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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 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
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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 January 25, 2000 was 16,250,327.
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TIDEL TECHNOLOGIES, INC.
I N D E X
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999
and September 30, 1999 (unaudited)........................................ 1
Consolidated Statements of Operations for the three
months ended December 31, 1999 and 1998 (unaudited)....................... 2
Consolidated Statements of Comprehensive Income
for the three months ended December 31, 1999
and 1998 (unaudited)...................................................... 3
Consolidated Statements of Cash Flows for the three
months ended December 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 Risks.............................................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 10
Item 2. Changes in Securities........................................................ 10
Item 3. Defaults Upon Senior Securities.............................................. 10
Item 4. Submission of Matters to a Vote
Of Security Holders....................................................... 10
Item 5. Other Information............................................................ 10
Item 6. Exhibits and Reports on Form 8-K............................................. 10
SIGNATURE..................................................................................... 11
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,796,083 $ 2,423,844
Trade accounts receivable, net of allowance of
$591,745 and $566,917, respectively 12,534,226 15,137,056
Notes and other receivables 935,729 897,368
Inventories 8,368,175 6,128,741
Prepaid expenses and other 967,633 964,290
------------ ------------
Total current assets 26,601,846 25,551,299
Investment in 3CI, at market value 261,924 261,924
Property, plant and equipment, at cost 4,130,387 3,912,348
Accumulated depreciation (2,214,802) (1,932,575)
------------ ------------
Net property, plant and equipment 1,915,585 1,979,773
Intangible assets, net of accumulated amortization of
$1,067,916 and $1,039,364, respectively 633,157 661,709
Other assets 235,943 241,364
------------ ------------
Total assets $ 29,648,455 $ 28,696,069
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 128,000 $ 128,000
Accounts payable 4,626,728 5,285,591
Accrued liabilities 2,201,210 2,114,314
------------ ------------
Total current liabilities 6,955,938 7,527,905
Long-term debt 5,214,634 5,246,634
------------ ------------
Total liabilities 12,170,572 12,774,539
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Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 16,175,827 and
16,067,968 shares, respectively 161,758 160,680
Additional paid-in capital 14,373,581 14,299,373
Retained earnings 4,630,395 3,149,328
Stock subscriptions receivable (382,063) (382,063)
Accumulated other comprehensive loss (1,305,788) (1,305,788)
------------ ------------
Total shareholders' equity 17,477,883 15,921,530
------------ ------------
Total liabilities and shareholders' equity $ 29,648,455 $ 28,696,069
============ ============
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
1999 1998
------------- -------------
Revenues $ 13,782,153 $ 7,060,693
Cost of sales 8,760,359 4,718,613
------------ ------------
Gross profit 5,021,794 2,342,080
Selling, general and administrative 2,362,445 1,675,295
Depreciation and amortization 310,779 162,714
------------ ------------
Operating income 2,348,570 504,071
Interest expense, net 102,503 103,738
------------ ------------
Income before taxes 2,246,067 400,333
Income tax expense 765,000 148,000
------------ ------------
Net income $ 1,481,067 $ 252,333
============ ============
Basic earnings per share:
Net income $ 0.09 $ 0.02
============ ============
Weighted average common shares
outstanding 16,097,417 15,898,511
============ ============
Diluted earnings per share:
Net income $ 0.09 $ 0.02
============ ============
Weighted average common and
dilutive shares outstanding 17,368,698 16,676,955
============ ============
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
1999 1998
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Net income $ 1,481,067 $ 252,333
Other comprehensive loss:
Unrealized loss on investment in 3CI -- (196,197)
------------ ------------
Comprehensive income $ 1,481,067 $ 56,136
============ ============
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31,
1999 1998
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Cash flows from operating activities:
Net income $ 1,481,067 $ 252,333
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 310,779 162,714
Changes in assets and liabilities:
Trade accounts receivable, net 2,602,830 1,013,985
Notes and other receivables (38,361) (49,100)
Inventories (2,239,434) (672,717)
Prepaids and other assets 2,078 28,223
Accounts payable and accrued liabilities (571,967) (1,433,931)
------------ ------------
Net cash provided by (used in) operating activities 1,546,992 (698,493)
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (218,039) (323,764)
------------ ------------
Net cash used in investing activities (218,039) (323,764)
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Cash flows from financing activities:
Proceeds from borrowings of long-term debt -- 500,000
Repayments of notes payable (32,000) (32,000)
Proceeds from exercise of warrants 75,286 31,250
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Net cash provided by financing activities 43,286 499,250
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,372,239 (523,007)
Cash and cash equivalents at beginning of period 2,423,844 1,400,148
------------ ------------
Cash and cash equivalents at end of period $ 3,796,083 $ 877,141
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 116,399 $ 115,121
============ ============
Cash paid for taxes $ 175,000 $ --
============ ============
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheets and related interim
consolidated statements of operations and cash flows of Tidel
Technologies, Inc. (the "Company"), a Delaware corporation, are unaudited.
