form10k.htm
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended September 30,
2007
o
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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
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75-2193593
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(State
or other jurisdiction of
incorporation or organization)
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(I.R.S.
Employer Identification
No.)
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5700
Northwest Central Drive,
Suite 350
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77092
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Houston,
Texas
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(Zip
Code)
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(Address
of principal executive
offices)
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Registrant’s
telephone number, including
area code (713) 783-8200
Securities
Registered Pursuant to
Section 12(b) of the Act: None
Securities
Registered Pursuant to
Section 12(g) of the Act:
common
stock, par value $.01 per
share
(Title
of Class)
Indicate
by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes * No T
Indicate
by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of
the
Act. Yes * No T
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 *
Indicate
by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of
this Chapter) 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. *
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer *
|
Accelerated
filer *
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Non-accelerated
filer T
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes T No *
The
aggregate market value of the
19,260,119 shares of common stock held by non-affiliates of the registrant
based
on the closing sale price on December 31, 2007 of $0.62 was $11,941,274. The
number of shares of common stock outstanding as of the close of business on
December 31, 2007 was 19,441,524.
DOCUMENTS
INCORPORATED BY
REFERENCE
None.
SECURE
ALLIANCE HOLDINGS
CORPORATION
ANNUAL
REPORT ON FORM
10-K
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PAGE
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PART
I
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4
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6
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7
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8
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8
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PART
II
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9
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10
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11
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21
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21
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21
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22
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PART
III
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23
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24
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26
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27
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27
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PART
IV
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28
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29
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51
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53
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PART
I
(a)
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General
Development of Business
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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). On
October 3, 2006 the Company changed its name from Tidel Technologies, Inc.
to Secure Alliance Holdings Corporation.
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 below. On October 2, 2006, we
became a shell public company with approximately $12.9 million in cash, cash
equivalents and marketable securities held-to-maturity.
Before
the sale of our Cash Security and
ATM businesses, we were primarily engaged in the development, manufacturing,
sale and support of ATM products and the Cash Security products, which were
designed for the management of cash within various specialty retail
markets.
Following
the sale of our Cash Security
and ATM businesses, we have had substantially no operations.
Subsequent
events
On
December 6, 2007, we entered into a
definitive Agreement and Plan of Merger (“Merger Agreement”) by and among
Sequoia Media Group, LC, a private Utah limited liability company (“Sequoia”),
the Company and SMG Utah, LC, a Utah limited liability company and wholly owned
subsidiary of the Company (“Merger Sub”). Pursuant to the Merger
Agreement, Merger Sub will merge with and into Sequoia (the “Merger”), with
Sequoia continuing as the surviving entity in the Merger and each issued and
outstanding Sequoia equity interest will automatically be converted into the
right to receive 0.5806419 shares of the Company’s common stock, calculated
after a 1 for 3 reverse stock split of the Company’s common stock contemplated
to be effected prior to the Merger. Immediately following the Merger,
the members of Sequoia, in aggregate, will own approximately 80% of the equity
interests in the Company and the stockholders of the Company will
own the remaining approximately 20%
equity interests in the combined company.
In
addition, pursuant to a Loan and
Security Agreement (“Loan Agreement”) entered into between the Company and
Sequoia on December 6, 2007, the Company has agreed to extend up to $2.5 million
in secured financing to Sequoia. Under the terms of the Loan
Agreement, Sequoia has agreed to pay interest on the loan at a rate per annum
equal to 10%. Interest on the loan is payable on the scheduled
maturity date, December 31, 2008. In addition, if the loan
obligations have not been paid in full on or prior to the scheduled maturity
date, a monthly fee equal to 10% of the outstanding loan obligations is payable
to the Company by Sequoia on the last day of each calendar month for which
the
loan obligations remain outstanding.
In
addition, prior to the effectiveness
of the Merger, the Company proposes to (i) form a wholly owned subsidiary,
and
(ii) contribute to such subsidiary approximately $2.2 million in cash, 2,022,000
shares of Cashbox, a publicly listed UK company, and amounts receivable under
certain promissory notes not associated with the Sequoia
transaction. The common stock of such subsidiary will be distributed,
to the Company stockholders as of a date prior to the Merger, at such time
as
the distribution can be effected in compliance with applicable law, whether
pursuant to an effective registration statement or a valid exemption from
registration.
Our
Board of Directors approved the
Merger Agreement and the foregoing transactions at a special meeting on November
29, 2007. The Merger is subject to stockholder approval and other
customary conditions and is expected to be completed during the first quarter
of
2008. If
the
Company terminates the Merger Agreement before the consummation of the Merger
in
connection with the Company’s acceptance of a superior proposal, the Company has
agreed to pay Sequoia a termination fee of $1,000,000 in cash under certain
circumstances. At closing of the Merger, outstanding stock options granted
to
our executive officers, Jerrell G. Clay and Stephen P. Griggs, to purchase
an
aggregate 1,900,000 shares of our common stock at exercise prices of $0.62
per
share will fully vest and become immediately exercisable.
Sequoia
is committed to revolutionizing
the way life events and memories are shared and treasured through personal
digital expressions. Sequoia developed aVinci Experience products to
simplify and automate the process of creating professional-quality multi-media
productions using personal photos and videos. The patented technology
provides complete, refined products, including DVD’s, photo books and
posters. aVinci distributes products through leading retailers, photo
websites and image service providers.
(b)
|
Financial
Information about
Operating Segments
|
Since
October 2, 2006, we have had
substantially no operations. Prior to October 2, 2006, we conducted
business within one operating segment, principally in the United States.
(c)
|
Narrative
Description of
Business
|
Sale
of Cash Security
Business
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 Asset Purchase Agreement for the Cash Security Business Sale provided for
a
cash purchase price of $15,500,000, less $100,000 as consideration for Sentinel
Operating, L.P. 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. During the
year ended September 30, 2007, we recorded a gain on the sale of the Cash
Security business of $13,605,066.
Sale
of ATM Business
On
February 19, 2005, the Company and
its wholly-owned subsidiary, Secure Alliance, L.P. (formerly known as Tidel
Engineering, L.P.), entered into an asset purchase agreement (the “NCR Asset
Purchase Agreement”) with NCR EasyPoint LLC f/k/a NCR Texas LLC (“NCR
EasyPoint”), a wholly owned subsidiary of NCR Corporation, for the sale of our
ATM Business (the “ATM Business Sale”). On December 28, 2005, the
holders of a majority of our shares of outstanding common stock approved the
NCR
Asset Purchase Agreement.
On
January 3, 2006, we completed the ATM
Business Sale for a purchase price was $10,440,000 of which $8,200,000 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 and the remaining
$2,240,000 was paid to the Company. This transaction resulted in a book gain
of
$3,536,105.
Agreements
with
Laurus
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
$206,799) 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 remained payable
by the Company to Laurus and, to our knowledge, Laurus does not own any shares
of the Company.
Customers
We
had no operations or customers during
the fiscal year ended September 30, 2007. Only one customer accounted for more
than 10% of net sales for the fiscal years ended 2006 and
2005.
Compliance
with Federal, State and Local
Environmental Laws
Compliance
with federal, state and local
environmental protection laws had no material effect upon our capital
expenditures, earnings or competitive position for the years ended September
30,
2007, 2006 and 2005.
Employees
At
September 30, 2007, we had two
employees, which have served as executive officers since October 3,
2006. Following the sale of our Cash Security business on October 2,
2006, we had no employees. At September 30, 2006, we had 57
employees, which consisted of employees of the Cash Security business that
became employees of the buyer following the closing of the Cash Security
Business Sale on October 2, 2006. At September 30, 2005, we employed
approximately 107 people. On January 3, 2006, 56 employees associated with
our
ATM Business became employees of NCR EasyPoint following the closing of the
ATM
Business Sale.
(d)
|
Financial
Information about Geographic
Areas
|
We
had substantially no operations
during the fiscal year 2007. The vast majority of our sales in fiscal
2006 and 2005 were to customers within the United States.
Sales to customers outside the
United States,
as a percentage of total revenues,
were approximately 7% and 14% in the fiscal years ended September 30, 2006
and
2005, respectively.
Substantially
all of our assets were
located within the United
States during fiscal years
2007, 2006 and 2005.
There
are several risks inherent in our
business including, but not limited to, the following:
Risks
Relating to Our
Business
Following
the Cash Security Business
Sale,
we have no
operations.
Following
the closing of the Cash
Security Business Sale on October 2, 2006, we have substantially no operations
and only two 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.
Risks
Relating to the Merger and Related Transactions
There
is no assurance that the Merger will be consummated.
Consummation
of the Merger is subject to a number of conditions including, without
limitation, its approval by the holders of a majority of shares of our common
stock. There is no assurance that the Merger will receive requisite
stockholder approval. Should we fail to obtain requisite stockholder
approval we will be unable to consummate the Merger.
Consummation
of the Merger will
result in a change of control and a fundamental change to our
operations.
The
Merger will result in a change of control of the Company. In
addition, following the Merger we will no longer be a shell company but will
instead be an operating company and will be subject to any risks associated
with
Sequoia’s business.
The
Merger will result in substantial dilution of the ownership interest of current
stockholders.
Immediately
following the Merger, our stockholders will own approximately 20% of the
Company’s outstanding common stock on a nondiluted basis. This
represents substantial dilution of the ownership interest of current
stockholders.
Failure
to complete the Merger could cause our stock price to decline and could harm
our
future business and operations.
The
Merger Agreement contains conditions that we must meet in order to consummate
the Merger. In addition, the Merger Agreement may be terminated by
either us or Sequoia under certain circumstances. If the Merger is
not completed for any reason, we may be subject to a number of risks, including
the following:
|
·
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depending
on the reasons for termination, we may be required to pay a termination
fee of $1,000,000 to Sequoia if we have selected a superior proposal;
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·
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the
market price of our common stock may decline to the extent that the
current market price reflects a market assumption that the Merger
will be
completed; and
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·
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many
costs related to the Merger such as legal, accounting, financial
advisor
and financial printing fees, have to be paid regardless of whether
the
Merger is completed;
|
The
reverse stock split may not increase the market price of our common stock by
a
multiple we expect.
While
we
expect that the reverse stock split to be effected prior to the Merger will
result in an increase in the market price of our common stock, there can be
no
assurance that the reverse stock split will increase the market price of our
common stock by a multiple equal to the exchange number or result in the
permanent increase in the market price (which is dependent on many factors,
including our performance and prospects). Also, should the market
price of our common stock decline, the percentage decline as an absolute number
and as a percentage of our overall market capitalization may be greater than
would pertain in the absence of a reverse stock split.
The
reverse stock split may increase our number of odd lot
stockholders.
The
reverse stock split to be effected prior to the Merger may increase the number
of our stockholders who own odd lots (owners of less than 100
shares). Stockholders who hold odd lots typically will experience an
increase in the cost of selling their shares as well as possible greater
difficulty in effecting such sales.
At
September 30, 2007, we had no owned
or leased real property. At September 30, 2006, the Cash Security
business had a leased warehouse facility occupying approximately 50,000 square
feet at 2025 W. Beltline
Road, Suite 114 Carrollton,
Texas 75006. On
October 2, 2006, this
lease was transferred to the buyer at the closing of the Cash Security Business
Sale.
At
September 30, 2007, we owned no
tangible property and equipment. At September 30, 2006 and 2005, we
owned tangible property and equipment with a cost basis of approximately $1.4
million and $5.5 million, respectively, which included assets held for sale
from
discontinued operations.
On
June 9, 2005, Corporate Safe
Specialists, Inc. (“CSS”) filed a lawsuit against Secure Alliance Holdings
Corporation and our wholly owned subsidiary, 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 (the “CSS Lawsuit”). 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 sought 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 Lawsuit, with counsel of its choice, provided that in the
event we incur any adverse consequences in connection with the CSS Lawsuit
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.
On
March 31, 2007, CSS, Secure Alliance
Holdings Corporation and Secure Alliance, L.P. (formerly known as Tidel
Engineering, L.P.) entered into a settlement and mutual release agreement
whereby the parties jointly moved to dismiss all claims and counterclaims in
the
CSS Lawsuit. The parties agreed to pay no monetary settlement and each bear
its
own legal costs and expenses. Pursuant to the settlement, we agreed not to
make,
use, sell or offer for sale any safe that infringes upon the ‘281 patent during
the period of time the ‘281 patent is valid; however, we and our predecessor may
challenge, contest, or raise as a defense the validity of the ‘281 patent if CSS
or any other party files a claim against us asserting infringement of the ‘281
patent.
On
April 16, 2007, Fire King
International, LLC (“Fire King”) filed a lawsuit against Corporate Safe
Specialists, Inc., Tidel Technologies, Inc. and Tidel Engineering, LP. The
lawsuit, Civil Action No. 03-07CV0655-G, was filed in the United States District
Court of the Northern District of Texas, Dallas Division. Fire King alleges
that
the Sentinel product previously sold by the Company’s predecessor infringes on
one or more patent claims found in Fire King patent U.S. Patent No. 7,063,252
(the ‘252 patent). Fire King sought injunctive relief against future
infringement, unspecified damages for past infringement and attorney’s fees and
costs.
On
September 14, 2007, Fire King, Secure
Alliance Holdings Corporation and Secure Alliance L.P. (formerly known as Tidel
Engineering, L.P.) entered into a confidential settlement and mutual release
agreement whereby the parties jointly moved to dismiss all claims in the Fire
King lawsuit. In connection therewith, we paid an undisclosed amount to Fire
King to settle a disputed claim and admitted no liability or
wrongdoing. The court has dismissed Fire King’s claims against the
Company with prejudice.
ITEM
4.
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SUBMISSION
OF
MATTERS TO A VOTE OF SECURITY
HOLDERS
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None.
PART
II
ITEM
5.
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MARKET
FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Our
common stock has traded
over-the-counter on the Pink Sheets under the symbol “SAHC” since June 19,
2007. From March 26, 2003 to June 18, 2007, our common stock traded
over-the-counter on the Pink Sheets under the symbol “ATMS”. From
February 1998 to March 25, 2003, our common stock traded on the NASDAQ stock
market under the symbol “ATMS”. The following table sets forth the
quarterly high and low bid information for our common stock for the three-year
period ended September 30, 2007:
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2007
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2006
|
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2005
|
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Fiscal
Quarter
Ended:
|
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High
|
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Low
|
|
High
|
|
Low
|
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High
|
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Low
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December
31,
|
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$
|
0.48
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|
$
|
0.35
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|
$
|
.40
|
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$
|
.22
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$
|
.72
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$
|
.45
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March
31,
|
|
|
0.67
|
|
|
0.46
|
|
|
.37
|
|
|
.23
|
|
|
.47
|
|
|
.14
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|
June
30,
|
|
|
0.96
|
|
|
0.62
|
|
|
.35
|
|
|
.27
|
|
|
.36
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|
|
.12
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September
30,
|
|
|
0.90
|
|
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0.71
|
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|
.42
|
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.31
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|
.50
|
|
|
.27
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|
Fiscal
Year
|
|
|
0.96
|
|
|
0.35
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|
.42
|
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|
.22
|
|
|
.72
|
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|
.12
|
|
As
of September 30, 2007, there were
approximately 975 holders of record of our common stock.
We
have not paid any dividends in the
past, and do not anticipate paying dividends in the foreseeable
future. We were restricted from paying dividends pursuant to
financing arrangements with Laurus which were terminated on October 2,
2006.
Securities
Authorized for Issuance under
Equity Compensation Plans
We
adopted the Tidel Technologies, Inc.
1997 Long-Term Incentive Plan (the “1997 Plan”) effective July 15, 1997. The
1997 Plan permits the grant of non-qualified stock options, incentive stock
options, stock appreciation rights, restricted stock and other stock-based
awards to our employees or directors or our subsidiaries. Under the 1997 Plan,
up to 2,000,000 shares of common stock may be awarded. The number of shares
issued or reserved pursuant to the 1997 Plan (or pursuant to outstanding awards)
are subject to adjustment on account of mergers, consolidations, reorganization,
stock splits, stock dividends and other dilutive changes in the common stock.
Shares of common stock covered by awards that expire, terminate, or lapse,
will
again be available for grant under the 1997 Plan. On March 21, 2007,
the Company awarded Messrs. Griggs and Clay each 950,000 stock options to
purchase our common stock at an exercise price of $0.62 per share pursuant
to
the Company's 1997 Long-Term Incentive Plan. Of this award, 34% of the options
vest on the first anniversary of the date of the grant, 33% of the options
vest
on the second anniversary of the date of the grant and the remaining 33% of
the
options vest on the third anniversary of the date of the grant. In addition,
100% of the options vest upon a change of control.
