1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
       For the fiscal year ended September 30, 1998

                                       or

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934


                        Commission file Number 000-17288

                            TIDEL TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                          75-2193593
   (State or other jurisdiction of                        (I.R.S. Employer
    incorporation or organization)                       Identification No.)

           5847 San Felipe, Suite 900
                Houston, Texas                                  77057
   (Address of principal executive offices)                   (Zip Code)

        Registrant's telephone number, including area code (713) 783-8200

                             ----------------------

         Securities Registered Pursuant to Section 12(b) of the Act:     None

         Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the 14,430,363 shares of Common Stock held by
non-affiliates of the Registrant based on the closing sale price on December 1,
1998 of $1.313 was $18,947,067.

The number of shares of Common Stock outstanding as of the close of business on
December 1, 1998 was 15,910,468.

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                            TIDEL TECHNOLOGIES, INC.

                               TABLE OF CONTENTS *
                           ANNUAL REPORT ON FORM 10-K

               ---------------------------------------------------



                                                                                      PAGE
                                                                                      ----
                                     PART I
                                                                                
      Item 1.    Business........................................................       1
      Item 2.    Properties......................................................       5
      Item 3.    Legal Proceedings...............................................       5
      Item 4.    Submission of Matters to
                    a Vote of Security Holders...................................       5

                                     PART II

      Item 5.    Market for Registrant's Common
                    Equity and Related Stockholder Matters.......................       6
      Item 6.    Selected Financial Data.........................................       7
      Item 7.    Management's Discussion and
                    Analysis of Financial Condition
                    and Results of Operations....................................       8
      Item 8.    Financial Statements and Supplementary Data.....................      13
      Item 9.    Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure..........................      13

                                    PART III

      Item 10.   Directors and Executive Officers of
                    the Registrant...............................................      14
      Item 11.   Executive Compensation..........................................      15
      Item 12.   Security Ownership of Certain Beneficial
                    Owners and Management........................................      17
      Item 13.   Certain Relationships and Related
                    Transactions.................................................      18

                                     PART IV

      Item 14.   Exhibits, Financial Statement Schedules
                    and Reports on Form 8-K......................................      19

      Signature Page     ........................................................      20


- ------------------

*    This Table of Contents is inserted for convenience of reference only and is
     not a part of this Report as filed.

   3

                                     PART I


ITEM 1.  BUSINESS

                                   BACKGROUND

      Tidel Technologies, Inc. (the "Company") was incorporated under the laws
      of the State of Delaware in November 1987 under the name of American
      Medical Technologies, Inc., succeeding a corporation established in
      British Columbia, Canada in May 1984. The Company changed its name to
      Tidel Technologies, Inc. in July 1997.

      On September 30, 1992, the Company acquired all of the issued and
      outstanding capital stock of Tidel Engineering, Inc., a manufacturer of
      automated teller machines, electronic cash security systems and
      underground fuel storage monitoring and leak detection devices for a
      purchase price of $4,746,848. These operations currently represent the
      sole business of the Company.

      The Company was previously engaged in the business of medical waste
      management services through its majority owned subsidiary, 3CI Complete
      Compliance Corporation ("3CI"). In February 1994, the Company sold
      1,255,182 shares of its holdings of common stock of 3CI resulting in a
      gain of $2,229,725 The Company's investment in 3CI now consists of 698,464
      shares of common stock of 3CI, representing approximately 7.1% of the
      total outstanding shares of 3CI. In addition, the Company owns 226,939
      warrants to purchase common stock of 3CI at an exercise price of $1.50 per
      share exercisable through April 2000. At September 30, 1998, the 
      investment was carried at market value of $917,083, net of an unrealized 
      loss of $650,629, in accordance with Statement of Financial Accounting 
      Standards No. 115.

                       DESCRIPTION OF BUSINESS ACTIVITIES

      The Company develops, manufactures, sells and supports products designed
      for specialty retail marketers, including automated teller machines and
      related software (the "ATM" products); electronic cash security systems
      (the "Timed Access Cash Controller" or "TACC" products); and underground
      fuel storage monitoring and leak detection devices (the "Environmental
      Monitoring System" or "EMS" products). The following is a description of
      each product line manufactured by the Company:

      AUTOMATED TELLER MACHINE PRODUCTS

      The Company entered the ATM market in October 1992 with the introduction
      of the industry's first cash-dispensing ATM that utilized cost-effective,
      dial-up modem communications. This ATM product, known as AnyCard, gained
      rapid acceptance among customers in the market for low-cost ATM equipment
      built for the off-premise, or non-bank, market. Sales of the original
      AnyCard model accounted for approximately 30% of the Company's revenues
      from its introduction until the development of its successor, the AnyCard
      sc (single cassette) model.

      Sales of the single-cassette product commenced in November 1995 and
      comprised the majority of the Company's revenues until June 30, 1997, at
      which time the AnyCard td (tower design) model was introduced. The AnyCard
      td utilizes the same electronics and software platform as the AnyCard sc,
      but is housed in a newly designed cabinet and is offered in both single
      and multiple cassette models. 





                                       1
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      Sales of the AnyCard tds (single cassette) and tdm (multiple cassette)
      models comprised the majority of the Company's revenues from their
      introduction through September 30, 1998. During the year ended 
      September 30, 1998, the Company had sales of ATM products to two major 
      customers that accounted for more than 10% of total sales in the amounts 
      of $3,526,941 and $3,520,910.

      TIMED ACCESS CASH CONTROLLER PRODUCTS

      The Company's original product is its electronic cash controller known as
      TACC, which acts as both a drop safe and a cash dispenser. This product
      serves as a depository for cash which is stored in plastic tubes that can
      be retrieved at preprogrammed intervals. The TACC products have been
      instrumental in the reduction of losses due to crime in many segments of
      the retail industry, including convenience stores, retail gasoline,
      specialty retailers, hospitality and entertainment.

