<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________
Commission file Number 000-17288
TIDEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2193593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 San Felipe, Suite 900
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 783-8200
--------------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock outstanding as of the close of
business on August 13, 1999 was 16,067,968.
<PAGE> 2
TIDEL TECHNOLOGIES, INC.
I N D E X
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and September 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for the three
months and nine months ended June 30, 1999
and 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Comprehensive Income
for the three months and nine months ended June 30,
1999 and 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the nine
months ended June 30, 1999 and 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial
Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 6
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote
Of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 13
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,229,510 $ 1,400,148
Trade accounts receivable, net of allowance of
$673,061 and $693,613, respectively 12,018,701 10,246,075
Notes and other receivables 1,281,229 1,174,055
Inventories 7,005,483 6,705,756
Deferred tax assets 912,751 1,058,692
Prepaid expenses and other 273,724 381,528
----------- -----------
Total current assets 22,721,398 20,966,254
Investment in 3CI, at market value 480,543 917,083
Property, plant and equipment, at cost 3,405,256 2,843,723
Accumulated depreciation (1,719,117) (1,550,387)
----------- -----------
Net property, plant and equipment 1,686,139 1,293,336
Intangible assets, net of accumulated amortization of
$991,586 and $813,190, respectively 708,236 797,032
Deferred tax asset 207,137 207,575
Other assets 309,253 65,361
----------- -----------
Total assets $26,112,706 $24,246,641
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 5,422,634 $ 128,000
Accounts payable 3,824,848 3,014,278
Accrued liabilities 1,439,696 2,385,929
----------- -----------
Total current liabilities 10,687,178 5,528,207
Long-term debt 384,000 5,234,604
----------- -----------
Total liabilities 11,071,178 10,762,811
----------- -----------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 16,067,968 and
15,860,468 shares, respectively 160,680 158,605
Additional paid-in capital 14,299,373 14,144,553
Retained earnings 2,050,707 213,364
Accumulated other comprehensive loss - net
unrealized loss on investment in 3CI (1,087,169) (650,629)
Stock subscriptions receivable (382,063) (382,063)
----------- -----------
Total shareholders' equity 15,041,528 13,483,830
----------- -----------
Total liabilities and shareholders' equity $26,112,706 $24,246,641
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
--------------------------------- ----------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $12,380,264 $ 9,935,472 $29,727,204 $25,111,381
Cost of sales 8,318,589 6,180,517 19,944,417 15,700,347
----------- ----------- ----------- -----------
Gross profit 4,061,675 3,754,955 9,782,787 9,411,034
Selling, general and administrative 2,374,901 1,792,813 6,116,611 5,207,874
Depreciation and amortization 199,054 122,235 540,399 340,161
----------- ----------- ----------- -----------
Operating income 1,487,720 1,839,907 3,125,777 3,862,999
Interest expense, net 103,672 99,456 303,434 297,993
----------- ----------- ----------- -----------
Income before taxes 1,384,048 1,740,451 2,822,343 3,565,006
Income tax expense 425,000 204,000 985,000 272,000
----------- ----------- ----------- -----------
Net income $ 959,048 $ 1,536,451 $ 1,837,343 $ 3,293,006
=========== =========== =========== ===========
Basic earnings per share:
Net income $ 0.06 $ 0.10 $ 0.11 $ 0.21
Weighted average common shares =========== =========== =========== ===========
outstanding 16,061,704 15,650,484 15,988,646 15,491,399
=========== =========== =========== ===========
Diluted earnings per share:
Net income $ 0.06 $ 0.09 $ 0.11 $ 0.19
Weighted average common and =========== =========== =========== ===========
dilutive shares outstanding 17,108,680 17,159,142 17,004,001 17,027,845
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
-------------------------------- ----------------------------------
1999 1998 1999 1998
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 959,048 $ 1,536,451 $ 1,837,343 $ 3,293,006