The
following table provides information
regarding common stock authorized for issuance under our compensation plans
as
of September 30, 2007:
Equity
Compensation Plan
Information
As
of September 30,
2007
Plan
Category
|
|
Number
of securities to be issued
upon exercise of outstanding options, warrants and
rights
(a)
|
|
Weighted-average
exercise price of
outstanding options, warrants and rights
(b)
|
|
Number
of securities remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a))
(c)
|
|
Equity
compensation plans approved
by security holders
|
|
|
1,900,000
|
|
|
$0.62
|
|
|
32,950
|
|
Equity
compensation plans not
approved by security holders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
1,900,000
|
|
|
$0.62
|
|
|
32,950
|
|
Recent
Sales of Unregistered
Securities
At
September 30, 2007, we had
outstanding warrants to purchase 697,500 shares of common stock that expire
at
various dates through November 2010. The warrants had exercise prices ranging
from $0.40 to $0.68 per share and, if exercised, would generate proceeds to
us
of approximately $419,000.
The
following sales of unregistered
securities were sold by the Company during the three years ended September
30,
2007 in reliance on the exemptions from registration contained in Section 4(2)
and Regulation D promulgated under the Securities Act of
1933:
During
the quarter ended March 31, 2007,
we issued 21,739 shares of our restricted common stock with a value of $10,000
to a company pursuant to a consulting agreement.
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.
In
connection with the Cash Security
Business Sale and pursuant to the terms of the Exercise and Conversion Agreement
we entered into with Laurus on January 12, 2006, Laurus converted $5,400,000
in
aggregate principal amount of convertible Company debt it held into 18,000,000
shares of our common stock.
On
October 2, 2006, 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 held to purchase 4,750,000 shares of our common stock at an exercise
price of $.30 per share.
The
selected financial data presented
below is derived from our Consolidated Financial Statements. This data should
be
read in conjunction with the Consolidated Financial Statements and its notes
and
with Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this Annual Report on Form
10-K.
The
Consolidated Financial Statements
for 2003 through 2007 were audited by Hein & Associates
LLP.
|
|
Years
Ended September
30,
|
|
SELECTED
STATEMENT OF OPERATIONS
DATA:(1)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Net
income (loss)
(2)
|
|
$
|
6,268
|
|
$
|
4,862
|
|
$
|
(3,286
|
)
|
$
|
11,318
|
|
$
|
(9,237
|
)
|
Net
income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.33
|
|
|
0.15
|
|
|
(0.16
|
)
|
|
0.65
|
|
|
(0.53
|
)
|
Diluted
|
|
|
0.32
|
|
|
0.15
|
|
|
(0.16
|
)
|
|
0.37
|
|
|
(0.53
|
)
|
|
|
As
of September
30,
|
|
SELECTED
BALANCE SHEET DATA:
(1)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Current
assets
|
|
$
|
12,769
|
|
$
|
19,081
|
|
$
|
16,908
|
|
$
|
10,129
|
|
$
|
11,773
|
|
Current
liabilities
|
|
|
141
|
|
|
11,408
|
|
|
13,177
|
|
|
8,190
|
|
|
32,109
|
|
Working
capital
(deficit)
|
|
|
12,628
|
|
|
7,673
|
|
|
3,731
|
|
|
1,939
|
|
|
(20,336
|
)
|
Total
assets
|
|
|
12,773
|
|
|
19,085
|
|
|
17,537
|
|
|
10,778
|
|
|
14,430
|
|
Total
short-term notes payable and
long-term debt, net of debt discount
|
|
|
—
|
|
|
—
|
|
|
4,421
|
|
|
175
|
|
|
2,279
|
|
Shareholders’
equity
(deficit)
|
|
|
12,632
|
|
|
7,677
|
|
|
2,263
|
|
|
2,588
|
|
|
(17,679
|
)
|
(1)
|
All
amounts are
in thousands, except per share dollar
amounts.
|
(2)
|
Income
tax
expense (benefit) was $75,808, $159,546, $0, $(81,229) and $0, for
the
years ended September 30, 2007, 2006, 2005, 2004 and 2003,
respectively.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
|
On
January 3, 2006, we completed the ATM
Business Sale. The total purchase price was $10,440,000 of which $8,200,000
was
funded into a collateral account for the benefit of Laurus to be applied towards
the repayment of our outstanding obligations due Laurus. See “Liquidity and
Capital Resources” under this item for a detailed discussion of these financing
transactions with Laurus.
On
October 2, 2006 we completed the Cash
Security Business Sale pursuant to the Cash Security Asset Purchase Agreement.
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) 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.
Upon
closing of the Cash Security
Business Sale, we had cash, cash equivalents and marketable securities
held-to-maturity of approximately $12.9 million, or approximately $0.66 per
share based upon 19,426,210 shares outstanding. Since October 2,
2006, we have had substantially no operations.
Critical
Accounting Policies and
Estimates
Our
discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements. The preparation of financial statements in conformity
with
accounting principles generally accepted in the United States of America
requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. We must apply significant, subjective and complex
estimates and judgments in this process. Among the factors, but not fully
inclusive of all factors, that may be considered by management in these
processes are: the range of accounting policies permitted by accounting
principles generally accepted in the United States; management’s understanding
of our business; expected rates of business and operational change; sensitivity
and volatility associated with the assumptions used in developing estimates;
and
whether historical trends are expected to be representative of future trends.
Among the most subjective judgments employed in the preparation of these
financial statements are the collectibility of contract receivables and claims,
the fair value of our inventory, the depreciable lives of and future cash flows
to be provided by our equipment and long-lived assets, the expected timing
of
the sale of products, estimates for the number and related costs of insurance
claims for medical care obligations, judgments regarding the outcomes of pending
and potential litigation and certain judgments regarding the nature of income
and expenditures for tax purposes. We review all significant estimates on a
recurring basis and record the effect of any necessary adjustments prior to
publication of our financial statements. Adjustments made with respect to the
use of estimates often relate to improved information not previously available.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date.
The
accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in the United
States, assuming the
Company continues as a going concern, which contemplates the realization of
the
assets and the satisfaction of liabilities in the normal course of business.
Our
significant accounting policies are described in Note 1 of the Notes to
Consolidated Financial Statements included in Part IV of this Annual Report.
We
consider certain accounting policies to be critical policies due to the
significant judgments, subjective and complex estimation processes and
uncertainties involved for each in the preparation of our Consolidated Financial
Statements. We believe the following represents our critical accounting
policies. We have discussed our critical accounting policies and estimates,
together with any changes therein, with the audit committee of our Board of
Directors.
(b)
|
Impact
of
Recently Issued Accounting
Standards
|
In
July 2006, the FASB issued Final
Interpretation No. (“FIN”) 48, Accounting for Uncertainty
in Income
Taxes, an Interpretation of
SFAS 109, which clarifies the accounting for income taxes by prescribing the
minimum recognition threshold an uncertain tax position is required to meet
before tax benefits associated with such uncertain tax position are recognized
in the financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. In addition, FIN 48 excludes income taxes
from the scope of SFAS 5, Accounting for Contingencies.
FIN 48 is effective for fiscal years
beginning after December 15, 2006. Differences between the amounts recognized
in
the consolidated balance sheets prior to the adoption of FIN 48 and the amounts
reported after adoption are accounted for as a cumulative-effect adjustment
to
the beginning balance of retained earnings upon adoption of FIN 48. FIN 48
also
requires that amounts recognized in the balance sheet related to uncertain
tax
positions be classified as a current or non-current liability, based upon the
timing of the ultimate payment to a taxing authority. We will adopt FIN 48
as of
October 1, 2007 and are in the process of finalizing the effect FIN 48 will
have
on our financial statements. Under
the guidance of FIN 48, management estimates that our income tax reserve may
increase to approximately $2.3 million, which is subject to revision when
management completes an analysis of the impact of FIN 48. Upon
completion of such analysis, it is possible that this difference will be
recorded in retained earnings as a cumulative effect adjustment during the
quarter ended December 31, 2007.
In
September 2006, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair
value to be the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at
the measurement date and emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. It establishes a
fair value hierarchy and expands disclosures about fair value measurements
in
both interim and annual periods. SFAS 157 will be effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. The Company does not expect SFAS 157 to have a material effect
on the Company’s consolidated financial position or results of
operations.
In
February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159
permits entities to choose, at specified election dates, to measure eligible
items at fair value (the “fair value option”) and requires an entity to report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. Upfront costs
and fees related to items for which the fair value option is elected shall
be
recognized in earnings as incurred and not deferred. SFAS 159 will be
effective for fiscal years beginning after November 15, 2007. The
Company does not expect SFAS 159 to have a material effect on the Company’s
consolidated financial position or results of operations.
In
November 2007, the FASB issued SFAS
No. 141(R), Business Combination and SFAS No. 160, Noncontrolling Interests
in
Consolidated Financial Statements, an amendment of ARBNo.
51 (FAS 160). FAS 141(R) will change
how business acquisitions are accounted for and will impact financial statements
both on the acquisition date and in subsequent periods. FAS 160 will change
the
accounting and reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of equity. FAS 141(R)
and FAS 160 are effective for both public and private companies for fiscal
years
beginning on of after December 15, 2008. FAS
141(R) will be applied
prospectively. FAS 160 requires retroactive adoption of the presentation and
disclosure requirements for existing minority interests. All other
requirements of FAS 160 will be applied prospectively. Early adoption
is prohibited for both standards. Management is currently evaluating
the requirements of FAS 141(R) and FAS 160 but does not expect them to have
a
material effect on the Company’s consolidated financial position or results of
operation.
(c)
|
Results
of
Operations
|
Operating
Segments
Since
October 2, 2006, we have had
substantially no operations. Prior to October 2, 2006, 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:
|
|
(dollars
in
thousands)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
ATM
Business
|
|
$
|
—
|
|
$
|
3,848
|
|
$
|
15,498
|
|
Cash
Security
Business:
|
|
|
|
|
|
|
|
|
|
|
TACC
|
|
|
—
|
|
|
4,219
|
|
|
5,269
|
|
Sentinel
|
|
|
—
|
|
|
10,342
|
|
|
12,468
|
|
Parts
&
Other
|
|
|
—
|
|
|
1,519
|
|
|
1,696
|
|
Total
Cash Security
Business
|
|
|
—
|
|
|
16,080
|
|
|
19,433
|
|
Total
|
|
$
|
—
|
|
$
|
19,928
|
|
$
|
34,931
|
|
Gross
Profit, Operating Expenses and
Non-Operating Items
Continuing
Operations
Due
to the requirement to classify our
only two product lines as discontinued operations, the results of continuing
operations consist primarily of the 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)
|
|
September 30,
2007
|
|
September 30,
2006
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$
|
882,116
|
|
$
|
1,264,463
|
|
Certificates
of
deposits
|
|
|
11,177,567
|
|
|
—
|
|
Restricted
cash
|
|
|
—
|
|
|
5,400,000
|
|
Marketable
securities
held-to-maturity
|
|
|
—
|
|
|
4,899,249
|
|
Marketable
securities
available-for-sale
|
|
|
505,500
|
|
|
851,939
|
|
Trade
account
receivable
|
|
|
—
|
|
|
—
|
|
Notes
and other
receivables
|
|
|
204,113
|
|
|
220,689
|
|
Prepaid
expenses and
other
|
|
|
—
|
|
|
132,036
|
|
Total
current
assets
|
|
|
12,769,296
|
|
|
12,768,376
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
4,000
|
|
|
4,000
|
|
Total
assets
|
|
$
|
12,773,296
|
|
$
|
12,772,376
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
—
|
|
|
221,295
|
|
Accrued
interest
payable
|
|
|
—
|
|
|
2,000,000
|
|
Shares
to be
redeemed
|
|
|
—
|
|
|
5,400,000
|
|
Other
accrued
liabilities
|
|
|
141,401
|
|
|
150,194
|
|
Total
liabilities
|
|
$
|
141,401
|
|
$
|
7,771,489
|
|
CONTINUING
OPERATIONS
SELECTED
OPERATING
DATA
(UNAUDITED)
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Selling,
general and
administrative
|
|
|
1,333,467 |
|
|
|
3,065,064 |
|
|
|
1,805,484 |
|
Depreciation
and
amortization
|
|
|
— |
|
|
|
2,678 |
|
|
|
4,977 |
|
Operating
loss
|
|
|
(1,333,467
|
)
|
|
|
(3,067,742
|
)
|
|
|
(1,810,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
fee paid to
Laurus
|
|
|
(6,508,963
|
)
|
|
|
— |
|
|
|
— |
|
Gain
on investment in
3CI
|
|
|
— |
|
|
|
5,380,121 |
|
|
|
— |
|
Gain
on collection of account
receivable
|
|
|
— |
|
|
|
598,496 |
|
|
|
— |
|
Loss
on disposal of fixed
assets
|
|
|
— |
|
|
|
(7,455
|
)
|
|
|
— |
|
Recovery
from CCC
bankruptcy
|
|
|
— |
|
|
|
105,000 |
|
|
|
— |
|
Amortization
of debt discount and
deferred financing costs
|
|
|
— |
|
|
|
(4,078,738
|
)
|
|
|
(3,816,178
|
)
|
Interest
income
|
|
|
580,861 |
|
|
|
392,564 |
|
|
|
|
|
Interest
expense
|
|
|
— |
|
|
|
(235,765
|
)
|
|
|
(2,732,891
|
)
|
Total
other income
expense
|
|
|
(5,928,102
|
)
|
|
|
2,154,223 |
|
|
|
(6,549,069
|
)
|
Loss
before income tax
expense
|
|
|
(7,261,569
|
)
|
|
|
(913,519
|
)
|
|
|
(8,359,530
|
)
|
Income
tax
expense
|
|
|
75,808 |
|
|
|
159,546 |
|
|
|
— |
|
Loss
from continuing
operations
|
|
$ |
(7,337,377 |
)
|
|
$ |
(1,073,065 |
)
|
|
$ |
(8,359,530 |
)
|
Year
Ended September 30, 2007 Compared
with the Year Ended September 30, 2006
Selling,
general and
administrative expenses for
the year ended September 30, 2007 were $1,333,467, which is a decrease of
approximately 56% from the year ended September 30, 2006. The decrease is
primarily due to lower professional fees as a result of the sale of both the
ATM
business and the Cash Security business.
Depreciation
and
amortization for the year
ended September 30, 2007 and 2006 was $0 and $2,678, respectively. We
closed our corporate office on March 31, 2006.
Interest
expense
was $0 for the year ended
September 30, 2007 compared with $4,314,503 for the year ended September 30,
2006. Interest expense for the fiscal year ended September 30, 2006 included
three months of amortization related to debt discount and other deferred debt
issuance costs in the amount of $985,827, and a one-time charge in January
2006
of approximately $3.1 million of debt discount and deferred debt issuance costs
as a result of the early extinguishment of the Laurus debt.
Income
tax expense
(benefit)related to
alternative minimum tax of $75,808 and $159,546 incurred during fiscal years
ended September 30, 2007 and 2006, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not, that some portion or all of the deferred tax assets will be
realized. We have established a valuation allowance for such deferred tax assets
to the extent such amounts are not utilized to offset existing deferred tax
liabilities reversing in the same periods.
We
recorded a loss from continuing
operations of $(7,337,377) and $(1,073,065) for the years ended September 30,
2007 and 2006, respectively. The significant change in the loss
is primarily a result of the $6.5 million charge for the reorganization fee
paid
to Laurus partially offset by interest income of $0.6 million during the fiscal
year ended September 30, 2007.
Year
Ended September 30, 2006 Compared
with the Year Ended September 30, 2005
Selling,
general and
administrative expenses for
the year ended September 30, 2006 were $3,065,064, which is an increase of
approximately 70% from the year ended September 30, 2005. The increase primarily
related to increased legal and consulting fees and employee
bonuses.
Depreciation
and
amortization for the year
ended September 30, 2006 and 2005 was $2,678 and $4,977,
respectively.
Interest
expense
was $4,314,503 for the
year
ended September 30, 2006 compared with $6,549,069 for the year ended September
30, 2005. The decrease is a result of the payoff of Laurus debt with the
proceeds from the sale of the ATM Business in January 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 have established a valuation allowance for such deferred tax assets
to the extent such amounts are not utilized to offset existing deferred tax
liabilities reversing in the same periods.