      Management believes its TACC products are highly regarded in the retail
      market and have become standard equipment in virtually all new
      construction by major convenience store operators and gasoline retailers.
      TACC products are in use in all 7-Eleven stores, as well as in more than
      100,000 other locations in the United States and 30 other countries.
      Current models allow for a computer interface which can be used in
      conjunction with lottery and point-of-sale systems.

      Sales of TACC products comprised 19% of the Company's revenues for the
      year ended September 30, 1998.

      ENVIRONMENTAL MONITORING SYSTEM PRODUCTS

      The Company's EMS products are designed to provide leak detection and fuel
      management of underground petroleum storage tanks and their associated
      piping systems to petroleum retailers and other owners and operators of
      underground storage tanks. The EMS can print reports of requested data, 
      verify fuel inventories, provide instant notification of alarm 
      conditions such as leaks and monitor up to eight storage
      tanks simultaneously, providing a cost efficient method of monitoring fuel
      inventories. In addition, the EMS console has communication ports for
      interface with point-of-sale terminals, modems and computers.

      Sales of EMS products were less than 5% of total revenues in fiscal 1998,
      and management has terminated marketing of EMS products to shift focus to
      the ATM and TACC products. However, the Company will continue to supply
      products and service to existing EMS customers.

                            RESEARCH AND DEVELOPMENT

      To protect against product obsolescence by reason of emerging technologies
      and ensure development of the most advanced products possible, the Company
      has a continuing program of research and development. Management believes
      the Company has established an excellent record of product conception,
      design, development, field testing and commercial production through its
      twelve-person engineering department. The engineering staff works with
      internal sales, marketing and service groups to incorporate customer
      driven enhancements into Company products. The research and development
      budget for fiscal 1999 provides for approximately $1,800,000 to be spent
      in the enhancement of the ATM and TACC product lines. Total research and
      development expenditures were approximately $1,400,000, $1,200,000 and
      $1,030,000 for the years ended September 30, 1998, 1997 and 1996,
      respectively.



                                       2
   5

                                  MANUFACTURING

      The Company manufactures and assembles its products, produces spare parts,
      and renovates or repairs its products at its facility in Carrollton,
      Texas. The assembly operations consist of configuring components received
      from various vendors with the Company's proprietary hardware and software.
      Upon completion of product assembly, the equipment undergoes functional
      testing and final quality assurance inspection. The Company normally fills
      and ships customer orders within 45 days of receipt, and therefore no
      significant backlog generally exists.

                               SALES AND MARKETING

      The Company markets its cash system products in the United States through
      Company controlled national accounts and a network of approximately 160
      independent distributors and dealers operating in five marketing regions:
      Northeastern, Southeastern, Central, Southwestern and Western. There are
      approximately 130 distributors handling only ATM products, 60 handling
      only TACC products, and 20 marketing both products. The distributor
      network facilitates coverage of both large national accounts and
      diversified end-user groups.

      The Company markets its TACC products overseas through approximately 20
      distributors. The international market lags the U.S. by several years with
      respect to cash management systems. The international market for petroleum
      and convenience stores is heavily influenced by the Company's traditional
      domestic customer base, allowing the Company and its international
      distributors to leverage and develop markets in many diverse geographical
      areas.

      At this time, the Company is distributing automated teller machines in
      Canada and is presently expanding its marketing efforts to include
      additional foreign countries in the future.

                                     SERVICE

      The Company coordinates a national service network of individual service
      dealers to provide electronic and mechanical support for all of its
      products in use. There are approximately 500 such service dealers for ATM
      and TACC products and 60 for EMS products. In addition, the Company has an
      agreement with NCR Corporation to provide comprehensive services,
      including first-line maintenance and field upgrades, to all of the 
      Company's ATM customers in the United States.

                             INTELLECTUAL PROPERTIES

      The Company's success depends, in part, on its ability to obtain patents,
      maintain trade secret protection and operate without infringing the
      proprietary rights of others. The Company owns United States patents for
      certain of its products (see "PATENTS AND TRADEMARKS" below) and has filed
      United States and foreign patent applications for other proprietary
      products and expects to continue to file product, process and use patent
      applications with respect to products or improvements developed in the
      future. There can be no assurance, however, that such patent applications
      will be filed or, if filed, that patents will be issued to the Company or,
      if issued, will be adequate to protect its products. In addition, it is
      not possible to predict the degree of protection that patents will afford.
      It is possible that patents issued to or licensed by the Company will be
      successfully challenged, that the Company may unintentionally infringe
      patents of third parties or that the Company may have to alter its
      products or processes or pay licensing fees or cease certain activities to
      take into account patent 




                                       3
   6

      rights of third parties, thereby causing additional unexpected costs and
      delays which may have a material adverse effect on the Company's business.

      In addition, competitors may obtain additional patents and proprietary
      rights relating to products or processes used in, necessary to,
      competitive with or otherwise related to those availed of by the Company.
      The scope and validity of these patents and proprietary rights, the extent
      to which the Company may be required to obtain licenses under these
      patents or under other proprietary rights and the cost and availability of
      licenses are unknown, but these factors may limit the Company's ability to
      market its existing or future products. See "LICENSES" below.

      The Company also relies upon unpatented trade secrets and no assurance can
      be given that others will not independently develop substantially
      equivalent proprietary information and techniques or otherwise gain access
      to the Company's trade secrets or disclose such technology or that the
      Company can meaningfully protect its rights to its unpatented trade
      secrets.

                             PATENTS AND TRADEMARKS

      The Company owns two patents relating to each of its ATM products, TACC
      products and EMS products. The Company also owns the registered trademarks
      "AnyCard", "TACC", "Tidel Systems" and "TS and Design".

                                    LICENSES

      The Company grants various distributors a non-exclusive right and license,
      with the right to grant sublicenses, to use the names "Tidel" and "Tidel
      AnyCard", together with any associated trademarks, logos or insignias, for
      the limited purpose of marketing, selling and distributing the Company's
      products.

