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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
For the fiscal year ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
----------------------
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 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the 14,430,363 shares of Common Stock held by
non-affiliates of the Registrant based on the closing sale price on December 1,
1998 of $1.313 was $18,947,067.
The number of shares of Common Stock outstanding as of the close of business on
December 1, 1998 was 15,910,468.
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TIDEL TECHNOLOGIES, INC.
TABLE OF CONTENTS *
ANNUAL REPORT ON FORM 10-K
---------------------------------------------------
<TABLE>
<CAPTION>
PAGE
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PART I
<S> <C> <C>
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 5
Item 3. Legal Proceedings............................................... 5
Item 4. Submission of Matters to
a Vote of Security Holders................................... 5
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters....................... 6
Item 6. Selected Financial Data......................................... 7
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................... 8
Item 8. Financial Statements and Supplementary Data..................... 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 13
PART III
Item 10. Directors and Executive Officers of
the Registrant............................................... 14
Item 11. Executive Compensation.......................................... 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................ 17
Item 13. Certain Relationships and Related
Transactions................................................. 18
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K...................................... 19
Signature Page ........................................................ 20
</TABLE>
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* This Table of Contents is inserted for convenience of reference only and is
not a part of this Report as filed.
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PART I
ITEM 1. BUSINESS
BACKGROUND
Tidel Technologies, Inc. (the "Company") was incorporated under the laws
of the State of Delaware in November 1987 under the name of American
Medical Technologies, Inc., succeeding a corporation established in
British Columbia, Canada in May 1984. The Company changed its name to
Tidel Technologies, Inc. in July 1997.
On September 30, 1992, the Company acquired all of the issued and
outstanding capital stock of Tidel Engineering, Inc., a manufacturer of
automated teller machines, electronic cash security systems and
underground fuel storage monitoring and leak detection devices for a
purchase price of $4,746,848. These operations currently represent the
sole business of the Company.
The Company was previously engaged in the business of medical waste
management services through its majority owned subsidiary, 3CI Complete
Compliance Corporation ("3CI"). In February 1994, the Company sold
1,255,182 shares of its holdings of common stock of 3CI resulting in a
gain of $2,229,725 The Company's investment in 3CI now consists of 698,464
shares of common stock of 3CI, representing approximately 7.1% of the
total outstanding shares of 3CI. In addition, the Company owns 226,939
warrants to purchase common stock of 3CI at an exercise price of $1.50 per
share exercisable through April 2000. At September 30, 1998, the
investment was carried at market value of $917,083, net of an unrealized
loss of $650,629, in accordance with Statement of Financial Accounting
Standards No. 115.
DESCRIPTION OF BUSINESS ACTIVITIES
The Company develops, manufactures, sells and supports products designed
for specialty retail marketers, including automated teller machines and
related software (the "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). The following is a description of
each product line manufactured by the Company:
AUTOMATED TELLER MACHINE PRODUCTS
The Company entered the ATM market in October 1992 with the introduction
of the industry's first cash-dispensing ATM that utilized cost-effective,
dial-up modem communications. This ATM product, known as AnyCard, gained
rapid acceptance among customers in the market for low-cost ATM equipment
built for the off-premise, or non-bank, market. Sales of the original
AnyCard model accounted for approximately 30% of the Company's revenues
from its introduction until the development of its successor, the AnyCard
sc (single cassette) model.
Sales of the single-cassette product commenced in November 1995 and
comprised the majority of the Company's revenues until June 30, 1997, at
which time the AnyCard td (tower design) model was introduced. The AnyCard
td utilizes the same electronics and software platform as the AnyCard sc,
but is housed in a newly designed cabinet and is offered in both single
and multiple cassette models.
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Sales of the AnyCard tds (single cassette) and tdm (multiple cassette)
models comprised the majority of the Company's revenues from their
introduction through September 30, 1998. During the year ended
September 30, 1998, the Company had sales of ATM products to two major
customers that accounted for more than 10% of total sales in the amounts
of $3,526,941 and $3,520,910.
TIMED ACCESS CASH CONTROLLER PRODUCTS
The Company's original product is its electronic cash controller known as
TACC, which acts as both a drop safe and a cash dispenser. This product
serves as a depository for cash which is stored in plastic tubes that can
be retrieved at preprogrammed intervals. The TACC products have been
instrumental in the reduction of losses due to crime in many segments of
the retail industry, including convenience stores, retail gasoline,
specialty retailers, hospitality and entertainment.
Management believes its TACC products are highly regarded in the retail
market and have become standard equipment in virtually all new
construction by major convenience store operators and gasoline retailers.
TACC products are in use in all 7-Eleven stores, as well as in more than
100,000 other locations in the United States and 30 other countries.
Current models allow for a computer interface which can be used in
conjunction with lottery and point-of-sale systems.
Sales of TACC products comprised 19% of the Company's revenues for the
year ended September 30, 1998.
ENVIRONMENTAL MONITORING SYSTEM PRODUCTS
The Company's EMS products are designed to provide leak detection and fuel
management of underground petroleum storage tanks and their associated
piping systems to petroleum retailers and other owners and operators of
underground storage tanks. The EMS can print reports of requested data,
verify fuel inventories, provide instant notification of alarm
conditions such as leaks and monitor up to eight storage
tanks simultaneously, providing a cost efficient method of monitoring fuel
inventories. In addition, the EMS console has communication ports for
interface with point-of-sale terminals, modems and computers.
Sales of EMS products were less than 5% of total revenues in fiscal 1998,
and management has terminated marketing of EMS products to shift focus to
the ATM and TACC products. However, the Company will continue to supply
products and service to existing EMS customers.
RESEARCH AND DEVELOPMENT
To protect against product obsolescence by reason of emerging technologies
and ensure development of the most advanced products possible, the Company
has a continuing program of research and development. Management believes
the Company has established an excellent record of product conception,
design, development, field testing and commercial production through its
twelve-person engineering department. The engineering staff works with
internal sales, marketing and service groups to incorporate customer
driven enhancements into Company products. The research and development
budget for fiscal 1999 provides for approximately $1,800,000 to be spent
in the enhancement of the ATM and TACC product lines. Total research and
development expenditures were approximately $1,400,000, $1,200,000 and
$1,030,000 for the years ended September 30, 1998, 1997 and 1996,
respectively.
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MANUFACTURING
The Company manufactures and assembles its products, produces spare parts,
and renovates or repairs its products at its facility in Carrollton,
Texas. The assembly operations consist of configuring components received
from various vendors with the Company's proprietary hardware and software.
Upon completion of product assembly, the equipment undergoes functional
testing and final quality assurance inspection. The Company normally fills
and ships customer orders within 45 days of receipt, and therefore no
significant backlog generally exists.
SALES AND MARKETING
The Company markets its cash system products in the United States through
Company controlled national accounts and a network of approximately 160
independent distributors and dealers operating in five marketing regions:
Northeastern, Southeastern, Central, Southwestern and Western. There are
approximately 130 distributors handling only ATM products, 60 handling
only TACC products, and 20 marketing both products. The distributor
network facilitates coverage of both large national accounts and
diversified end-user groups.
The Company markets its TACC products overseas through approximately 20
distributors. The international market lags the U.S. by several years with
respect to cash management systems. The international market for petroleum
and convenience stores is heavily influenced by the Company's traditional
domestic customer base, allowing the Company and its international
distributors to leverage and develop markets in many diverse geographical
areas.
At this time, the Company is distributing automated teller machines in
Canada and is presently expanding its marketing efforts to include
additional foreign countries in the future.
SERVICE
The Company coordinates a national service network of individual service
dealers to provide electronic and mechanical support for all of its
products in use. There are approximately 500 such service dealers for ATM
and TACC products and 60 for EMS products. In addition, the Company has an
agreement with NCR Corporation to provide comprehensive services,
including first-line maintenance and field upgrades, to all of the
Company's ATM customers in the United States.
INTELLECTUAL PROPERTIES
The Company's success depends, in part, on its ability to obtain patents,
maintain trade secret protection and operate without infringing the
proprietary rights of others. The Company owns United States patents for
certain of its products (see "PATENTS AND TRADEMARKS" below) and has filed
United States and foreign patent applications for other proprietary
products and expects to continue to file product, process and use patent
applications with respect to products or improvements developed in the
future. There can be no assurance, however, that such patent applications
will be filed or, if filed, that patents will be issued to the Company or,
if issued, will be adequate to protect its products. In addition, it is
not possible to predict the degree of protection that patents will afford.
It is possible that patents issued to or licensed by the Company will be
successfully challenged, that the Company may unintentionally infringe
patents of third parties or that the Company may have to alter its
products or processes or pay licensing fees or cease certain activities to
take into account patent
3
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rights of third parties, thereby causing additional unexpected costs and
delays which may have a material adverse effect on the Company's business.
In addition, competitors may obtain additional patents and proprietary
rights relating to products or processes used in, necessary to,
competitive with or otherwise related to those availed of by the Company.
The scope and validity of these patents and proprietary rights, the extent
to which the Company may be required to obtain licenses under these
patents or under other proprietary rights and the cost and availability of
licenses are unknown, but these factors may limit the Company's ability to
market its existing or future products. See "LICENSES" below.
The Company also relies upon unpatented trade secrets and no assurance can
be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access
to the Company's trade secrets or disclose such technology or that the
Company can meaningfully protect its rights to its unpatented trade
secrets.
PATENTS AND TRADEMARKS
The Company owns two patents relating to each of its ATM products, TACC
products and EMS products. The Company also owns the registered trademarks
"AnyCard", "TACC", "Tidel Systems" and "TS and Design".
LICENSES
The Company grants various distributors a non-exclusive right and license,
with the right to grant sublicenses, to use the names "Tidel" and "Tidel
AnyCard", together with any associated trademarks, logos or insignias, for
the limited purpose of marketing, selling and distributing the Company's
products.
GOVERNMENTAL REGULATIONS
The Company's EMS unit is produced and sold to provide total compliance
and documentation to the EPA and other regulatory agencies to ensure
customers' compliance with all applicable regulations relating to the
detection and prevention of petroleum leaks in tanks and piping systems.
The potential liability from a leaking underground storage tank is the
primary motivating factor influencing the decision to install a leak
detection device. The EPA and other federal agencies are responsible for
the regulation and enforcement of petroleum storage and piping systems and
the potential leaks therefrom.
The Company's EMS systems are subject to numerous other state and local
regulations relating to the storage and dispensing of petroleum products.