We
recorded a net loss from continuing
operations of $(1,073,065) and $(8,359,530) for the years ended September 30,
2006 and 2005, respectively. The improvement was principally a result
of gains in 2006 from the disposal of the investment in 3CI common stock,
collection of an account receivable and the recovery from the CCC
bankruptcy.
Discontinued
Operations (ATM
Business)
We
committed to a plan to sell the ATM
Business during the first quarter ended December 31, 2004. On February 19,
2005,
the Company and its wholly-owned subsidiary, Secure Alliance, L.P., entered
into
the NCR Asset Purchase Agreement with NCR EasyPoint, a wholly owned subsidiary
of NCR Corporation, for the sale of our ATM Business. We classified our ATM
Business as Assets Held for Sale as
of September 30, 2005. 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 for a purchase price was $10,440,000 of which $8,200,000 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 and the remaining
$2,240,000 was paid to the Company. This sale resulted in a book gain of
$3,536,105.
The
ATM products are low-cost,
cash-dispensing automated teller machines that are primarily designed for the
off-premise, or non-bank, markets. An analysis of the discontinued
operations of the ATM Business is as follows:
DISCONTINUED
OPERATIONS — ATM
BUSINESS
SELECTED
OPERATING
DATA
(UNAUDITED)
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Net
sales
|
|
$
|
—
|
|
$
|
3,847,874
|
|
$
|
15,497,834
|
|
Cost
of
sales
|
|
|
—
|
|
|
2,592,268
|
|
|
9,508,120
|
|
Gross
profit
|
|
|
—
|
|
|
1,255,606
|
|
|
5,989,714
|
|
Selling,
general and
administrative
|
|
|
—
|
|
|
880,941
|
|
|
4,768,880
|
|
Depreciation
and
amortization
|
|
|
—
|
|
|
46,048
|
|
|
255,967
|
|
Operating
income
|
|
|
—
|
|
|
328,617
|
|
|
964,867
|
|
Non-operating
expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
income
|
|
$
|
—
|
|
$
|
328,617
|
|
$
|
964,867
|
|
Year
ended September 30, 2007 Compared
with Year Ended September 30, 2006
There
were no operations from the ATM
business during the fiscal year ended September 30, 2007. The sale of
the ATM business was completed on January 3, 2006 and $3,536,105 was recognized
as a gain on sale of the ATM business during the fiscal year ended September
30,
2006.
Year
ended September 30, 2006 Compared
with Year Ended September 30, 2005
Net
Sales
from the ATM Business
were
$3.8 million for the year ended September 30, 2006, representing a decrease
of
75% from net sales of $15.5 million for the year ended September 30, 2005.
The
decrease was a result of the sale of the ATM Business completed on January
3,
2006.
Gross
profit
on net sales for the
year
ended September 30, 2006 decreased by approximately $4.7 million from a year
ago. Gross profit as a percentage of sales was 33% and 39% for the year ended
September 30, 2006 and 2005, respectively. The decrease in gross profit is
primarily related to the sale of the ATM Business completed on January 3,
2006.
Selling,
general and
administrative expenses for
the year ended September 30, 2006 decreased 82% compared with the year ended
September 30, 2005. The decrease is primarily related to the sale of the ATM
Business completed on January 3, 2006.
Depreciation
and
amortization for the year
ended September 30, 2006 and 2005 was $46,048 and $255,967,
respectively.
The
ATM Business recorded a net income
of $328,617 and $964,867 for the year ended September 30, 2006 and 2005,
respectively.
Discontinued
Operations (Cash Security
Business)
We
completed the Cash Security Business
Sale on October 2, 2006. 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)
|
|
September
30,
2007
|
|
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)
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
sales
|
|
$ |
— |
|
|
$ |
16,080,069 |
|
|
$ |
19,435,222 |
|
Cost
of
sales
|
|
|
— |
|
|
|
9,476,386 |
|
|
|
10,870,947 |
|
Gross
profit
|
|
|
— |
|
|
|
6,603,683 |
|
|
|
8,564,275 |
|
Selling,
general and
administrative
|
|
|
— |
|
|
|
4,541,774 |
|
|
|
4,449,550 |
|
Depreciation
and
amortization
|
|
|
— |
|
|
|
— |
|
|
|
29,868 |
|
Operating
income
(loss)
|
|
|
— |
|
|
|
2,061,907 |
|
|
|
4,084,857 |
|
Non-operating
expense
|
|
|
— |
|
|
|
(8,529
|
)
|
|
|
(23,884
|
)
|
Net
income
(loss)
|
|
$ |
— |
|
|
$ |
2,070,436 |
|
|
$ |
4,108,741 |
|
Year
ended September 30, 2007 Compared
with Year Ended September 30, 2006
Net
Sales
from the Cash Security
business were $0 for the year ended September 30, 2007 and $16.1 million for
the
year ended September 30, 2006. This decrease is due to the completion of the
Cash Security Business Sale on October 2, 2006.
Gross
profit
on product sales for
the
year ended September 30, 2007 were $0 compared with $6.6 million for the year
ended September 30, 2006. The decrease is due to the completion of the Cash
Security Business Sale. Gross profit as a percentage of sales was 41% for the
year ended September 30, 2006.
Selling,
general and
administrative expenses for
the years ended September 30, 2007 and 2006 was $0 and $4.5 million,
respectively.
Depreciation
and
amortization for the years
ended September 30, 2007 and 2006 was $0 and $0,
respectively.
Year
ended September 30, 2006 Compared
with Year Ended September 30, 2005
Net
Sales
from the Cash Security
business were $16.1 million for the year ended September 30, 2006, representing
a decrease of $3.4 million from net sales of $19.4 million for the year ended
September 30, 2005. This decrease was primarily a result of decreased sales
to a
major convenience store operator.
Gross
profit
on product sales for
the
year ended September 30, 2006 decreased approximately $2.0 million from the
year
ended September 30, 2005. Gross profit as a percentage of sales was 41% for
the
year ended September 30, 2006, compared to 44% for the year ended September
30,
2005. The decline is directly related to a decrease in the volume of Sentinel
units produced during the fiscal year ended September 30,
2006.
Selling,
general and
administrative expenses for
the year ended September 30, 2006 decreased $92,225 or 2% from the year ended
September 30, 2005.
Depreciation
and
amortization for the years
ended September 30, 2006 and 2005 was $0 and $29,868,
respectively.
(d)
|
Liquidity
and
Capital Resources
|
Our
liquidity was negatively impacted by
our inability to collect outstanding receivables from certain customers, and
under-absorbed fixed costs associated with the low utilization of our production
facilities and reduced sales of our products resulting from general difficulties
in the ATM market. In order to meet our liquidity needs during the past four
years, we incurred a substantial amount of debt.
On
January 3, 2006, we completed the ATM
Business Sale. The total purchase price was $10.4 million of which $8.2 million
was funded into a collateral account for the benefit of Laurus to be applied
towards the repayment of our outstanding loans from Laurus. On
January 13, 2006, we repaid all of our remaining outstanding debt to Laurus
in
the principal amount of $2,617,988 plus accrued but unpaid interest in the
amount of $113,333. In connection therewith, the Company paid a prepayment
penalty to Laurus in the amount of $59,180.
We
completed the Cash Security Business
Sale on October 2, 2006 pursuant to the Cash Security Asset Purchase Agreement.
The Cash Security Asset Purchase Agreement provided for a cash purchase price
of
$15,500,000, less $100,000 as consideration for the Sentinel Operating, L.P.,
as
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, the buyer paid
a
cash adjustment of $2,458,718 to the Company at closing. The Company applied
the
net purchase price, the cash adjustment, and $5,400,000 in proceeds (together
with accrued interest of $206,798 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, we became a shell
public company with approximately $12.9 million in cash, cash equivalents and
marketable securities held-to-maturity; or approximately $0.66 per share based
upon 19,426,210 shares outstanding.
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.
|
|
(dollars
in
000’s)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
|
|
$
|
882
|
|
$
|
6,164
|
|
$
|
1,004
|
|
Restricted
cash
|
|
|
—
|
|
|
5,400
|
|
|
—
|
|
Working
capital
|
|
|
12,628
|
|
|
7,673
|
|
|
3,731
|
|
Total
assets
|
|
|
12,773
|
|
|
19,085
|
|
|
17,537
|
|
Shareholders’
equity
|
|
|
12,632
|
|
|
7,677
|
|
|
2,263
|
|
Cash
Flows
Cash
used in operations was $(707,789),
$(2,771,470) and $(462,324) for 2007, 2006 and 2005,
respectively. The cash used in operations was primarily attributable
to operating losses, the increase in trade accounts receivable and the delays
in
collection of these receivables.
Working
Capital
As
of September 30, 2007, we had a
working capital of $12,627,895, compared with a working capital of $7,673,181
at
September 30, 2006. The increase was due to the completion of the Cash Security
Business Sale on October 2, 2006.
Indebtedness
Agreements
with
Laurus
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
$206,799) 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 remained payable
by the Company to Laurus and, to our knowledge, Laurus does not own any shares
of the Company.
Marketable
Securities Available- for-
Sale
We
own 2,022,000 of the common stock of
Cashbox plc pursuant to our exercise of a warrant in September 2005. On or
about
March 27, 2006, shares of Cashbox plc began trading on the AIM Market of the
London Stock 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 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 was excluded
from earnings and recorded net of tax as other comprehensive
income.
As
of September 30, 2007 and 2006, our
common stock in Cashbox plc was recorded at a fair value of $505,500 and
$851,939, respectively. Unrealized gains on these shares of common stock, which
were added to other comprehensive income as a component of stockholders' equity
as of September 30, 2007 and 2006, were $205,500 and $551,939,
respectively.
As
of September 30, 2007 we were
restricted from selling any shares until the second anniversary of its admission
to the London Stock 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.
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 September 30, 2007.
Research
and Development
Expenditures
The
Company had no research and
development expenditures in fiscal 2007. Our research and development
expenditures for fiscal 2006 and 2005 were approximately $1,229,617 and
$2,060,071, respectively. The majority of these expenditures were applicable
to
enhancements of existing product lines and the development of new technology
to
facilitate the dispensing of cash and cash-value
products.
At
September 30, 2007, 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.
Forward-Looking
Statements
This
Form 10-K contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934,
as amended, which are intended to be covered by the safe harbors created
thereby. Investors are cautioned that all forward-looking statements involve
risks and uncertainty (including without limitation, our future gross profit,
selling, general and administrative expense, our financial position, working
capital, as well as general market conditions). Though we believe that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there
can
be no assurance that the forward-looking statements included in this Annual
Report on Form 10-K will prove to be accurate. In light of the significant
uncertainties inherent in the forward- looking statements included herein,
the
inclusion of such information should not be regarded as a representation by
us
or any other person that our objectives and plans will be
achieved.
Our
consolidated financial statements,
notes thereto and supplementary data appear in this report and are incorporated
herein by reference.
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE
|
On
March 24, 2005, we engaged Hein &
Associates LLP (“Hein”) to serve as our independent registered public accounting
firm and dismissed KPMG LLP (“KPMG”). The change in independent registered
public accounting firms was approved by the Audit Committee of our Board of
Directors and reported on a Current Report on Form 8-K, dated March 24, 2005.
KPMG audited our financial statements for the fiscal year ended September 30,
2002 and for all the prior years, and Hein audited our financial statements
as
of and for the fiscal years ended September 30, 2007, 2006, 2005 and
2004.
The
audit report of KPMG on our
consolidated financial statements for fiscal year ended September 30, 2002
did
not contain an adverse opinion or disclaimer of opinion, and such audit report
was not qualified or modified as to any uncertainty, audit scope or accounting
practice.
During
fiscal 2002 and subsequent
interim periods through the date we changed independent registered public
accounting firms, there were no disagreements between us and KPMG on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of KPMG, would have caused KPMG to make reference to the subject
matter of the disagreement in connection with its report. In addition, during
those same periods, no reportable events, as defined in Item 304(a)(1)(v) of
Regulation S-K, occurred, and we did not consult with Hein regarding the
application of accounting principles to a specific transaction, either completed
or proposed, or the type of audit opinion that might be rendered on our
consolidated financial statements, or any other matters or reportable events
as
set forth in Item 304(a)(2) of Regulation S-K.
(a)
|
Evaluation
of
Disclosure Controls and
Procedures
|
Jerrell
G. Clay, our Chief Executive
Officer and Stephen P. Griggs, our Principal Financial Officer, have evaluated
the effectiveness of the design and operation of our “disclosure controls and
procedures”, as such term is defined in Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
A
control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because
of
the inherent limitations on all control systems, no evaluation of controls
can
provide absolute assurance that all errors, control issues and instances of
fraud, if any, with a company have been detected. The design of any system
of
controls is also based in part on certain assumptions regarding the likelihood
of future events, and there can be no assurance that any design will succeed
in
achieving its stated goals under all potential future conditions. Therefore,
even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
Our
Chief Executive Officer and our Principal Financial Officer have concluded
that
the Company’s disclosure controls and procedures are effective at this
reasonable assurance level as of September 30, 2007.
(b)
|
Changes
in
Internal Controls
|
In
the ordinary course of business, we
routinely enhance our information systems by either upgrading our current
systems or implementing new systems. There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to date of the evaluation.
PART
III
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Set
forth below are the names and ages
of our directors and executive officers and their principal occupations at
present and for the past five years. There are, to our knowledge, no agreements
or understandings by which these individuals were selected. No family
relationships exist between any directors or executive officers (as such term
is
defined in Item 401 of Regulation S-K), except as otherwise stated
below.
Name
|
|
Age
|
|
The
Company’s
Officers
|
|
Director
Since
|
Jerrell
G. Clay
(1)
|
|
66
|
|
Chief
Executive
Officer
|
|
1990
|
Stephen
P. Griggs
(2)
|
|
50
|
|
President,
Chief Operating
Officer, Principal Financial Officer, and Secretary
|
|
2002
|
|
(1)
|
Jerrell
G. Clay
was appointed Chief Executive Officer of the Company effective October
3,
2006.
|
|
(2)
|
Stephen
P. Griggs
was appointed President and Chief Operating Officer of the Company
effective October 3, 2006. Mr. Griggs was appointed Principal
Financial Officer and Secretary on April 20,
2007.
|
The
following is a summary of the
business background and experience of each of the persons named
above:
JERRELL G. CLAY
has served as a Director
since December
1990, and as Chief Executive Officer since October 3, 2006. Mr. Clay is also
the
Chief Executive Officer of 3 Mark Financial, Inc., an independent life insurance
marketing organization, and has served as president of one of its predecessors
for in excess of five years. Mr. Clay also serves as a member of the Independent
Marketing Organization’s Advisory Committee of Protective Life Insurance Company
of Birmingham,
Alabama.
STEPHEN
P. GRIGGS has served as a
Director since June 2002, as President and Chief Operating Officer since October
3, 2006, and as Principal Financial Officer and Secretary since April 20, 2007.
Mr. Griggs has been primarily engaged in managing his personal investments
since
2000. From 1988 to 2000, Mr. Griggs held various positions, including President
and Chief Operating Officer, with RoTech Medical Corporation, a NASDAQ-traded
company. He holds a Bachelor of Science degree in Business Management from
East Tennessee State University
and a Bachelor of Science
degree in
Accounting from the University of Central
Florida. Mr. Griggs was appointed
to the Board
of Directors during 2002 to fill the vacancy created by the mid-term resignation
of a former director.
The
Company had a separately designated
standing Audit Committee established in accordance with Section 3(a)(58)(A)
of
the Exchange Act, which is responsible for reviewing the financial information
which will be provided to shareholders and others, the systems of internal
controls, which management and the Board of Directors have established, and
the
financial reporting processes. On August 26, 2005, Mr. Raymond P.
Landry, director, resigned from the Audit Committee and Mr. Griggs was appointed
as Chairman of the Audit Committee, and the Board of Directors determined that
Mr. Griggs is an “audit committee financial expert” as defined in Item 401(h) of
Regulation S-K. On September 30, 2005, the Audit Committee consisted
of Messrs. Griggs, and Clay. During the 2007, 2006 and 2005 fiscal
years, the Audit Committee held four, three and six meetings, respectively.
Each
member of the Audit Committee was an “independent director” as defined in Rule
4200 of the Marketplace Rules of the National Association of Securities Dealers,
Inc. (“NASD”) as of September 30, 2006. Effective October 3, 2006, Messrs.
Griggs and Clay were appointed executive officers of the Company and were no
longer considered “independent directors".