                            GOVERNMENTAL REGULATIONS

      The Company's EMS unit is produced and sold to provide total compliance
      and documentation to the EPA and other regulatory agencies to ensure
      customers' compliance with all applicable regulations relating to the
      detection and prevention of petroleum leaks in tanks and piping systems.
      The potential liability from a leaking underground storage tank is the
      primary motivating factor influencing the decision to install a leak
      detection device. The EPA and other federal agencies are responsible for
      the regulation and enforcement of petroleum storage and piping systems and
      the potential leaks therefrom.

      The Company's EMS systems are subject to numerous other state and local
      regulations relating to the storage and dispensing of petroleum products.

                                   COMPETITION

      Competition in the automated teller machine manufacturing business is
      substantial with Diebold, Incorporated and NCR Corporation dominating the
      marketplace. Direct competition to the Company in the fast growing,
      off-premises automated teller machine market consists of other companies
      such as Triton Systems, Inc., Fujitsu Corporation, and Siemens-Nixdorf.
      Management believes that the quality and value offered by its ATM product
      line allow it to compete effectively in the off-premise market.



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      Direct competition to the Company in the domestic cash controller market
      comes principally from NKL Industries, McGunn Safe Company, Armor Safe
      Company and AutoVend.

                                    EMPLOYEES

      The Company employed 122 and 96 persons at September 30, 1998 and 1997,
      respectively. None of the Company's employees are subject to collective
      bargaining agreements. The Company has not experienced any strikes or work
      stoppages and considers its relationships with its employees to be
      satisfactory.


ITEM 2.  PROPERTIES

      The Company's principal executive offices are located in approximately
      4,100 square feet at 5847 San Felipe, Suite 900, Houston, Texas 77057.

      The Company's subsidiaries occupy approximately 65,000 square feet of
      space in a one story brick building in Carrollton, Texas, under a lease
      expiring in January 2005. The facility houses the principal administrative
      offices and all manufacturing, testing, product design and research and
      development operations. The subsidiaries also lease approximately 10,000
      square feet of warehouse space in Carrollton, Texas, under a
      month-to-month lease.

      At September 30, 1998, the Company owned tangible property and equipment
      costing approximately $2,840,000. Such amount is comprised primarily of
      manufacturing tools, manual and robotic welding equipment, computer
      equipment and systems, and two vehicles used in servicing and delivery
      functions.


ITEM 3.  LEGAL PROCEEDINGS

      The Company and its subsidiaries are each subject to certain litigation
      and claims arising in the ordinary course of business. In the opinion of
      the management of the Company, the amounts ultimately payable, if any, as
      a result of such litigation and claims will not have a materially adverse
      effect on the Company's financial position.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      At the Annual Meeting of Stockholders held on Wednesday, July 29, 1998, in
      Houston, Texas, the following proposals were adopted by the margins
      indicated:

      a) Election of Directors to hold office until the next annual meeting of
         stockholders and until their successors are elected and qualified.




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                                                                           Number of Shares
                                                                   -----------------------------
                                                                       For            Withheld
                                                                   ----------         ----------
                                                                                      
         James T. Rash........................................     12,208,496            72,600
         James L. Britton, III................................     12,211,996            69,100
         Jerrell G. Clay......................................     12,211,996            69,100
         Mark K. Levenick.....................................     12,211,996            69,100


      b) Ratification of the selection of KPMG Peat Marwick LLP as the Company's
         independent auditors for fiscal year 1998.


                                                                       
         For..................................................     12,222,976
         Against..............................................          4,100
         Abstentions..........................................         54,020



                                     PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON EQUITY
         AND RELATED STOCKHOLDER MATTERS

                                  MARKET PRICES

      The Company's common stock trades on the Nasdaq Stock Market under the
      symbol ATMS. The following table sets forth the quarterly high and low
      closing sales price for the Company's common stock for the two-year period
      ended September 30, 1998:



         Quarter Ended                                                 High             Low
         -------------                                              ----------         ------
                                                                                  
         September 30, 1998...................................          3 1/2           1 1/2
         June 30, 1998........................................          3 1/2           2 9/16
         March 31, 1998.......................................          4               2 1/4
         December 31, 1997....................................          4 3/8           2 13/16

         September 30, 1997...................................          3 5/8           2 3/8
         June 30, 1997........................................          2 11/16         1 7/16
         March 31, 1997.......................................          2 1/2           1 11/16
         December 31, 1996....................................          2 1/2           1 5/8


                                    DIVIDENDS

      The Company has not paid any dividends in the past, and does not
      anticipate paying dividends in the foreseeable future. In addition, the
      Company's wholly owned subsidiary is restricted from paying dividends to
      the Company pursuant to the subsidiary's revolving credit agreement with a
      bank.

                                     HOLDERS

      At September 30, 1998, 76% of the total 15,860,468 shares outstanding of
      the Company's common stock were held of record by central depository
      corporations and broker-dealers for the accounts of others; however, as
      far as the Company can determine, its common stock is owned by
      approximately 2,850 persons.


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ITEM 6.  SELECTED FINANCIAL DATA

      The selected financial data presented below is derived from the
      Consolidated Financial Statements of the Company. This data should be read
      in conjunction with the Consolidated Financial Statements and the notes
      thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS" appearing elsewhere in this Report.



                                                                                 Year Ended September 30,
                                                             -------------------------------------------------------------
         SELECTED STATEMENT OF INCOME DATA: (1)                1998         1997         1996         1995          1994
                                                             --------     --------     --------     --------      --------
                                                                                                        
         Revenues ......................................     $ 33,608     $ 30,153     $ 20,111     $ 10,860      $ 13,256
         Income (loss) from continuing operations (2) ..        4,240        2,117        1,215       (3,418)         (824)
         Net income (loss) (2) (3) .....................        4,240        2,117        1,215       (3,418)        1,286

         Net income (loss) per share:
            Basic ......................................     $   0.27     $   0.15     $   0.10     $  (0.29)     $   0.12
            Weighted shares ............................       15,570       13,664       12,147       11,606        10,442

            Diluted ....................................     $   0.25     $   0.14     $   0.10     $  (0.29)     $   0.12
            Weighted shares ............................       16,897       15,414       13,630       11,742        10,537