COMPETITION
Competition in the automated teller machine manufacturing business is
substantial with Diebold, Incorporated and NCR Corporation dominating the
marketplace. Direct competition to the Company in the fast growing,
off-premises automated teller machine market consists of other companies
such as Triton Systems, Inc., Fujitsu Corporation, and Siemens-Nixdorf.
Management believes that the quality and value offered by its ATM product
line allow it to compete effectively in the off-premise market.
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Direct competition to the Company in the domestic cash controller market
comes principally from NKL Industries, McGunn Safe Company, Armor Safe
Company and AutoVend.
EMPLOYEES
The Company employed 122 and 96 persons at September 30, 1998 and 1997,
respectively. None of the Company's employees are subject to collective
bargaining agreements. The Company has not experienced any strikes or work
stoppages and considers its relationships with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in approximately
4,100 square feet at 5847 San Felipe, Suite 900, Houston, Texas 77057.
The Company's subsidiaries occupy approximately 65,000 square feet of
space in a one story brick building in Carrollton, Texas, under a lease
expiring in January 2005. The facility houses the principal administrative
offices and all manufacturing, testing, product design and research and
development operations. The subsidiaries also lease approximately 10,000
square feet of warehouse space in Carrollton, Texas, under a
month-to-month lease.
At September 30, 1998, the Company owned tangible property and equipment
costing approximately $2,840,000. Such amount is comprised primarily of
manufacturing tools, manual and robotic welding equipment, computer
equipment and systems, and two vehicles used in servicing and delivery
functions.
ITEM 3. LEGAL PROCEEDINGS
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on Wednesday, July 29, 1998, in
Houston, Texas, the following proposals were adopted by the margins
indicated:
a) Election of Directors to hold office until the next annual meeting of
stockholders and until their successors are elected and qualified.
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<TABLE>
<CAPTION>
Number of Shares
-----------------------------
For Withheld
---------- ----------
<S> <C> <C>
James T. Rash........................................ 12,208,496 72,600
James L. Britton, III................................ 12,211,996 69,100
Jerrell G. Clay...................................... 12,211,996 69,100
Mark K. Levenick..................................... 12,211,996 69,100
</TABLE>
b) Ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for fiscal year 1998.
<TABLE>
<S> <C>
For.................................................. 12,222,976
Against.............................................. 4,100
Abstentions.......................................... 54,020
</TABLE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET PRICES
The Company's common stock trades on the Nasdaq Stock Market under the
symbol ATMS. The following table sets forth the quarterly high and low
closing sales price for the Company's common stock for the two-year period
ended September 30, 1998:
<TABLE>
<CAPTION>
Quarter Ended High Low
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<S> <C> <C>
September 30, 1998................................... 3 1/2 1 1/2
June 30, 1998........................................ 3 1/2 2 9/16
March 31, 1998....................................... 4 2 1/4
December 31, 1997.................................... 4 3/8 2 13/16
September 30, 1997................................... 3 5/8 2 3/8
June 30, 1997........................................ 2 11/16 1 7/16
March 31, 1997....................................... 2 1/2 1 11/16
December 31, 1996.................................... 2 1/2 1 5/8
</TABLE>
DIVIDENDS
The Company has not paid any dividends in the past, and does not
anticipate paying dividends in the foreseeable future. In addition, the
Company's wholly owned subsidiary is restricted from paying dividends to
the Company pursuant to the subsidiary's revolving credit agreement with a
bank.
HOLDERS
At September 30, 1998, 76% of the total 15,860,468 shares outstanding of
the Company's common stock were held of record by central depository
corporations and broker-dealers for the accounts of others; however, as
far as the Company can determine, its common stock is owned by
approximately 2,850 persons.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below is derived from the
Consolidated Financial Statements of the Company. This data should be read
in conjunction with the Consolidated Financial Statements and the notes
thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" appearing elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended September 30,
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SELECTED STATEMENT OF INCOME DATA: (1) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ...................................... $ 33,608 $ 30,153 $ 20,111 $ 10,860 $ 13,256
Income (loss) from continuing operations (2) .. 4,240 2,117 1,215 (3,418) (824)
Net income (loss) (2) (3) ..................... 4,240 2,117 1,215 (3,418) 1,286
Net income (loss) per share:
Basic ...................................... $ 0.27 $ 0.15 $ 0.10 $ (0.29) $ 0.12
Weighted shares ............................ 15,570 13,664 12,147 11,606 10,442
Diluted .................................... $ 0.25 $ 0.14 $ 0.10 $ (0.29) $ 0.12
Weighted shares ............................ 16,897 15,414 13,630 11,742 10,537
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
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SELECTED BALANCE SHEET DATA: (1) 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current assets ..................................... $20,966 $15,894 $ 9,815 $ 6,165 $ 5,534
Current liabilities ................................ 5,528 6,517 7,594 5,526 3,666
Working capital .................................... 15,438 9,377 2,221 639 1,868
Total assets ....................................... 24,247 18,263 12,363 8,193 10,420
Total short-term notes payable and long-term debt .. 5,363 4,603 4,769 2,654 2,149
Shareholders' equity ............................... 13,484 8,092 4,129 2,027 5,354
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------
SELECTED QUARTERLY Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31
FINANCIAL DATA: (1) 1998 1998 1998 1997 1997 1997 1997 1996
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ............... $ 8,497 $ 9,935 $ 9,148 $ 6,028 $ 9,092 $ 8,002 $ 6,802 $ 6,256
Gross profit ........... 2,768 3,755 3,458 2,199 3,180 3,010 2,290 2,215
Net income (2) ......... 948 1,536 1,468 288 432 767 513 405
Net income per share:
Basic ............... $ 0.06 $ 0.10 $ 0.09 $ 0.02 $ 0.03 $ 0.05 $ 0.04 $ 0.03
Weighted shares ..... 15,803 15,650 15,553 15,274 14,764 14,633 12,820 12,429
Diluted (4) ......... $ 0.06 $ 0.09 $ 0.09 $ 0.02 $ 0.03 $ 0.05 $ 0.04 $ 0.03
Weighted shares ..... 16,784 17,159 17,046 17,173 16,895 16,387 15,205 15,300
</TABLE>
(1) All amounts are in thousands, except per share dollar amounts.
(2) Included in 1998 income from continuing operations and resulting net
income is a deferred tax benefit in the amount of $947,000 relating to a
decrease of the valuation allowance on deferred tax assets.
(3) Included in 1994 net income is a gain of $2,230,000 on the disposal of
3CI, and a loss of $120,000 from discontinued operations of 3CI.
(4) The sum of the quarterly amounts of diluted earnings per share is not
equivalent to the diluted earnings per share for the entire fiscal year
due to variations in the stock prices utilized in the calculations at the
end of each period.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues and earnings for the years ended September 30, 1998
and 1997 increased compared to previous years. Revenues were $33,608,000
in fiscal 1998, representing an increase of $3,455,000, or 11%, from
fiscal 1997 and $13,497,000, or 67%, from fiscal 1996. Net income for the
year was $4,240,000 as compared to $2,117,000 in fiscal 1997 and
$1,215,000 in fiscal 1996.
The significant sales growth was primarily due to the continued strong
demand for the Company's ATM products. The gross profit from these sales,
together with efficiencies in cost management, were primary factors in
the overall improvement in net income.
PRODUCT REVENUES
A breakdown of net sales by individual product line is provided in the
following table:
<TABLE>
<CAPTION>
(dollars in 000's)
-------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
ATM $22,971 $21,000 $11,508
TACC 6,477 5,783 5,639
EMS 1,355 967 954
Parts, service and other 2,805 2,403 2,010
------- ------- -------
$33,608 $30,153 $20,111
======= ======= =======
</TABLE>
ATM sales have steadily increased since the introduction of the
single-cassette model in November 1995 as an alternative to the tube-type
model of automated teller machine.
TACC sales have increased gradually during the three-year period as sales
efforts in domestic markets have intensified.
All marketing activities for EMS products have terminated as the marketing
focus of the Company has shifted to other product lines. Management
believes that certain customers will continue 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.
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GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS
A comparison of certain operating information is provided in the following
table:
<TABLE>
<CAPTION>
(dollars in 000's)
-------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Gross profit $12,180 $10,695 $ 7,295
Selling, general and administrative 7,366 7,628 5,355
Depreciation and amortization 489 474 342
Operating income 4,325 2,590 1,598
Interest expense 392 473 383
Income before taxes 3,933 2,117 1,215
Income tax benefit 307 -- --
Net income 4,240 2,117 1,215
</TABLE>
Gross profit on product sales increased $1,485,000 and $4,885,000 from
1997 and 1996, respectively, to $12,180,000 in 1998. The gross margin in
1998 was 36.2% of product sales, compared to 35.5% in 1997 and 36.3% in
1996. The slight decrease in 1997 compared to 1996 resulted from a decline
in average sales prices for ATM products of $600. In 1998, the average
sales prices for ATM products decreased an additional $586, but the gross
margin was actually improved as a result of engineering efficiencies and
other cost reduction efforts.
Selling, general and administrative expenses of $7,366,000 or 21.9% of
sales in 1998 represented a decrease from the 1997 and 1996 levels of
25.3% and 26.6%, respectively. The overall decline relates to increased
sales volumes and cost reduction efforts.
Depreciation and amortization was $489,000, $474,000, and $342,000 for the
years ended September 30, 1998, 1997 and 1996. The increase in 1998
compared to 1997 and 1996 related to additions of property, plant and
equipment.
Interest expense increased from $383,000 in 1996 to $473,000 in 1997, as a
result of increased borrowings to finance increases in accounts receivable
and inventories associated with the significant growth in revenues.
Interest expense decreased to $392,000 in 1998 due to the lower cost of
borrowing resulting from the Company's new revolving credit facility.
Income tax benefit in 1998 was attributable to a fourth quarter reduction
in valuation allowance estimates to reflect the probable utilization of
the Company's remaining deferred tax assets. This resulted in the
recognition of a deferred income tax benefit of $947,000 which, when
netted with current tax expense of $640,000, resulted in a net income tax
benefit of $307,000.