In the opinion of management, these financial statements include all
adjustments (consisting only of normal recurring items) necessary for
their fair presentation in accordance with generally accepted accounting
principles. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from these
estimates. Interim results are not necessarily indicative of results for a
full year. The information included in this Form 10-Q should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended September 30, 1999.
(2) INVENTORIES
Inventories consisted of the following at December 31, 1999 and September
30, 1999:
December 31, September 30,
1999 1999
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Raw materials .................. $ 6,597,965 $ 5,200,887
Work in process ................ 40,739 36,749
Finished goods ................. 1,471,950 590,852
Other .......................... 372,231 384,963
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8,482,885 6,213,451
Inventory reserve .............. (114,710) (84,710)
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$ 8,368,175 $ 6,128,741
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(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 ended December 31, 1999 and 1998:
Weighted
Average Shares Per Share
Income Outstanding Amount
------------ -------------- ------------
Three Months Ended December 31, 1999:
Basic earnings per share ................... $ 1,481,067 16,097,417 $ .09
Effect of dilutive warrants and options .... -- 1,271,281 --
------------ ------------ ------------
Diluted earnings per share ................. $ 1,481,067 17,368,698 $ .09
============ ============ ============
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Weighted
Average Shares Per Share
Income Outstanding Amount
------------ -------------- ------------
Three Months Ended December 31, 1998:
Basic earnings per share ..................... $ 252,333 15,898,511 $ .02
Effect of dilutive warrants and options ...... -- 778,444 --
------------ ------------ ------------
Diluted earnings per share ................... $ 252,333 16,676,955 $ .02
============ ============ ============
(4) INVESTMENT IN 3CI
The Company owns 698,464 shares of common stock of 3CI Complete Compliance
Corporation ("3CI"), which is carried at market value. In addition, the
Company owns 226,939 warrants to purchase common stock of 3CI, exercisable
at $1.50 per share through April 2000, which have no carrying value.
(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 automated teller
machines and related software (the "ATM" products) and electronic cash
controller safes (the "Timed Access Cash Controller" or "TACC" products).
PRODUCT REVENUES
Total revenues increased $6,721,000, or 95%, for the first quarter of
fiscal 2000 over the comparable quarter a year ago. 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:
(dollars in 000's)
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Three Months Ended December 31,
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1999 1998
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ATM .................................. $ 10,911 $ 4,772
TACC ................................. 1,672 1,262
Parts, service and other ............. 1,199 1,027
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$ 13,782 $ 7,061
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The growth in sales was propelled by strong demand for the Company's core
Ignition Series ATMs. The Company shipped 2,213 ATMs in the quarter ended
December 31, 1999, an increase of 154%, from the 871 ATMs shipped in the
comparable period a year ago. Resulting ATM product sales were up
$6,139,000, or 129%, for the quarter ended December 31, 1999 compared to
the same period in 1998.
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TACC product sales increased $410,000, or 32%, from 1998 to 1999 partially
due to the introduction of the new TACC-IV model in 1999.
Parts, service and other revenues vary with sales of finished goods, and
have increased accordingly, except for sales of environmental monitoring
equipment which have declined and are now insignificant.
GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS
A comparison of certain operating information is provided in the following
table:
(dollars in 000's)
-------------------------------
Three Months Ended December 31,
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1999 1998
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Gross profit ......................... $ 5,022 $ 2,342
Selling, general and administrative .. 2,362 1,675
Depreciation and amortization ........ 311 163
Operating income ..................... 2,349 504
Interest expense ..................... 103 104
Income before taxes .................. 2,246 400
Income taxes ......................... 765 148
Net income ........................... 1,481 252
Gross profit on product sales increased $2,680,000, or 144%, from the same
quarter in 1998. Gross profit as a percentage of sales improved markedly
from 33.2% in 1998 to 36.4% in 1999 as a result of reductions in the cost
of certain raw material components used in the ATM product line.