Other comprehensive income
(loss), net of tax:
Unrealized (loss) gain on
investment in 3CI (130,613) 113,777 (436,540) 581,499
--------- ----------- ----------- -----------
Comprehensive income $ 828,435 $ 1,650,228 $ 1,400,803 $ 3,874,505
========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,837,343 $ 3,293,006
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 540,399 340,161
Decrease (increase) in deferred tax assets 146,379 (593,812)
Gain on sale of property, plant and equipment (2,750) --
Changes in assets and liabilities:
Trade accounts receivable, net (1,772,626) (1,214,694)
Notes and other receivables (107,174) 56,099
Inventories (299,727) (1,030,638)
Prepaids and other assets (136,088) 23,382
Accounts payable and accrued liabilities (135,663) (1,502,550)
----------- -----------
Net cash provided by (used in) operating activities 70,093 (629,046)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (764,086) (428,138)
Proceeds from sale of property, plant and equipment 2,750 --
Increase in intangible assets (80,320) --
Increase in investment in 3CI -- (20,805)
----------- -----------
Net cash used in investing activities (841,656) (448,943)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 540,030 1,240,000
Repayments of notes payable (96,000) (948,697)
Proceeds from exercise of warrants 156,895 654,485
Payments of stock subscriptions -- 42,374
----------- -----------
Net cash provided by financing activities 600,925 988,162
----------- -----------
Net decrease in cash and cash equivalents (170,638) (89,827)
Cash and cash equivalents at beginning of period 1,400,148 1,549,331
----------- -----------
Cash and cash equivalents at end of period $ 1,229,510 $ 1,459,504
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 341,635 $ 351,506
=========== ===========
Cash paid for taxes $ 991,268 $ 812,231
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheets and related interim
consolidated statements of income and cash flows of Tidel Technologies,
Inc. (the "Company"), a Delaware corporation, are unaudited. In the
opinion of management, these financial statements include all adjustments
(consisting only of normal recurring items) necessary for their fair
presentation in accordance with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results may differ from these estimates.
Interim results are not necessarily indicative of results for a full year.
Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year presentation format. The
information included in this Form 10-Q should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended September 30,
1998.
(2) INVENTORIES
Inventories consisted of the following at June 30, 1999 and September 30,
1998:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
------------ -------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . $ 5,579,838 $ 3,993,447
Work in process . . . . . . . . . . . . . . . . 308,807 484,884
Finished goods . . . . . . . . . . . . . . . . . 1,336,188 2,542,177
Other . . . . . . . . . . . . . . . . . . . . . 308,650 180,248
------------ ------------
7,533,483 7,200,756
Inventory reserve . . . . . . . . . . . . . . . (528,000) (495,000)
------------ ------------
$ 7,005,483 $ 6,705,756
============ ============
</TABLE>
(3) EARNINGS PER SHARE
Basic earnings per share is computed by dividing the income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the income available to common shareholders by the weighted
average number of common shares and dilutive potential common shares. The
following is a reconciliation of the numerators and denominators of the
basic and diluted per- share computations for net income for the three
months and nine months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Average Shares Per Share
Income Outstanding Amount
---------------- -------------- --------------
<S> <C> <C> <C>
Three Months Ended June 30, 1999:
---------------------------------
Basic earnings per share . . . . . . . . . . . . $ 959,048 16,061,704 $ .06
Effect of dilutive warrants and options . . . . -- 1,046,976 --
------------ ----------- ----------
Diluted earnings per share . . . . . . . . . . . $ 959,048 17,108,680 $ .06
============ =========== ==========
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
Weighted
Average Shares Per Share
Income Outstanding Amount
---------------- -------------- -------------
<S> <C> <C> <C>
Three Months Ended June 30, 1998:
----------------------------------
Basic earnings per share . . . . . . . . . . . . $ 1,536,451 15,650,484 $ .10
