<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 March 31, 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 May 14, 1999 was 16,067,968.
<PAGE> 2
TIDEL TECHNOLOGIES, INC.
I N D E X
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and September 30, 1998 (unaudited)...................................... 1
Consolidated Statements of Income for the three
months and six months ended March 31, 1999
and 1998 (unaudited).................................................... 2
Consolidated Statements of Comprehensive Income
for the three months and six months ended March 31,
1999 and 1998 (unaudited)............................................... 3
Consolidated Statements of Cash Flows for the six
months ended March 31, 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............................................ 13
Item 4. Submission of Matters to a Vote
Of Security Holders..................................................... 13
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>
MARCH 31, SEPTEMBER 30,
ASSETS 1999 1998
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 882,267 $ 1,400,148
Trade accounts receivable, net of allowance of
$671,565 and $693,613, respectively 10,947,941 10,246,075
Notes and other receivables 1,207,725 1,174,055
Inventories 6,803,772 6,705,756
Deferred tax assets 1,058,692 1,058,692
Prepaid expenses and other 472,449 381,528
-------------- --------------
Total current assets 21,372,846 20,966,254
Investment in 3CI, at market value 611,156 917,083
Property, plant and equipment, at cost 3,041,976 2,843,723
Accumulated depreciation (1,576,436) (1,550,387)
-------------- --------------
Net property, plant and equipment 1,465,540 1,293,336
Intangible assets, net of accumulated amortization of
$935,213 and $813,190, respectively 684,288 797,032
Deferred tax asset 207,575 207,575
Other assets 58,060 65,361
-------------- --------------
Total assets $ 24,399,465 $ 24,246,641
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 128,000 $ 128,000
Accounts payable 2,836,507 3,014,278
Accrued liabilities 1,526,876 2,385,929
-------------- --------------
Total current liabilities 4,491,383 5,528,207
Long-term debt 5,710,634 5,234,604
-------------- --------------
Total liabilities 10,202,017 10,762,811
-------------- --------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 16,050,468 and
15,860,468 shares, respectively 160,505 158,605
Additional paid-in capital 14,283,903 14,144,553
Retained earnings 1,091,659 213,364
Accumulated other comprehensive loss - net
unrealized loss on investment in 3CI (956,556) (650,629)
Stock subscriptions receivable (382,063) (382,063)
-------------- --------------
Total shareholders' equity 14,197,448 13,483,830
-------------- --------------
Total liabilities and shareholders' equity $ 24,399,465 $ 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 SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $10,286,247 $ 9,147,923 $17,346,940 $15,175,909
Cost of sales 6,907,215 5,690,349 11,625,828 9,519,830
----------- ----------- ----------- -----------
Gross profit 3,379,032 3,457,574 5,721,112 5,656,079
Selling, general and administrative 2,066,415 1,773,618 3,741,710 3,483,061
Depreciation and amortization 178,631 110,614 341,345 217,926
----------- ----------- ----------- -----------
Operating income 1,133,986 1,573,342 1,638,057 1,955,092
Interest expense, net 96,024 104,928 199,762 198,537
----------- ----------- ----------- -----------
Income before taxes 1,037,962 1,468,414 1,438,295 1,756,555
Income tax expense 412,000 -- 560,000 --
----------- ----------- ----------- -----------
Net income $ 625,962 $ 1,468,414 $ 878,295 $ 1,756,555
=========== =========== =========== ===========
Basic earnings per share:
Net income $ 0.04 $ 0.09 $ 0.06 $ 0.11
=========== =========== =========== ===========
Weighted average common shares
outstanding 16,006,912 15,552,746 15,952,116 15,411,857
=========== =========== =========== ===========
Diluted earnings per share:
Net income $ 0.04 $ 0.09 $ 0.05 $ 0.10
=========== =========== =========== ===========
Weighted average common and
dilutive shares outstanding 17,363,869 17,045,861 17,097,185 17,044,128
=========== =========== =========== ===========