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
September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(dollars in 000's)
-----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Working capital $ 15,438 $ 9,377 $ 2,221
Total assets 24,247 18,263 12,363
Shareholders' equity 13,484 8,092 4,129
</TABLE>
The improvement in working capital is principally due to increased
accounts receivable and inventories incidental to the increase in
revenues, and the replacement of a short-term note payable
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with a long-term credit facility. In 1998, the Company amended its
existing credit agreement with a bank, providing for borrowings up to
$7,000,000 at the prime rate, with certain LIBOR alternatives, until May
31, 2000. At September 30, 1998, $4,754,604 was outstanding pursuant to
the revolving credit agreement. See Note 8 of Notes to Consolidated
Financial Statements for a description of outstanding debt and maturities.
The Company continues to own 698,464 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,
680,818 shares are pledged to secure an outstanding note payable in the
principal amount of $608,000.
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.
As of September 30, 1998, the Company had outstanding warrants to purchase
1,398,192 shares of common stock at exercise prices ranging from $.50 to
$1.25 per share, which expire various dates through June 2000, and if
exercised would generate proceeds to the Company of approximately
$1,200,000.
The Company's research and development budget for fiscal 1999 has been
estimated at $1,800,000. 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
$1,400,000, $1,200,000, and $1,030,000 for the years ended September 30,
1998, 1997 and 1996, respectively.
With its present capital resources, its potential capital from the
exercise of warrants, and 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. In
addition, the Company's wholly owned subsidiary is restricted from paying
dividends to the Company pursuant to the subsidiary's revolving credit
agreement with a bank.
SEASONALITY
The Company can experience seasonal variances in its operations and
historically has its lowest dollar volume sales months between November
and February. The Company's operating results for any particular quarter
may not be indicative of the results for the future quarter or for the
year.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for the reporting and display of comprehensive
income in a company's financial statements. Comprehensive income includes
all changes in a company's equity accounts (including net income or loss)
except investments by, or distributions to, the company's owners. Items
which are components of comprehensive income (other
10
<PAGE> 13
than net income or loss) include foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. The components of
comprehensive income must be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130
is effective for fiscal years beginning after December 15, 1997, and is
not expected to have a material impact on the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way
that public companies report, in their annual financial statements,
certain information about their operating segments, their products and
services, the geographic areas in which they operate and their major
customers. SFAS 131 also requires that certain information about operating
segments be reported in interim financial statements. SFAS 131 is
effective for periods beginning after December 15, 1997, and is not
expected to have a material impact on the Company.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes new accounting and reporting standards
requiring that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet
as either an asset or liability measured at its fair value. SFAS 133
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge
accounting. SFAS 133 is effective for all fiscal years beginning after
June 15, 1999. The Company has not yet determined the impact; if any, SFAS
133 will have on its financial position or results of operations, and
plans to adopt this standard during the year ending September 30, 2000.
THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result,
computer programs that have date sensitive software may recognize a date
using "00" as the year 1900, rather than the year 2000. This could result
in system failures or miscalculations causing disruptions in the
operations of the Company, including, but not limited to, a temporary
inability to process or transmit data or engage in normal business
activities.
The Company relies on information technology systems ("IT Systems"),
primarily composed of computer hardware and software, and on
non-information technology ("Non-IT Systems"), primarily composed of
embedded microprocessors, to operate its business. The Company uses IT
Systems in the design, development and production of its products, as well
as in its internal operations such as manufacturing, accounting, billing,
sales and service. In addition, IT Systems are used to operate the
Company's web site and e-mail systems. The Company uses Non-IT Systems,
primarily microprocessors, in the design, development and production of
its products, as well as in equipment used in manufacturing and internal
operations, such as telephone equipment. The Company also relies on
utilities, such as telecommunications and power.
The Company has defined Year 2000 Compliant to mean that a process will
continue to run in the same manner when dealing with dates on or after
January 1, 2000, as it did before January 1, 2000. To determine the
Company's state of readiness, management has conducted an initial
evaluation of the Company's current computer systems, software and
embedded technologies to identify those that could
11
<PAGE> 14
be affected by the Year 2000 Issue. The evaluation, which was focused on
the Company's products and most critical internal operating functions,
revealed that the Company's accounting and manufacturing software are the
major resources that do have Year 2000 compliance issues. These resources
will need to be either replaced or upgraded. Fortunately, the identified
programs are "off-the-shelf" products with Year 2000 compliant versions
now available. The Company expects to complete these program upgrades, and
evaluation of its least critical internal operating functions, during the
quarter ending March 31, 1999.
The Company has determined that there should be no Year 2000 Issues for
TACC products already sold. The Company has determined that there should
be no Year 2000 Issues for EMS products sold since June 5, 1991. EMS
products sold prior to June 5, 1991, were manufactured by a predecessor
and have not been tested by the Company. In addition, certain EMS 3000
products contain hardware manufactured by a third party. This third party
component equipment has not been tested by the Company. While none of the
predecessor EMS products or EMS products containing third party component
equipment are still under warranty by the Company, customer problems, if
any, will be addressed as incurred.
The Company has tested the hardware and software platforms for its ATM
products already sold, excluding the Company's initial AnyCard tube-type
model ATM. The discontinued tube-type model ATM contains a point-of-sale
interface manufactured by a third party. In addition, this model is
dependent on a certain third party host processor for its date and time
information during a transaction. Neither the point-of-sale interface nor
the systems of the third party host processor have been tested by the
Company. The Company believes, however, that there are less than 1,500
tube-type models still in service. The Company will attempt to notify
customers about the point-of-sale interface and dependence on the third
party processor, and customer problems, if any, will be addressed as
incurred.
While the Company has tested the hardware and software platforms for its
ATM products, these products are dependent on data that is transmitted to
the product during use. This information is transmitted from financial
institutions via a system of private and shared computer networks. While
the federal government has instituted strict Year 2000 compliance
guidelines and remediation timetables for financial institutions, there
can be no assurance that the systems of financial institutions, as well as
the systems of the various private and shared computer networks will be
timely converted and that the Company's ATM products will be able to
conduct transactions in a normal manner, if at all.
As part of the Company's Year 2000 readiness efforts, the Company has
begun contacting it significant suppliers and large customers to determine
the extent to which the Company is vulnerable to those third parties'
failure to remediate their Year 2000 compliance issues. The Company
expects to complete its survey of those third parties' Year 2000
compliance by June 30, 1999. There can be no assurance, however, that the
systems of other companies on which the Company's business relies will be
timely converted or that failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company and its operations.
Expenditures in fiscal 1998 for the Year 2000 Issue amounted to less than
$35,000. Management expects that completion of its Year 2000 readiness
efforts may result in additional expenditures of approximately $25,000 but
that such amount may increase if the Company must address a significant
amount of problems relating to its tube-type model ATM or for the reasons
described below.
The Company's failure to resolve Year 2000 Issues on or before December
31, 1999 could result in system failures or miscalculations causing
disruption in operations including, among other things, a temporary
inability to process accounting transactions, or engage in similar normal
business activities.
12
<PAGE> 15
Additionally, failure of third parties upon whom the Company's business
relies to timely remediate their Year 2000 Issues could result in
disruptions in the Company's supply of parts and materials, late, missed
or unapplied payments, temporary disruptions in order processing and other
general problems related to the Company's daily operations. While the
Company believes its Year 2000 readiness efforts will adequately address
the Company's internal Year 2000 Issues, until the Company receives
responses from a more significant number of the Company's suppliers and
customers, the overall risks associated with the Year 2000 Issues remain
difficult to accurately describe and quantify, and there can be no
guarantee that the Year 2000 Issue will not have a material adverse effect
on the Company and its operations.
Readiness efforts are currently on schedule and the Company plans to have
the major Year 2000 Issues resolved by June 30, 1999. At such time, an
outside consultant will be retained to verify and validate all Year 2000
compliance. In the event readiness efforts should fall behind schedule,
the Company will develop and implement a contingency plan by March 31,
1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates as a result of
significant financing through its issuance of variable-rate and fixed-rate
debt. If market interest rates were to increase 1% in fiscal 1999, there
would be no material impact on the Company's consolidated results of
operations or financial position.
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, 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-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 the Company or
any other person that the objectives and plans of the Company will be
achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 below for an index of the financial statements and schedules
included as a part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
13
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The table below gives certain information regarding each director and each
executive officer of the Company serving at September 30, 1998. There are,
to the knowledge of the Company, no agreements or understandings by which
these individuals were so selected. No family relationships exist between
any directors or executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James T. Rash 58 Chairman, Chief Executive and Financial Officer,
and Director
Mark K. Levenick 39 Chief Operating Officer,
President of the operating subsidiaries,
and Director
Michael F. Hudson 46 Executive Vice President
James L. Britton, III 63 Director
Jerrell G. Clay 57 Director
</TABLE>
BUSINESS BACKGROUNDS
The following is a summary of the business background and experience of
each of the persons named above:
James T. Rash joined the Company in July 1987 and served as Chief
Financial Officer and as a Director until February 1989. Since that time
he has served continuously as Chairman of the Board of Directors and Chief
Executive Officer, and he has served as Chief Financial Officer since
January 1995. He was also Chairman and Chief Executive Officer of 3CI from
the date of its acquisition by the Company until February 1994. Mr. Rash
earned a Bachelor of Business Administration degree from the University of
Texas at Austin.
Mark K. Levenick, a director since March 1995, has been an executive with
the Company's wholly owned subsidiary and its predecessors for more than
the preceding 5 years, and has served as Chief Operating Officer of the
Company since July 1997. Mr. Levenick is a recognized authority in
underground storage tank management and related environmental matters. He
earned a Bachelor of Science degree from the University of Wisconsin at
Whitewater.
Michael F. Hudson has served as Executive Vice President of the Company's
wholly owned subsidiary since September 1993 and of the Company since July
1997. Prior to joining the Company, Mr. Hudson held various positions with
the Southland Corporation and its affiliates for more than 18 years,
concluding as President and Chief Executive Officer of MoneyQuick, a large
non-bank ATM network. Mr. Hudson is a recognized authority in the ATM
industry.
14
<PAGE> 17
James L. Britton, III, a director since December 1990, has for more than
the past 5 years managed his own investments. Mr. Britton earned a
Bachelor of Business Administration degree from the University of Texas at
Austin.
Jerrell G. Clay, a director since December 1990, has for more than the
preceding 5 years been the President of III Mark Financial, Inc., an
independent marketing company designed to supply products and services to
life insurance and equity sales organizations, and one of its
predecessors. Mr. Clay is also a member of the Management Advisory
Committee of Protective Life Insurance Company of Birmingham, Alabama.
DIRECTOR COMPENSATION
Directors of the Company receive $1,000 per meeting as compensation for
their services as members of the Board of Directors. Directors who serve
on board committees receive $500 per committee meeting.