                                                                                    Year Ended September 30,
                                                                  -------------------------------------------------------
         SELECTED BALANCE SHEET DATA: (1)                          1998        1997        1996        1995        1994
                                                                  -------     -------     -------     -------     -------
                                                                                                       
         Current assets .....................................     $20,966     $15,894     $ 9,815     $ 6,165     $ 5,534
         Current liabilities ................................       5,528       6,517       7,594       5,526       3,666
         Working capital ....................................      15,438       9,377       2,221         639       1,868
         Total assets .......................................      24,247      18,263      12,363       8,193      10,420
         Total short-term notes payable and long-term debt ..       5,363       4,603       4,769       2,654       2,149
         Shareholders' equity ...............................      13,484       8,092       4,129       2,027       5,354




                                                                                 Three Months Ended
                                      -------------------------------------------------------------------------------------------
         SELECTED QUARTERLY           Sep. 30     Jun. 30     Mar. 31     Dec. 31     Sep. 30     Jun. 30     Mar. 31     Dec. 31
         FINANCIAL DATA: (1)           1998        1998        1998        1997        1997        1997        1997        1996
                                      -------     -------     -------     -------     -------     -------     -------     -------
                                                                                                      
         Revenues ...............     $ 8,497     $ 9,935     $ 9,148     $ 6,028     $ 9,092     $ 8,002     $ 6,802     $ 6,256
         Gross profit ...........       2,768       3,755       3,458       2,199       3,180       3,010       2,290       2,215
         Net income (2) .........         948       1,536       1,468         288         432         767         513         405

         Net income per share:
            Basic ...............     $  0.06     $  0.10     $  0.09     $  0.02     $  0.03     $  0.05     $  0.04     $  0.03
            Weighted shares .....      15,803      15,650      15,553      15,274      14,764      14,633      12,820      12,429

            Diluted (4) .........     $  0.06     $  0.09     $  0.09     $  0.02     $  0.03     $  0.05     $  0.04     $  0.03
            Weighted shares .....      16,784      17,159      17,046      17,173      16,895      16,387      15,205      15,300



(1)   All amounts are in thousands, except per share dollar amounts.

(2)   Included in 1998 income from continuing operations and resulting net
      income is a deferred tax benefit in the amount of $947,000 relating to a
      decrease of the valuation allowance on deferred tax assets.

(3)   Included in 1994 net income is a gain of $2,230,000 on the disposal of
      3CI, and a loss of $120,000 from discontinued operations of 3CI.

(4)   The sum of the quarterly amounts of diluted earnings per share is not
      equivalent to the diluted earnings per share for the entire fiscal year
      due to variations in the stock prices utilized in the calculations at the
      end of each period.



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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                              RESULTS OF OPERATIONS

      OVERVIEW

      The Company's revenues and earnings for the years ended September 30, 1998
      and 1997 increased compared to previous years. Revenues were $33,608,000
      in fiscal 1998, representing an increase of $3,455,000, or 11%, from
      fiscal 1997 and $13,497,000, or 67%, from fiscal 1996. Net income for the
      year was $4,240,000 as compared to $2,117,000 in fiscal 1997 and
      $1,215,000 in fiscal 1996.

      The significant sales growth was primarily due to the continued strong
      demand for the Company's ATM products. The gross profit from these sales,
      together with efficiencies in cost management, were primary factors in 
      the overall improvement in net income.

      PRODUCT REVENUES

      A breakdown of net sales by individual product line is provided in the
      following table:



                                                       (dollars in 000's)
                                                 -------------------------------
                                                   1998        1997        1996
                                                 -------     -------     -------
                                                                    
             ATM                                 $22,971     $21,000     $11,508
             TACC                                  6,477       5,783       5,639
             EMS                                   1,355         967         954
             Parts, service and other              2,805       2,403       2,010
                                                 -------     -------     -------
                                                 $33,608     $30,153     $20,111
                                                 =======     =======     =======


      ATM sales have steadily increased since the introduction of the
      single-cassette model in November 1995 as an alternative to the tube-type
      model of automated teller machine.

      TACC sales have increased gradually during the three-year period as sales
      efforts in domestic markets have intensified.

      All marketing activities for EMS products have terminated as the marketing
      focus of the Company has shifted to other product lines. Management
      believes that certain customers will continue to purchase these products,
      however, to complete retrofit projects that are currently in progress.

      Parts, service and other revenues vary directly with sales of finished
      goods, and have increased accordingly.



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      GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS

      A comparison of certain operating information is provided in the following
      table:



                                                                  (dollars in 000's)
                                                            -------------------------------
                                                              1998        1997        1996
                                                            -------     -------     -------
                                                                               
                    Gross profit                            $12,180     $10,695     $ 7,295
                    Selling, general and administrative       7,366       7,628       5,355
                    Depreciation and amortization               489         474         342
                    Operating income                          4,325       2,590       1,598
                    Interest expense                            392         473         383
                    Income before taxes                       3,933       2,117       1,215
                    Income tax benefit                          307          --          --
                    Net income                                4,240       2,117       1,215


      Gross profit on product sales increased $1,485,000 and $4,885,000 from
      1997 and 1996, respectively, to $12,180,000 in 1998. The gross margin in
      1998 was 36.2% of product sales, compared to 35.5% in 1997 and 36.3% in
      1996. The slight decrease in 1997 compared to 1996 resulted from a decline
      in average sales prices for ATM products of $600. In 1998, the average
      sales prices for ATM products decreased an additional $586, but the gross
      margin was actually improved as a result of engineering efficiencies and
      other cost reduction efforts.

      Selling, general and administrative expenses of $7,366,000 or 21.9% of
      sales in 1998 represented a decrease from the 1997 and 1996 levels of
      25.3% and 26.6%, respectively. The overall decline relates to increased
      sales volumes and cost reduction efforts.

      Depreciation and amortization was $489,000, $474,000, and $342,000 for the
      years ended September 30, 1998, 1997 and 1996. The increase in 1998
      compared to 1997 and 1996 related to additions of property, plant and
      equipment.