</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 SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 625,962 $1,468,414 $ 878,295 $1,756,555
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on
investment in 3CI (108,960) 149,099 (305,927) 467,722
---------- ---------- ---------- ----------
Comprehensive income $ 517,002 $1,617,513 $ 572,368 $2,224,277
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 878,295 $ 1,756,555
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 341,345 217,926
Deferred tax benefit -- (129,212)
Gain on sale of property, plant and equipment (2,750) --
Changes in assets and liabilities:
Trade accounts receivable, net (701,866) 549,101
Notes and other receivables (33,670) 208,804
Inventories (98,016) (1,645,402)
Prepaids and other assets (83,619) 37,467
Accounts payable and accrued liabilities (1,036,824) (1,637,575)
------------ ------------
Net cash used in operating activities (737,105) (642,336)
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (400,806) (133,961)
Proceeds from sale of property, plant and equipment 2,750 --
------------ ------------
Net cash used in investing activities (398,056) (133,961)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 540,030 600,000
Repayments of notes payable (64,000) (305,729)
Proceeds from exercise of warrants 141,250 535,685
Payments of stock subscriptions -- 42,374
------------ ------------
Net cash provided by financing activities 617,280 872,330
------------ ------------
Net (decrease) increase in cash and cash equivalents (517,881) 96,033
Cash and cash equivalents at beginning of period 1,400,148 1,549,331
------------ ------------
Cash and cash equivalents at end of period $ 882,267 $ 1,645,364
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 224,871 $ 228,164
============ ============
Cash paid for taxes $ 662,940 $ 329,212
============ ============
</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 March 31, 1999 and September 30,
1998:
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Raw materials........................................ $ 4,728,565 $ 3,993,447
Work in process...................................... 318,944 484,884
Finished goods....................................... 1,991,136 2,542,177
Other................................................ 265,127 180,248
------------ ------------
7,303,772 7,200,756
Inventory reserve.................................... (500,000) (495,000)
------------ ------------
$ 6,803,772 $ 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 six months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Average Shares Per Share
Income Outstanding Amount
------------ ------------ ----------
<S> <C> <C> <C>
Three Months Ended March 31, 1999:
Basic earnings per share............................. $ 625,962 16,006,912 $ .04
Effect of dilutive warrants and options.............. -- 1,356,957 --
------------ ------------ ----------
Diluted earnings per share........................... $ 625,962 17,363,869 $ .04
============ ============ ==========
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
Weighted
Average Shares Per Share
Income Outstanding Amount
------------ ------------ ------------
<S> <C> <C> <C>
Three Months Ended March 31, 1998:
Basic earnings per share ......................... $ 1,468,414 15,552,746 $ .09
Effect of dilutive warrants and options .......... -- 1,493,115 --
------------ ------------ ------------
Diluted earnings per share ....................... $ 1,468,414 17,045,861 $ .09
============ ============ ============
Six Months Ended March 31, 1999:
Basic earnings per share ......................... $ 878,295 15,952,116 $ .06
Effect of dilutive warrants and options .......... -- 1,145,069 (.01)
------------ ------------ ------------
Diluted earnings per share ....................... $ 878,295 17,097,185 $ .05
============ ============ ============
Six Months Ended March 31, 1998:
Basic earnings per share ......................... $ 1,756,555 15,411,857 $ .11
Effect of dilutive warrants and options .......... -- 1,632,271 (.01)
------------ ------------ ------------
Diluted earnings per share ....................... $ 1,756,555 17,044,128 $ .10
============ ============ ============
</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 $544,000.
