SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _____ to _______
Commission file Number 000-17288
TIDEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2193593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 San Felipe, Suite 900
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 783-8200
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock outstanding as of the close of
business on December 31, 1997 was 15,535,968.
<PAGE>
TIDEL TECHNOLOGIES, INC.
I N D E X
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997
and September 30, 1997 (unaudited)........................ 1
Consolidated Statements of Operations for the three
months ended December 31, 1997 and 1996 (unaudited)....... 2
Consolidated Statements of Cash Flows for the three
months ended December 31, 1997 and 1996 (unaudited)....... 3
Notes to Consolidated Financial
Statements (unaudited).................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 6
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings............................................ 9
Item 2. Changes in Securities........................................ 9
Item 3. Defaults Upon Senior Securities.............................. 9
Item 4. Submission of Matters to a Vote
Of Security Holders........................................ 9
Item 5. Other Information............................................ 9
Item 6. Exhibits and Reports on Form 8-K............................. 9
SIGNATURE................................................................ 10
<PAGE>
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1997 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................... $ 1,771,646 $ 1,549,331
Trade accounts receivable, net of allowance of
$757,216 and $750,347, respectively ............. 7,437,825 8,732,080
Notes and other receivables ......................... 626,592 852,514
Inventories ......................................... 6,691,503 4,208,360
Prepaid expenses and other assets ................... 194,895 233,273
------------ ------------
Total current assets ............................ 16,722,461 15,575,558
Investment in 3CI, at market value ...................... 872,128 553,505
Property, plant and equipment, at cost .................. 2,160,804 2,126,726
Accumulated depreciation ............................ (1,266,654) (1,189,409)
------------ ------------
Net property, plant and equipment ............... 894,150 937,317
Intangible assets, net of accumulated amortization of
$722,881 and $692,814, respectively ................. 770,956 801,023
Deferred tax asset ...................................... 397,810 318,810
Other assets ............................................ 86,125 77,238
------------ ------------
Total assets .................................... $ 19,743,630 $ 18,263,451
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable ............................ $ 645,866 $ 948,697
Accounts payable .................................... 3,849,077 3,239,412
Accrued liabilities ................................. 1,786,064 2,328,917
------------ ------------
Total current liabilities ....................... 6,281,007 6,517,026
Long-term debt .......................................... 4,254,604 3,654,604
------------ ------------
Total liabilities ............................... 10,535,611 10,171,630
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 15,535,968 and
14,851,050 shares, respectively ................. 155,360 148,511
Additional paid-in capital .......................... 13,889,997 13,387,412
Accumulated deficit ................................. (3,738,121) (4,026,262)
Stock subscriptions receivable ...................... (424,437) (424,437)
Unrealized loss on investment in 3CI ................ (674,780) (993,403)
------------ ------------
Total shareholders' equity ...................... 9,208,019 8,091,821
------------ ------------
Total liabilities and shareholders' equity ...... $ 19,743,630 $ 18,263,451
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues .................................................. $ 6,027,986 $ 6,256,136
Cost of sales ............................................. 3,829,481 4,041,381
----------- -----------
Gross profit .......................................... 2,198,505 2,214,755
Selling, general and administrative ....................... 1,709,443 1,564,964
Depreciation and amortization ............................. 107,312 108,330
----------- -----------
Operating income ...................................... 381,750 541,461
Interest expense, net ..................................... 93,609 136,066
----------- -----------
Net income ................................................ $ 288,141 $ 405,395
=========== ===========
Basic earnings per share:
Income from continuing operations ..................... $ 0.02 $ 0.03
=========== ===========
Net income ............................................ $ 0.02 $ 0.03
=========== ===========
Weighted average common shares outstanding ............ 15,274,030 12,429,052