      Interest expense increased from $383,000 in 1996 to $473,000 in 1997, as a
      result of increased borrowings to finance increases in accounts receivable
      and inventories associated with the significant growth in revenues.
      Interest expense decreased to $392,000 in 1998 due to the lower cost of
      borrowing resulting from the Company's new revolving credit facility.

      Income tax benefit in 1998 was attributable to a fourth quarter reduction
      in valuation allowance estimates to reflect the probable utilization of
      the Company's remaining deferred tax assets. This resulted in the
      recognition of a deferred income tax benefit of $947,000 which, when
      netted with current tax expense of $640,000, resulted in a net income tax
      benefit of $307,000.

                         LIQUIDITY AND CAPITAL RESOURCES

      The financial position of the Company continues to improve primarily as a
      result of profitable operations and the infusion of capital from the
      exercise of warrants, as reflected in the following key indicators as of
      September 30, 1998, 1997 and 1996:



                                                              (dollars in 000's)
                                               -----------------------------------------
                                                 1998              1997           1996
                                               --------          --------       --------
                                                                            
                  Working capital              $ 15,438          $  9,377       $  2,221
                  Total assets                   24,247            18,263         12,363
                  Shareholders' equity           13,484             8,092          4,129


      The improvement in working capital is principally due to increased
      accounts receivable and inventories incidental to the increase in
      revenues, and the replacement of a short-term note payable 






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      with a long-term credit facility. In 1998, the Company amended its
      existing credit agreement with a bank, providing for borrowings up to
      $7,000,000 at the prime rate, with certain LIBOR alternatives, until May
      31, 2000. At September 30, 1998, $4,754,604 was outstanding pursuant to
      the revolving credit agreement. See Note 8 of Notes to Consolidated
      Financial Statements for a description of outstanding debt and maturities.

      The Company continues to own 698,464 shares of 3CI common stock subsequent
      to its divestiture of a majority interest in February 1994. The Company
      has no immediate plans for the disposal of the shares, and accordingly,
      the shares may be utilized to collateralize borrowings. At present,
      680,818 shares are pledged to secure an outstanding note payable in the
      principal amount of $608,000.

      The Company's registration statement covering the offering and sale by
      selling shareholders of the common stock underlying all of the Company's
      5,517,500 outstanding warrants was declared effective on January 29, 1997.
      As of September 30, 1998, the Company had outstanding warrants to purchase
      1,398,192 shares of common stock at exercise prices ranging from $.50 to 
      $1.25 per share, which expire various dates through June 2000, and if 
      exercised would generate proceeds to the Company of approximately 
      $1,200,000.

      The Company's research and development budget for fiscal 1999 has been
      estimated at $1,800,000. The majority of these expenditures are applicable
      to enhancements of the existing product lines, development of new
      automated teller machine products and the development of new technology to
      facilitate the dispensing of products such as postage stamps, money
      orders, and prepaid telephone cards, as well as multiple denominations of
      currency. Total research and development expenditures were approximately
      $1,400,000, $1,200,000, and $1,030,000 for the years ended September 30,
      1998, 1997 and 1996, respectively.

      With its present capital resources, its potential capital from the
      exercise of warrants, and its borrowing facility, the Company should have
      sufficient resources to meet its operating needs for the foreseeable
      future and to provide for debt maturities and capital expenditures.

      The Company has never paid dividends on shares of its common stock, and
      does not anticipate paying dividends in the foreseeable future. In
      addition, the Company's wholly owned subsidiary is restricted from paying
      dividends to the Company pursuant to the subsidiary's revolving credit
      agreement with a bank.

      SEASONALITY

      The Company can experience seasonal variances in its operations and
      historically has its lowest dollar volume sales months between November
      and February. The Company's operating results for any particular quarter
      may not be indicative of the results for the future quarter or for the
      year.

      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      In June 1997, the FASB issued Statement of Financial Accounting Standards
      No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
      establishes standards for the reporting and display of comprehensive
      income in a company's financial statements. Comprehensive income includes
      all changes in a company's equity accounts (including net income or loss)
      except investments by, or distributions to, the company's owners. Items
      which are components of comprehensive income (other 




                                       10
   13

      than net income or loss) include foreign currency translation adjustments,
      minimum pension liability adjustments and unrealized gains and losses on
      certain investments in debt and equity securities. The components of
      comprehensive income must be reported in a financial statement that is
      displayed with the same prominence as other financial statements. SFAS 130
      is effective for fiscal years beginning after December 15, 1997, and is
      not expected to have a material impact on the Company.

      In June 1997, the FASB issued Statement of Financial Accounting Standards
      No. 131, "Disclosures about Segments of an Enterprise and Related
      Information" ("SFAS 131"). SFAS 131 establishes standards for the way
      that public companies report, in their annual financial statements,
      certain information about their operating segments, their products and
      services, the geographic areas in which they operate and their major
      customers. SFAS 131 also requires that certain information about operating
      segments be reported in interim financial statements. SFAS 131 is
      effective for periods beginning after December 15, 1997, and is not
      expected to have a material impact on the Company.

      In June 1998, the FASB issued Statement of Financial Accounting Standards
      No. 133, "Accounting for Derivative Instruments and Hedging Activities"
      ("SFAS 133"). SFAS 133 establishes new accounting and reporting standards
      requiring that all derivative instruments (including certain derivative
      instruments embedded in other contracts) be recorded in the balance sheet
      as either an asset or liability measured at its fair value. SFAS 133
      requires that changes in the derivative's fair value be recognized
      currently in earnings unless specific hedge accounting criteria are met.
      Special accounting for qualifying hedges allows a derivative's gains and
      losses to offset related results on the hedged item in the income
      statement and requires that a company must formally document, designate,
      and assess the effectiveness of transactions that receive hedge
      accounting. SFAS 133 is effective for all fiscal years beginning after
      June 15, 1999. The Company has not yet determined the impact; if any, SFAS
      133 will have on its financial position or results of operations, and
      plans to adopt this standard during the year ending September 30, 2000.