(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 $1,138,324, or 12%, for the second quarter of
fiscal 1999 compared to the same quarter of 1998. On a year-to-date basis,
revenues increased $2,171,031, or 14%, in 1999 when compared to 1998. As
discussed below, a significant increase in ATM shipments was the principal
factor in the Company's revenue growth. Revenue by product is detailed in
the following table:
6
<PAGE> 9
<TABLE>
<CAPTION>
(Dollars in 000's)
---------------------------------------------------------------
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- --------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
ATM................................ $ 7,771 $ 6,576 $12,543 $10,127
TACC............................... 1,625 1,705 2,887 3,293
Parts, service and other........... 750 670 1,434 1,291
EMS................................ 140 197 483 465
------- ------- ------- -------
$10,286 $ 9,148 $17,347 $15,176
======= ======= ======= =======
</TABLE>
Unit shipments of ATMs increased 34% and 38% for the three months and six
months ended March 31, 1999, respectively, compared to the same periods in
1998. The resulting ATM product sales increased $1,195,000, or 18%, and
$2,416,000, or 24%, for the three months and six months ended March 31,
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 decreased approximately $80,000, or 5%, for the quarter
ended March 31, 1999 compared to the same period in 1998. On a
year-to-date basis, TACC sales decreased approximately $406,000, or 12%,
in 1999 when 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.
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 March 31, Six Months Ended March 31,
---------------------------- --------------------------
1999 1998 1999 1998
---------- ----------- -------- --------
<S> <C> <C> <C> <C>
Gross profit....................... $ 3,379 $ 3,458 $ 5,721 $ 5,656
Selling, general and administrative 2,066 1,774 3,742 3,483
Depreciation and amortization...... 179 111 341 218
Operating income................... 1,134 1,573 1,638 1,955
Interest expense................... 96 105 200 199
Income before taxes................ 1,038 1,468 1,438 1,757
Income taxes....................... 412 -- 560 --
Net income......................... 626 1,468 878 1,757
</TABLE>
Gross profit decreased $79,000 for the quarter ended March 31, 1999
compared to the same period in 1998. On a year-to-date basis, gross profit
increased $65,000 for 1999 compared to 1998. Gross profit as a percentage
of revenue declined from 38% for the three months and six months ended
March 31, 1998 to 33% for the same periods in 1999. Average sales prices
for ATM products in 1999 were 10% lower than average sales prices in 1998,
primarily as a result of two factors.
7
<PAGE> 10
First, prices for the Company's Ignition series ATMs were slightly lower
during 1999 than sales prices for comparable products a year ago due to
continued competition in the marketplace for low-cost dispensing
equipment. Second, the Company continues to offer pricing discounts on its
remaining inventories of AnyCard model ATMs, the predecessor of the
Ignition series ATM. Gross profit as a percentage of sales is expected to
improve upon the liquidation of the remaining AnyCard inventory.
Selling, general and administrative expenses increased $292,000 and
$259,000 for the three months and six months ended March 31, 1999,
respectively, compared to the same periods in 1998. As a percentage of
revenues, these expenses increased less than 1% for the quarter ended
March 31, 1999 compared to the quarter ended March 31, 1998, and on a
year-to-date basis, declined 1% from the same period a year ago. The
overall decline relates to increased sales volumes and cost reduction
efforts.
Depreciation and amortization increased 61% from $111,000 in the quarter
ended March 31, 1998 to $179,000 for the same period in 1999. On a
year-to-date basis, depreciation and amortization expense increased 56%
from $218,000 in 1998 to $341,000 in 1999. The increases are due to
additions of property, plant and equipment.
Interest expense in 1999 did not vary significantly from the 1998 amounts.
Income taxes were recorded for periods in 1999, as the earnings of the
Company were subject to tax at the statutory state and federal rates,
while there was no tax provision recorded in the same periods 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
March 31, 1999 and September 30, 1998:
<TABLE>
<CAPTION>
(Dollars in 000's)
-----------------------------
March 31, September 30,
1999 1998
---------- -------------
<S> <C> <C>
Working capital...................................... $ 16,881 $ 15,438
Total assets......................................... 24,399 24,247
Shareholders' equity................................. 14,197 13,484
</TABLE>
The improvement in working capital is principally due to the increase in
accounts receivable and the repayment of current liabilities. The increase
in accounts receivable was due to increased sales and the repayment of
current liabilities was facilitated by increased collections of accounts
and notes receivable and $540,000 of additional borrowings of long-term
debt.