BOARD OF DIRECTORS COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee, each composed of Messrs. Britton and Clay, both of
whom are non-officer directors. The Audit Committee is charged with
reviewing the Company's financial statements, the scope and performance of
the audit and non-audit services provided by the Company's independent
auditors and overseeing the Company's internal accounting procedures. The
Compensation Committee administers the Company's 1997 Long-Term Incentive
Plan and 1989 Stock Option Plan, and reviews and evaluates matters with
respect to the payment of direct salaries and incentive compensation to
the Company's executive officer and the senior management personnel of the
subsidiaries.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers, and persons who own more than 10% of a
registered class of its equity securities, to file reports of ownership
and changes in ownership of such equity securities with the Securities and
Exchange Commission ("SEC") and NASDAQ. Such entities are also required by
SEC regulations to furnish the Company with copies of all Section 16(a)
forms filed.
Based solely on a review of the copies of such forms furnished to the
Company and written representations that no Forms 5 were required, the
Company believes that its directors and officers and greater than 10%
beneficial owners have complied with all Section 16(a) filing
requirements.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the amount of all cash and other
compensation paid by the Company for services rendered during the fiscal
years ended September 30, 1998, 1997 and 1996 to Messrs. Rash, Levenick
and Hudson [such individuals being all of the Company's executive
officers, as such term is defined in Item 402 of Regulation S-K, whose
compensation exceeded $100,000]:
15
<PAGE> 18
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and Principal ------------------------------------------ -------------
Position Year Salary Bonus Options (1)
----------------------- ---- ---------- ---------- -------------
<S> <C> <C> <C> <C>
James T. Rash 1998 $ 182,292 $ -- --
Chief Executive and 1997 $ 182,292 $ -- --
Financial Officer 1996 $ 182,292 $ -- --
Mark K. Levenick 1998 $ 195,000 $ 97,500 --
Chief Operating Officer 1997 $ 193,962 $ 97,500 100,000
1996 $ 150,000 $ 90,000 --
Michael F. Hudson 1998 $ 125,000 $ 62,500 --
Executive Vice President 1997 $ 124,538 $ 62,500 67,000
1996 $ 105,808 $ 63,000 --
</TABLE>
No options were granted to or exercised by executive officers pursuant to
the Company's 1997 Long-Term Incentive Plan and 1989 Stock Option Plan
during the year ended September 30, 1998.
The following table provides the number of options exercisable by the
respective optionees and the respective valuations at September 30, 1998:
OPTIONS EXERCISABLE AND RELATED VALUES
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised in-the-Money
Options at Options at
September 30, 1998 September 30, 1998
(Shares) ( $ )
-------- ----------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James T. Rash 80,000 -- $ -- $ --
Mark K. Levenick 100,000 100,000 26,598 --
Michael F. Hudson 50,000 67,000 20,338 --
</TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG TIDEL TECHNOLOGIES, INC., PEER GROUP INDEX AND
NASDAQ MARKET INDEX
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Tidel Technologies, Inc. $ 56.67 $ 56.67 $ 116.67 $ 193.33 $ 83.33
Peer group (2) 125.68 157.58 131.39 151.13 128.07
NASDAQ Market Index 105.82 128.48 150.00 203.88 211.88
</TABLE>
16
<PAGE> 19
(1) Assumes $100 invested on September 30, 1993 and no dividends paid in any
year thereafter.
(2) Peer group consists of companies utilizing the category for Fabricated
Metal Products Not Elsewhere Classified, SIC 3499. The Company has
utilized this category since October 1, 1992.
EMPLOYMENT AGREEMENTS
Messrs. Levenick and Hudson, both executive officers of the Company, have
employment agreements with the Company's wholly owned subsidiary, Tidel
Engineering, Inc., which provide for minimum annual salaries of $195,000
and $125,000, respectively, over a three-year term ending July 2000, with
certain change of control provisions. Similarly, three non-executive
employees have employment agreements with the Company's wholly owned
subsidiary which provide for minimum annual salaries of $100,000, $100,000
and $75,000, respectively, for the same term, which also contain change of
control provisions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1998, the number of
shares of common stock beneficially owned by (i) the only persons known to
the Company to be the beneficial owners of more than 5% of its voting
securities and (ii) each director individually and by the directors and
officers of the Company 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 the Company's records.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of Percent
Title of Beneficial Beneficial of
Class Owner Ownership Class (1)
-------- ---------- ---------- ---------
<S> <C> <C> <C>
Common Stock Alliance Developments 1,437,362 9.0%
One Yorkdale Road
Suite 510
North York, Ontario
M6A 3A1
Common Stock James L. Britton, III 813,500(2) 5.1%
3272 Westheimer, #3
Houston, Texas 77098
Common Stock James T. Rash 630,000(3) 3.9%
5847 San Felipe, Suite 900
Houston, Texas 77057
Common Stock Jerrell G. Clay 316,605(2) 2.0%
5847 San Felipe, Suite 900
Houston, Texas 77057
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of Percent
Title of Beneficial Beneficial of
Class Owner Ownership Class (1)
-------- ---------- ---------- ---------
<S> <C> <C> <C>
Common Stock Mark K. Levenick 300,000(4) 1.9%
2310 McDaniel Dr.
Carrollton, Texas 75006
Common Stock Michael F. Hudson 50,000(5) 0.3%
2310 McDaniel Dr.
Carrollton, Texas 75006
Common Stock Directors and Officers 2,110,105(6) 12.8%
as a group (5 persons)
</TABLE>
(1) Based upon 15,910,468 shares outstanding as of December 1, 1998.
(2) Includes 100,000 shares which could be acquired within 60 days upon
exercise of outstanding warrants at exercise prices of (i) $0.625 per
share as to 50,000 shares and (ii) $1.00 per share as to 50,000 shares.
(3) Includes 180,000 shares which could be acquired within 60 days upon
exercise of outstanding options and warrants at exercise prices of (i)
$0.625 per share as to 50,000 shares, (ii) $1.00 per share as to 50,000
shares and (iii) $1.6875 per share as to 80,000 shares.
(4) Includes 200,000 shares which could be acquired within 60 days upon
exercise of outstanding warrants and options at exercise prices of (i)
$0.625 per share as to 50,000 shares, (ii) $0.875 per share as to 25,000
shares, (iii) $1.00 as to 50,000 shares, (iv) $1.25 per share as to
20,000 shares, (v) $1.4375 per share as to 20,000 shares, and (vi) $1.75
per share as to 30,000 shares.
(5) Consists of 50,000 shares which could be acquired within 60 days upon
exercise prices of (i) $0.875 per share as to 25,000 shares and (ii)
$1.4375 per share as to 25,000 shares.
(6) Includes the 100,000 shares for each of the two individuals referred to
in Note (2) above, the 180,000 shares referred to in Note (3) above, the
200,000 shares referred to in Note (5) above, and the 50,000 shares
referred to in Note (6) above obtainable upon exercise of outstanding
warrants and options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, the Company provides certain administrative and
clerical services to three entities with whom James T. Rash, Chairman, and
Jerrell G. Clay, Director, have an affiliation. Fees earned by the Company
for these services totaled $42,000 for the year ended September 30, 1998.
Amounts due to the Company from these entities totaled $234,100 at
September 30, 1998.
On March 30, 1997, the Company received notes with an aggregate principal
balance of $743,000 in connection with the exercise of warrants to
purchase common stock by James T. Rash, James L. Britton, III, Jerrell G.
Clay and Mark K. Levenick, all directors of the Company. As of September
30,1998, $382,063 was outstanding pursuant to the notes. These notes are
due March 31, 1999, bear interest at 10% and are secured by 500,000 shares
of the Company's common stock issued thereunder.
18
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The audited consolidated financial statements and related financial
statement schedules of the Company and report of its independent certified
public accountants responsive to the requirements of Item 8 of Form 10-K
are included herein as part of this Report. Such audited financial
statements, related financial statement schedules, and reports as set
forth in the accompanying index include, in the opinion of management of
the Company, all required disclosures in the notes thereto.
EXHIBITS
The Exhibits filed as a part of this Report are listed in the attached
Index to Exhibits.
REPORTS ON FORM 8-K
The Company filed no report on Form 8-K during the last quarter of the
fiscal year ended September 30, 1998.
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TIDEL TECHNOLOGIES, INC.
(Company)
January 11, 1999 /s/ JAMES T. RASH
------------------------------------------
James T. Rash
President and Principal Executive Officer
/s/ JAMES T. RASH
------------------------------------------
James T. Rash
Principal Financial and Accounting Officer
Pursuant to requirements of the Securities 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JAMES T. RASH Director January 11, 1999
- ---------------------------------
James T. Rash
/s/ JAMES L. BRITTON, III Director January 11, 1999
- ---------------------------------
James L. Britton, III
/s/ JERRELL G. CLAY Director January 11, 1999
- ---------------------------------
Jerrell G. Clay
/s/ MARK K. LEVENICK Director January 11, 1999
- ---------------------------------
Mark K. Levenick
</TABLE>
20
<PAGE> 23
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF TIDEL TECHNOLOGIES, INC.
AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets - September 30, 1998 and 1997 F-3
Consolidated Statements of Income for the years ended
September 30, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES OF TIDEL TECHNOLOGIES, INC.
AND SUBSIDIARIES
The following schedules are filed as part of this Annual Report on Form
10-K:
Schedule I Condensed Financial Information of Registrant S-1
Schedule II Valuation and Qualifying Accounts S-6
All other schedules are omitted because they are not required, are not
applicable or the required information is presented elsewhere herein.