The
Compensation Committee consists of
Messrs. Clay and Griggs and is responsible for reviewing the performance and
development of management in achieving corporate goals and objectives and
ensuring that the Company’s senior executives are compensated effectively in a
manner consistent with the Company’s strategy, competitive practice, and the
requirements of the appropriate regulatory bodies. Toward that end, the
Compensation Committee oversees all of the Company’s compensation, equity and
employee benefit plans and payments. The Compensation Committee held one meeting
each year during the fiscal years 2007, 2006 and 2005. For each of
the 2006 and 2005 fiscal years, each of the members of the Compensation
Committee was an “independent director” as defined in Rule 4200 of the
Marketplace Rules of the NASD, and an “outside director” as defined in Section
162(m) of the Internal Revenue Code of 1986. Effective October 3, 2006, Messrs.
Griggs and Clay were appointed executive officers of the Company and were no
longer considered “independent directors" or “outside
directors”.
Code
of Conduct and
Ethics
The
Company has adopted a Code of
Conduct and Ethics that applies to the Company’s principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. This Code of Conduct and Ethics was filed
as an exhibit to our Annual Report on Form 10-K for the 2005 fiscal year. Our
Code of Conduct and Ethics addresses conflicts of interest, usurpation of
corporate opportunities, the protection and proper use of Company assets,
confidentiality, compliance with laws, rules, and regulations, prompt reporting
of any illegal or improper activity to an officer, supervisor, manager, or
other
appropriate personnel of the Company. A copy of the Code of Conduct and Ethics
is available in print, free of charge, to any stockholder who requests a copy.
Interested parties may address a written request for a printed copy of the
Code
of Conduct and Ethics to: Secure Alliance Holdings Corporation, 5700 Northwest
Central Drive, Suite 350, Houston, Texas 77092, Attention: Corporate
Secretary.
(b)
|
Section
16(a)
Beneficial Ownership Reporting
Compliance
|
Section
16(a) of the Securities Exchange
Act of 1934 requires our directors and officers, and persons who own more than
10% of a registered class of our equity securities, to file reports of ownership
and changes in ownership of such equity securities with the Securities and
Exchange Commission (“SEC”). Such entities are also required by SEC regulations
to furnish us with copies of all Section 16(a) forms filed.
Based
solely on a review of the copies
of Forms 3, 4 and 5 furnished to us, and any amendments thereto, and any written
representations with respect to the foregoing, we believe that our directors
and
officers, and greater than 10% beneficial owners, have complied with all Section
16(a) filing requirements.
Compensation
Discussion and
Analysis
Overview
This
compensation discussion and
analysis describes the material elements of compensation awarded to, earned
by
or paid to each of our executive officers who served as named executive officers
during the fiscal year ended September 30, 2007. This compensation discussion
focuses on the information contained in the following tables and related
footnotes and narrative for primarily the last completed fiscal year, but we
also describe compensation actions taken before or after the last completed
fiscal year to the extent that it enhances the understanding of our executive
compensation disclosure. The Board of Directors currently oversees the design
and administration of our executive compensation program. We
currently have no operations and, accordingly, our current executive
compensation program provides for a limited cash compensation to our executives
in the form of base salary and for a stock option grant to each
executive.
Executive
Compensation
Objectives
The
objectives of our executive
compensation program are to:
·
Ensure officer compensation
is
aligned with our corporate strategies, business objectives and the long-term
interests of our stockholders; and
·
Provide stability for the
Company.
Summary
Compensation
Table
The
following table sets forth the
amount of all cash and other compensation we have paid for services rendered
during the fiscal years ended September 30, 2007, 2006 and 2005 to Jerrell
G.
Clay, Chief Executive Officer and Stephen P. Griggs, Principal Financial
Officer. On October 3, 2006, Messrs. Clay and Griggs became the sole
executive officers of the Company
Name
and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compen-sation
($)
|
|
|
Non-qualified
Deferred
Compen-sation Earnings
($)
|
|
|
All
Other
Compen-sation
($)(3)
|
|
|
Total
($)
|
|
Jerrell
G. Clay
(1)
|
|
2007
|
|
$ |
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
69,746
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
169,746
|
|
Chief
Executive
|
|
2006
|
|
|
—
|
|
|
$ |
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
12,000
|
|
|
$ |
112,000
|
|
Officer
and
director
|
|
2005
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
12,000
|
|
|
$ |
12,000
|
|
Stephen
P. Griggs
(2)
|
|
2007
|
|
$ |
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
69,746
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
169,746
|
|
Principal
Financial
|
|
2006
|
|
|
—
|
|
|
$ |
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
12,000
|
|
|
$ |
112,000
|
|
Officer
and
director
|
|
2005
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$ |
12,000
|
|
|
$ |
12,000
|
|
|
(1)
|
Jerrell
G. Clay
was appointed Chief Executive Officer of the Company effective October
3,
2006. All compensation for 2006 and 2005 was for Mr. Clay’s
services as a director of the
Company.
|
|
(2)
|
Stephen
P. Griggs was appointed
President and Chief Operating Officer of the Company effective
October 3,
2006. Mr. Griggs
was
appointed Principal Financial
Officer and Secretary on April 20, 2007.
All compensation for 2006 and
2005 was for Mr. Griggs’s
services as a director of the
Company.
|
|
(3)
|
Represents
annual
board fees paid to each of Mr. Clay
and
Mr. Griggs
in
their capacities as directors for such
years.
|
Narrative
Disclosure to Summary
Compensation Table
The
compensation paid to the named
executive officers includes salary and equity compensation. On March
21, 2007, the Company awarded Messrs. Griggs and Clay each 950,000 stock options
to purchase our common stock at an exercise price of $0.62 per share pursuant
to
the Company's 1997 Long-Term Incentive Plan. Of this award, 34% of the options
vest on the first anniversary of the date of the grant, 33% of the options
vest
on the second anniversary of the date of the grant and the remaining 33% of
the
options vest on the third anniversary of the date of the grant. In addition,
100% of the options vest upon a change of control.
For
the year ended September 30, 2007,
salaries accounted for approximately 59% of total compensation for our executive
officers.
There
is no employment agreement between
the Company and either of our executive officers regarding their employment
with
the Company.
Grants
of Plan-Based
Awards
The
following table sets forth
information concerning each grant of an award made to named executive officers
in the last completed fiscal year under the 1997 Long-Term Incentive
Plan.
Name
|
|
Grant
Date
|
|
Estimated
Future Payouts Under
Non-Equity Incentive Plan Awards ($)
|
|
|
Estimated
Future payouts Under
Equity Incentive Plan Awards ($)
|
|
|
All
Other Stock Awards: Number of
Shares of Stock or Units (#)
|
|
|
All
Other Option Awards: Number of
Securities Underlying Options (#)
|
|
|
Exercise
or Base Price of Option
Awards ($/Sh)
|
|
|
Grant
Date Fair Value of Stock and
Option Awards
|
|
Jerrell
G.
Clay
|
|
03/21/2007
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
950,000
|
|
|
$ |
0.62
|
|
|
$ |
543,472
|
|
Stephen
P.
Griggs
|
|
03/21/2007
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
950,000
|
|
|
$ |
0.62
|
|
|
$ |
543,472
|
|
The
following table sets forth
information concerning unexercised options; stock that has not vested; and
equity incentive plan awards for each named executive officer in the last
completed fiscal year under the 1997 Long-Term Incentive
Plan.
Outstanding
Equity Awards at Fiscal
Year-End
|
|
Option
Awards
|
|
|
|
Name
|
|
Number
of Securities Underlying
Unexercised Options
(#)
Exercisable
|
|
|
Number
of Securities Underlying
Unexercised Options
(#)
Unexercisable
|
|
|
Equity
Incentive Plan Awards:
Number of Securities Underlying Unexercised Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Stock
Awards
|
|
Jerrell
G.
Clay
|
|
|
—
|
|
|
|
950,000
|
|
|
|
|
|
|
$ |
0.62
|
|
03/21/2017
|
|
|
—
|
|
Stephen
P.
Griggs
|
|
|
|
|
|
|
950,000
|
|
|
|
|
|
|
$ |
0.62
|
|
03/21/2017
|
|
|
—
|
|
Director
Compensation
No
member
of our Board of Directors earned any compensation for his services as a member
of our Board of Directors for the year ended September 30, 2007. See
the Summary Compensation Table above for a description of compensation earned
by
members of our Board in their capacities as officers of the Company for such
period.
Deferred
Compensation Agreements
Other
than with respect to the vesting of stock options upon a change of control
of
the Company discussed above, no plan or arrangement exists which results in
compensation to a named executive officer in excess of $100,000 upon such
officer’s future termination of employment or upon a
change-of-control.
Compensation
Committee Interlocks and Insider Participation
Jerrell
G. Clay and Stephen P. Griggs, the members of our Compensation Committee, have
served as our Chief Executive Officer and Principal Financial Officer,
respectively, since October 3, 2006. None of our executive officers
serves as a member of the board of directors or as a member of the compensation
committee of any other company that has an executive officer serving as a member
of our Board of Directors.
Compensation
Committee Report
We
recommend to the Board of Directors that the Executive Compensation and
Compensation Discussion and Analysis provisions referred to above be included
in
the Company’s Annual Report on Form 10-K.
SUBMITTED
BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Jerrell
G. Clay
Stephen
P. Griggs
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
Securities
Authorized for Issuance under Equity Compensation Plans
Options
to purchase 1,900,000 shares of
our common stock have been issued to our executives under the Company’s
1997
Long-Term Incentive Plan as described under “Item 5 – Market For Our Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”
above. 32,950 options remain available for future issuance under such
plan.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth as of
December 31, 2007, the number of shares of common stock beneficially owned
by
(i) the beneficial owners of more than 5% of our voting securities, (ii) each
of
our directors and executive officers of the Company individually and (iii)
all
of our directors and the executive officers as a group. Except as otherwise
indicated, and subject to applicable community property laws, each person has
sole investment and voting power with respect to the shares shown. Ownership
information is based upon information furnished by the respective holders and
contained in our records or upon public filings made by such persons with the
SEC.
Name
and Address of Beneficial
Owner
|
|
Amount
and Nature
of
Beneficial
Ownership
|
|
Percent
of
Class
(1)
|
Kellogg
Capital Group
LLC
|
|
2,190,023
|
|
11.3%
|
55
Broadway, 4th
Floor
|
|
|
|
|
New
York, New
York 10006
|
|
|
|
|
|
|
|
|
|
Alliance
Developments
|
|
1,080,362
|
|
5.6%
|
One
Yorkdale Rd., Suite
510
|
|
|
|
|
North
York, Ontario M6A
3A1
|
|
|
|
|
Canada
|
|
|
|
|
|
|
|
|
|
Springview
Group
LLC
|
|
1,049,191
|
|
5.4%
|
666
Fifth
Avenue, 8th
Floor
|
|
|
|
|
New
York, New
York 10103
|
|
|
|
|
|
|
|
|
|
Jerrell G. Clay
|
|
181,405
|
|
*
|
1600
Highway 6, Suite 400
|
|
|
|
|
Sugarland,
Texas 77478
|
|
|
|
|
|
|
|
|
|
Stephen P. Griggs
|
|
—
|
|
*
|
c/o
Nexus
Group
|
|
|
|
|
3305
Bartlett
Blvd.
|
|
|
|
|
Orlando,
Florida 32811
|
|
|
|
|
|
|
|
|
|
Directors
and
Executive
|
|
181,405
|
|
*
|
Officers
as a group (2
persons)
|
|
|
|
|
(1)
|
Based
upon
19,441,524 shares outstanding as of December 31,
2007.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
|
For
information concerning our directors
and their independence, see “Item 10 – Directors, Executive Officers and
Corporate Governance” above.
There
were no transactions with related
persons during the year ended September 30, 2007 other than the issuance of
950,000 stock options to each of Jerrell G. Clay
and
Stephen P. Griggs
on
March 21, 2007 as described under
“Item 5 - Market For Our Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities” above.
The
aggregate fees billed by Hein &
Associates LLP for professional services rendered for the audit of our annual
financial statements set forth in the Annual Reports on Form 10-K and the
related reviews of interim financial statements included in the Quarterly
Reports on Form 10-Q were approximately $60,000
for the fiscal year ended
September 30, 2007 and $243,000 for the fiscal year ended September 30,
2006.
(b)
|
Other
Audit-Related Fees
|
There
were no other audit-related fees
incurred during the fiscal years ended September 30, 2007 and
2006.
The
aggregate fees billed by Hein &
Associates LLP for tax services for the fiscal year ended September 30, 2007
were $70,000
consisting of $30,000
related to an IRS Audit and $40,000 related to tax compliance. The aggregate fees billed
for the fiscal year ended September 30, 2006 were $107,000 consisting of $12,000
related to an IRS Audit for the year 2005, $65,000 related to other tax
services, and approximately $30,000 related to tax
consulting.
There
were no fees for other
professional services rendered during the fiscal years ended September 30,
2007,
2006 and 2005.
Our
Audit Committee has determined that
the non-audit services rendered by Hein & Associates LLP during the most
recent fiscal year are compatible with maintaining the independence of such
auditors.
Our
policy is to pre-approve all
professional fees associated with audit, tax and audit-related services as
they
are proposed to us by Hein & Associates LLP and other professional service
firms. The Audit Committee approved of 100% of the services described in each
of
sections (a) through (d) above pursuant to 17 CFR
210.2-01(C)(7)(i)(C).
PART
IV
ITEM
15.
|
FINANCIAL
STATEMENT
SCHEDULES, EXHIBITS AND REPORTS ON
FORM 8-K
|
Documents
Filed
Financial
Statements and Financial
Statement Schedules
Our
audited consolidated financial
statements and related financial statement schedules and the report of an
independent registered public accounting firm as required by Item 8 of Form
10-K
and Regulation S-X are filed as a part of this Annual Report, as set forth
in
the accompanying Index to Financial Statements. Such audited financial
statements and related financial statement schedules include, in the opinion
of
our management, all required disclosures in the accompanying
notes.
Consolidated
Financial Statements of
Secure Alliance Holdings Corporation and Subsidiaries
Report
of Independent Registered Public
Accounting Firm
Consolidated
Balance Sheets — September
30, 2007 and 2006
Consolidated
Statements of Operations
for the years ended September 30, 2007, 2006 and 2005
Consolidated
Statements of Comprehensive
Income (Loss) for the years ended September 30, 2007, 2006 and
2005
Consolidated
Statements of Shareholders’
Equity for the years ended September 30, 2007, 2006 and 2005
Consolidated
Statements of Cash Flows
for the years ended September 30, 2007, 2006 and 2005
Notes
to Consolidated Financial
Statements
Schedule
II Valuation and Qualifying
Accounts — as filed as part of this Annual Report on Form
10-K
Exhibits
The
Exhibits required by Item 601 of
Regulation S-K and Regulation S-X are filed as a part of this Report, and are
listed in the accompanying Index to Exhibits.
Index
to Financial
Statements
|
Page
|
CONSOLIDATED
FINANCIAL STATEMENTS
OF SECURE ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
|
|
Report
of Independent Registered
Public Accounting Firm
|
29
|
Consolidated
Balance Sheets —
September 30, 2007 and 2006
|
30
|
Consolidated
Statements of
Operations for the years ended September 30, 2007, 2006 and
2005
|
31
|
Consolidated
Statements of
Comprehensive Income (Loss) for the years ended September 30, 2007,
2006
and 2005
|
32
|
Consolidated
Statements of
Shareholders’ Equity for the years ended September 30, 2007, 2006 and
2005
|
33
|
Consolidated
Statements of Cash
Flows for the years ended September 30, 2007, 2006 and
2005
|
34
|
Notes
to Consolidated Financial
Statements
|
36
|
Schedule
II Valuation and
Qualifying Accounts — as filed as part of this Annual Report on Form
10-K
|
49
|
All
other schedules are omitted because
they are not required, are not applicable or the required information is
presented elsewhere herein.
Report
of Independent Registered Public
Accounting Firm
The
Board of
Directors
Secure
Alliance Holdings
Corporation:
We
have audited the consolidated
financial statements of Secure Alliance Holdings Corporation and subsidiaries
as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our
audits.
We
conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board
(United States).
Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that
it
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well
as evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Secure Alliance Holdings Corporation and subsidiaries
as of September 30, 2007 and 2006, and the results of their operations and
their
cash flows for each of the years in the three-year period ended September 30,
2007 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As
further discussed in notes 1 and 2 to
the consolidated financial statements, the Company disposed of its remaining
operating assets and liabilities in October 2006, and currently has no
operations.
