As filed with the Securities and Exchange Commission on May 15, 1998.
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 March 31, 1998
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 May 15, 1998 was 15,690,698.
<PAGE>
TIDEL TECHNOLOGIES, INC.
I N D E X
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998
and September 30, 1997 (unaudited)..................... 1
Consolidated Statements of Operations for the three
months and six months ended March 31, 1998
and 1997 (unaudited)................................... 2
Consolidated Statements of Cash Flows for the six
months ended March 31, 1998 and 1997
(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........................... 10
Item 4. Submission of Matters to a Vote
Of Security Holders..................................... 10
Item 5. Other Information......................................... 10
Item 6. Exhibits and Reports on Form 8-K.......................... 10
SIGNATURE............................................................... 10
<PAGE>
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .......................... $ 1,645,364 $ 1,549,331
Trade accounts receivable, net of allowance of
$798,461 and $750,347, respectively ............ 8,182,979 8,732,080
Notes and other receivables ........................ 643,710 852,514
Inventories ........................................ 5,853,762 4,208,360
Prepaid expenses and other assets .................. 192,940 233,273
------------ ------------
Total current assets ........................... 16,518,755 15,575,558
Investment in 3CI, at market value ..................... 1,021,227 553,505
Property, plant and equipment, at cost ................. 2,254,020 2,126,726
Accumulated depreciation ........................... (1,340,534) (1,189,409)
------------ ------------
Net property, plant and equipment .............. 913,486 937,317
Intangible assets, net of accumulated amortization of
$752,948 and $692,814, respectively ................ 740,889 801,023
Deferred tax asset ..................................... 448,022 318,810
Other assets ........................................... 80,104 77,238
------------ ------------
Total assets ................................... $ 19,722,483 $ 18,263,451
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable ........................... $ 642,968 $ 948,697
Accounts payable ................................... 2,304,832 3,239,412
Accrued liabilities ................................ 1,625,922 2,328,917
------------ ------------
Total current liabilities ...................... 4,573,722 6,517,026
Long-term debt ......................................... 4,254,604 3,654,604
------------ ------------
Total liabilities .............................. 8,828,326 10,171,630
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 15,570,968 and
14,851,050 shares, respectively ................ 155,710 148,511
Additional paid-in capital ......................... 13,915,898 13,387,412
Accumulated deficit ................................ (2,269,707) (4,026,262)
Stock subscriptions receivable ..................... (382,063) (424,437)
Unrealized loss on investment in 3CI ............... (525,681) (993,403)
------------ ------------
Total shareholders' equity ..................... 10,894,157 8,091,821
------------ ------------
Total liabilities and shareholders' equity ..... $ 19,722,483 $ 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 Six Months
Ended March 31, Ended March 31,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues .................................. $ 9,147,923 $ 6,802,255 $15,175,909 $13,058,391
Cost of sales ............................. 5,690,349 4,512,266 9,519,830 8,553,647
----------- ----------- ----------- -----------
Gross profit .......................... 3,457,574 2,289,989 5,656,079 4,504,744
Selling, general and administrative ....... 1,773,618 1,526,806 3,483,061 3,091,770
Depreciation and amortization ............. 110,614 115,003 217,926 223,333
----------- ----------- ----------- -----------
Operating income ...................... 1,573,342 648,180 1,955,092 1,189,641
Interest expense, net ..................... 104,928 134,887 198,537 270,953
----------- ----------- ----------- -----------
Net income ................................ $ 1,468,414 $ 513,293 $ 1,756,555 $ 918,688
=========== =========== =========== ===========
Basic earnings per share:
Income from continuing operations ..... $ 0.09 $ 0.04 $ 0.11 $ 0.07
=========== =========== =========== ===========
Net income ............................ $ 0.09 $ 0.04 $ 0.11 $ 0.07
=========== =========== =========== ===========
Weighted average common shares
outstanding ....................... 15,552,746 12,820,305 15,411,857 12,623,014
=========== =========== =========== ===========
Diluted earnings per share:
Income from continuing operations ..... $ 0.09 $ 0.04 $ 0.10 $ 0.07
=========== =========== =========== ===========
Net income ............................ $ 0.09 $ 0.04 $ 0.10 $ 0.07
=========== =========== =========== ===========
Weighted average common and
dilutive shares outstanding ....... 17,045,861 15,205,313 17,044,128 14,938,434
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 1,756,555 $ 918,688
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 217,926 223,333
Deferred tax benefit .............................. (129,212) --
Changes in assets and liabilities:
Trade accounts receivable, net ................ 549,101 (1,405,439)
Notes and other receivables ................... 208,804 (55,627)
Inventories ................................... (1,645,402) (750,595)
Prepaid expenses and other assets ............. 37,467 (101,127)
Accounts payable and accrued liabilities ...... (1,637,575) 1,292,973
----------- -----------
Net cash provided by (used in) operating activities (642,336) 122,206
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment ............ (133,961) (432,613)
Proceeds from sale of property, plant and equipment ... -- 39,150
----------- -----------
Net cash used in investing activities ............. (133,961) (393,463)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable ............... 600,000 895,000
Repayments of notes payable ........................... (305,729) (1,816,869)
Proceeds from exercise of warrants .................... 535,685 1,580,816
Payments of stock subscriptions ....................... 42,374 --
----------- -----------
Net cash provided by financing activities ......... 872,330 658,947
----------- -----------
Net increase in cash and cash equivalents ......... 96,033 387,690
Cash and cash equivalents at beginning of period .......... 1,549,331 582,108
----------- -----------
Cash and cash equivalents at end of period ................ $ 1,645,364 $ 969,798
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................ $ 228,164 $ 300,645
=========== ===========
Cash paid for taxes ................................... $ 329,212 $ --
=========== ===========
Supplemental disclosure of noncash financing activities:
Exercise of warrants in exchange for notes receivable . $ -- $ 743,000
=========== ===========
Exercise of warrants in exchange for retirement of
note payable ...................................... $ -- $ 38,750
=========== ===========
Conversion of note payable to common stock ............ $ -- $ 60,000
=========== ===========
</TABLE>
<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 March 31, 1998 and September 30,
1997:
March 31, September 30,
1998 1997
------------- ------------
Raw materials $ 5,179,617 $ 3,635,349
Work in process 457,888 379,708
Finished goods 550,656 492,636
Other (demo) 207,601 212,667
------------- ------------
6,395,762 4,720,360
Inventory reserve (542,000) (512,000)
------------- ------------
$ 5,853,762 $ 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 and net income for the three months and six months ended March
31, 1998 and 1997:
4
<PAGE>
<TABLE>
<CAPTION>
Income Shares Per Share
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998:
- ----------------------------------
Basic EPS:
Income available to common shareholders ....... $1,468,414 15,552,746 $0.09
Diluted EPS:
Effect of dilutive options and warrants ....... 1,493,115
Income available to common shareholders ....... $1,468,414 17,045,861 $0.09
THREE MONTHS ENDED MARCH 31, 1997:
- ----------------------------------
Basic EPS:
Income available to common shareholders ....... $ 513,293 12,820,305 $0.04
Diluted EPS:
Effect of dilutive options and warrants ....... 102,243 2,385,008
Income available to common shareholders ....... $ 615,536 15,205,313 $0.04
SIX MONTHS ENDED MARCH 31, 1998:
- --------------------------------
Basic EPS:
Income available to common shareholders ....... $1,756,555 15,411,857 $0.11
Diluted EPS:
Effect of dilutive options and warrants ....... 1,632,271
Income available to common shareholders ....... $1,756,555 17,044,128 $0.10
SIX MONTHS ENDED MARCH 31, 1997:
- --------------------------------
Basic EPS:
Income available to common shareholders ...... $ 918,688 12,623,014 $0.07
Diluted EPS:
Effect of dilutive options and warrants ....... 70,175 2,271,000
Effect of convertible notes ................... 1,243 44,420
Income available to common shareholders ....... $ 990,106 14,938,434 $0.07
</TABLE>
(4) INVESTMENT IN 3CI
The Company owns 680,818 shares of the common stock of 3CI Complete
Compliance Corporation. The investment is carried at market value.
5
<PAGE>
(5) LITIGATION
The Company and its subsidiaries are each subject to certain litigation and
claims arising in the ordinary course of business. In the opinion of the
management of the Company, 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.
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 increased $2,345,668, or 34%, for the second quarter of
fiscal 1998 over the comparable quarter of 1997. On a year-to-date basis,
revenues increased $2,117,518, or 16%, compared to the same period of the
prior fiscal year. As discussed below, a significant increase in AnyCard
sales was the principal factor in the Company's revenue growth. Revenue by
product is detailed in the following table:
Three months ended Six months ended
March 31, March 31,
----------------- -------------------
NET PRODUCT REVENUES (IN 000'S) 1998 1997 1998 1997
------------------------------- ------ --------- -------- --------
AnyCard $ 6,576 $ 4,497 $ 10,127 $ 8,724
TACC 1,705 1,501 3,293 2,838
Parts, service and other 1,290 529 1,291 1,050
EMS 197 275 465 446
-------- --------------------------------
$ 9,148 $ 6,802 $ 15,176 $ 13,058
======== ======== ======== ========
AnyCard product sales for the quarter ended March 31, 1998 increased 46%
over the comparable period in 1997. On a year-to-date basis, AnyCard
product sales increased 16% when compared to the same period in 1997.