</TABLE>
F-1
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tidel Technologies, Inc.:
We have audited the consolidated financial statements of Tidel
Technologies, Inc. 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 schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 Tidel
Technologies, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Houston, Texas
November 25, 1998
F-2
<PAGE> 25
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,400,148 $ 1,549,331
Trade accounts receivable, net of allowance of
$693,613 and $750,347, respectively 10,246,075 8,732,080
Notes and other receivables 1,174,055 852,514
Inventories 6,705,756 4,208,360
Deferred tax assets 1,058,692 318,810
Prepaid expenses and other 381,528 233,273
------------ ------------
Total current assets 20,966,254 15,894,368
Investment in 3CI, at market value 917,083 553,505
Property, plant and equipment, at cost 2,843,723 2,126,726
Accumulated depreciation (1,550,387) (1,189,409)
------------ ------------
Net property, plant and equipment 1,293,336 937,317
Intangible assets, net of accumulated amortization of
$813,190 and $692,814, respectively 797,032 801,023
Deferred tax asset 207,575 --
Other assets 65,361 77,238
------------ ------------
Total assets $ 24,246,641 $ 18,263,451
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt
and short-term notes payable $ 128,000 $ 948,697
Accounts payable 3,014,278 3,239,412
Accrued liabilities 2,385,929 2,328,917
------------ ------------
Total current liabilities 5,528,207 6,517,026
Long-term debt 5,234,604 3,654,604
------------ ------------
Total liabilities 10,762,811 10,171,630
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 15,860,468 and
14,851,050 shares, respectively 158,605 148,511
Additional paid-in capital 14,144,553 13,387,412
Retained earnings (accumulated deficit) 213,364 (4,026,262)
Stock subscriptions receivable (382,063) (424,437)
Unrealized loss on investment in 3CI (650,629) (993,403)
------------ ------------
Total shareholders' equity 13,483,830 8,091,821
------------ ------------
Total liabilities and shareholders' equity $ 24,246,641 $ 18,263,451
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 26
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $33,607,533 $30,152,873 $20,111,249
Cost of sales 21,427,255 19,458,044 12,816,453
----------- ----------- -----------
Gross profit 12,180,278 10,694,829 7,294,796
Selling, general and administrative 7,366,444 7,630,782 5,355,426
Depreciation and amortization 489,201 474,274 341,561
----------- ----------- -----------
Operating income 4,324,633 2,589,773 1,597,809
Interest expense, net 392,258 472,553 382,691
----------- ----------- -----------
Income before taxes 3,932,375 2,117,220 1,215,118
Income tax benefit 307,251 -- --
----------- ----------- -----------
Net income $ 4,239,626 $ 2,117,220 $ 1,215,118
=========== =========== ===========
Basic earnings per share:
Net income $ 0.27 $ 0.15 $ 0.10
=========== =========== ===========
Weighted average common shares
outstanding 15,569,849 13,663,819 12,146,940
=========== =========== ===========
Diluted earnings per share:
Net income $ 0.25 $ 0.14 $ 0.10
=========== =========== ===========
Weighted average common and
dilutive shares outstanding 16,896,688 15,414,309 13,629,670
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 27
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
SHARES ADDITIONAL EARNINGS TOTAL
ISSUED AND COMMON PAID-IN (ACCUMULATED SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT) OTHER EQUITY
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1995 11,882,404 $ 118,824 $ 10,473,173 $ (7,358,600) $ (1,206,499) $ 2,026,898
Conversion of note payable
to common stock 300,000 3,000 147,000 -- -- 150,000
Exercise of warrants 215,000 2,150 159,100 -- -- 161,250
Issuance of warrants -- -- 22,000 -- -- 22,000
Net income -- -- -- 1,215,118 -- 1,215,118
Unrealized gain on
investment in 3CI -- -- -- -- 553,505 553,505
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 12,397,404 123,974 10,801,273 (6,143,482) (652,994) 4,128,771
Conversion of note payable
to common stock 120,000 1,200 58,800 -- -- 60,000
Exercise of warrants, net of
registration costs 2,333,646 23,337 2,524,087 -- -- 2,547,424
Issuance of warrants -- -- 3,252 -- -- 3,252
Net income -- -- -- 2,117,220 -- 2,117,220
Stock subscriptions receivable -- -- -- -- (424,437) (424,437)
Unrealized loss on
investment in 3CI -- -- -- -- (340,409) (340,409)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 14,851,050 148,511 13,387,412 (4,026,262) (1,417,840) 8,091,821
Exercise of warrants 1,009,418 10,094 757,141 -- -- 767,235
Net income -- -- -- 4,239,626 -- 4,239,626
Payments of stock
subscriptions receivable -- -- -- -- 42,374 42,374
Unrealized gain on
investment in 3CI -- -- -- -- 342,774 342,774
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 15,860,468 $ 158,605 $ 14,144,553 $ 213,364 $ (1,032,692) $ 13,483,830
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 28
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,239,626 $ 2,117,220 $ 1,215,118
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 489,201 474,274 341,561
(Gain) loss on sale of property, plant and equipment (400) 28,283 (1,214)
Deferred tax benefit (947,457) (318,810) --
Changes in assets and liabilities:
Trade accounts receivable, net (1,513,995) (3,497,773) (4,372,709)
Notes and other receivables (640,104) (116,278) 2,300,000
Inventories (2,497,396) (866,874) (1,145,421)
Prepaids and other assets (136,378) (36,875) (39,661)
Accounts payable and accrued liabilities (168,122) 2,102,843 (38,298)
----------- ----------- -----------
Net cash used in operating activities (1,175,025) (113,990) (1,740,624)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (724,844) (660,928) (352,651)
Proceeds from sale of property, plant and equipment 400 40,050 1,800
Increase in intangible assets (116,385) -- --
Increase in investment in 3CI (20,804) -- --
----------- ----------- -----------
Net cash used in investing activities (861,633) (620,878) (350,851)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 1,740,000 4,549,604 3,528,211
Repayments of notes payable (980,697) (4,616,439) (1,263,643)
Proceeds from exercise of warrants 767,235 1,765,674 161,250
Proceeds from issuance of warrants -- 3,252 14,000
Payments of stock subscription notes 360,937 -- --
----------- ----------- -----------
Net cash provided by financing activities 1,887,475 1,702,091 2,439,818
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (149,183) 967,223 348,343
Cash and cash equivalents at beginning of period 1,549,331 582,108 233,765
----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,400,148 $ 1,549,331 $ 582,108
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 462,297 $ 547,069 $ 356,571
=========== =========== ===========
Cash paid for taxes, net of refunds receivable $ 451,182 $ 92,470 $ --
=========== =========== ===========
Supplemental disclosure of noncash financing activities:
Notes received for warrant conversions $ -- $ 743,000 $ --
=========== =========== ===========
Conversion of note payable to common stock $ -- $ 60,000 $ 150,000
=========== =========== ===========
Noncash exercise of warrants $ -- $ 38,750 $ --
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 29
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Tidel Technologies, Inc. (the "Company") is a Delaware corporation which,
through its wholly owned subsidiaries, develops, manufactures, sells and
supports automated teller machines and related software, electronic cash
security systems, and underground fuel storage monitoring and leak detection
devices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany items have been
eliminated in consolidation.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform with the current year presentation format.
CASH AND CASH EQUIVALENTS
For purposes of consolidated financial statement presentation and reporting cash
flows, all liquid investments with original maturities at date of purchase of
three months or less are considered cash equivalents.
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 as deemed appropriate by
management of the Company.
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.
INTANGIBLE ASSETS
All intangible assets are amortized using the straight-line method over a period
ranging from 5 to 10 years, with the exception of goodwill, which is amortized
over 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company's long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of any assets may not be recoverable. In performing the
review for recoverability, the Company estimates the future cash flows expected
to result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows
F-7
<PAGE> 30
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized.
WARRANTIES
Certain products are sold under warranty against defects in materials and
workmanship for a period of one to two years. A provision for estimated warranty
costs is included in accrued liabilities and is charged to operations at the
time of sale.
REVENUE RECOGNITION
Revenues are generally recognized when products are shipped to customers. When
customers, under the terms of specific orders, request that the Company
manufacture and invoice goods on a bill and hold basis, the Company recognizes
revenues based on the completion date required in the order and actual
completion of the manufacturing process.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development costs charged to expense approximated $1,400,000, $1,200,000 and
$1,030,000 for the years ended September 30, 1998, 1997 and 1996.
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.
INVESTMENT SECURITIES
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"), the Company classifies its investment in 3CI Complete Compliance
Corporation ("3CI") as available for sale, with unrealized gains and losses
excluded from earnings and recorded as a separate component of shareholders'
equity.
NET INCOME PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), was adopted by the Company during the year ended September 30, 1998.
SFAS No. 128 establishes new standards for computing and presenting earnings per
share ("EPS") amounts for companies with publicly held common stock or potential
common stock. The new standards require the presentation of both basic and
diluted EPS amounts for companies with complex capital structures. Basic EPS is
computed by dividing income available to common stockholders 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
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires companies to recognize stock-based
expense based on the estimated fair value of employee stock options.
Alternatively, SFAS No. 123 allows companies to retain the current approach
F-8
<PAGE> 31
set forth in APB Opinion 25, "Accounting for Stock Issued to Employees",
provided that expanded footnote disclosure is presented. The Company has not
adopted the fair value method of accounting for stock-based compensation under
SFAS No. 123, but has provided the pro forma disclosure required therein.
USE OF ESTIMATES
The preparation of the accompanying consolidated financial statements requires
the use of estimates by management in determining the Company's 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. The Company
believes that the carrying amounts of its 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 approximates its fair value because the
interest rates approximate market.
(2) 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.
During the year ended September 30, 1998, the Company had sales to two major
customers that accounted for more than 10% of sales in the amounts of $3,526,941
and $3,520,910. During the year ended September 30, 1997, the Company had such
sales to one major customer in the amount of $3,970,227. None of the Company's
sales to customers accounted for more than 10% of sales during the year ended
September 30, 1996.
Foreign sales accounted for 4%, 5% and 7% of the Company's total sales during
the years ended September 30, 1998, 1997 and 1996, respectively. Foreign sales
are transacted in U.S. dollars.
(3) NOTES AND OTHER RECEIVABLES
Notes and other receivables consisted of the following at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Federal income tax refunds........................... $ 621,049 $ --
Stock subscription notes............................. -- 318,563
Non-trade notes and accounts......................... 553,006 533,951
------------- -------------
$ 1,174,055 $ 852,514
============ =============
</TABLE>
In connection with the exercise of warrants to purchase common stock by certain
directors on March 30, 1997, the Company received promissory notes with an
aggregate principal balance of $743,000. During the year ended September 30,
1998, the Company received payments on these notes totaling $360,937, of
F-9
<PAGE> 32
which, $42,374 had previously been recorded as stock subscriptions receivable
and included as a separate component of shareholders' equity. The notes are due
March 31, 1999, bear interest at an annual rate of 10%, and are secured by
500,000 shares of the Company's common stock issued thereunder. At September 30,
1998, the notes had an aggregate balance of $382,063 which has been recorded as
stock subscriptions receivable and included as a separate component of
shareholders' equity.