Effect of dilutive warrants and options . . . . -- 1,508,658 (.01)
------------ ------------ ----------
Diluted earnings per share . . . . . . . . . . . $ 1,536,451 17,159,142 $ .09
============ ============ ==========
Nine Months Ended June 30, 1999:
--------------------------------
Basic earnings per share . . . . . . . . . . . . $ 1,837,343 15,988,646 $ .11
Effect of dilutive warrants and options . . . . -- 1,015,355 --
------------ ------------ ----------
Diluted earnings per share . . . . . . . . . . . $ 1,837,343 17,004,001 $ .11
============ ============ ==========
Nine Months Ended June 30, 1998:
--------------------------------
Basic earnings per share . . . . . . . . . . . . $ 3,293,006 15,491,399 $ .21
Effect of dilutive warrants and options . . . . -- 1,536,446 (.02)
------------ ------------- ----------
Diluted earnings per share . . . . . . . . . . . $ 3,293,006 17,027,845 $ .19
============ ============ ==========
</TABLE>
(4) INVESTMENT IN 3CI
The Company currently owns 698,464 shares of common stock of 3CI Complete
Compliance Corporation ("3CI"), which is carried at market value. In
addition, the Company owns warrants to purchase 226,939 shares of common
stock of 3CI, exercisable at $1.50 per share through April 2000. At
present, all the shares are pledged to secure an outstanding note payable
in the amount of $512,000.
(5) LITIGATION
The Company and its subsidiaries are each subject to certain litigation
and claims arising in the ordinary course of business. In the opinion of
the management of the Company, the amounts ultimately payable, if any, as
a result of such litigation and claims will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company develops, manufactures, sells and supports products
designed for specialty retail marketers, including automated teller
machines and related software (the "ATM" products); electronic cash
security systems (the "Timed Access Cash Controller" or "TACC"
products); and underground fuel storage monitoring and leak detection
devices (the "Environmental Monitoring System" or "EMS" products).
PRODUCT REVENUES
Total revenues increased $2,444,792, or 25%, for the third quarter of
fiscal 1999 compared to the same quarter of 1998. On a year-to-date
basis, revenues increased $4,615,823, or 18%, in fiscal 1999 compared
to fiscal 1998. As discussed below, a significant increase in ATM
shipments was the
6
<PAGE> 9
principal factor in the Company's revenue growth. Revenue by product
is detailed in the following table:
<TABLE>
<CAPTION>
(Dollars in 000's)
------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- -------
<S> <C> <C> <C> <C>
ATM . . . . . . . . . . . . . . . . $ 9,735 $ 7,386 $22,278 $17,513
TACC . . . . . . . . . . . . . . . . 1,808 1,549 4,695 4,842
Parts, service and other . . . . . . 786 678 2,220 1,969
EMS . . . . . . . . . . . . . . . . 51 322 534 787
------- ------- ------- -------
$12,380 $ 9,935 $29,727 $25,111
======= ======= ======= =======
</TABLE>
Unit shipments of ATMs increased 41% and 39% for the three months and nine
months ended June 30, 1999, respectively, compared to the same periods in
1998. The resulting ATM product sales increased $2,349,000, or 32%, and
$4,765,000, or 27%, for the three months and nine months ended June 30,
1999, respectively, compared to the same periods in 1998. Such
improvement was attributable to continued strong demand for the Company's
new Ignition series ATMs introduced in October 1998, and the signing of
several new major distributors during the period.
TACC product sales increased approximately $259,000, or 17%, for the
quarter ended June 30, 1999 compared to the same period in 1998.
Management believes this increase is due to the recent introduction of the
TACC-IV model in January 1999. On a year-to-date basis, TACC sales
decreased approximately $147,000, or 3%, in 1999 compared to 1998.
Management believes, although there can be no assurance, TACC product
sales for the year ending September 30, 1999 taken as a whole should
increase when compared to 1998 due to the recent introduction of the
TACC-IV model in January 1999.
Parts, service and other revenues vary directly with sales of finished
goods, and have increased accordingly.
All marketing activities for EMS products have terminated as the marketing
focus of the Company has shifted to its other product lines. Certain
existing customers have continued to purchase these products, however, to
complete retrofit projects that are currently in progress.