Demand for all of the Company's ATM products continues to be strong, with a
significant increase in demand during the quarter ended March 31, 1998 due
to the introduction of the color display upgrade package for all ATM
models. Management believes AnyCard product sales should continue to
increase throughout the remainder of the year.
6
<PAGE>
TACC product sales increased 14% for the quarter ended March 31, 1998, when
compared to the same period in 1997. On a year-to-date basis, TACC product
sales increased 16% when compared to the same period in 1997. 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 has shifted to its two other product lines. Certain
existing customers have continued to purchase these products, however, to
complete retrofit projects that are currently in progress.
Parts, service and other revenues vary directly with sales of finished
goods, and have increased accordingly.
GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS
Gross profit was 38% and 34% of revenues for the quarters ended March 31,
1998 and 1997. On a year-to-date basis, gross profit increased from 35% of
revenues in 1997 to 37% of revenues in 1998. The increase was primarily due
to improvements in ATM product design and engineering resulting in lower
costs.
As a percentage of revenues, selling, general and administrative expense
was 19% and 22% in the respective second quarters of fiscal 1998 and 1997.
On a year-to-date basis, selling, general and administrative expense was
23% of revenues in 1998, compared to 24% of revenues in 1997. Management
believes that selling, general and administrative expense, as a percentage
of revenues, should continue to decrease over the remainder of the year.
Depreciation and amortization decreased slightly during fiscal 1998 due to
fewer additions of property, plant and equipment.
Interest expense decreased slightly during fiscal 1998 as a result of a
decline in 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
March 31, 1998 and September 30, 1997:
March 31, September 30,
1998 1997
------------ -----------
Shareholders' equity $ 10,894,157 $ 8,091,821
Tangible net worth 10,153,268 7,290,798
Working capital 11,945,033 9,058,532
7
<PAGE>
The improvement in working capital is principally due to increased
inventories and the repayment of current liabilities. The increase in
inventories arose from a build-up of raw materials related to overall
higher sales expectations. The repayment of current liabilities 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 agreement
provides for borrowings up to $5,000,000 at the prime rate, with certain
LIBOR alternatives, until May 31, 1999. The Company plans to increase the
maximum borrowing limit to $7,000,000 during the quarter ending June 30,
1998. At March 31, 1998, $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
5,517,500 outstanding warrants was declared effective on January 29, 1997.
During the six-month period ended March 31, 1998, warrants to purchase
719,918 shares were exercised generating net proceeds to the Company of
approximately $536,000. As of March 31, 1998, the Company has outstanding
warrants to purchase 1,702,692 shares of common stock, which if exercised
would generate proceeds to the Company of approximately $1,472,000.
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.
During the six months ended March 31, 1998, $730,371 was expended for
research and development.
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 does not anticipate paying dividends on shares of its common
stock 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.
8
<PAGE>
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 and six months ended March 31, 1998 and 1997:
Three months ended Six months ended
MARCH 31, MARCH 31,
----------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
Customer A $1,475,712 $ 73,785 $ 2,184,896 $ 740,005
Customer B 158,297 1,802,920 293,199 2,277,994
Foreign sales accounted for 2% and 7% of the Company's total sales during
the three months ended March 31, 1998 and 1997, respectively, and 3% and 6%
of the Company's total sales during the six months ended March 31, 1998 and
1997, respectively.
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 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.
9
<PAGE>
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 March
31, 1998.
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: May 15, 1998 By: /s/ JAMES T. RASH
---------------------------------
James T. Rash
Principal Executive
and Financial Officer
<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 ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,645,364
<SECURITIES> 0
<RECEIVABLES> 8,182,979
<ALLOWANCES> 798,461
<INVENTORY> 5,853,762
<CURRENT-ASSETS> 16,518,755
<PP&E> 2,254,020
<DEPRECIATION> 1,340,534
<TOTAL-ASSETS> 19,722,483
<CURRENT-LIABILITIES> 4,573,722
<BONDS> 4,254,604
0
0
<COMMON> 155,710
<OTHER-SE> 10,738,447
<TOTAL-LIABILITY-AND-EQUITY> 19,722,483
<SALES> 15,175,909
<TOTAL-REVENUES> 15,175,909
<CGS> 9,519,830
<TOTAL-COSTS> 9,519,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198,537
<INCOME-PRETAX> 1,756,555
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,756,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,756,555
<EPS-PRIMARY> .11
<EPS-DILUTED> .10
</TABLE>