      THE YEAR 2000 ISSUE

      The Year 2000 Issue is the result of computer programs being written using
      two digits rather than four to define the applicable year. As a result,
      computer programs that have date sensitive software may recognize a date
      using "00" as the year 1900, rather than the year 2000. This could result
      in system failures or miscalculations causing disruptions in the
      operations of the Company, including, but not limited to, a temporary
      inability to process or transmit data or engage in normal business
      activities.

      The Company relies on information technology systems ("IT Systems"),
      primarily composed of computer hardware and software, and on
      non-information technology ("Non-IT Systems"), primarily composed of
      embedded microprocessors, to operate its business. The Company uses IT
      Systems in the design, development and production of its products, as well
      as in its internal operations such as manufacturing, accounting, billing,
      sales and service. In addition, IT Systems are used to operate the
      Company's web site and e-mail systems. The Company uses Non-IT Systems,
      primarily microprocessors, in the design, development and production of
      its products, as well as in equipment used in manufacturing and internal
      operations, such as telephone equipment. The Company also relies on
      utilities, such as telecommunications and power.

      The Company has defined Year 2000 Compliant to mean that a process will
      continue to run in the same manner when dealing with dates on or after
      January 1, 2000, as it did before January 1, 2000. To determine the
      Company's state of readiness, management has conducted an initial
      evaluation of the Company's current computer systems, software and
      embedded technologies to identify those that could 




                                       11
   14

      be affected by the Year 2000 Issue. The evaluation, which was focused on
      the Company's products and most critical internal operating functions,
      revealed that the Company's accounting and manufacturing software are the
      major resources that do have Year 2000 compliance issues. These resources
      will need to be either replaced or upgraded. Fortunately, the identified
      programs are "off-the-shelf" products with Year 2000 compliant versions
      now available. The Company expects to complete these program upgrades, and
      evaluation of its least critical internal operating functions, during the 
      quarter ending March 31, 1999.

      The Company has determined that there should be no Year 2000 Issues for
      TACC products already sold. The Company has determined that there should
      be no Year 2000 Issues for EMS products sold since June 5, 1991. EMS
      products sold prior to June 5, 1991, were manufactured by a predecessor
      and have not been tested by the Company. In addition, certain EMS 3000
      products contain hardware manufactured by a third party. This third party
      component equipment has not been tested by the Company. While none of the
      predecessor EMS products or EMS products containing third party component
      equipment are still under warranty by the Company, customer problems, if
      any, will be addressed as incurred.

      The Company has tested the hardware and software platforms for its ATM
      products already sold, excluding the Company's initial AnyCard tube-type
      model ATM. The discontinued tube-type model ATM contains a point-of-sale
      interface manufactured by a third party. In addition, this model is
      dependent on a certain third party host processor for its date and time
      information during a transaction. Neither the point-of-sale interface nor
      the systems of the third party host processor have been tested by the
      Company. The Company believes, however, that there are less than 1,500
      tube-type models still in service. The Company will attempt to notify
      customers about the point-of-sale interface and dependence on the third
      party processor, and customer problems, if any, will be addressed as
      incurred.

      While the Company has tested the hardware and software platforms for its
      ATM products, these products are dependent on data that is transmitted to
      the product during use. This information is transmitted from financial
      institutions via a system of private and shared computer networks. While
      the federal government has instituted strict Year 2000 compliance
      guidelines and remediation timetables for financial institutions, there
      can be no assurance that the systems of financial institutions, as well as
      the systems of the various private and shared computer networks will be
      timely converted and that the Company's ATM products will be able to
      conduct transactions in a normal manner, if at all.

      As part of the Company's Year 2000 readiness efforts, the Company has
      begun contacting it significant suppliers and large customers to determine
      the extent to which the Company is vulnerable to those third parties'
      failure to remediate their Year 2000 compliance issues. The Company
      expects to complete its survey of those third parties' Year 2000
      compliance by June 30, 1999. There can be no assurance, however, that the
      systems of other companies on which the Company's business relies will be
      timely converted or that failure to convert by another company, or a
      conversion that is incompatible with the Company's systems, would not have
      a material adverse effect on the Company and its operations.

      Expenditures in fiscal 1998 for the Year 2000 Issue amounted to less than
      $35,000. Management expects that completion of its Year 2000 readiness
      efforts may result in additional expenditures of approximately $25,000 but
      that such amount may increase if the Company must address a significant
      amount of problems relating to its tube-type model ATM or for the reasons
      described below.

      The Company's failure to resolve Year 2000 Issues on or before December
      31, 1999 could result in system failures or miscalculations causing
      disruption in operations including, among other things, a temporary
      inability to process accounting transactions, or engage in similar normal
      business activities. 





                                       12
   15

      Additionally, failure of third parties upon whom the Company's business
      relies to timely remediate their Year 2000 Issues could result in
      disruptions in the Company's supply of parts and materials, late, missed
      or unapplied payments, temporary disruptions in order processing and other
      general problems related to the Company's daily operations. While the
      Company believes its Year 2000 readiness efforts will adequately address
      the Company's internal Year 2000 Issues, until the Company receives
      responses from a more significant number of the Company's suppliers and
      customers, the overall risks associated with the Year 2000 Issues remain
      difficult to accurately describe and quantify, and there can be no
      guarantee that the Year 2000 Issue will not have a material adverse effect
      on the Company and its operations.

      Readiness efforts are currently on schedule and the Company plans to have
      the major Year 2000 Issues resolved by June 30, 1999. At such time, an
      outside consultant will be retained to verify and validate all Year 2000
      compliance. In the event readiness efforts should fall behind schedule,
      the Company will develop and implement a contingency plan by March 31,
      1999.

      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to changes in interest rates as a result of
      significant financing through its issuance of variable-rate and fixed-rate
      debt. If market interest rates were to increase 1% in fiscal 1999, there
      would be no material impact on the Company's consolidated results of
      operations or financial position.