/s/
HEIN & ASSOCIATES
LLP
|
|
|
|
Houston,
Texas
|
January 14,
2008
|
SECURE
ALLIANCE HOLDINGS CORPORATION
AND
SUBSIDIARIES
(A
DEVELOPMENT STAGE
COMPANY)
CONSOLIDATED
BALANCE
SHEETS
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$ |
882,116 |
|
|
$ |
1,264,463 |
|
Certificates
of
deposit
|
|
|
11,177,567 |
|
|
|
— |
|
Restricted
cash
|
|
|
— |
|
|
|
5,400,000 |
|
Marketable
securities
held-to-maturity
|
|
|
— |
|
|
|
4,899,249 |
|
Marketable
securities
available-for-sale
|
|
|
505,500 |
|
|
|
851,939 |
|
Interest
and other
receivables
|
|
|
204,113 |
|
|
|
220,689 |
|
Prepaid
expenses and
other
|
|
|
— |
|
|
|
132,036 |
|
Assets
held for sale, net of
accumulated depreciation of $0 and $1,352,463,
respectively (See Note
2)
|
|
|
— |
|
|
|
6,312,663 |
|
Total
current
assets
|
|
|
12,769,296 |
|
|
|
19,081,039 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
4,000 |
|
|
|
4,000 |
|
Total
assets
|
|
$ |
12,773,296 |
|
|
$ |
19,085,039 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
— |
|
|
$ |
221,295 |
|
Accrued
interest
payable
|
|
|
— |
|
|
|
2,000,000 |
|
Shares
subject to
redemption
|
|
|
— |
|
|
|
5,400,000 |
|
Other
accrued
liabilities
|
|
|
141,401 |
|
|
|
150,194 |
|
Liabilities
held for sale (See
Note 2)
|
|
|
— |
|
|
|
3,636,369 |
|
Total
liabilities
|
|
|
141,401 |
|
|
|
11,407,858 |
|
|
|
|
|
|
|
|
|
|
Commitments
and
contingencies
|
|
|
— |
|
|
|
— |
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value,
authorized 100,000,000 shares; issued and outstanding
19,441,524 shares and
38,677,210 shares, respectively
|
|
|
194,415 |
|
|
|
386,772 |
|
Additional
paid-in
capital
|
|
|
30,008,008 |
|
|
|
30,782,187 |
|
Accumulated
deficit
|
|
|
(17,776,028
|
) |
|
|
(24,043,717
|
) |
Accumulated
other comprehensive
income
|
|
|
205,500 |
|
|
|
551,939 |
|
Total
shareholders’
equity
|
|
|
12,631,895 |
|
|
|
7,677,181 |
|
Total
liabilities and
shareholders’ equity
|
|
$ |
12,773,296 |
|
|
$ |
19,085,039 |
|
See
accompanying Notes to Consolidated
Financial Statements
SECURE
ALLIANCE HOLDINGS CORPORATION
AND
SUBSIDIARIES
(A
DEVELOPMENT STAGE
COMPANY)
CONSOLIDATED
STATEMENTS OF
OPERATIONS
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenues
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and
administrative
|
|
|
1,333,467 |
|
|
|
3,065,064 |
|
|
|
1,805,484 |
|
Depreciation
and
amortization
|
|
|
— |
|
|
|
2,678 |
|
|
|
4,977 |
|
Operating
loss
|
|
|
(1,333,467
|
) |
|
|
(3,067,742
|
) |
|
|
(1,810,461
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
fee paid to
Laurus
|
|
|
(6,508,963
|
) |
|
|
— |
|
|
|
— |
|
Gain
on disposal of investment in
3CI pursuant to class-action settlement
|
|
|
— |
|
|
|
5,380,121 |
|
|
|
— |
|
Amortization
of debt discount and
deferred financing costs
|
|
|
— |
|
|
|
(4,078,738
|
) |
|
|
(3,816,178
|
) |
Interest
income
|
|
|
580,861 |
|
|
|
392,564 |
|
|
|
— |
|
Interest
expense
|
|
|
— |
|
|
|
(235,765
|
) |
|
|
(2,732,891
|
) |
Gain
on collection of
receivable
|
|
|
— |
|
|
|
598,496 |
|
|
|
— |
|
Gain
on CCC bankruptcy
settlement
|
|
|
— |
|
|
|
105,000 |
|
|
|
— |
|
Other
expense
|
|
|
— |
|
|
|
(7,455
|
) |
|
|
— |
|
Total
other income
(expense)
|
|
|
(5,928,102
|
) |
|
|
2,154,223 |
|
|
|
(6,549,069
|
) |
Loss
before taxes and discontinued
operations
|
|
|
(7,261,569
|
) |
|
|
(913,519
|
) |
|
|
(8,359,530
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax
expense
|
|
|
75,808 |
|
|
|
159,546 |
|
|
|
— |
|
Loss
from continuing
operations
|
|
|
(7,337,377
|
) |
|
|
(1,073,065
|
) |
|
|
(8,359,530
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued
operations
|
|
|
— |
|
|
|
2,399,053 |
|
|
|
5,073,608 |
|
Gain
on sale of ATM business, net
of taxes
|
|
|
— |
|
|
|
3,536,105 |
|
|
|
— |
|
Gain
on sale of Cash Security
business, net of taxes
|
|
|
13,605,066 |
|
|
|
— |
|
|
|
— |
|
Total
discontinued
operations
|
|
|
13,605,066 |
|
|
|
5,935,158 |
|
|
|
5,073,608 |
|
Net
income
(loss)
|
|
$ |
6,267,689 |
|
|
$ |
4,862,093 |
|
|
$ |
(3,285,922 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing
operations
|
|
$ |
(0.37 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.41 |
) |
Income
from discontinued
operations
|
|
|
0.70 |
|
|
|
0.18 |
|
|
|
0.25 |
|
Net
income
(loss)
|
|
$ |
0.33 |
|
|
$ |
0.15 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common
shares outstanding
|
|
|
19,563,447 |
|
|
|
33,499,128 |
|
|
|
20,292,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing
operations
|
|
$ |
(0.37 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.41 |
) |
Income
from discontinued
operations
|
|
|
0.69 |
|
|
|
0.18 |
|
|
|
0.25 |
|
Net
income
(loss)
|
|
$ |
0.32 |
|
|
$ |
0.15 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common
and dilutive shares outstanding
|
|
|
19,674,772 |
|
|
|
33,499,128 |
|
|
|
20,292,796 |
|
See
accompanying Notes to Consolidated
Financial Statements
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(A
DEVELOPMENT STAGE
COMPANY)
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Net
income
(loss)
|
|
$
|
6,267,689
|
|
$
|
4,862,093
|
|
$
|
(3,285,922
|
)
|
Other
comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on
marketable securities available-for-sale
|
|
|
(346,439
|
)
|
|
551,939
|
|
|
—
|
|
Unrealized
gain on investment in
3CI
|
|
|
—
|
|
|
—
|
|
|
35,093
|
|
Comprehensive
income
(loss)
|
|
$
|
5,921,250
|
|
$
|
5,414,032
|
|
$
|
(3,250,829
|
)
|
See
accompanying Notes to Consolidated
Financial Statements
SECURE
ALLIANCE HOLDINGS CORPORATION
AND
SUBSIDIARIES
(A
DEVELOPMENT STAGE
COMPANY)
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’
EQUITY
|
|
Shares
Issued
and
Outstanding
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
|
Other
|
|
|
Total
Shareholders
Equity
|
|
Balances,
September 30,
2004
|
|
|
17,426,210 |
|
|
$ |
174,262 |
|
|
$ |
28,100,674 |
|
|
$ |
(25,619,888 |
) |
|
$ |
(66,599 |
) |
|
$ |
2,588,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,285,922
|
) |
|
|
— |
|
|
|
(3,285,922
|
) |
Issuance
of shares to Laurus in
payment of fees
|
|
|
1,251,000 |
|
|
|
12,510 |
|
|
|
625,500 |
|
|
|
— |
|
|
|
— |
|
|
|
638,010 |
|
Issuance
of shares in connection
with settlement of class-action litigation
|
|
|
2,000,000 |
|
|
|
20,000 |
|
|
|
1,544,490 |
|
|
|
— |
|
|
|
— |
|
|
|
1,564,490 |
|
Shares
received from officer in
connection with settlement
|
|
|
— |
|
|
|
— |
|
|
|
(31,675
|
) |
|
|
— |
|
|
|
31,675 |
|
|
|
— |
|
Unrealized
gain on investment in
3CI
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
35,093 |
|
|
|
35,093 |
|
Issuance
of warrants in connection
with debt with beneficial conversion premium on convertible
debt
|
|
|
— |
|
|
|
— |
|
|
|
723,198 |
|
|
|
— |
|
|
|
— |
|
|
|
723,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30,
2005
|
|
|
20,677,210 |
|
|
|
206,772 |
|
|
|
30,962,187 |
|
|
|
(28,905,810
|
) |
|
|
169 |
|
|
|
2,263,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,862,093 |
|
|
|
— |
|
|
|
4,862,093 |
|
Issuance
of shares subject to
redemption
|
|
|
18,000,000 |
|
|
|
180,000 |
|
|
|
(180,000
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized
gain on marketable
securities available-for-sale
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
551,939 |
|
|
|
551,939 |
|
Disposal
of investment in 3CI
pursuant
to
class-action
settlement
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(169
|
) |
|
|
(169
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30,
2006
|
|
|
38,677,210 |
|
|
|
386,772 |
|
|
|
30,782,187 |
|
|
|
(24,043,717
|
) |
|
|
551,939 |
|
|
|
7,677,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,267,689 |
|
|
|
— |
|
|
|
6,267,689 |
|
Redemption
of shares from
Laurus
|
|
|
(19,251,000
|
) |
|
|
(192,510
|
) |
|
|
(952,830
|
) |
|
|
— |
|
|
|
— |
|
|
|
(1,145,340
|
) |
Cancellation
of shares received
from officer in connection with settlement
|
|
|
(90,500
|
) |
|
|
(905
|
) |
|
|
905 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unrealized
loss on marketable
securities available-for-sale
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(346,439
|
) |
|
|
(346,439
|
) |
Issuance
of stock options to
officers
|
|
|
— |
|
|
|
— |
|
|
|
139,491 |
|
|
|
— |
|
|
|
— |
|
|
|
139,491 |
|
Issuance
of shares pursuant to
consulting agreement
|
|
|
21,739 |
|
|
|
217 |
|
|
|
9,783 |
|
|
|
— |
|
|
|
— |
|
|
|
10,000 |
|
Issuance
of shares on exercise of
warrants and options
|
|
|
84,075 |
|
|
|
841 |
|
|
|
28,472 |
|
|
|
— |
|
|
|
— |
|
|
|
29,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
September 30,
2007
|
|
|
19,441,524 |
|
|
$ |
194,415 |
|
|
$ |
30,008,008 |
|
|
$ |
(17,776,028 |
) |
|
$ |
205,500 |
|
|
$ |
12,631,895 |
|
See
accompanying Notes to Consolidated
Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION
AND
SUBSIDIARIES
(A
DEVELOPMENT STAGE
COMPANY)
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
flows from operating
activities:
|
|
|
|
|
|
|
|
Net
income
(loss)
|
|
$
|
6,267,689
|
|
$
|
4,862,093
|
|
$
|
(3,285,922
|
)
|
Amortization
of stock options
issued to officers
|
|
|
139,491
|
|
|
—
|
|
|
—
|
|
Expenses
related to issuance of
stock pursuant to consulting agreement
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
Adjustments
to reconcile net
income (loss) to net cash used in continuing operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Reorganization
fee expense
|
|
|
6,508,963
|
|
|
—
|
|
|
—
|
|
Depreciation
and
amortization
|
|
|
—
|
|
|
2,678
|
|
|
4,977
|
|
Amortization
of debt discount and
financing costs
|
|
|
—
|
|
|
4,078,738
|
|
|
3,816,178
|
|
Gain
on disposal of investment in
3CI pursuant to class-action settlement
|
|
|
—
|
|
|
(5,380.121
|
)
|
|
—
|
|
Loss
on disposal of fixed
assets
|
|
|
—
|
|
|
7,455
|
|
|
—
|
|
Changes
in assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable,
net
|
|
|
—
|
|
|
250,000
|
|
|
—
|
|
Interest
and other
receivables
|
|
|
16,576
|
|
|
(207,724
|
)
|
|
1,022,433
|
|
Prepaid
expenses and other
assets
|
|
|
132,036
|
|
|
38,196
|
|
|
(131,140
|
)
|
Accounts
payable and accrued
liabilities
|
|
|
(174,478
|
)
|
|
(487,110
|
)
|
|
2,013,106
|
|
Net
cash flows used in
discontinued operations
|
|
|
(13,605,066
|
)
|
|
(5,935,675
|
)
|
|
(3,901,956
|
)
|
Net
cash used in operating
activities
|
|
|
(707,789
|
)
|
|
(2,771,470
|
)
|
|
(462,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from continuing
investing activities:
|
|
|
|
|
|
|
|
|
|
|
Increase
in time
deposits
|
|
|
(11,177,567
|
)
|
|
—
|
|
|
—
|
|
Proceeds
from class-action
settlement on investment in 3CI
|
|
|
—
|
|
|
5,659,507
|
|
|
—
|
|
Decrease
(increase) in marketable
securities held-to-maturity
|
|
|
4,899,249
|
|
|
(4,899,249
|
)
|
|
—
|
|
Purchases
of property, plant and
equipment, net
|
|
|
—
|
|
|
—
|
|
|
(11,566
|
)
|
Net
cash provided by discontinued
investing activities
|
|
|
16,228,750
|
|
|
10,440,000
|
|
|
—
|
|
Net
cash provided by (used in)
investing activities
|
|
|
9,950,432
|
|
|
11,200,258
|
|
|
(11,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Redemption
of shares held by
Laurus
|
|
|
(6,545,340
|
)
|
|
—
|
|
|
—
|
|
Proceeds
from exercise of warrants
and options
|
|
|
29,313
|
|
|
—
|
|
|
—
|
|
Proceeds
from
borrowings
|
|
|
—
|
|
|
—
|
|
|
2,100,000
|
|
Repayments
of notes
payable
|
|
|
—
|
|
|
(2,767,988
|
)
|
|
(600,000
|
)
|
Borrowing
on
revolver
|
|
|
—
|
|
|
1,204,391
|
|
|
2,251,203
|
|
Payments
of
revolver
|
|
|
—
|
|
|
(1,204,391
|
)
|
|
(2,251,203
|
)
|
Repayments
of convertible
debentures
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Decrease
(increase) decrease in
restricted cash
|
|
|
5,400,000
|
|
|
(5,400,000
|
)
|
|
—
|
|
Reorganization
fee paid to Laurus
|
|
|
(8,508,963 |
) |
|
—
|
|
|
—
|
|
Increase
in deferred financing
costs
|
|
|
—
|
|
|
—
|
|
|
(280,567
|
)
|
Net
cash provided by discontinued
financing activities
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
cash provided by (used in)
financing activities
|
|
|
(9,624,990
|
)
|
|
(8,167,988
|
)
|
|
1,219,433
|
|
Net
change in cash and cash
equivalents
|
|
|
(382,347
|
)
|
|
260,800
|
|
|
745,543
|
|
Cash
and cash equivalents at
beginning of year
|
|
|
1,264,463
|
|
|
1,003,663
|
|
|
258,120
|
|
Cash
and cash equivalents at end
of year
|
|
$
|
882,116
|
|
$
|
1,264,463
|
|
$
|
1,003,663
|
|
See
accompanying Notes to Consolidated
Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION
AND
SUBSIDIARIES
(A
DEVELOPMENT STAGE
COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(CONTINUED)
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Supplemental
disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for
interest
|
|
$
|
—
|
|
$
|
314,314
|
|
$
|
755,808
|
|
Cash
paid for
taxes
|
|
$
|
94,402
|
|
$
|
70,962
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of
non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debt into common
stock subject to redemption
|
|
$
|
—
|
|
$
|
5,400,000
|
|
$
|
—
|
|
Discount
on issuance of debt with
beneficial conversion premium and detachable
warrants
|
|
$
|
—
|
|
$
|
—
|
|
$
|
723,198
|
|
Issuance
of shares to lender in
payment of fees
|
|
$
|
—
|
|
$
|
—
|
|
$
|
638,010
|
|
Issuance
of shares in connection
with settlement of class-action litigation
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,564,490
|
|
Unrealized
gain on 3CI
investment
|
|
$
|
—
|
|
$
|
—
|
|
$
|
35,093
|
|
Unrealized
gain (loss) on
marketable securities available-for-sale
|
|
$
|
(346,439
|
)
|
$
|
551,939
|
|
$
|
—
|
|
See
accompanying Notes to Consolidated
Financial Statements.
