 2006.
Depreciation
and amortization for
the
quarter ended December 31, 2006 and December 31, 2005 was $0 and $46,048,
respectively. The decrease was a result of the sale of the ATM business on
January 3, 2006.
The
ATM
business recorded a net income of $328,617 for the quarter ended December
31,
2005.
Discontinued
Operations (Cash Security Business)
We
completed the Cash Security Business Sale on October 2, 2006. We classified
the
Cash Security business as a discontinued operation for the three months ended
December 31, 2005. We classified the Cash Security business as Assets Held
for
Sale as of September 30, 2006.
An
analysis of the discontinued operations of the Cash Security Business is
as
follows:
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
December
31,
2006
|
|
September
30,
2006
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
$
|
2,048,275
|
|
Trade
accounts receivable, net of allowance of approximately $0 and $45,000,
respectively
|
|
|
—
|
|
|
1,591,522
|
|
Inventories
|
|
|
—
|
|
|
2,051,764
|
|
Prepaid
expenses and other
|
|
|
—
|
|
|
73,089
|
|
Total
current assets
|
|
|
—
|
|
|
5,764,650
|
|
Property,
plant and equipment, at cost
|
|
|
—
|
|
|
316,608
|
|
Accumulated
depreciation
|
|
|
—
|
|
|
(18,595
|
)
|
Net
property, plant and equipment
|
|
|
—
|
|
|
298,013
|
|
Other
assets
|
|
|
—
|
|
|
250,000
|
|
Total
assets
|
|
$
|
—
|
|
$
|
6,312,663
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current
maturities
|
|
|
—
|
|
|
1,981
|
|
Accounts
payable
|
|
|
—
|
|
|
1,514,731
|
|
Other
accrued expenses
|
|
|
—
|
|
|
2,098,675
|
|
Total
current liabilities
|
|
|
—
|
|
|
3,615,387
|
|
Long-term
debt, net of current maturities
|
|
|
—
|
|
|
20,982
|
|
Total
liabilities
|
|
$
|
—
|
|
$
|
3,636,369
|
|
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
December
31, 2006
|
|
December
31, 2005
|
|
Net
sales
|
|
$
|
—
|
|
$
|
4,745,876
|
|
Cost
of sales
|
|
|
—
|
|
|
2,888,459
|
|
Gross
profit
|
|
|
—
|
|
|
1,857,417
|
|
Selling,
general and administrative
|
|
|
—
|
|
|
1,004,460
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
(7,526
|
)
|
Operating
income
|
|
|
—
|
|
|
860,483
|
|
Non-operating
expense
|
|
|
—
|
|
|
94
|
|
Net
income
|
|
$
|
—
|
|
$
|
860,389
|
|
Quarter
ended December 31, 2006 compared with Quarter ended December 31,
2005
Net
Sales from
the
Cash Security business were $0 for the quarter ended December 31, 2006, compared
to net sales of $4,745,876 for the quarter ended December 31, 2005. The decrease
was a result of the Cash Security Business Sale.
Gross
profit on
product sales for the quarter ended December 31, 2006 was $0 compared to
$1.9
million from the quarter ended December 31, 2005. Gross profit as a percentage
of sales was 39% for the quarter ended December 31, 2005. The decrease was
a
result of the Cash Security Business Sale.
Selling,
general and administrative expenses
for the quarter ended December 31, 2006 was $0 compared with $1,004,460 for
this
same period last year. The decrease was a result of the Cash Security Business
Sale.
Depreciation
and amortization for
the
quarter ended December 31, 2006 and December 31, 2005 was $0 and $(7,526)
respectively. The decrease was a result of the Cash Security Business
Sale.