      FORWARD-LOOKING STATEMENTS

      This Form 10-K contains certain forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended, and
      Section 21E of the Securities Exchange Act of 1934, as amended, which are
      intended to be covered by the safe harbors created thereby. Investors are
      cautioned that all forward-looking statements involve risks and
      uncertainty, (including without limitation, the Company's future gross
      profit, selling, general and administrative expense, the Company's
      financial position, working capital and seasonal variances in the
      Company's operations, as well as general market conditions) though the
      Company believes that the assumptions underlying the forward-looking
      statements contained herein are reasonable, any of the assumptions could
      be inaccurate, and therefore, there can be no assurance that the
      forward-looking statements included in this Form 10-K will prove to be
      accurate. In light of the significant uncertainties inherent in the
      forward-looking statements included herein, the inclusion of such
      information should not be regarded as a representation by the Company or
      any other person that the objectives and plans of the Company will be
      achieved.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      See Item 14 below for an index of the financial statements and schedules
      included as a part of this Annual Report on Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS
         WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

      None.



                                       13
   16

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      The table below gives certain information regarding each director and each
      executive officer of the Company serving at September 30, 1998. There are,
      to the knowledge of the Company, no agreements or understandings by which
      these individuals were so selected. No family relationships exist between
      any directors or executive officers.



         Name                       Age              Position
         ----                       ---              --------
                                       
         James T. Rash              58       Chairman, Chief Executive and Financial Officer,
                                             and Director

         Mark K. Levenick           39       Chief Operating Officer,
                                             President of the operating subsidiaries,
                                             and Director

         Michael F. Hudson          46       Executive Vice President

         James L. Britton, III      63       Director

         Jerrell G. Clay            57       Director


                              BUSINESS BACKGROUNDS

      The following is a summary of the business background and experience of
      each of the persons named above:

      James T. Rash joined the Company in July 1987 and served as Chief
      Financial Officer and as a Director until February 1989. Since that time
      he has served continuously as Chairman of the Board of Directors and Chief
      Executive Officer, and he has served as Chief Financial Officer since
      January 1995. He was also Chairman and Chief Executive Officer of 3CI from
      the date of its acquisition by the Company until February 1994. Mr. Rash
      earned a Bachelor of Business Administration degree from the University of
      Texas at Austin.

      Mark K. Levenick, a director since March 1995, has been an executive with
      the Company's wholly owned subsidiary and its predecessors for more than
      the preceding 5 years, and has served as Chief Operating Officer of the
      Company since July 1997. Mr. Levenick is a recognized authority in
      underground storage tank management and related environmental matters. He
      earned a Bachelor of Science degree from the University of Wisconsin at
      Whitewater.

      Michael F. Hudson has served as Executive Vice President of the Company's
      wholly owned subsidiary since September 1993 and of the Company since July
      1997. Prior to joining the Company, Mr. Hudson held various positions with
      the Southland Corporation and its affiliates for more than 18 years,
      concluding as President and Chief Executive Officer of MoneyQuick, a large
      non-bank ATM network. Mr. Hudson is a recognized authority in the ATM
      industry.



                                       14
   17
      James L. Britton, III, a director since December 1990, has for more than
      the past 5 years managed his own investments. Mr. Britton earned a
      Bachelor of Business Administration degree from the University of Texas at
      Austin.

      Jerrell G. Clay, a director since December 1990, has for more than the
      preceding 5 years been the President of III Mark Financial, Inc., an
      independent marketing company designed to supply products and services to
      life insurance and equity sales organizations, and one of its
      predecessors. Mr. Clay is also a member of the Management Advisory
      Committee of Protective Life Insurance Company of Birmingham, Alabama.

                              DIRECTOR COMPENSATION

      Directors of the Company receive $1,000 per meeting as compensation for
      their services as members of the Board of Directors. Directors who serve
      on board committees receive $500 per committee meeting.

                          BOARD OF DIRECTORS COMMITTEES

      The Board of Directors has established an Audit Committee and a
      Compensation Committee, each composed of Messrs. Britton and Clay, both of
      whom are non-officer directors. The Audit Committee is charged with
      reviewing the Company's financial statements, the scope and performance of
      the audit and non-audit services provided by the Company's independent
      auditors and overseeing the Company's internal accounting procedures. The
      Compensation Committee administers the Company's 1997 Long-Term Incentive
      Plan and 1989 Stock Option Plan, and reviews and evaluates matters with
      respect to the payment of direct salaries and incentive compensation to
      the Company's executive officer and the senior management personnel of the
      subsidiaries.

                 COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

      Section 16(a) of the Securities Exchange Act of 1934 requires the
      Company's directors and officers, and persons who own more than 10% of a
      registered class of its equity securities, to file reports of ownership
      and changes in ownership of such equity securities with the Securities and
      Exchange Commission ("SEC") and NASDAQ. Such entities are also required by
      SEC regulations to furnish the Company with copies of all Section 16(a)
      forms filed.

      Based solely on a review of the copies of such forms furnished to the
      Company and written representations that no Forms 5 were required, the
      Company believes that its directors and officers and greater than 10%
      beneficial owners have complied with all Section 16(a) filing
      requirements.

ITEM 11. EXECUTIVE COMPENSATION

      The following table sets forth the amount of all cash and other
      compensation paid by the Company for services rendered during the fiscal
      years ended September 30, 1998, 1997 and 1996 to Messrs. Rash, Levenick
      and Hudson [such individuals being all of the Company's executive
      officers, as such term is defined in Item 402 of Regulation S-K, whose
      compensation exceeded $100,000]:




                                       15
   18
                           SUMMARY COMPENSATION TABLE



                                                                                     Long-Term
                                                       Annual Compensation          Compensation
      Name and Principal              ------------------------------------------    -------------
            Position                  Year            Salary             Bonus       Options (1)
      -----------------------         ----          ----------        ----------    -------------
                                                                               
      James T. Rash                   1998          $  182,292        $    --            --
      Chief Executive and             1997          $  182,292        $    --            --
      Financial Officer               1996          $  182,292        $    --            --

      Mark K. Levenick                1998          $  195,000        $   97,500         --
      Chief Operating Officer         1997          $  193,962        $   97,500       100,000
                                      1996          $  150,000        $   90,000         --

      Michael F. Hudson               1998          $  125,000        $   62,500         --
      Executive Vice President        1997          $  124,538        $   62,500        67,000
                                      1996          $  105,808        $   63,000         --


      No options were granted to or exercised by executive officers pursuant to
      the Company's 1997 Long-Term Incentive Plan and 1989 Stock Option Plan
      during the year ended September 30, 1998.