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(A
DEVELOPMENT STAGE
COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER
30, 2007, 2006 AND
2005
(1)
|
Summary
of
Significant Accounting Policies for Continued
Operations
|
Description
of
Business
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).
We
completed the sale of our ATM
business on January 3, 2006 and the sale of our Cash Security business on
October 2, 2006. On October 2, 2006, we became a shell public company
and have had substantially no operations.
Principles
of
Consolidation
The
consolidated financial statements
include our accounts and our wholly-owned subsidiaries. All significant
intercompany items have been eliminated in consolidation.
Cash
and Cash
Equivalents
For
purposes of consolidated financial
statement presentation and reporting cash flows, all liquid investments with
original maturities at the date of purchase of three months or less are
considered cash equivalents.
Property,
Plant and
Equipment
Property,
plant and equipment are stated
at cost. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets. Expenditures for major renewals and
betterments are capitalized; expenditures for repairs and maintenance are
charged to expense as incurred.
Federal
Income Taxes
Income
taxes are accounted for under the
asset and liability method, whereby deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in determining income or loss in the period that includes the
enactment date.
Accumulated
Other Comprehensive Income
(Loss)
Accumulated
other comprehensive income
(loss) includes all non-equity holder changes in shareholders’ equity. As
of
September
30, 2007 and 2006, our only
component of accumulated other comprehensive loss relates to unrealized gains
and losses on our investment in Cashbox common stock.
Net
Income (Loss) Per
Share
In
accordance with Statement of
Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS No. 128”),
we compute and present both basic and diluted earnings per share (“EPS”)
amounts. Basic EPS is computed by dividing income (loss) available to common
shareholders by the weighted-average number of common shares outstanding for
the
period, and excludes the effect of potentially dilutive securities (such as
options, warrants and convertible securities), which are convertible into common
stock. Dilutive EPS reflects the potential dilution from options, warrants
and
convertible securities.
Stock-Based
Compensation
In
December 2004, the FASB issued SFAS
No. 123(R), which amends SFAS No. 123 and supersedes APB Opinion No. 25. SFAS
No. 123(R) requires compensation expense to be recognized for all share-based
payments made to employees based on the fair value of the award at the date
of
grant, eliminating the intrinsic value alternative allowed by SFAS No. 123.
Generally, the approach to determining fair value under the original
pronouncement has not changed. However, there are revisions to the accounting
guidelines established, such as accounting for forfeitures that will change our
accounting for stock-based awards in the future.
The
statement allows companies to adopt
its provisions using either of the following transition
alternatives:
•
|
The
modified
prospective method, which results in the recognition of compensation
expense using SFAS 123(R) for all share-based awards granted after
the
effective date and the recognition of compensation expense using
SFAS 123
for all previously granted share-based awards that remain unvested
at the
effective date; or
|
•
|
The
modified
retrospective method, which results in applying the modified prospective
method and restating prior periods by recognizing the financial statement
impact of share-based payments in a manner consistent with the pro
forma
disclosure requirements of SFAS No. 123. The modified retrospective
method
may be applied to all prior periods presented or previously reported
interim periods of the year of
adoption.
|
We
adopted SFAS No. 123(R) on October 1,
2005, using the modified prospective method. This change in accounting has
not
materially impacted our financial position. We applied the fair-value criteria
established by SFAS No. 123(R) to previous stock option grants, the impact
to
our results of operations would have approximated the impact of applying SFAS
No. 123, which was a decrease to net income of approximately $19,433 in
2005.
We
recognize expense related to stock
options and other types of equity-based compensation beginning in fiscal year
2006 and such cost must be recognized over the period during which an employee
is required to provide service in exchange for the award. The requisite service
period is usually the vesting period. The standard also requires us to estimate
the number of instruments that will ultimately be issued, rather than accounting
for forfeitures as they occur.
The
following table
reflects the pro forma effect of SFAS No. 123 (R) had it been in effect in
2005.
|
|
2005
|
|
Net loss
as
reported
|
|
$
|
(3,285,922
|
)
|
Deduct:
|
|
|
|
|
Total
stock-based employee
compensation expense determined under SFAS 123, net of
taxes
|
|
|
(19,433
|
)
|
Net loss
pro
forma
|
|
$
|
(3,305,355
|
)
|
Basic
earnings (loss) per
share:
|
|
|
|
|
As
reported
|
|
|
(0.16
|
)
|
Pro
forma
|
|
|
(0.16
|
)
|
Diluted
earnings (loss) per
share:
|
|
|
|
|
As
reported
|
|
|
(0.16
|
)
|
Pro
forma
|
|
|
(0.16
|
)
|
Use
of Estimates
The
preparation of the accompanying
consolidated financial statements requires the use of estimates by management
in
determining our assets and liabilities at the date of the Consolidated Financial
Statements and the reported amount of revenues and expenses during the period.
Actual results could differ from these estimates.
Fair
Value of Financial
Instruments
Statement
of Financial Accounting
Standards No. 107, “Disclosures About Fair Value of Financial Instruments,”
requires the disclosure of estimated fair values for financial instruments.
Fair
value estimates are made at discrete points in time based on relevant market
information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot be
determined with precision. We believe that the carrying amounts of our financial
instruments included in current assets and current liabilities approximate
the
fair value of such items due to their short-term nature.
The
carrying amount of long-term debt,
excluding the discounts related to the warrants issued with the debt,
approximates its fair value because the interest rates approximate
market.
New
Accounting
Pronouncements
In
July 2006, the FASB issued Final
Interpretation No. (“FIN”) 48, Accounting
for
Uncertainty in Income Taxes, an Interpretation
of SFAS 109, which
clarifies the accounting for income taxes by prescribing the minimum recognition
threshold an uncertain tax position is required to meet before tax benefits
associated with such uncertain tax position are recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. In addition, FIN 48 excludes income taxes from the
scope of SFAS 5, Accounting
for
Contingencies. FIN 48 is
effective for fiscal years beginning after December 15, 2006. Differences
between the amounts recognized in the consolidated balance sheets prior to
the
adoption of FIN 48 and the amounts reported after adoption are accounted for
as
a cumulative-effect adjustment to the beginning balance of retained earnings
upon adoption of FIN 48. FIN 48 also requires that amounts recognized in the
balance sheet related to uncertain tax positions be classified as a current
or
non-current liability, based upon the timing of the ultimate payment to a taxing
authority. We will adopt FIN 48 as of October 1, 2007 and are in the process
of
finalizing the effect FIN 48 will have on our financial statements. Under
the guidance of FIN 48, management estimates that our income tax reserve may
increase to approximately $2.3 million, which is subject to revision when
management completes an analysis of the impact of FIN 48. Upon completion of
such analysis, it is possible that this difference will be recorded in retained
earnings as a cumulative effect adjustment during the quarter ended December
31,
2007.
In
September 2006, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair
value to be the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at
the measurement date and emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. It establishes a
fair value hierarchy and expands disclosures about fair value measurements
in
both interim and annual periods. SFAS 157 will be effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal
years. The Company does not expect SFAS 157 to have a material effect
on the Company’s consolidated financial position or results of
operations.
In
February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159, The Fair Value Option
for
Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159
permits entities to choose, at specified election dates, to measure eligible
items at fair value (the “fair value option”) and requires an entity to report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. Upfront costs
and fees related to items for which the fair value option is elected shall
be
recognized in earnings as incurred and not deferred. SFAS 159 will be
effective for fiscal years beginning after November 15, 2007. The
Company does not expect SFAS 159 to have a material effect on the Company’s
consolidated financial position or results of operations.
In
November 2007, the FASB issued SFAS
No. 141(R), Business Combination and SFAS No. 160, Noncontrolling Interests
in
Consolidated Financial Statements, an amendment of ARB No. 51 (FAS 160). FAS
141(R) will change how business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in subsequent periods.
FAS
160 will change the accounting and reporting for minority interests, which
will
be recharacterized as noncontrolling interests and classified as a component
of
equity. FAS 141(R) and FAS 160 are effective for both public and private
companies for fiscal years beginning on of after December 15,
2008. FAS 141(R) will be applied prospectively. FAS 160 requires
retroactive adoption of the presentation and disclosure requirements for
existing minority interests. All other requirements of FAS 160 will
be applied prospectively. Early adoption is prohibited for both
standards. Management is currently evaluating the requirements of FAS
141(R) and FAS 160 but does not expect them to have a material effect on the
Company’s consolidated financial position or results of
operation.
(2)
|
Discontinued
Operations
|
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 for a purchase price was $10,440,000 of which $8,200,000 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 and the remaining
$2,240,000 was paid to the Company. This transaction resulted in a book gain
of
$3,536,105.
An
analysis of the discontinued
operations of the ATM business is as follows:
DISCONTINUED
OPERATIONS — ATM
BUSINESS
SELECTED
OPERATING
DATA
(UNAUDITED)
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Net
sales
|
|
$
|
—
|
|
$
|
3,847,874
|
|
$
|
15,497,834
|
|
Cost
of
sales
|
|
|
—
|
|
|
2,592,268
|
|
|
9,508,120
|
|
Gross
profit
|
|
|
—
|
|
|
1,255,606
|
|
|
5,989,714
|
|
Selling,
general and
administrative
|
|
|
—
|
|
|
880,941
|
|
|
4,768,880
|
|
Depreciation
and
amortization
|
|
|
—
|
|
|
46,048
|
|
|
255,967
|
|
Operating
loss
|
|
|
—
|
|
|
328,617
|
|
|
964,867
|
|
Non-operating
(income)
expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
income
(loss)
|
|
$
|
—
|
|
$
|
328,617
|
|
$
|
964,867
|
|
Cash
Security
Business
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. During the year ended September 30, 2007, we
recorded a gain on the sale of the Cash Security business, net of taxes, of
$13,605,066.
We
classified the Cash Security business
as a discontinued operation for the year ended September 30, 2007. 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)
|
|
September
30,
2007
|
|
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)
|
|
Years
Ended September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
sales
|
|
$ |
— |
|
|
$ |
16,080,069 |
|
|
$ |
19,435,222 |
|
Cost
of
sales
|
|
|
— |
|
|
|
9,476,386 |
|
|
|
10,870,947 |
|
Gross
profit
|
|
|
— |
|
|
|
6,603,683 |
|
|
|
8,564,275 |
|
Selling,
general and
administrative
|
|
|
— |
|
|
|
4,541,774 |
|
|
|
4,449,550 |
|
Depreciation
and
amortization
|
|
|
— |
|
|
|
— |
|
|
|
29,868 |
|
Operating
income
(loss)
|
|
|
— |
|
|
|
2,061,907 |
|
|
|
4,084,857 |
|
Non-operating
expense
|
|
|
— |
|
|
|
(8,529
|
) |
|
|
(23,884
|
) |
Net
income
(loss)
|
|
$ |
— |
|
|
$ |
2,070,436 |
|
|
$ |
4,108,741 |
|
(3)
|
Notes
to
Discontinued Operations which are Classified as Assets Held For
Sale
|
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 three 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 substantially no operations
during the fiscal year 2007. We had significant investments in billed
receivables as of September 30, 2006. 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. As of September 30, 2007
and 2006, the allowance for doubtful contract receivables was $0 and $45,000,
respectively.
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
approximately $0, $1,229,617, and $2,060,071 for the years ended September
30,
2007, 2006 and 2005, respectively.
Shipping
and Handling
Cost
Shipping
and handling costs billed to
customers totaled $0, $429,881, and $781,442 for the years ended September
30,
2007, 2006, and 2005, respectively. We incurred shipping and handling costs
of
$0, $458,633, and $978,957 for the years ended September 30, 2007, 2006 and
2005
respectively. The net expense of $0, $28,752 and $197,515 is included in selling
expenses in the accompanying statement of operations for the years ended
September 30, 2007, 2006, and 2005, respectively.
(4)
|
Major
Customers
and Credit Risks
|
We
had substantially no operations
during the fiscal year 2007. Only one customer accounted for more
than 10% of net sales for the fiscal years 2006 and 2005. Two customers
accounted for more than 10% of our total outstanding trade receivable as of
September 30, 2006 and 2005.
The
vast majority of our sales in fiscal
2006 and 2005 were to customers within the United States.
Sales to customers outside the
United States,
as a percentage of total revenues,
were approximately 6.8 % and 14% in the fiscal years ended September 30, 2006
and 2005, respectively. Most of our foreign sales were to one
customer.
Inventories
related to discontinued
operations consisted of the following at September 30, 2007 and
2006:
|
|
2007
|
|
2006
|
|
Raw
materials
|
|
$
|
—
|
|
$
|
1,953,305
|
|
Work
in
process
|
|
|
—
|
|
|
—
|
|
Finished
goods
|
|
|
—
|
|
|
143,459
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
2,096,764
|
|
Inventory
reserve
|
|
|
—
|
|
|
(45,000
|
)
|
Total,
classified as assets held
for sale
|
|
$
|
—
|
|
$
|
2,051,764
|
|
(6)
|
Property,
Plant
and Equipment
|
Property,
plant and equipment consisted
of the following at September 30, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Useful
Life
|
|
Machinery
and
equipment
|
|
$
|
—
|
|
$
|
544,498
|
|
|
2
- 10
years
|
|
Computer
equipment and
systems
|
|
|
—
|
|
|
605,712
|
|
|
2
- 7 years
|
|
Furniture,
fixtures and other
improvements
|
|
|
—
|
|
|
500,267
|
|
|
3
- 5 years
|
|
|
|
|
|
|
|
1,650,476
|
|
|
|
|
Less
classified as
discontinued
|
|
|
—
|
|
|
(1,650,476
|
)
|
|
|
|
Total
property, plant and
equipment for continued operations
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
Depreciation
expense was $0, $99,789,
and $285,835 for the years ended September 30, 2007, 2006 and 2005,
respectively. Repairs and maintenance expense was $0, $64,420, and $86,043
for
the years ended September 30, 2007, 2006 and 2005 respectively. All such amounts
are classified in discontinued operations.
(7)
|
Agreements
with
Laurus
|
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
$206,799) 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 remained payable
by the Company to Laurus and, to our knowledge, Laurus does not own any shares
of the Company.
Accrued
expenses consisted of the
following at September 30, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Reserve
for warranty
charges
|
|
$
|
—
|
|
$
|
826,152
|
|
Taxes:
|
|
|
—
|
|
|
—
|
|
Sales
and
use
|
|
|
—
|
|
|
11,049
|
|
Ad
valorem
|
|
|
—
|
|
|
44,000
|
|
Wages
and related
benefits
|
|
|
—
|
|
|
662,348
|
|
Other
|
|
|
—
|
|
|
555,126
|
|
Other
accrued expenses related to
continuing operations
|
|
|
141,401
|
|
|
150,194
|
|
Total
accrued
expenses
|
|
$
|
141,401
|
|
$
|
2,248,869
|
|
Less:
discontinued
liabilities
|
|
|
|
|
|
(2,098,675
|
)
|
Total
accrued expenses related to
continuing operations
|
|
$
|
141,401
|
|
$
|
150,194
|
|
At
September 30, 2007, we had
outstanding warrants to purchase 697,500 shares of common stock that expire
at
various dates through November 2010. The warrants have exercise prices ranging
from $0.40 to $0.68 per share and, if exercised, would generate proceeds to
us
of approximately $419,000.
Common
Stock Purchase
Warrants:
|
|
Warrants
|
|
Expiration
Date
|
|
Exercise
Price
|
|
Relative
Fair
Value
|
|
Other
parties in connection with
Laurus financing (1)
|
|
|
197,500
|
|
|
11/24/2010
|
|
|
0.40
|
|
|
127,951
|
|
AIG/National
Union Fire Insurance
Co. (2)
|
|
|
500,000
|
|
|
11/01/2007
|
|
|
0.68
|
|
|
224,490
|
|
Outstanding
warrants as of
September 30, 2007
|
|
|
697,500
|
|
|
|
|
|
|
|
$
|
352,441
|
|
Value
calculated using
Black-Scholes:
|
|
|
|
Stock
Price
At
Issuance
|
|
Expected
Term
|
|
Volatility
|
|
Risk
Free
Rate
|
|
(1)
|
|
|
Variables
|
|
$
|
0.72
|
|
|
7
years
|
|
|
111.00
|
%
|
|
3.72
|
%
|
(2)
|
|
|
Variables
|
|
$
|
0.67
|
|
|
3
years
|
|
|
108.00
|
%
|
|
3.85
|
%
|
(10)
|
Employee
Stock
Option Plans
|
We
adopted a Long-Term Incentive Plan in
1997 (the “1997 Plan”) pursuant to which our Board of Directors may grant stock
options to officers and key employees. The 1997 Plan, as amended, authorizes
grants of options to purchase up to 2,000,000 shares of our common stock.