Liquidity
and Capital Resources
Completion
of the Cash Security Business Sale and Related Agreements with
Laurus
On
September 25, 2006, the holders of a majority of shares of our outstanding
common stock approved the sale of our electronic cash security business,
consisting of (a) timed access cash controllers, (b) the Sentinel products,
(c)
the servicing, maintenance and repair of the timed access cash controllers
or
Sentinel products and (d) all other assets and business operations associated
with the foregoing (the “Cash Security Business Sale”) to Sentinel Operating,
L.P., a purchaser led by a management buyout team that included our former
director and Interim Chief Executive Officer, Mark K. Levenick, and our former
director, Raymond P. Landry. The Cash Security Asset Purchase Agreement provided
for a cash purchase price of $15,500,000, less $100,000 as consideration
for the
Buyer assuming certain potential liability in connection with ongoing
litigation, and less a working capital deficit adjustment of $1,629,968,
resulting in a net purchase price of $13,770,032. In addition, Sentinel
Operating L.P. paid a cash adjustment of $2,458,718 to the Company at closing.
The Cash Security Business Sale was completed on October 2, 2006.
We
classified the Cash Security business as a discontinued operation for the
three
months ended December 31, 2005.
Pursuant
to the Agreement Regarding the NCR Transaction and Other Asset Sales, dated
November 26, 2004 (the “Asset Sales Agreement”), by and between the Company and
Laurus Master Fund, Ltd. (“Laurus”), the Company agreed to pay to Laurus a
portion of the excess net proceeds from the ATM business sale and the Cash
Security Business Sale.
On
June
9, 2006, we and Laurus entered into the Laurus Termination Agreement which,
among other things, provided for the payment of a sale fee of $8,508,963
to
Laurus (the “Sale Fee”) in full satisfaction of all amounts payable to Laurus
under the Asset Sales Agreement, including fees payable in respect of the
ATM
Business Sale and the Cash Security Business Sale. The Laurus Termination
Agreement further provided that, upon payment of the Sale Fee and performance
by
the Company of its obligations under the Stock Redemption Agreement described
below, neither the Company nor any of its subsidiaries will have any further
obligation to Laurus. Further, each of the Company and Laurus has granted
each
other and their respective affiliates and subsidiaries reciprocal releases
from
and against any claims and causes of action that may exist.
We
and
Laurus entered a Stock Redemption Agreement on January 12, 2006 and as
subsequently amended. Pursuant to the terms of the Stock Redemption Agreement:
(i) we agreed, among other things, to repurchase from Laurus, upon the closing
of the Cash Security Business Sale, all shares of our common stock held by
Laurus, and (ii) Laurus agreed to the cancellation as of the closing date
of the
Cash Security Business Sale of warrants it holds to purchase 4,750,000 shares
of
our common stock at an exercise price of $.30 per share, and not
to
exercise such warrants prior to the earlier to occur of September 30, 2006
and
the date on which the Asset Purchase Agreement is terminated.
Following
the Cash Security Business Sale, on October 2, 2006, the Company applied
the net
purchase price, the cash adjustment, and $5,400,000 in proceeds (together
with
accrued interest of $206,798.72) from the ATM Business Sale, to pay the
following amounts to Laurus: (i) $8,508,963 pursuant to the terms of the
Laurus
Termination Agreement and (ii) $6,545,340 representing the purchase from
Laurus
by the Company of 19,251,000 shares of Company common stock pursuant to the
terms of the Stock Redemption Agreement. Following both such payments to
Laurus,
the Company received $6,781,246 in net proceeds from the Cash Security Business
Sale.
On
October 2, 2006, following the foregoing payments to Laurus pursuant to the
terms of the Laurus Termination Agreement and the Stock Redemption Agreement,
no
further fees remain payable by the Company to Laurus and, to our knowledge,
Laurus does not own any shares of the Company.
Cash
Flows
Cash
used
by operations was $8,842,925 for the quarter ended December 31, 2006 compared
with cash provided by operations of $1,951,385 for the same period last year.
Working
Capital
As
of
December 31, 2006, we had working capital of $13.6 million compared with
working
capital of $526,856 at December 31, 2005 due to the completion of the Cash
Security Business Sale.
Off-Balance
Sheet Transactions
We
do not
have any significant off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future material effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures
or
capital resources.
Indebtedness
We
had no
indebtedness or obligations under operating leases at December 31,
2006.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
At
December 31, 2006, our exposure to market risk for changes in interest rates
relates to our investment portfolio, which consists of taxable, short-term
money
market instruments and certificates of deposit and debt securities with
maturities between 90 days and one year. We do not use derivative financial
instruments in our investment portfolio. We place our investments with
high-credit quality issuers and we mitigate default risk by investing in
only
safe and high-credit quality securities and by monitoring the credit rating
of
investment issuers.