=========== ===========
Diluted earnings per share:
Income from continuing operations ..................... $ 0.02 $ 0.03
=========== ===========
Net income ............................................ $ 0.02 $ 0.03
=========== ===========
Weighted average common and dilutive shares outstanding 17,173,270 15,300,261
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 288,141 $ 405,395
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization ...................... 107,312 108,330
Changes in assets and liabilities:
Trade accounts receivable, net ................. 1,294,255 (400,939)
Notes and other receivables .................... 225,922 --
Inventories .................................... (2,483,143) (349,890)
Prepaid expenses and other assets .............. (49,509) (146,868)
Accounts payable and accrued liabilities ....... 66,812 339,708
----------- ---------
Net cash used in operating activities .............. (550,210) (44,264)
----------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ............. (34,078) (139,867)
----------- ---------
Net cash used in investing activities .............. (34,078) (139,867)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable ................ 600,000 139,666
Repayments of notes payable ............................ (302,831) (158,002)
Proceeds from exercise of warrants ..................... 509,434 --
----------- ---------
Net cash provided by (used in) financing activities 806,603 (18,336)
----------- ---------
Net increase (decrease) in cash and cash equivalents 222,315 (202,467)
Cash and cash equivalents at beginning of year ............. 1,549,331 582,108
----------- ---------
Cash and cash equivalents at end of year ................... $ 1,771,646 $ 379,641
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................. $ 117,867 $ 123,271
=========== =========
Cash paid for taxes .................................... $ 200,000 $ --
=========== =========
Supplemental disclosure of noncash financing activity:
Conversion of note payable to common stock ............. $ -- $ 60,000
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheets and related interim
consolidated statements of operations and cash flows of Tidel Technologies,
Inc. (the "Company"), a Delaware corporation, are unaudited. In the opinion
of management, these financial statements include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation in accordance with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results may differ from these estimates.
Interim results are not necessarily indicative of results for a full year.
The information included in this Form 10-Q should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended September
30, 1997.
(2) INVENTORIES
Inventories consist of the following at December 31, 1997 and September 30,
1997:
DECEMBER 31, SEPTEMBER 30,
1997 1997
----------- -----------
Raw materials ............ $ 5,247,220 $ 3,635,349
Work in process .......... 315,779 379,708
Finished goods ........... 1,469,732 492,636
Other .................... 200,772 212,667
----------- -----------
7,233,503 4,720,360
Inventory reserve ........ (542,000) (512,000)
----------- -----------
$ 6,691,503 $ 4,208,360
=========== ===========
(3) EARNINGS PER SHARE
Basic earnings per share is computed by dividing the income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the income available to common shareholders by the weighted average
number of common shares and dilutive potential common shares. The following
is a reconciliation of the numerators and denominators of the basic and
diluted per-share computations for income from continuing operations for the
three months ended December 31, 1997 and 1996:
4
<PAGE>
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
THREE MONTHS ENDED DECEMBER 31, 1997:
Basic EPS:
Income available to common
shareholders .................. $288,141 5,274,030 $0.02
Diluted EPS:
Effect of dilutive options and
warrants ...................... -- 1,899,240 --
Income available to common
shareholders .................. $288,141 17,173,270 $0.02
THREE MONTHS ENDED DECEMBER 31, 1996:
Basic EPS:
Income available to common
shareholders .................. $405,395 12,429,052 $0.03
Diluted EPS:
Effect of dilutive options and
warrants ...................... -- 2,782,857 --
Effect of convertible notes ..... $ 40,695 88,352 --
Income available to common
shareholders .................. $446,090 15,300,261 $0.03
Warrants to purchase 105,000 shares of the Company's common stock at an
exercise price of $2.50 per share were outstanding during the three-month
period ended December 31, 1996 but were not included in the computation of
diluted earnings per share because the exercise price of the warrants was
greater than the average market price of the Company's common stock during
the period.
(4) INVESTMENT IN 3CI
The Company owns 680,818 shares of the common stock of 3CI Complete
Compliance Corporation ("3CI"). The investment is carried at market value.