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)
------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Gross profit . . . . . . . . . . . . $ 4,062 $ 3,755 $ 9,783 $ 9,411
Selling, general and administrative 2,375 1,793 6,117 5,208
Depreciation and amortization . . . 199 122 540 340
Operating income . . . . . . . . . . 1,488 1,840 3,126 3,863
Interest expense . . . . . . . . . . 104 99 303 298
Income before taxes . . . . . . . . 1,384 1,740 2,822 3,565
Income taxes . . . . . . . . . . . . 425 204 985 272
Net income . . . . . . . . . . . . . 959 1,536 1,837 3,293
</TABLE>
7
<PAGE> 10
Gross profit increased $307,000 for the quarter ended June 30 1999
compared to the same period in 1998. On a year-to-date basis, gross
profit increased $372,000 for 1999 compared to 1998. Gross profit as a
percentage of revenue declined from 38% for the three months and nine
months ended June 30, 1998 to 33% for the same periods in 1999. Such
decline was primarily the result of lower average sales prices for ATM
products in 1999 compared to 1998. In addition, the Company offered
pricing discounts to substantially liquidate its remaining inventories of
predecessor model ATMs.
Selling, general and administrative expenses increased $582,000 and
$909,000 for the three months and nine months ended June 30, 1999,
respectively, compared to the same periods in 1998. The increases were
primarily due to higher selling expenses associated with market expansion
activities and additional payroll costs applicable to new personnel.
Depreciation and amortization increased 63% from $122,000 in the quarter
ended June 30, 1998 to $199,000 for the same period in 1999. On a
year-to-date basis, depreciation and amortization expense increased 59%
from $340,000 in 1998 to $540,000 in 1999. The increases were due to
additions of property, plant and equipment.
Interest expense in 1999 did not vary significantly from the 1998 amounts.
Income taxes in 1999 included state and federal income taxes at the
statutory rates while there was no provision for federal income taxes in
1998 due to utilization of net operating loss carryforwards.
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
June 30, 1999 and September 30, 1998:
<TABLE>
<CAPTION>
(Dollars in 000's)
------------------------------
June 30, September 30,
1999 1998
--------- ------------
<S> <C> <C>
Working capital . . . . . . . . . . . . . . . . $ 12,034 $ 15,438
Total assets . . . . . . . . . . . . . . . . . . 26,113 24,247
Shareholders' equity . . . . . . . . . . . . . . 15,042 13,484
</TABLE>
The Company has a revolving credit agreement with a bank which provides
for borrowings up to $7,000,000 at the prime rate, with certain LIBOR
alternatives. At June 30, 1999, $5,294,634 was outstanding pursuant to
the revolving credit agreement. The decrease in working capital from
September 30, 1998 was primarily due to current maturities of indebtedness
outstanding pursuant to the revolving credit agreement.
The Company continues to own 698,464 shares of common stock of 3CI and
warrants to purchase 226,939 shares of common stock of 3CI exercisable at
$1.50 per share through April 2000. The Company has no immediate plans
for the disposal of the shares or warrants, and accordingly, the shares
and warrants may be utilized to collateralize borrowings. At present, all
the shares are pledged to secure an outstanding note payable in the
principal amount of $512,000.
The Company's registration statement covering the offering and sale by
selling shareholders of the common stock underlying all of the Company's
then outstanding warrants was declared effective in January 1997. During
the nine- month period ended June 30, 1999, warrants to purchase 207,500
shares were exercised generating net proceeds to the Company of
approximately $157,000. As of June
8
<PAGE> 11
30, 1999, the Company had outstanding warrants to purchase 1,175,692
shares of common stock exercisable through January 2001 at exercise prices
ranging from $.50 to $1.25, which if exercised would generate proceeds to
the Company of approximately $1,046,000.
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 retail-based e-commerce applications. During the
nine months ended June 30, 1999, approximately $1,378,000 was expended for
research and development.