ITEM
4. CONTROLS AND PROCEDURES
(a)
|
Evaluation
of Disclosure Controls and
Procedures
|
An
evaluation was performed by Jerrell G. Clay, our Chief Executive Officer
and
Robert D. Peltier, our Acting Chief Financial Officer, of the effectiveness
of
the design and operation of our disclosure controls and procedures, as such
term
is defined under Rule 13a-15(e) promulgated under the Securities Exchange
Act of
1934. Based on this evaluation, our Chief Executive Officer and our Acting
Chief
Financial Officer concluded that our disclosure controls and procedures at
December 31, 2006 were effective to ensure that information required to be
disclosed by us in reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the timeframe specified in Securities
and Exchange Commission rules and forms. Disclosure controls and procedures
include without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports we file or submit under
the
Exchange Act is accumulated and communicated to management, including our
Chief
Executive Officer and our Acting Chief Financial Officer, as appropriate
to
allow timely decisions regarding required disclosure.
(b)
|
Changes
in internal control over financial
reporting
|
There
were no changes in our internal controls over financial reporting during
three
months ended December 31, 2006 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
On
June
9, 2005, Corporate Safe Specialists, Inc. (“CSS”) filed a lawsuit against Secure
Alliance Holdings Corporation and Secure Alliance, L.P. The lawsuit, Civil
Action No. 02-C-3421, was filed in the United States District Court of the
Northern District of Illinois, Eastern Division. CSS alleges that the Sentinel
product sold by Secure Alliance, L.P. infringes on one or more patent claims
found in CSS patent U.S. Patent No. 6,885,281 (the ‘281 patent). CSS seeks
injunctive relief against future infringement, unspecified damages for past
infringement and attorney’s fees and costs. Secure Alliance Holdings Corporation
was released from this lawsuit, but Secure Alliance, L.P. remained a defendant.
As
part
of the Cash Security Business Sale, the buyer of the Cash Security business,
Sentinel Operating, L.P., agreed to undertake and have the sole right to
direct
on behalf of itself and us, the defense of the CSS litigation, with counsel
of
its choice, provided that in the event we incur any adverse consequences
in
connection with the litigation subsequent to the Cash Security Business Sale,
then Sentinel Operating, L.P. will indemnify us from and against the entirety
of
any such adverse consequences to the extent they are incurred as a result
of the
breach of the Cash Security Asset Purchase Agreement or our negligent action
or
inaction.
There
are
several risks inherent in our business including, but not limited to, the
following:
Following
the Cash Security Business Sale, the Company has no
operations.
Following
the consummation of the ATM Business Sale on January 3, 2006 and the closing
of
the Cash Security Business Sale on October 2, 2006, we have substantially
no
operations and no employees resulting in a development stage
operation.
We
have limited management and other resources.
Our
ability to manage any future operations effectively will require us to hire
new
employees, to integrate new management and employees into any future operations,
financial and management systems, controls and facilities. Our failure to
handle
the issues we face effectively, including any failure to integrate new
management controls, systems and procedures, could materially adversely affect
our company, results of operations and financial condition.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During
the quarter ended December 31, 2006, stock options issued pursuant to our
1997
Long-Term Incentive Plan were exercised by three individuals for 27,250 shares
of our common stock generating aggregate proceeds of $6,813. During the quarter
ended December 31, 2006, warrants were exercised by two holders for 56,825
shares of our common stock generating aggregate proceeds of
$22,500.
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
Certification
of Acting Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
Certification
of Acting Chief Financial Officer pursuant to 18 U.S.C. Section
1350
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
____________
*
- Filed
herewith.
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.
|
|
SECURE
ALLIANCE HOLDINGS CORPORATION
|
|
|
|
(Company)
|
|
|
|
|
|
February
14, 2007
|
|
/s/
JERRELL G. CLAY
|
|
|
|
Jerrell
G. Clay
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
February
14, 2007
|
|
/s/
ROBERT D. PELTIER
|
|
|
|
Robert
D. Peltier
|
|
|
|
Acting
Chief Financial Officer
|
|
21