Options are granted with an exercise price equal to the fair market value of
the
common stock at the date of grant. Options granted under the 1997 Plan vest
over
three-year periods and expire no later than 10 years from the date of
grant. At September 30, 2007, there were 1,900,000 options
outstanding and 32,950 shares available for grant under the 1997
Plan,. There were 648,150 options outstanding and 1,310,800 shares
available for grant at September 30, 2006. There were 1,099,810 options
outstanding and 855,890 shares available for grant at September 30,
2005.
On
March 21, 2007, the Company awarded
Messrs. Griggs and Clay an aggregate of 1,900,000 stock options to purchase
our
common stock at an exercise price of $0.62 per share pursuant to the Company's
1997 Long-Term Incentive Plan. Of this award, 34% of the options vest on the
first anniversary of the date of the grant, 33% of the options vest on the
second anniversary of the date of the grant and the remaining 33% of the options
vest on the third anniversary of the date of the grant. In addition, 100% of
the
options vest upon a change of control. There were no stock options
granted during the fiscal year ended 2006 and 363,810 stock options granted
during the fiscal year ended 2005.
At
September 30, 2007, the options
outstanding under the 1997 Plan had exercise prices of $0.62 per share with
a
remaining contractual life of 9.47 years. At September 30, 2006, the
range of exercise prices was $2.50 to $0.25 per share with a weighted average
remaining contractual life of 4.56 years. At September 30, 2005, the range
of
exercise prices was $2.50 to $0.25 per share with a weighted-average remaining
contractual life of the outstanding options was 5.32 years.
Activity
during the periods indicated
was as follows:
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Balance
at September 30,
2004
|
|
|
786,000
|
|
|
1.67
|
|
Granted
|
|
|
363,810
|
|
|
0.25
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
|
|
|
(50,000
|
)
|
|
1.16
|
|
Balance
at September 30,
2005
|
|
|
1,099,810
|
|
|
1.22
|
|
Granted
|
|
|
—
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
Canceled
|
|
|
(451,660
|
)
|
|
1.19
|
|
Balance
at September 30,
2006
|
|
|
648,150
|
|
|
1.24
|
|
Granted
|
|
|
1,900,000
|
|
|
0.62
|
|
Exercised
|
|
|
(27,250
|
)
|
|
0.25
|
|
Canceled
|
|
|
(620,900
|
)
|
|
1.28
|
|
Balance
at September 30,
2007
|
|
|
1,900,000
|
|
|
0.62
|
|
Income
tax expense (benefit)
attributable to income from operations consisted of the following for the years
ended September 30, 2007, 2006 and 2005:
|
|
2007
|
|
2006
|
|
2005
|
|
Federal
current tax Expense
(Benefit)
|
|
$
|
75,808
|
|
$
|
159,546
|
|
$
|
—
|
|
Federal
deferred tax
benefit
|
|
|
—
|
|
|
—
|
|
|
—
|
|
State
tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
75,808
|
|
$
|
159,546
|
|
$
|
—
|
|
The
income tax differed from the amounts
computed by applying the U.S. statutory
federal income tax rate of 34%
to income (loss) before taxes as a result of the
following:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Computed
“expected”
tax
expense
(benefit)
|
|
$ |
2,156,789 |
|
|
$ |
1,707,357 |
|
|
$ |
(1,117,213 |
) |
Change
in valuation
allowances
|
|
|
(1,867,170
|
) |
|
|
(4,156,100
|
) |
|
|
1,638,969 |
|
Nondeductible
items and permanent
differences
|
|
|
(272,618
|
) |
|
|
1,499,031 |
|
|
|
(521,756
|
) |
AMT
|
|
|
75,808 |
|
|
|
70,962 |
|
|
|
— |
|
Other
|
|
|
(17,001
|
) |
|
|
1,038,296 |
|
|
|
— |
|
|
|
$ |
75,808 |
|
|
$ |
159,546 |
|
|
$ |
(0 |
) |
The
tax effects of temporary differences
that were the sources of the deferred tax assets consisted of the following
at
September 30, 2007 and 2006:
|
|
2007
|
|
|
2006
|
|
Deferred
tax
assets:
|
|
|
|
|
|
|
Fixed
assets
|
|
$ |
— |
|
|
$ |
286,643 |
|
Accounts
receivable
|
|
|
— |
|
|
|
15,151 |
|
Inventories
|
|
|
— |
|
|
|
268,704 |
|
Accrued
expenses
|
|
|
— |
|
|
|
511,398 |
|
Stock
Option
|
|
|
47,427 |
|
|
|
|
|
Other
|
|
|
— |
|
|
|
39,332 |
|
Net
operating
losses
|
|
|
138,304 |
|
|
|
931,673 |
|
Total
gross deferred tax
assets
|
|
|
185,731 |
|
|
|
2,052,900 |
|
Less:
valuation
allowance
|
|
|
(185,731
|
) |
|
|
(2,052,900
|
) |
Net
deferred tax
assets
|
|
|
— |
|
|
|
— |
|
Other
deferred tax
liabilities
|
|
|
— |
|
|
|
— |
|
Net
deferred tax
assets
|
|
$ |
— |
|
|
$ |
— |
|
In
assessing the realizability of
deferred assets, management considers whether it is more likely than not some
portion or all of the deferred tax assets will be realized. The Company has
established a valuation allowance for such deferred tax assets to the extent
such amounts are not utilized to offset existing deferred tax liabilities
reversing in the same periods.
As
of September 30, 2007, the Company
had remaining net operating losses of approximately $406,775, which will begin
to expire in 2024. The Company utilized net operating loss
carryforwards of $4,190,420, $2,964,614 and $3,273,117 in the fiscal years
ended
September 30, 2007, 2006 and 2005, respectively, to offset gains as a result
of
the Cash Security Business Sale, the ATM Business Sale and other income from
discontinued operations.
The
following is a reconciliation of the
numerators and denominators of the basic and diluted computations for the years
ended September 30, 2007, 2006 and 2005:
|
|
2007
|
|
2006
|
|
2005
|
|
Net
income (loss) (numerator for
diluted earnings (loss) per share)
|
|
$
|
6,267,689
|
|
$
|
4,862,093
|
|
$
|
(3,285,922
|
)
|
Weighted
average common shares
outstanding (denominator for basic earnings (loss) per
share)
|
|
|
19,563,447
|
|
|
33,499,128
|
|
|
20,292,796
|
|
Dilutive
shares
outstanding
|
|
|
111,325
|
|
|
—
|
|
|
|
|
Weighted
average common and
dilutive shares outstanding
|
|
|
19,674,772
|
|
|
33,499,128
|
|
|
20,292,796
|
|
Basic
earnings (loss) per
share
|
|
$
|
0.33
|
|
$
|
0.15
|
|
$
|
(0.16
|
)
|
Diluted
earnings (loss) per
share
|
|
$
|
0.32
|
|
$
|
0.15
|
|
$
|
(0.16
|
)
|
Common
stock equivalent shares
consisting of warrants, options and convertible debt of 1,127,725;
5,874,687 and
$29,717,185 were excluded from the computation of diluted earnings per share
due
to their anti-dilutive effect for the years ended September 30, 2007, 2006
and
2005, respectively.
(13)
|
Marketable
Securities Available-
for- Sale
|
We
own 2,022,000 of the common stock of
Cashbox plc pursuant to our exercise of a warrant in September 2005. On or
about
March 27, 2006, shares of Cashbox plc began trading on the AIM Market of the
London Stock 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 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 was excluded
from earnings and recorded net of tax as other comprehensive
income.
As
of September 30, 2007 and 2006, our
common stock in Cashbox plc was recorded at a fair value of $505,500 and
$851,939, respectively. Unrealized gains on these shares of common stock, which
were added to stockholders' equity as of September 30, 2007 and 2006, were
$205,500 and $551,939, respectively.
As
of September 30, 2007 we were
restricted from selling any shares until the second anniversary of its admission
to the London Stock 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.
(14)
|
Investment
in 3CI Complete
Compliance Corporation
|
We
formerly owned 100% of 3CI Complete
Compliance Corporation (“3CI”), a company engaged in the transportation and
incineration of medical waste, until we divested our majority interest in
February 1994. At September 30, 2005, we continued to own 698,889 shares of
the
common stock of 3CI and the value of our investment was marked to the market
value of $279,556, or $.40 per share.
On
May 30, 2006, we received a
settlement payment of $4,489,963 and on September 6, 2006, the Company received
an additional settlement payment in the amount of $1,169,544 arising out of
our
ownership of the 3CI shares under a class action settlement paid out to minority
shareholders of 3CI. Under the terms of the settlement and in order to
participate in the settlement, we tendered all 698,889 shares that we owned
to
Stericycle, Inc., the current majority shareholder of 3CI and the defendant
under the class action, and accordingly we no longer hold any ownership interest
in 3CI. As a result, we recognized a gain of $5,380,121 on the disposal of
these
shares during the year ended September 30, 2006, which represented the
difference between the settlement payment amount and our carrying
amount.
We
had no leases for real property or
equipment in 2007. We leased office and warehouse space,
transportation equipment and other equipment under terms of operating leases
which were transferred in the sale of the Cash Security business and the sale
of
the ATM business. Rental expense under those leases for the years
ended September 30, 2006 and 2005, was approximately $210,820 and $453,000,
respectively.
We
and our subsidiaries are each subject
to certain other litigation and claims arising in the ordinary course of
business. In our management’s opinion, the amounts ultimately payable, if any,
resulting from such litigation and claims will not have a materially adverse
effect on our financial position.
On
June 9, 2005, Corporate Safe
Specialists, Inc. (“CSS”) filed a lawsuit against Secure Alliance Holdings
Corporation and our wholly owned subsidiary, 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 (the “CSS Lawsuit”). 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 sought 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 Lawsuit, with counsel of its choice, provided that in the
event we incur any adverse consequences in connection with the CSS Lawsuit
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.
On
March 31, 2007, CSS, Secure Alliance
Holdings Corporation and Secure Alliance, L.P. (formerly known as Tidel
Engineering, L.P.) entered into a settlement and mutual release agreement
whereby the parties jointly moved to dismiss all claims and counterclaims in
the
CSS Lawsuit. The parties agreed to pay no monetary settlement and each bear
its
own legal costs and expenses. Pursuant to the settlement, we and our predecessor
agreed not to make, use, sell or offer for sale any safe that infringes upon
the
‘281 patent during the period of time the ‘281 patent is valid; however, we and
our predecessor may challenge, contest, or raise as a defense the validity
of
the ‘281 patent if CSS or any other party files a claim against us asserting
infringement of the ‘281 patent.
On
April 16, 2007, Fire King
International, LLC (“Fire King”) filed a lawsuit against Corporate Safe
Specialists, Inc., Tidel Technologies, Inc. and Tidel Engineering, LP. The
lawsuit, Civil Action No. 03-07CV0655-G, was filed in the United States District
Court of the Northern District of Texas, Dallas Division. Fire King alleges
that
the Sentinel product previously sold by the Company’s predecessor infringes on
one or more patent claims found in Fire King patent U.S. Patent No. 7,063,252
(the ‘252 patent). Fire King sought injunctive relief against future
infringement, unspecified damages for past infringement and attorney’s fees and
costs.
On
September 14, 2007, Fire King, Secure
Alliance Holdings Corporation and Secure Alliance, L.P. entered into a
confidential settlement and mutual release agreement whereby the parties jointly
moved to dismiss all claims in the Fire King lawsuit. In connection therewith,
we paid an undisclosed amount to Fire King to settle a disputed claim and
admitted no liability or wrongdoing. The court has dismissed Fire
King’s claims against the Company with prejudice.
On
December 6, 2007, we entered into a
definitive Agreement and Plan of Merger (“Merger Agreement”) by and among
Sequoia Media Group, LC, a private Utah limited liability company (“Sequoia”),
the Company and SMG Utah, LC, a Utah limited liability company and wholly owned
subsidiary of the Company (“Merger Sub”). Pursuant to the Merger
Agreement, Merger Sub will merge with and into Sequoia (the “Merger”), with
Sequoia continuing as the surviving entity in the Merger and each issued and
outstanding Sequoia equity interest will automatically be converted into the
right to receive 0.5806419 shares of the Company common stock, calculated after
a 1 for 3 reverse stock split of the Company’s common stock contemplated to be
effected prior to the Merger. Immediately following the Merger, the
members of Sequoia, in aggregate, will own approximately 80% of the equity
interests in the Company and the stockholders of the Company will own the
remaining approximately 20% equity interests in the combined
company.
In
addition, pursuant to a Loan and
Security Agreement (“Loan Agreement”) entered into between the Company and
Sequoia on December 6,
2007, the Company has
agreed to extend up to $2.5 million in secured financing to
Sequoia. Under the terms of the Loan Agreement, Sequoia has agreed to
pay interest on the loan at a rate per annum equal to 10%. Interest
on the loan is payable on the scheduled maturity date, December 31, 2008. In
addition, if the loan
obligations have not been paid in full on or prior to the scheduled maturity
date, a monthly fee equal to 10% of the outstanding loan obligations is payable
to the Company by Sequoia on the last day of each calendar month for which
the
loan obligations remain outstanding.
In
addition, prior to the effectiveness
of the Merger, the Company proposes to (i) form a wholly owned subsidiary,
and
(ii) contribute to such subsidiary approximately $2.2 million in cash, 2,022,000
shares of Cashbox, a publicly listed UK company, and amounts receivable under
certain promissory notes not associated with the Sequoia
transaction. The common stock of such subsidiary will be distributed,
to the Company stockholders as of a date prior to the Merger, at such time
as
the distribution can be effected in compliance with applicable law, whether
pursuant to an effective registration statement or a valid exemption from
registration.
Our
Board of Directors approved the
Merger Agreement and the foregoing transactions at a special meeting on November
29, 2007. The Merger is subject to stockholder approval and other
customary conditions and is expected to be completed during the first quarter
of
2008. If
the
Company terminates the Merger Agreement before the consummation of the Merger
in
connection with the Company’s acceptance of a superior proposal, the Company has
agreed to pay Sequoia a termination fee of $1,000,000 in cash under certain
circumstances. At closing of the Merger, outstanding stock options granted
to
our executive officers, Jerrell G. Clay and Stephen P. Griggs, to purchase
an
aggregate 1,900,000 shares of our common stock at exercise prices of $0.62
per
share will fully vest and become immediately
exercisable.
Sequoia
is committed to revolutionizing
the way life events and memories are shared and treasured through personal
digital expressions. Sequoia developed aVinci Experience products to
simplify and automate the process of creating professional-quality multi-media
productions using personal photos and videos. The patented technology
provides complete, refined products, including DVD’s, photo books and
posters. aVinci distributes products through leading retailers, photo
websites and image service providers.
On
October 2, 2006, we completed the
Cash Security Business Sale and became a shell public company with approximately
$12.9 million in cash, cash equivalents and marketable securities
held-to-maturity; or approximately $0.66 per share based on 19,426,210 shares
outstanding. See Note (17) above for a discussion of the Merger
Agreement and other matters.
SCHEDULE
II
SECURE
ALLIANCE HOLDINGS CORPORATION AND
SUBSIDIARIES
(FORMERLY
TIDEL TECHNOLOGIES,
INC.)