The Company's wholly owned subsidiary 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 March 31, 1999, $5,294,634 was
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. The Company has no immediate plans for the disposal of
the shares or warrants, and accordingly, the shares and warrants
8
<PAGE> 11
may be utilized to collateralize borrowings. At present, all the shares
are pledged to secure an outstanding note payable in the principal amount
of $544,000.
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 six-month period ended March 31, 1999, warrants to purchase 190,000
shares were exercised generating net proceeds to the Company of $141,250.
As of March 31, 1999, the Company had outstanding warrants to purchase
1,193,192 shares of common stock at exercise prices ranging from $.50 to
$1.25, which if exercised would generate proceeds to the Company of
approximately $1,061,000.
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 six months
ended March 31, 1999, approximately $696,000 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 six months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in 000's)
----------------------------------------------------------------
Three Months Ended March 31, Six Months Ended March 31,
----------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Customer A......................... $ 2,958,037 $ -- $ 6,021,193 $ --
Customer B......................... 956,637 -- 1,795,052 --
Customer C......................... -- 1,475,712 -- 2,184,896
</TABLE>
Foreign sales accounted for 3% of the Company's total sales during the
three months and six months ended March 31, 1999, compared to 2% and 3% of
total sales during the three months and six months ended March 31, 1998,
respectively.
9
<PAGE> 12
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.
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 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 and are "off-the-shelf" products with Year
2000 compliant versions now available. The Company is in the process of
upgrading these programs as well as evaluating its least critical internal
operating functions, and expects to complete these projects during the
quarter ending June 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.
10
<PAGE> 13
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 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. 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. 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.
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
11
<PAGE> 14
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 have on its financial position or results of operations, and
plans to adopt this standard during the year ending September 30, 2000.
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
Not applicable.
12
<PAGE> 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
The Company issued a press release on May 13, 1999 which indicated that
one of its largest distributors, Credit Card Center, had reached a deal
with Motiva Enterprises, LLC ("Motiva") to offer ATM equipment and
services to more than 14,000 Shell and Texaco branded stations located in
the U.S. Motiva has subsequently advised the Company that although Credit
Card Center has placed ATMs in certain Shell and Texaco stations in the
New York/New Jersey area, no national sales agreement is in place between
the two parties
Pursuant to recent amendments to the proxy rules under the Securities
Exchange Act of 1934, as amended, the Company's stockholders are notified
that the deadline for providing the Company timely notice of any
stockholder proposal to be submitted outside of the Rule 14a-8 process for
consideration at the Company's 1999 Annual Meeting of Stockholders (the
"Annual Meeting") was May 11, 1999. As to all such matters which the
Company did not receive notice by May 11, 1999, discretionary authority
shall be granted to the designated persons in the Company's proxy
statement for the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 - Financial Data Schedule
b) REPORTS ON FORM 8-K
The Company filed no Reports on Form 8-K during the quarter ended March
31, 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: May 21, 1999 By: /s/ JAMES T. RASH
--------------------------------------
James T. Rash
Principal Executive
and Financial Officer
13
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ------------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE SIX-MONTH PERIOD THEN ENDED. THIS SCHEDULE IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 882,267
<SECURITIES> 0
<RECEIVABLES> 10,947,941
<ALLOWANCES> 671,565
<INVENTORY> 6,803,772
<CURRENT-ASSETS> 21,372,846
<PP&E> 3,041,976
<DEPRECIATION> 1,576,436
<TOTAL-ASSETS> 24,399,465
<CURRENT-LIABILITIES> 4,491,383
<BONDS> 5,710,634
0
0
<COMMON> 160,505
<OTHER-SE> 14,036,943
<TOTAL-LIABILITY-AND-EQUITY> 24,399,465
<SALES> 17,346,940
<TOTAL-REVENUES> 17,346,940
<CGS> 11,625,828
<TOTAL-COSTS> 11,625,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,762
<INCOME-PRETAX> 1,438,295
<INCOME-TAX> 560,000
<INCOME-CONTINUING> 878,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 878,295
<EPS-BASIC> .06
<EPS-DILUTED> .05
</TABLE>