With its present capital resources, its potential capital from the
exercise of warrants, and with its borrowing facility, the Company should
have sufficient resources to meet its operating needs for the foreseeable
future and to provide for debt maturities and capital expenditures.
The Company has never paid dividends and does not anticipate paying
dividends on shares of its common stock 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 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.
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 account receivable if a customer failed to perform according
to the terms of the credit arrangements. Sales to major customers were as
follows for the three months and nine months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in 000's)
------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Customer A . . . . . . . . . . . . . $ 4,663 $ 2,044 $ 10,684 $ 2,677
Customer B . . . . . . . . . . . . . 1,572 1,241 3,367 --
Customer C . . . . . . . . . . . . . -- 1,453 -- 3,218
</TABLE>
Foreign sales accounted for 5% and 3% of the Company's total sales during
the three months and nine months ended June 30, 1999, respectively,
compared to 2% and 3% of total sales during the three months and nine
months ended June 30, 1998, respectively.
Year 2000
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.
9
<PAGE> 12
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 evaluation of
the Company's current computer systems, software and embedded technologies
to identify those that could 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 were the major resources to have Year 2000
compliance issues. The Company is in the process of upgrading these
software programs and expects to complete these projects during the
quarter ended September 30, 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.
10
<PAGE> 13
As part of the Company's Year 2000 readiness efforts, the Company has
begun contacting its 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. To date,
the Company has not received a sufficient number of responses to determine
the extent to which the Company is vulnerable to those third parties'
failure to remediate their Year 2000 compliance issues. Accordingly,
there can be no assurance 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.
To date, the Company estimates it has expended less than $100,000 for the
Year 2000 Issue, however, 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.
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. 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 will be adopted by the
Company in its year-end financials for the year ending September 30, 1999.
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
11
<PAGE> 14
have on its financial position or results of operations, and plans to
adopt this standard during the year ending September 30, 2001.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and
uncertainty, (including without limitation, the Company's compliance with
Year 2000 Issues, the Company's future product sales, gross profit,
selling, general and administrative expense, the Company's financial
position, working capital and seasonal variances in the Company's
operations, as well as general market conditions) though the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-
looking statements included in this Form 10-Q will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not
be regarded as a representation by the Company or any other person that
the objectives and plans of the Company will be achieved.
ITEM 3. 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,
however, there would be no material impact on the Company's consolidated
results of operations or financial position.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
As described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources", the
Company has issued 207,500 shares of common stock during the nine months
ended June 3, 1999 pursuant to the exercise of warrants. Such shares were
issued pursuant to the exemption contained in Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE> 15
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 - Financial Data Schedule
b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the quarter ended June
30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIDEL TECHNOLOGIES, INC.
(Registrant)
DATE: August 19, 1999 By:/s/ JAMES T. RASH
------------------
James T. Rash
Principal Executive
and Financial Officer
13
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND CONSOLIDATED
STATEMENTS OF INCOME FOR THE NINE-MONTH PERIOD THEN ENDED, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30,1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,229,510
<SECURITIES> 0
<RECEIVABLES> 12,018,701
<ALLOWANCES> 673,061
<INVENTORY> 7,005,483
<CURRENT-ASSETS> 22,721,398
<PP&E> 3,405,256
<DEPRECIATION> 1,719,117
<TOTAL-ASSETS> 26,112,706
<CURRENT-LIABILITIES> 10,687,178
<BONDS> 384,000
0
0
<COMMON> 160,680
<OTHER-SE> 14,880,848
<TOTAL-LIABILITY-AND-EQUITY> 26,112,706
<SALES> 29,727,204
<TOTAL-REVENUES> 29,727,204
<CGS> 19,944,417
<TOTAL-COSTS> 19,944,417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,434
<INCOME-PRETAX> 2,822,343
<INCOME-TAX> 985,000
<INCOME-CONTINUING> 1,837,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,837,343
<EPS-BASIC> .11
<EPS-DILUTED> .11
</TABLE>