(4) INVENTORIES
Inventories consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Raw materials ....................... $ 3,993,447 $ 3,635,349
Work in process ..................... 484,884 379,708
Finished goods ...................... 2,542,177 492,636
Other ............................... 180,248 212,667
----------- -----------
7,200,756 4,720,360
Inventory reserve ................... (495,000) (512,000)
----------- -----------
$ 6,705,756 $ 4,208,360
=========== ===========
</TABLE>
(5) INVESTMENT IN 3CI
The Company owned 698,464 and 680,818 shares of 3CI common stock at September
30, 1998 and 1997, respectively. The shares had a market value of $917,083 and
$553,505 at September 1998 and 1997, respectively. In accordance with the
provisions of SFAS No. 115, the Company recorded an unrealized gain of $342,774
and an unrealized loss of $340,409 as separate components of shareholders'
equity at September 30, 1998 and 1997.
During the year ended September 30, 1998, the Company received 17,646 additional
shares of 3CI common stock, together with 226,939 warrants to purchase 3CI
common stock at $1.50 per share, as its pro rata portion of a settlement of the
Texas class-action litigation against the former majority shareholder of 3CI.
The Company's pro rata portion of the legal fees in connection with the
settlement in the amount of $20,805 has been capitalized and included in
Investment in 3CI as the cost basis in the additional shares of stock and
warrants.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997 Useful Life
---------------- ---------------- -------------
<S> <C> <C> <C>
Machinery and equipment.............................. $ 1,342,038 $ 991,370 2 - 10 years
Computer equipment and systems....................... 967,857 734,513 3 - 7 years
Furniture, fixtures and other improvements........... 533,828 400,843 3 - 5 years
------------- -------------
$ 2,843,723 $ 2,126,726
============ ============
</TABLE>
Depreciation expense was $368,825, $327,661 and $198,819 for the years ended
September 30, 1998, 1997 and 1996, respectively. Repairs and maintenance expense
was $56,330, $95,338 and $41,999 for the years ended September 30, 1998, 1997
and 1996, respectively.
F-10
<PAGE> 33
(7) INTANGIBLE ASSETS
Intangible assets consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Electronic cash security systems:
Software ........................... $ 350,000 $ 350,000
Proprietary technology ............. 417,000 417,000
Other technology ...................... 259,998 143,613
Goodwill .............................. 583,224 583,224
Accumulated amortization .............. (813,190) (692,814)
--------- ---------
$ 797,032 $ 801,023
========= =========
</TABLE>
(8) SHORT-TERM NOTES PAYABLE AND LONG-TERM DEBT
Short-term notes payable consisted of the following at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current maturities of long-term debt .......... $ 128,000 $ --
Promissory note due May 31, 1998, interest
payable quarterly at 12%, secured by 480,818
shares of 3CI common stock .................
Paid May 28, 1998 .......................... -- 400,000
Unsecured promissory notes due May 31, 1998,
interest payable quarterly at 12%. Paid
May 28, 1998 ............................... -- 540,000
Other ......................................... -- 8,697
------------ ------------
$ 128,000 $ 948,697
============ ============
</TABLE>
Long-term debt consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revolving credit note payable to bank, due
May 31, 2000, interest payable monthly
at prime (8.5% at September 30, 1998 and
1997). Secured by the assets of Tidel
Engineering, Inc. .............................. $ 4,754,604 $ 3,654,604
Term note payable to bank, payable in quarterly
installments of $32,000 plus accrued interest
at 8.4% through May 31, 2003, secured by
680,818 shares of 3CI stock .................... 608,000 --
----------- -----------
Total long-term debt .............................. 5,362,604 3,654,604
Less: current maturities .......................... (128,000) --
----------- -----------
Long-term debt, less current maturities ........... $ 5,234,604 $ 3,654,604
=========== ===========
</TABLE>
During the year ended September 30, 1998, the Company amended its existing
credit agreement with a bank. The amendment increased the borrowing limit to
$7,000,000 under the existing revolving credit note and extended its maturity to
May 31, 2000. Borrowings under the revolving credit note are at the prime rate,
with certain LIBOR alternatives, and are secured by substantially all of the
assets of the Company's subsidiary, Tidel Engineering, Inc. Further, the
amendment provided for a term note in the amount of
F-11
<PAGE> 34
$640,000, the proceeds of which were utilized to repay existing short-term notes
payable. The term note, secured by 680,818 shares of 3CI common stock, is
payable in quarterly installments of $32,000 together with accrued interest at
8.4% through May 31, 2003. The amended credit agreement, applicable to both
borrowings, includes covenants which among other things, require the maintenance
of specified financial ratios, restrict payments of dividends and limit the
amount of capital expenditures. The Company was not in compliance with the
covenants of the amended credit agreement limiting the amount of capital
expenditures for the year ended September 30, 1998, and subsequently obtained a
waiver from the bank for this period.
(9) ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Wages and related benefits .............. $ 758,745 $ 732,035
Reserved for warranty charges ........... 612,525 422,924
Commissions ............................. -- 350,726
Taxes, other than Federal income:
State franchise ................... 428,307 34,740
Sales and use ..................... 180,657 156,956
Ad valorem ........................ 150,807 98,334
Other ................................... 254,888 533,202
---------- ----------
$2,385,929 $2,328,917
========== ==========
</TABLE>
(10) WARRANTS
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 effective on January 29, 1997. The warrants
related to grants made in connection with debt and equity issues, acquisitions,
directors' remuneration and various services rendered. From the effective date
through September 30, 1998, warrants to purchase 3,343,064 shares have been
exercised generating proceeds to the Company of $3,314,659, net of registration
costs of $109,982, and warrants to purchase 791,244 shares have expired
unexercised. During the year ended September 30, 1998, 1,009,418 warrants were
exercised generating proceeds of $767,235, and 30,000 warrants expired
unexercised.
At September 30, 1998, the Company had outstanding warrants to purchase
1,383,192 shares of common stock which expire at various dates through June
2000. The warrants have exercise prices ranging from $0.50 to $1.25 per share
and, if exercised would generate proceeds to the Company of approximately
$1,200,000.
(11) EMPLOYEE STOCK OPTION PLANS
The Company adopted a Long-Term Incentive Plan in 1997 (the "1997 Plan") and an
Incentive Stock Option Plan in 1989 (the "1989 Plan") pursuant to which the
Company's Board of Directors may grant stock options to officers and key
employees. The 1997 Plan and the 1989 Plan authorize grants of options to
purchase up to 1,000,000 and 500,000 shares of common stock, respectively.
Options are granted with an exercise price equal to the fair market value of the
stock at the date of grant. Options granted under the
F-12
<PAGE> 35
1997 Plan and the 1989 Plan vest over four-year and three-year periods,
respectively, and expire no later than 10 years from the date of grant.
At September 30, 1998, there were 698,700 and 32,139 additional shares available
for grant under the 1997 Plan and the 1989 Plan, respectively. The
weighted-average fair value per share of stock options granted during 1998 and
1997 was $1.39 and $1.98, respectively, on the date of grant, using the Black
Scholes model with the following assumptions: risk-free interest rate of 5.62%,
expected life of 4 years, expected volatility of 75.66%, and an expected
dividend yield of 0% for the 1998 granted options, and a risk-free interest rate
of 6.49%, expected life of 4 years, expected volatility of 118.05%, and an
expected dividend yield of 0% for the 1997 granted options.
The Company applied APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported....................................... $ 4,239,626 $ 2,117,220 $ 1.215,118
Pro forma......................................... 4,087,605 1,963,959 1,206,051
Basic earnings per share:
As reported....................................... 0.27 0.15 0.10
Pro forma......................................... 0.26 0.14 0.10
</TABLE>
At September 30, 1998 and 1997, the range of exercise prices was $0.69 to $2.50,
and the weighted-average remaining contractual life of the outstanding options
was 6.7 and 7.7 years, respectively. Stock option activity during the periods
indicated was as follows:
<TABLE>
<CAPTION>
Number of Weighted average
shares exercise price
------------- ----------------
<S> <C> <C>
Balance at September 30, 1995........................ 443,250 $ 1.38
Granted........................................... 40,000 .69
Canceled.......................................... (15,000) (1.16)
-------------
Balance at September 30, 1996........................ 468,250 1.33
Granted........................................... 291,300 2.50
------------
Balance at September 30, 1997........................ 759,550 1.78
Granted........................................... 10,000 2.31
Forfeited......................................... (15,000) (1.16)
-------------
Balance at September 30, 1998........................ 754,550 1.80
=============
</TABLE>
At September 30, 1998 and 1997, the number of options exercisable was 453,250
and 393,252, respectively, at a weighted-average price of $1.34 per share and
$1.38 per share, respectively.
F-13
<PAGE> 36
(12) INCOME TAXES
Income tax expense (benefit) attributable to income from continuing operations
consisted of the following for the years ended September 30, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Federal current tax expense $ 225,755 $ 318,810 $ --
State current tax expense .. 414,451 -- --
Federal deferred tax benefit (849,125) (318,810) --
State deferred tax benefit . (98,332) -- --
-------------- -------------- --------------
$ (307,251) $ -- $ --
============== ============== ==============
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying the
U.S. statutory federal income tax rate of 34% to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense ................ $ 1,337,007 $ 719,855 $ 413,140
Change in valuation allowances ................. (1,938,458) (691,099) (131,091)
State taxes, net of benefit .................... 208,639 -- --
Nondeductible items and permanent differences .. 36,355 29,000 (256,792)
Other .......................................... 49,206 (57,756) (25,257)
----------- ----------- -----------
$ (307,251) $ -- $ --
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that were the sources of the deferred
tax assets consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Intangible assets ................... $ 207,575 $ 300,105
Accounts receivable ................. 256,428 255,118
Inventories ......................... 292,136 195,383
Investment in 3CI ................... 329,842 360,475
Accrued expenses .................... 437,826 242,294
Other ............................... 49,264 74,416
AMT credit carryforward ............. -- 318,810
Net operating loss carryforward ..... 23,038 840,509
----------- -----------
Total gross deferred tax assets .. 1,596,109 2,587,110
Less: valuation allowance ........... (329,842) (2,268,300)
----------- -----------
Net deferred tax assets .......... $ 1,266,267 $ 318,810
=========== ===========
</TABLE>
The Company has a federal income tax net operating loss carryforward as of
September 30, 1998 of $62,315. The net operating loss carryforward will expire
in various amounts between the years 2001 and 2010 if not utilized. The net
operating losses are subject to limitations should the ownership of the Company
significantly change. During the year ended September 30, 1998, the net change
in the valuation allowance was a decrease of approximately $1,938,000.