VALUATION
AND QUALIFYING
ACCOUNTS
|
|
Balance
at
Beginning
of
Period
|
|
Additions
Charged
to
Costs
and
Expenses
|
|
Charged
to
Other
Accounts
|
|
Deductions
|
|
Balance
at
End
of
Period
|
|
For
the year ended September 30,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
and notes receivable
|
|
$
|
44,943
|
|
$
|
—
|
|
|
—
|
|
|
44,943
|
|
$
|
—
|
|
Inventory
reserve
|
|
|
45,000
|
|
|
—
|
|
|
—
|
|
|
45,000
|
|
|
—
|
|
|
|
$
|
89,943
|
|
$
|
—
|
|
|
—
|
|
$
|
89,943
|
|
$
|
—
|
|
For
the year ended September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
and notes receivable
|
|
$
|
1,132,382
|
|
$
|
—
|
|
|
—
|
|
|
1,087,439
|
|
$
|
44,943
|
|
Inventory
reserve
|
|
|
100,558
|
|
|
—
|
|
|
—
|
|
|
55,558
|
|
|
45,000
|
|
|
|
$
|
1,232,940
|
|
$
|
—
|
|
|
—
|
|
$
|
1,142,997
|
|
$
|
89,943
|
|
For
the year ended September 30,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
and notes receivable
|
|
$
|
1,076,055
|
|
$
|
56,327
|
|
|
—
|
|
|
—
|
|
$
|
1,132,382
|
|
Reserve
for settlement of class
action litigation
|
|
|
1,564,490
|
|
|
—
|
|
|
—
|
|
|
1,564,490
|
|
|
—
|
|
Inventory
reserve
|
|
|
1,900,000
|
|
|
—
|
|
|
—
|
|
|
1,799,442
|
|
|
100,558
|
|
|
|
$
|
4,540,545
|
|
$
|
56,327
|
|
|
—
|
|
$
|
3,363,932
|
|
$
|
1,232,940
|
|
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)
|
|
|
|
|
January
14,
2008
|
/s/
Jerrell G.
Clay
|
|
|
Jerrell
G.
Clay
|
|
|
Principal
Executive
Officer
|
|
|
|
|
January
14,
2008
|
/s/
Stephen P.
Griggs
|
|
|
Stephen
P.
Griggs
|
|
|
Principal
Financial
Officer
|
|
POWER
OF ATTORNEY
Secure
Alliance Holdings Corporation and
each of the undersigned do hereby appoint Jerrell G. Clay its or his true and
lawful attorney to execute on behalf of Secure Alliance Holdings Corporation
and
the undersigned any and all amendments to this Annual Report on Form 10-K and
to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission; each of such attorneys
shall have the power to act hereunder with or without the
other.
Pursuant
to the requirements of the
Securities and Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the
dates indicated:
SIGNATURE
|
|
TITLE
|
|
Date
|
|
|
|
|
|
/s/
Jerrell G.
Clay
|
|
Director
and Chief Executive
Officer
|
|
January
14,
2008
|
Jerrell
G.
Clay
|
|
|
|
|
|
|
|
|
|
/s/
Stephen P.
Griggs
|
|
Director,
President, Principal
Financial Officer, Operating Officer and Secretary
|
|
January
14,
2008
|
Stephen
P.
Griggs
|
|
|
|
|
Except
as otherwise indicated, the
following documents are incorporated by reference as Exhibits to this
Report:
Exhibit
Number
|
|
Description
|
2.01.
|
|
Asset
Purchase Agreement dated
February 19, 2005 by and among Tidel Engineering, L.P., NCR Texas
LLC and
us (incorporated by reference to Exhibit 2.01 of our Annual Report
on Form
10-K for the fiscal years ended September 30, 2004 and
2003).
|
|
|
|
2.02.
|
|
Asset
Purchase Agreement, dated as
of January 12, 2006, by and among Sentinel Operating, L.P., Tidel
Technologies, Inc., and Tidel Engineering, L.P.(incorporated
by reference to
Exhibit 10.1 of Form 8-K filed on January 19,
2006).
|
|
|
|
2.03.
|
|
Amended
and Restated Asset
Purchase Agreement, dated as of June 9, 2006, by and among Sentinel
Operating, L.P., Tidel Technologies, Inc. and Tidel Engineering,
L.P.(incorporated
by reference to
Exhibit 10.1 of Form 8-K filed on June 14,
2006).
|
|
|
|
2.04.
|
|
Agreement
and Plan of Merger,
dated as of December 6, 2007, by and among Sequoia Media Group, LC,
Secure
Alliance Holdings Corporation, and SMG Utah, LC (incorporated by
reference
to Exhibit 10.1 of Form 8-K filed on December 6,
2007).
|
|
|
|
3.01.
|
|
Certificate
of Incorporation of
American Medical Technologies, Inc. (filed as Articles of Domestication
with the Secretary of State, State of Delaware on
November 6, 1987 and
incorporated by reference to Exhibit 2 of our Form 10 dated November
7,
1988 as amended by Form 8 dated February 2,
1989).
|
|
|
|
3.02.
|
|
Amendment
to Certificate of
Incorporation dated July 16, 1997 (incorporated by reference to Exhibit
3
of our Quarterly Report on Form 10-Q for the quarterly period ended
June
30, 1997).
|
|
|
|
3.03.
|
|
Our
By-Laws (incorporated by
reference to Exhibit 3 of our Form 10 dated November 7, 1988 as amended
by
Form 8 dated February 2, 1989).
|
|
|
|
3.04.
|
|
Certificate
of Amendment of
Certificate of Incorporation, filed with the State of Delaware Secretary
of State on October 3, 2006 (incorporated by reference to Exhibit
3.04 of
our Annual Report on Form 10-K for the fiscal year ended September
30,
2006).
|
|
|
|
4.01.
|
|
Form
of Agreement under our 1997
Long-Term Incentive Plan (incorporated by reference to Exhibit 4.3
of our
Form S-8 dated February 14, 2000).
|
|
|
|
4.02.
|
|
Convertible
Term Note in favor of
Laurus Master Fund, Ltd. in the principal amount of $6,450,000 dated
November 25, 2003 (incorporated by reference to Exhibit 4.35 of our
Annual
Report on Form 10-K for the fiscal year ended September 30, 2002,
filed
February 1, 2005).
|
|
|
|
4.03.
|
|
Convertible
Term Note in favor of
Laurus Master Fund, Ltd. in the principal amount of $400,000 dated
November 25, 2003 (incorporated by reference to Exhibit 4.36 of our
Annual
Report on Form 10-K for the fiscal year ended September 30, 2002,
filed
February 1, 2005).
|
|
|
|
4.04.
|
|
Equity
Pledge Agreement by and
between Laurus Master Fund, Ltd. and us dated November 25, 2003
(incorporated by reference to Exhibit 4.39 of our Annual Report on
Form
10-K for the fiscal year ended September 30, 2002, filed February
1,
2005).
|
|
|
|
4.05.
|
|
Partnership
Interest Pledge
Agreement by and among Tidel Cash Systems, Inc., Tidel Services,
Inc. and
Laurus Master Fund, Ltd., dated as of November 25, 2003 (incorporated
by
reference to Exhibit 4.40 of our Annual Report on Form 10-K for the
fiscal
year ended September 30, 2002, filed February 1,
2005).
|
|
|
|
4.06.
|
|
Registration
Rights Agreement by
and between Laurus Master Fund, Ltd. and us, dated November 25, 2003
(incorporated by reference to Exhibit 4.41 of our Annual Report on
Form
10-K for the fiscal year ended September 30, 2002, filed February
1,
2005).
|
4.07.
|
|
Common
Stock Purchase Warrant
issued to Laurus Master Fund, Ltd. dated November 25, 2003 (incorporated
by reference to Exhibit 4.42 of our Annual Report on Form 10-K for
the
fiscal year ended September 30, 2002, filed February 1,
2005).
|
|
|
|
4.08.
|
|
Guaranty
by and among Tidel
Engineering, L.P., Tidel Cash Systems, Inc., Tidel Services, Inc.,
Laurus
Master Fund, Ltd. and us, dated as of November 25, 2003 (incorporated
by
reference to Exhibit 4.44 of our Annual Report on Form 10-K for the
fiscal
year ended September 30, 2002, filed February 1,
2005).
|
|
|
|
4.09.
|
|
Convertible
Term Note in favor of
Laurus Master Fund, Ltd. in the principal amount of $600,000 dated
November 26, 2004 (incorporated by reference to Exhibit 10.2 of our
Current Report on Form 8-K dated November 26,
2004).
|
|
|
|
4.10.
|
|
Convertible
Term Note in favor of
Laurus Master Fund, Ltd. in the principal amount of $1,500,000 dated
November 26, 2004 (incorporated by reference to Exhibit 10.3 of our
Current Report on Form 8-K dated November 26,
2004).
|
|
|
|
4.11.
|
|
Common
Stock Purchase Warrant
issued to Laurus Master Fund, Ltd. dated November 26, 2004 (incorporated
by reference to Exhibit 10.4 of our Current Report on Form 8-K dated
November 26, 2004).
|
|
|
|
4.12.
|
|
Agreement
of Amendment and
Reaffirmation by and among Tidel Engineering, L.P., Tidel Cash Systems,
Inc., AnyCard International, Inc., Tidel Services, Inc., Laurus Master
Fund, Ltd., and us, dated as of November 26, 2004 (incorporated by
reference to Exhibit 10.5 of the Current Report on Form 8-K dated
November
26, 2004).
|
|
|
|
4.13.
|
|
Convertible
Promissory Note in
favor of Laurus Master Fund, Ltd. in the principal amount of $1,250,000
dated November 26, 2004 (incorporated by reference to Exhibit 10.3
of our
Current Report on Form 8-K dated November 26,
2004).
|
|
|
|
4.14.
|
|
Guaranty
in favor of Laurus Master
Fund, Ltd. dated as of November 26, 2004 (incorporated by reference
to
Exhibit 10.8 to our Current Report on Form 8-K dated November 26,
2004).
|
|
|
|
9.01.
|
|
Voting
Agreement, dated as of
January 12, 2006, by and between Tidel Technologies, Inc., Sentinel
Technologies, Inc., Sentinel Operating, L.P. and the individuals
named
therein (incorporated by reference to Exhibit 10.6 of Form 8-K/A
filed on
January 31, 2006).
|
|
|
|
9.02.
|
|
Voting
Agreement, dated as of
January 12, 2006, by and between Tidel Technologies, Inc., Sentinel
Technologies, Inc., Sentinel Operating, L.P. and Laurus Master Fund,
Ltd.
(incorporated by reference to Exhibit 10.7 of Form 8-K/A filed on
January
31, 2006).
|
|
|
|
9.03.
|
|
Amendment
to Voting Agreement,
dated as of February 28, 2006, by and among Tidel Technologies, Inc.,
Sentinel Technologies, Inc., Sentinel Operating, L.P. and Laurus
Master
Fund, Ltd. (incorporated by reference to Exhibit 10.3 of Form 8-K
filed on
March 7, 2006).
|
|
|
|
9.04.
|
|
Second
Amendment to Voting
Agreement, dated as of June 9, 2006, by and among Tidel Technologies,
Inc., Sentinel Technologies, Inc., Sentinel Operating, L.P. and Laurus
Master Fund, Ltd. (incorporated by reference to Exhibit 10.5 of Form
8-K
filed on June 14, 2006).
|
|
|
|
(1)
10.01.
|
|
1997
Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 of our Form S-8 dated February
14, 2000).
|
|
|
|
10.02.
|
|
Securities
Purchase Agreement by
and between Laurus Master Fund, Ltd. and us dated November 25, 2003
(incorporated by reference to Exhibit 10.17 of our Annual Report
on Form
10-K for the fiscal year ended September 30, 2002, filed February
1,
2005).
|
|
|
|
10.03.
|
|
Securities
Purchase Agreement by
and between Laurus Master Fund, Ltd. and us dated November 26, 2004
(incorporated by reference to Exhibit 10.1 of our Current Report
on Form
8-K dated November 26,
2004).
|
10.04.
|
|
Purchase
Order Finance and
Security Agreement dated as of November 26, 2004 between Laurus Master
Fund, Ltd. and Tidel Engineering, L.P. (incorporated by reference
to
Exhibit 10.6 of our Current Report on Form 8-K dated November 26,
2004).
|
|
|
|
10.05.
|
|
Agreement
Regarding NCR
Transaction and Other Asset Sales by and between Laurus Master Fund,
Ltd.,
and us, dated November 26, 2004 (incorporated by reference to Exhibit
10.22 of our Annual Report on Form 10-K for the fiscal years ended
September 30, 2004 and 2003).
|
|
|
|
(1)
10.06.
|
|
Tidel/Peltier
Agreement dated
February 23, 2005 (incorporated by reference to Exhibit 99.1 to this
Annual Report on Form 8-K dated February 23,
2005).
|
|
|
|
(1)
10.07.
|
|
Settlement
Agreement by and
between Tidel Engineering, L.P., Michael F. Hudson and us, dated
June 22,
2005.
|
|
|
|
10.08.
|
|
Exercise
and Conversion Agreement,
dated as of January 12, 2006, by and among Sentinel Technologies,
Inc.,
Sentinel Operating, L.P., Tidel Technologies, Inc. and Laurus Master
Fund,
Ltd. (incorporated by reference to Exhibit 10.2 of Form 8-K filed
on
January 19, 2006).
|
|
|
|
10.09.
|
|
Cash
Collateral Deposit Letter,
dated as of January 12, 2006, by and between Laurus Master Fund,
Ltd.,
Tidel Technologies, Inc., Tidel Engineering, L.P., Tidel Cash Systems,
Inc., Tidel Services, Inc. and AnyCard International, Inc. (incorporated
by reference to Exhibit 10.3 of Form 8-K filed on January 19,
2006).
|
|
|
|
10.10.
|
|
Stock
Redemption Agreement, dated
as of January 12, 2006, by and among Tidel Technologies, Inc. and
Laurus
Master Fund, Ltd. (incorporated by reference to Exhibit 10.4 of Form
8-K
filed on January 19, 2006).
|
|
|
|
10.11.
|
|
Reaffirmation,
Ratification and
Confirmation Agreement, dated as of January 12, 2006, by and between
Tidel
Technologies, Inc. and Laurus Master Fund, Ltd. (incorporated by
reference
to Exhibit 10.5 of Form 8-K filed on January 19,
2006).
|
|
|
|
10.12.
|
|
Amendment
to Exercise and
Conversion Agreement, dated as of February 28, 2006, by and among
Sentinel
Technologies, Inc., Sentinel Operating, L.P., Tidel Technologies,
Inc. and
Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.1
of
Form 8-K filed on March 7, 2006).
|
|
|
|
10.13.
|
|
Amendment
to Stock Redemption
Agreement, dated as of February 28, 2006, by and between Tidel
Technologies, Inc. and Laurus Master Fund, Ltd. (incorporated by
reference
to Exhibit 10.2 of Form 8-K filed on March 7,
2006).
|
|
|
|
10.14.
|
|
Agreement,
dated as of June 9,
2006, by and between Tidel Technologies, Inc. and Laurus Master Fund,
Ltd.
(incorporated by reference to Exhibit 10.2 of Form 8-K filed on June
14,
2006).
|
|
|
|
10.15.
|
|
Second
Amendment to Stock
Redemption Agreement, dated as of June 9, 2006, by and among Tidel
Technologies, Inc. and Laurus Master Fund, Ltd. (incorporated by
reference
to Exhibit 10.3 of Form 8-K filed on June 14,
2006).
|
|
|
|
10.16.
|
|
Second
Amendment to Exercise and
Conversion Agreement, dated as of June 9, 2006, by and among Sentinel
Technologies, Inc., Sentinel Operating, L.P., Tidel Technologies,
Inc. and
Laurus Master Fund, Ltd. (incorporated by reference to Exhibit 10.4
of
Form 8-K filed on June 14, 2006).
|
|
|
|
(1)
10.17.
|
|
Agreement,
dated as of June 9,
2006, between Tidel Engineering, L.P. and Mark K. Levenick. (incorporated
by reference to Exhibit 10.6 of Form 8-K filed on June 14,
2006).
|
|
|
|
|
|
Loan
and Security Agreement, dated
as of December 6, 2007, between Sequoia Media Group, LC and Secure
Alliance Holdings Corporation.
|
|
|
|
14.01.
|
|
Code
of Conduct and Ethics of
Tidel Technologies, Inc (incorporated by reference to Exhibit 2.01
of our
Annual Report on Form 10-K for the fiscal years ended September 30,
2004
and 2003).
|
21.01.
|
|
Subsidiaries.
|
|
|
|
|
|
Certification
of Chief Executive
Officer, Jerrell G. Clay, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
Certification
of Principal
Financial Officer, Stephen P. Griggs, pursuant to Section 302 of
the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Certification
of Chief Executive
Officer, Jerrell G. Clay, pursuant to 18 U.S.C. Section 1350 adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
Certification
of Principal
Financial Officer, Stephen P. Griggs, pursuant to 18 U.S.C. Section
1350
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
____________
|
(1)
|
Indicates
management contract or
compensatory plan or
arrangement.
|
56