Selling, general and administrative expenses increased $687,000 from 1998
to 1999 primarily due to an increase in engineering and marketing
personnel. As a percentage of sales, these expenses decreased from 24% in
1998 to 17% in 1999, primarily due to increased sales volumes.
Depreciation and amortization increased from $163,000 in 1998 to $311,000
in 1999 due to additions of property, plant and equipment.
Interest expense decreased slightly from 1998 to 1999 due to lower average
debt outstanding during the period.
Income taxes were recorded at the statutory state and federal rates in
both years.
LIQUIDITY AND CAPITAL RESOURCES
The financial position of the Company continues to improve primarily as a
result of profitable operations, as reflected in the following key
indicators as of December 31, 1999 and September 30, 1999:
(dollars in 000's)
-----------------------------
December 31, September 30,
1999 1999
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Working capital ...................... $ 19,646 $ 18,023
Total assets ......................... 29,648 28,696
Shareholders' equity ................. 17,478 15,922
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The improvement in working capital is principally due to net cash provided
by operating activities of $1,547,000 for the quarter ended December 31,
1999.
The Company has a credit agreement with a bank which provides for a
$7,000,000 revolving line of credit at the prime rate and a $640,000 term
loan at 8.4% per annum. At December 31, 1999, $4,894,634 was outstanding
pursuant to the revolving line of credit and the Company was in compliance
with all covenants. Subsequent to December 31, 1999, the company prepaid
$894,634 on the revolving line of credit thereby adjusting borrowing
availability to $3,000,000.
The Company continues to own 698,464 shares of 3CI common stock subsequent
to its divestiture of a majority interest in February 1994. Although the
market value of 3CI common stock has recently declined, the Company does
not believe that such decline represents a permanent impairment of the
investment. 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 $448,000.
As of December 31, 1999, the Company had outstanding warrants to purchase
1,367,833 shares of common stock at exercise prices ranging from $.50 to
$2.19 per share, which expire at various dates through October 2002, and
if exercised would generate proceeds to the Company of approximately
$1,424,000.
The Company's research and development budget for fiscal 2000 has been
estimated at $3,100,000. The majority of these expenditures are applicable
to enhancements of the existing product lines and development of new
automated teller machine products and related software applications.
During the three months ended December 31, 1999, research and development
expenditures were approximately $649,000.
With its present capital resources, its continuing earnings and cash flow
from operations, its potential capital from the exercise of warrants, and
availability from its borrowing facility, the Company believes it 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.
YEAR 2000
As of February 14, 2000, the Company had not encountered any problems with
its products or internal systems as a result of the year 2000 issue.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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
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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, as amended, is effective for all fiscal years
beginning after June 15, 2000. 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, 2001.
MAJOR CUSTOMERS AND CREDIT RISKS
The Company generally retains a security interest in the underlying
equipment that is sold to customers until it receives payment in full. In
addition, one major customer has pledged additional collateral to the
Company. The Company would incur an accounting loss equal to the carrying
value of the accounts receivable, less any amounts recovered from
liquidation of collateral, if a customer failed to perform according to
the terms of the credit arrangements. Sales to major customers were as
follows for the three months ended December 31, 1999 and 1998:
Three months ended
December 31,
--------------------------
1999 1998
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Customer A ........................... $7,937,401 $3,063,156
Customer B ........................... 1,170,146 838,415
Customer C ........................... 753,379 --
Foreign sales accounted for 6% and 3% of the Company's total sales during
the three months ended December 31, 1999 and 1998.
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.
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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 2000,
however, there would be no material impact on the Company's consolidated
results of operations or financial position.
Foreign sales are transacted in U.S. dollars and therefore the Company
has no foreign currency exchange risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
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 2000 Annual Meeting of Stockholders (the
"Annual Meeting") will be March 15, 2000. As to all such matters which the
Company does not have notice on or prior to March 15, 2000, 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
December 31, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TIDEL TECHNOLOGIES, INC.
(Registrant)
DATE: February 14, 2000 By: /s/ JAMES T. RASH
--------------------------
James T. Rash
Principal Executive
and Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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27 - Financial Data Schedule