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. The Company has established a valuation allowance for
such deferred tax assets to the extent such amounts are not expected to be
utilized.
F-14
<PAGE> 37
(13) EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted computations for the years ended September 30, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
Weighted
Average Shares Per Share
Income Outstanding Amount
---------- ----------- ----------
<S> <C> <C> <C>
Year Ended September 30, 1998:
Basic earnings per share ................... $4,239,626 15,569,849 $ 0.27
Effect of dilutive warrants and options .... -- 1,326,839 (0.02)
---------- ---------- ----------
Diluted earnings per share ................. $4,239,626 16,896,688 $ 0.25
========== ========== ==========
Year Ended September 30, 1997:
Basic earnings per share ................... $2,117,220 13,663,819 $ 0.15
Effect of dilutive warrants, options and
convertible notes ....................... 1,200 1,750,490 (0.01)
---------- ---------- ----------
Diluted earnings per share ................. $2,118,420 15,414,309 $ 0.14
========== ========== ==========
Year Ended September 30, 1996:
Basic earnings per share ................... $1,215,118 12,146,940 $ 0.10
Effect of dilutive warrants, options and
convertible notes ....................... 163,921 1,482,730 --
---------- ---------- ----------
Diluted earnings per share ................. $1,379,039 13,629,670 $ 0.10
========== ========== ==========
</TABLE>
(14) COMMITMENTS AND CONTINGENCIES
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.
The Company leases office and warehouse space, transportation equipment and
other equipment under terms of operating leases which expire through 2005.
Rental expense under these leases for the years ended September 30, 1998, 1997
and 1996 was approximately $382,000, $355,000 and $347,000, respectively. The
Company has approximate future lease commitments as follows:
<TABLE>
<CAPTION>
Amount
------------
Year Ending September 30:
<S> <C>
1999.............................................. $ 366,128
2000.............................................. 368,724
2001.............................................. 298,654
2002.............................................. 294,901
2003.............................................. 294,901
Subsequent to September 30, 2003..................... 391,871
------------
$ 2,015,179
============
</TABLE>
F-15
<PAGE> 38
(15) RELATED PARTY TRANSACTIONS
From time to time, the Company provides certain administrative and clerical
services to three entities with which certain directors have an affiliation.
Fees earned by the Company for these services totaled approximately $42,000,
$72,000 and $144,000 for the years ended September 30, 1998, 1997 and 1996,
respectively. Amounts due to the Company from these entities totaled $234,100 at
September 30, 1998.
F-16
<PAGE> 39
SCHEDULE I
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 116,095 $ 32,459
Notes and other receivables 415,227 641,250
Prepaid expenses and other assets 670,935 36,610
------------ ------------
Total current assets 1,202,257 710,319
Investment in 3CI, at market value 917,083 553,505
Property, plant and equipment, at cost 106,839 95,327
Accumulated depreciation (68,799) (55,325)
------------ ------------
Net property, plant and equipment 38,040 40,002
Investment in subsidiaires, at equity 10,408,994 6,513,289
Receivables from subsidiaries 1,814,032 1,535,190
Other assets 6,015 31,015
------------ ------------
Total assets $ 14,386,421 $ 9,383,320
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt
and short-term notes payable $ 128,000 $ 940,000
Accounts payable 191,735 225,144
Accrued liabilities 102,856 126,355
------------ ------------
Total current liabilities 422,591 1,291,499
Long-term debt 480,000 --
------------ ------------
Total liabilities 902,591 1,291,499
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 15,860,468 and
14,851,050 shares, respectively 158,605 148,511
Additional paid-in capital 14,144,553 13,387,412
Retained earnings (accumulated deficit) 213,364 (4,026,262)
Stock subscriptions receivable (382,063) (424,437)
Unrealized loss on investment in 3CI (650,629) (993,403)
------------ ------------
Total shareholders' equity 13,483,830 8,091,821
------------ ------------
Total liabilities and shareholders' equity $ 14,386,421 $ 9,383,320
============ ============
</TABLE>
See accompanying notes to condensed financial information of registrant.
S-1
<PAGE> 40
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and expenses:
Selling, general and administrative 738,433 710,281 557,245
Depreciation and amortization 13,474 27,694 17,283
----------- ----------- -----------
Operating loss (751,907) (737,975) (574,528)
Interest expense, net 18,322 159,100 172,500
----------- ----------- -----------
Loss before equity in income of subsidiaries and taxes (770,229) (897,075) (747,028)
Equity in income of subsidiaries 3,895,705 1,804,475 1,855,446
----------- ----------- -----------
Income before taxes 3,125,476 907,400 1,108,418
Income tax benefit 1,114,150 1,209,820 106,700
----------- ----------- -----------
Net income $ 4,239,626 $ 2,117,220 $ 1,215,118
=========== =========== ===========
</TABLE>
See accompanying notes to condensed financial information of registrant.
S-2
<PAGE> 41
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,239,626 $ 2,117,220 $ 1,215,118
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 13,474 27,694 17,283
Loss on sale of property, plant and equipment -- 275 245
Deferred tax benefit (1,114,150) (1,209,820) (106,700)
Equity in income of subsidiaries (3,895,705) (1,804,475) (1,855,446)
Changes in assets and liabilities:
Notes and other receivables (92,540) (237,660) 559,539
Prepaid expenses and other assets (609,325) (37,942) (1,709)
Receivables from subsidiaries 835,308 -- --
Accounts payable and accrued liabilities (56,908) 82,857 (207,055)
----------- ----------- -----------
Net cash used in operating activities (680,220) (1,061,851) (378,725)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (11,512) (8,148) (16,360)
Proceeds from sale of property, plant and equipment -- 300 --
Increase in investment in 3CI (20,804) -- --
----------- ----------- -----------
Net cash used in investing activities (32,316) (7,848) (16,360)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 640,000 895,000 1,864,000
Repayments of notes payable (972,000) (1,956,250) (1,254,000)
Proceeds from exercise of warrants 767,235 1,765,674 161,250
Proceeds from issuance of warrants -- 3,252 14,000
Payments of stock subscription notes 360,937 -- --
----------- ----------- -----------
Net cash provided by financing activities 796,172 707,676 785,250
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 83,636 (362,023) 390,165
Cash and cash equivalents at beginning of year 32,459 394,482 4,317
----------- ----------- -----------
Cash and cash equivalents at end of year $ 116,095 $ 32,459 $ 394,482
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 93,559 $ 243,402 $ 151,700
=========== =========== ===========
Cash paid for taxes, net of refunds receivable $ 451,182 $ 92,470 $ --
=========== =========== ===========
Supplemental disclosure of noncash financing activities:
Conversion of note payable to common stock $ -- $ 60,000 $ 150,000
=========== =========== ===========
Notes received for warrant conversions $ -- $ 743,000 $ --
=========== =========== ===========
Noncash exercise of warrants $ -- $ 38,750 $ --
=========== =========== ===========
</TABLE>
See accompanying notes to condensed financial information of registrant.
S-3
<PAGE> 42
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(A) SHORT-TERM NOTES PAYABLE
Short-term notes payable consisted of the following at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current maturities of long-term debt ......... $ 128,000 $ --
Promissory note due May 31, 1998, interest
payable at maturity at 12%, secured by
480,818 shares of 3CI common stock ........
Paid May 28, 1998 ......................... -- 400,000
Unsecured promissory notes due May 31, 1998,
interest payable quarterly at 12%. Paid
May 28, 1998 .............................. -- 540,000
------------ ------------
$ 128,000 $ 940,000
============ ============
</TABLE>
(B) LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Term note payable to bank, payable in quarterly
installments of $32,000 plus accrued interest
at 8.4% through May 31, 2003, secured by
680,818 shares of 3CI stock ................. $ 608,000 $ --
-------------- --------------
Total long-term debt ........................... 608,000 --
Less: current maturities ....................... (128,000) --
-------------- --------------
Long-term debt, less current maturities ........ $ 480,000 $ --
============== ==============
</TABLE>
(C) GUARANTEES
The parent company has guaranteed the revolving credit note issued by its
subsidiary, Tidel Engineering, Inc., in the maximum principal amount of
$7,000,000 due May 31, 2000 (the "Revolving Credit Note"). At September 30,
1998, $4,754,604 was outstanding pursuant to the Revolving Credit Note.
(D) DIVIDENDS FROM SUBSIDIARIES
No dividends have been paid to the parent company by its subsidiaries as of
September 30, 1998. The Company's principal operating subsidiary, Tidel
Engineering, Inc., is restricted from paying dividends to the parent company
pursuant to the Revolving Credit Note.
S-4
<PAGE> 43
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
(E) INCOME TAXES
The parent company and its subsidiaries (collectively the "Companies") have
entered into a tax sharing agreement providing that each of the Companies will
be responsible for its tax liability for the years that the Companies were
included in the parent company's consolidated income tax returns. Income taxes
have been allocated to each of the Companies based on its pretax income and
calculated on a separate company basis. Further, the agreement provides for
reimbursements to the parent company for payment of the consolidated tax
liability based on the allocations, and compensates each of the Companies for
use of its losses or tax credits. As a result of the agreement, the parent
company recognized a deferred tax benefit of $1,114,150, $1,209,820 and $106,700
for the years ended September 30, 1998, 1997 and 1996, respectively.
(F) AFFILIATED TRANSACTIONS
From time to time, the parent company provides certain administrative and
clerical services to three entities with which certain directors have an
affiliation. Fees earned by the parent company for these services totaled
approximately $42,000, $72,000 and $144,000 for the years ended September 30,
1998, 1997 and 1996, respectively. Amounts due to the Company from these
entities totaled $234,100 at September 30, 1998.
On March 30, 1997, the Company received notes with an aggregate principal
balance of $743,000 in connection with the exercise of warrants to purchase
common stock by certain directors. As of September 30, 1998, $382,063 was
outstanding pursuant to the notes.
The subsidiaries paid management fees to the parent company in the aggregate
amount of $180,000 per annum in each of the years ended September 30, 1998, 1997
and 1996. In addition, the parent company bills the subsidiaries for direct
expenses paid on their behalf and from time to time makes interest bearing
advances for working capital purposes.