(5) LITIGATION
The Company is subject to certain litigation and claims arising in the
ordinary course of business. In the opinion of management, the amounts
ultimately payable, if any, as a result of such litigation and claims will
not have a materially adverse effect on the Company's financial position.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company develops, manufactures, sells and supports products designed for
specialty retail marketers, including automated teller machines and related
software (the "AnyCard" or "ATM" products); electronic cash security systems
(the "Timed Access Cash Controller" or "TACC" products); and underground
fuel storage monitoring and leak detection devices (the "Environmental
Monitoring System" or "EMS" products).
PRODUCT REVENUES
Total revenues decreased $228,150, or 4%, for the first quarter of fiscal
1998 from the comparable quarter of 1997. Revenue by product is detailed in
the following table:
THREE MONTHS ENDED
DECEMBER 31,
---------------------
NET PRODUCT REVENUES (in 000's) 1997 1996
------------------------------- ------ ------
AnyCard ............................ $3,551 $4,227
TACC ............................... 1,588 1,337
Parts, service and other ........... 621 521
EMS ................................ 268 171
------ ------
$6,028 $6,256
====== ======
AnyCard product sales for the quarter ended December 31, 1997 decreased 16%
from the comparable period in 1996. In the opinion of management, such
decrease was primarily the result of the deferral of product orders by
certain customers awaiting major product enhancements scheduled to be
introduced in March 1998. Management believes these product enhancements,
which include color displays and cabinet design improvements, should have a
positive effect on AnyCard product sales subsequent to their introduction.
TACC product sales increased 17% for the quarter ended December 31, 1997,
when compared to the same period in 1996. Management believes TACC product
sales should continue to be strong throughout the remainder of the year due
to the development of new customers as a result of increased marketing
efforts.
All marketing activities for EMS products have terminated as the marketing
focus of the Company is shifted to its two other product lines, and as a
result, EMS product sales have continued to comprise less than 5% of total
revenues. Certain existing customers have continued to purchase these
products, however, to complete retrofit projects that are currently in
progress.
Parts, service and other revenues increased 57% for the quarter ended
December 31, 1997 over the comparable period in 1996. Such increase arose
primarily from increasing sales of replacement parts due to a larger
installed-product base.
6
<PAGE>
GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS
Gross profit was 36% and 35% of revenues for the quarters ended December 31,
1997 and 1996, respectively. The increase was primarily due to lower cost of
materials arising from volume discounts received from a major supplier of
AnyCard components.
As a percentage of revenues, selling, general and administrative expense was
28% and 25% in the respective first quarters of fiscal 1998 and 1997.
Selling, general and administrative expense was higher primarily due to
increased marketing costs, together with increased legal expenses related to
the collection of a certain account receivable.
Depreciation and amortization expense for the first quarter of fiscal 1998
was approximately equal to the comparable quarter of fiscal 1997.
Interest expense decreased during fiscal 1998 as a result of lower average
rates for borrowed funds.
LIQUIDITY AND CAPITAL RESOURCES
The financial position of the Company continues to improve primarily as a
result of profitable operations and the infusion of capital from the
exercise of warrants, as reflected in the following key indicators as of
December 31, 1997 and September 30, 1997:
DECEMBER 31, SEPTEMBER 30,
1997 1997 INCREASE
----------- ---------- ----------
Shareholders' equity .... $ 9,208,019 $8,091,821 $1,116,198
Tangible net worth ...... 8,437,063 7,290,798 1,146,265
Working capital ......... 10,441,454 9,058,532 1,382,922
The improvement in working capital is principally due to increased
inventories and the repayment of short-term notes payable. The increase in
inventories arose from a build-up of raw materials related to forthcoming
enhancements to the AnyCard product line, as well as somewhat higher levels
of finished goods resulting from the aforementioned deferral of orders by
certain customers. The repayment of the short-term notes payable was
facilitated by improved collections of accounts and notes receivable.
During fiscal 1997, the Company's wholly owned subsidiary entered into a
revolving credit agreement with a bank. The revolving credit provides for
borrowings up to $5,000,000 at the prime rate, with certain LIBOR
alternatives, until May 31, 1999. At December 31, 1997, $4,254,604 was
outstanding pursuant to the revolving credit agreement.