S-5
<PAGE> 44
INDEX TO EXHIBITS
EXHIBITS
Except as otherwise indicated, the following documents are incorporated by
reference as Exhibits to this Report [the inclusion of certain Exhibits herein
through incorporation by reference to "Form 10 of the Company" refer in each
case to the indicated Exhibits as listed in Item 15.2 of the Company's Form 10
dated November 7, 1988 as amended by Form 8 dated February 2, 1989]:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.01. Copy of Stock Purchase Agreement dated February 4,
1994 between Waste Systems, Inc. and the Company
(incorporated by reference to Exhibit 1.2. of the
Company's Report on Form 8-K filed under date of
February 18, 1994).
2.02. Copy of Option to Purchase 3CI Complete Compliance
Corporation shares dated February 4, 1994 issued by
the Company to Waste Systems, Inc. (incorporated by
reference to Exhibit 1.3. of the Company's Report on
Form 8-K filed under date of February 18, 1994).
2.03. Copy of Registration Rights Agreement dated February
4, 1994 between 3CI Complete Compliance Corporation
and the Company (incorporated by reference to Exhibit
1.4. of the Company's Report on Form 8-K filed under
date of February 18, 1994).
3.01. Copy of 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 to Form 10 of the Company).
3.02. Copy of By-Laws of the Company (incorporated by
reference to Exhibit 3 to Form 10 of the Company).
3.03 Amendment to Certificate of Incorporation dated July
16, 1997 (incorporated by reference to Exhibit 3 of
the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1997).
4.01. Copy of form of series BOD common stock purchase
warrants of the Company issued to each of the seven
directors of the Company as of October 23, 1995, each
such warrant providing for the purchase of 50,000
shares of common stock at an exercise price of $0.625
per share (incorporated by reference to Exhibit 4.15.
of the Company's Report on Form 10-K for the year
ended September 30, 1995).
</TABLE>
E-1
<PAGE> 45
4.02. Credit Agreement dated June 12, 1997 by and between
Tidel Engineering, Inc. and Texas Commerce Bank
National Association (incorporated by reference to
Exhibit 4.01 of the Company's Report on Form 10-Q for
the quarterly period ended June 30, 1997).
4.03. Promissory Note dated June 12, 1997 executed by Tidel
Engineering, Inc. payable to the order of Texas
Commerce Bank National Association (incorporated by
reference to Exhibit 4.02 of the Company's Report on
Form 10-Q for the quarterly period ended June 30,
1997).
4.04. Security Agreement (Personal Property) dated as of
June 12, 1997, by and between Tidel Engineering, Inc.
and Texas Commerce Bank National Association
(incorporated by reference to Exhibit 4.03 of the
Company's Report on Form 10-Q for the quarterly
period ended June 30, 1997).
4.05. Patent Security Agreement dated June 12, 1997
executed by Tidel Engineering, Inc. in favor of Texas
Commerce Bank National Association (incorporated by
reference to Exhibit 4.04 of the Company's Report on
Form 10-Q for the quarterly period ended June 30,
1997).
4.06. Trademark Security Agreement dated June 12, 1997
executed by Tidel Engineering, Inc. in favor of Texas
Commerce Bank National Association (incorporated by
reference to Exhibit 4.05 of the Company's Report on
Form 10-Q for the quarterly period ended June 30,
1997).
4.07. Unconditional Guaranty Agreement dated June 12, 1997
executed by the Company for the benefit of Texas
Commerce Bank National Association (incorporated by
reference to Exhibit 4.06 of the Company's Report on
Form 10-Q for the quarterly period ended June 30,
1997).
4.08. Pledge and Security Agreement dated June 12, 1997
executed by the Company in favor of Texas Commerce
Bank National Association (incorporated by reference
to Exhibit 4.07 of the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1997).
4.09. First Amendment to Exhibit 4.02. above dated February
1, 1998 by and between Tidel Engineering, Inc. and
Chase Bank of Texas, N. A. (incorporated by reference
to Exhibit 4.01 of the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1998).
4.10. Second Amendment to Exhibit 4.02. above dated May 27,
1998 by and among Tidel Engineering, Inc., the
Company and Chase Bank of Texas, N. A. (incorporated
by reference to Exhibit 4.02 of the Company's Report
on Form 10-Q for the quarterly period ended June 30,
1998).
4.11. Promissory Note dated May 27, 1998 executed by Tidel
Engineering, Inc. payable to the order of Chase Bank
of Texas, N. A. (incorporated by reference to Exhibit
4.03. of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1998).
E-2
<PAGE> 46
4.12. Promissory Note dated May 27, 1998 executed by Tidel
Technologies, Inc. payable to the order of Chase Bank
of Texas, N. A. (incorporated by reference to Exhibit
4.04 of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1998).
4.13. First Amendment to Exhibit 4.04. above dated as of
May 27, 1998, by and between Tidel Engineering, Inc.
and Chase Bank of Texas, N. A. (incorporated by
reference to Exhibit 4.05 of the Company's Report on
Form 10-Q for the quarterly period ended June 30,
1998).
4.14. First Amendment to Exhibit 4.08. above dated as of
May 27, 1998 executed by the Company in favor of
Chase Bank of Texas, N. A. (incorporated by reference
to Exhibit 4.06 of the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1998).
10.01. Copy of 1989 Incentive Stock Option Plan of the
Company (incorporated by reference to Appendix A of
the Company's Proxy Statement filed under Regulation
14A with respect to the Annual Meeting of
Shareholders held June 13, 1989).
10.02. Copy of Lease Agreement dated February 21, 1992
between the Company, as Lessee, and San Felipe Plaza,
Ltd., as Lessor, related to the occupancy of the
Company's executive offices (incorporated by
reference to Exhibit 10.10. of the Company's Report
on Form 10-K for the year ended September 30, 1992).
10.03. Copy of Lease dated as of December 9, 1994 (together
with the Addendum and Exhibits thereto) between
Booth, Inc., a Texas corporation, as Landlord and
Tidel Engineering, Inc., as Tenant, covering
approximately 65,000 square feet of manufacturing and
office premises at 2310 McDaniel Drive, Carrollton,
Texas (incorporated by reference to Exhibit 10.7. of
the Company's Report on Form 10-K for the year ended
September 30, 1994).
10.04. Copy of Agreement dated October 30, 1991 between ACS
and Tidel Engineering, Inc. (incorporated by
reference to Exhibit 10.14. of the Company's Report
on Form 10-K for the year ended September 30, 1992).
10.05. Copy of EFT Processing Services Agreement dated
February 3, 1995 by, between and among Affiliated
Computer Services, Inc. ("ACS"), AnyCard
International, Inc. and the Company related to the
electronic fund transfer services to be provided by
ACS to AnyCard (incorporated by reference to Exhibit
10.9. of the Company's Report on Form 10-K for the
year ended September 30, 1995).
10.06. Copy of Amendment No. 1 dated as of September 14,
1995 to Exhibit 10.05. above (incorporated by
reference to Exhibit 10.10. of the Company's Report
on Form 10-K for the year ended September 30, 1995).
E-3
<PAGE> 47
10.07. Copy of Purchase Agreement dated February 3, 1995
between ACS and AnyCard International, Inc. related
to the purchase by ACS of AnyCard Systems
(incorporated by reference to Exhibit 10.11. of the
Company's Report on Form 10-K for the year ended
September 30, 1995).
10.08. Copy of Amendment No. 1 dated as of September 14,
1995 to Exhibit 10.07. above (incorporated by
reference to Exhibit 10.12. of the Company's Report
on Form 10-K for the year ended September 30, 1995).
10.09. Secured Promissory Note dated March 30, 1997 executed
by James L. Britton, III and payable to the order of
the Company (incorporated by reference to Exhibit
10.01 of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.10. Secured Promissory Note dated March 30, 1997 executed
by Jerrell G. Clay and payable to the order of the
Company (incorporated by reference to Exhibit 10.02
of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.11. Secured Promissory Note dated March 30, 1997 executed
by Mark K. Levenick and payable to the order of the
Company (incorporated by reference to Exhibit 10.03
of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.12. Secured Promissory Note dated March 30, 1997 executed
by James T. Rash and payable to the order of the
Company (incorporated by reference to Exhibit 10.04
of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.13. Form of Stock Pledge Agreement dated March 30, 1997
executed by each of the four directors of the Company
in favor of the Company (incorporated by reference to
Exhibit 10.05 of the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1997).
10.14. Copy of Amendment No. 2 dated as of September 15,
1997 to Exhibit 10.02. above (incorporated by
reference to Exhibit 10.14. of the Company's report
on Form 10-K for the year ended September 30, 1997).
10.15. Form of employment agreement dated July 16, 1997 by
and between Tidel Engineering, Inc. and Michael F.
Hudson, Eugene W. Moore, M. Flynt Moreland and
Roberto M. Gutierrez (incorporated by reference to
Exhibit 10.15. of the Company's report on Form 10-K
for the year ended September 30, 1997).
10.16. Form of employment agreement dated July 16, 1997 by
and between Tidel Engineering, Inc. and Mark K.
Levenick (incorporated by reference to Exhibit 10.16.
of the Company's report on Form 10-K for the year
ended September 30, 1997).
22. The Registrant has three subsidiaries doing business
in the names set forth below:
E-4
<PAGE> 48
EXHIBIT
NUMBER State of Percent
- ------ Name Incorporation Owned
---- ------------- -----
Tidel Cash Systems, Inc. Delaware 100%
AnyCard International, Inc. Delaware 100%
Tidel Engineering, Inc. Delaware 100%
*27. Financial Data Schedule.
- --------------
* filed herewith
E-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S REPORT ON FORM 10-K FOR THE YEAR ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,400,148
<SECURITIES> 0
<RECEIVABLES> 10,246,075
<ALLOWANCES> 693,613
<INVENTORY> 6,705,756
<CURRENT-ASSETS> 20,966,254
<PP&E> 2,843,723
<DEPRECIATION> 1,550,387
<TOTAL-ASSETS> 24,246,641
<CURRENT-LIABILITIES> 5,528,207
<BONDS> 5,234,604
0
0
<COMMON> 158,605
<OTHER-SE> 13,325,225
<TOTAL-LIABILITY-AND-EQUITY> 24,246,641
<SALES> 33,607,533
<TOTAL-REVENUES> 33,607,533
<CGS> 21,427,255
<TOTAL-COSTS> 21,427,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392,258
<INCOME-PRETAX> 3,932,375
<INCOME-TAX> (307,251)
<INCOME-CONTINUING> 4,239,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,239,626
<EPS-PRIMARY> .27
<EPS-DILUTED> .25
</TABLE>