The Company continues to own 680,818 shares of 3CI common stock subsequent
to its divestiture of a majority interest in February 1994. The Company has
no immediate plans for the disposal of the shares, and accordingly, the
shares may be utilized to collateralize borrowings. At present, 480,818
shares are pledged to secure an outstanding note payable in the principal
amount of $400,000.
The Company's registration statement covering the offering and sale by
selling shareholders of the common stock underlying all of the Company's
then outstanding warrants was declared
7
<PAGE>
effective on January 29, 1997. During the three-month period ended December
31, 1997, warrants to purchase 684,918 shares were exercised generating net
proceeds to the Company of approximately $509,434. As of December 31, 1997,
the Company had outstanding warrants to purchase 1,737,692 shares of common
stock, which if exercised would generate proceeds to the Company of
approximately $1,497,782.
The Company's research and development budget for fiscal 1998 has been
estimated at $1,650,000. The majority of these expenditures are applicable
to enhancements of the existing product lines, development of new automated
teller machine products and the development of new technology to facilitate
the dispensing of products such as postage stamps, money orders, and prepaid
telephone cards, as well as multiple denominations of currency. Total
research and development expenditures were approximately $343,000 and
$307,000 for the three months ended December 31, 1997 and 1996,
respectively.
With its present capital resources, its potential capital from the exercise
of warrants, and with its borrowing facility, the Company should have
sufficient resources to meet its operating needs for the foreseeable future
and to provide for debt maturities and capital expenditures.
The Company has never paid dividends on shares of its common stock, and does
not anticipate paying dividends in the foreseeable future.
SEASONALITY
The Company can experience seasonal variances in operations and historically
has its lowest dollar volume sales months between November and March The
Company's operating results for any particular quarter may not be indicative
of the results for the future quarter or for the year.
MAJOR CUSTOMERS AND CREDIT RISKS
The Company generally does not require collateral or other security from its
customers and would incur an accounting loss equal to the carrying value of
the accounts receivable if a customer failed to perform according to the
terms of the credit arrangements. Sales to major customers were as follows
for the three months ended December 31, 1997 and 1996:
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1997 1996
--------- --------
Customer A .............. $ 709,184 $666,220
Customer B .............. -- 833,489
Foreign sales accounted for 4% of the Company's total sales during the three
months ended December 31, 1997 and 1996.
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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
8
<PAGE>
thereby. Investors are cautioned that all forward-looking statements involve
risks and uncertainty, (including without limitation, the Company's future
gross profit, selling, general and administrative expense, the Company's
financial position, working capital and seasonal variances in the Company's
operations, as well as general market conditions) though the Company
believes 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 Form 10-Q 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 the Company or any other person that the objectives and
plans of the Company will be achieved.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
27 - Financial Data Schedule.
B) REPORTS ON FORM 8-K
The Company filed no Reports on Form 8-K during the quarter ended December
31, 1997.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TIDEL TECHNOLOGIES, INC.
(Registrant)
DATE: February 17, 1998 By: /s/ JAMES T. RASH
James T. Rash
Principal Executive
and Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1,771,646
<SECURITIES> 0
<RECEIVABLES> 7,437,825
<ALLOWANCES> 757,216
<INVENTORY> 6,691,503
<CURRENT-ASSETS> 16,722,461
<PP&E> 2,160,804
<DEPRECIATION> 1,266,654
<TOTAL-ASSETS> 19,743,630
<CURRENT-LIABILITIES> 6,281,007
<BONDS> 4,254,604
0
0
<COMMON> 155,360
<OTHER-SE> 9,052,659
<TOTAL-LIABILITY-AND-EQUITY> 19,743,630
<SALES> 6,027,986
<TOTAL-REVENUES> 6,027,986
<CGS> 3,829,481
<TOTAL-COSTS> 3,829,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,609
<INCOME-PRETAX> 288,141
<INCOME-TAX> 0
<INCOME-CONTINUING> 288,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,141
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