      The following table provides the number of options exercisable by the
      respective optionees and the respective valuations at September 30, 1998:

                     OPTIONS EXERCISABLE AND RELATED VALUES
                               SEPTEMBER 30, 1998



                                                 Number of                       Value of Unexercised
                                                Unexercised                         in-the-Money
                                                 Options at                           Options at
                                             September 30, 1998                    September 30, 1998
                                                 (Shares)                                (  $  )
                                                 --------                              ----------
             Name                       Exercisable    Unexercisable          Exercisable      Unexercisable
             ----                       -----------    -------------          -----------      -------------
                                                                                   
         James T. Rash                     80,000           --                $   --           $    --
         Mark K. Levenick                 100,000          100,000                26,598            --
         Michael F. Hudson                 50,000           67,000                20,338            --


                 COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
              AMONG TIDEL TECHNOLOGIES, INC., PEER GROUP INDEX AND
                               NASDAQ MARKET INDEX



                                                                    September 30,
                                       ----------------------------------------------------------------------
                                        1994(1)          1995           1996           1997             1998
                                       --------        --------       --------       --------         -------
                                                                                           
         Tidel Technologies, Inc.      $  56.67        $  56.67       $ 116.67       $ 193.33         $ 83.33
         Peer group (2)                  125.68          157.58         131.39         151.13          128.07
         NASDAQ Market Index             105.82          128.48         150.00         203.88          211.88





                                       16
   19

   (1) Assumes $100 invested on September 30, 1993 and no dividends paid in any
       year thereafter.

   (2) Peer group consists of companies utilizing the category for Fabricated
       Metal Products Not Elsewhere Classified, SIC 3499. The Company has
       utilized this category since October 1, 1992.

                              EMPLOYMENT AGREEMENTS

      Messrs. Levenick and Hudson, both executive officers of the Company, have
      employment agreements with the Company's wholly owned subsidiary, Tidel
      Engineering, Inc., which provide for minimum annual salaries of $195,000
      and $125,000, respectively, over a three-year term ending July 2000, with
      certain change of control provisions. Similarly, three non-executive
      employees have employment agreements with the Company's wholly owned
      subsidiary which provide for minimum annual salaries of $100,000, $100,000
      and $75,000, respectively, for the same term, which also contain change of
      control provisions.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
         BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of December 1, 1998, the number of
      shares of common stock beneficially owned by (i) the only persons known to
      the Company to be the beneficial owners of more than 5% of its voting
      securities and (ii) each director individually and by the directors and
      officers of the Company as a group. Except as otherwise indicated, and
      subject to applicable community property laws, each person has sole
      investment and voting power with respect to the shares shown. Ownership
      information is based upon information furnished by the respective holders
      and contained in the Company's records.



                                    Name and                           Amount and
                                    Address of                         Nature of                     Percent
         Title of                   Beneficial                         Beneficial                       of
          Class                       Owner                            Ownership                     Class (1)
         --------                   ----------                         ----------                    ---------
                                                                                             
         Common Stock               Alliance Developments               1,437,362                        9.0%
                                    One Yorkdale Road
                                    Suite 510
                                    North York, Ontario
                                    M6A 3A1

         Common Stock               James L. Britton, III                 813,500(2)                     5.1%
                                    3272 Westheimer, #3
                                    Houston, Texas 77098

         Common Stock               James T. Rash                         630,000(3)                     3.9%
                                    5847 San Felipe, Suite 900
                                    Houston, Texas 77057

         Common Stock               Jerrell G. Clay                       316,605(2)                     2.0%
                                    5847 San Felipe, Suite 900
                                    Houston, Texas 77057




                                       17
   20


                                    Name and                           Amount and
                                    Address of                         Nature of                     Percent
         Title of                   Beneficial                         Beneficial                       of
          Class                       Owner                            Ownership                     Class (1)
         --------                   ----------                         ----------                    ---------
                                                                                             
         Common Stock               Mark K. Levenick                   300,000(4)                         1.9%
                                    2310 McDaniel Dr.
                                    Carrollton, Texas 75006

         Common Stock               Michael F. Hudson                   50,000(5)                         0.3%
                                    2310 McDaniel Dr.
                                    Carrollton, Texas 75006

         Common Stock               Directors and Officers           2,110,105(6)                        12.8%
                                    as a group (5 persons)


  (1)   Based upon 15,910,468 shares outstanding as of December 1, 1998.

  (2)   Includes 100,000 shares which could be acquired within 60 days upon
        exercise of outstanding warrants at exercise prices of (i) $0.625 per
        share as to 50,000 shares and (ii) $1.00 per share as to 50,000 shares.

  (3)   Includes 180,000 shares which could be acquired within 60 days upon
        exercise of outstanding options and warrants at exercise prices of (i)
        $0.625 per share as to 50,000 shares, (ii) $1.00 per share as to 50,000
        shares and (iii) $1.6875 per share as to 80,000 shares.

  (4)   Includes 200,000 shares which could be acquired within 60 days upon
        exercise of outstanding warrants and options at exercise prices of (i)
        $0.625 per share as to 50,000 shares, (ii) $0.875 per share as to 25,000
        shares, (iii) $1.00 as to 50,000 shares, (iv) $1.25 per share as to
        20,000 shares, (v) $1.4375 per share as to 20,000 shares, and (vi) $1.75
        per share as to 30,000 shares.

  (5)   Consists of 50,000 shares which could be acquired within 60 days upon
        exercise prices of (i) $0.875 per share as to 25,000 shares and (ii)
        $1.4375 per share as to 25,000 shares.

  (6)   Includes the 100,000 shares for each of the two individuals referred to
        in Note (2) above, the 180,000 shares referred to in Note (3) above, the
        200,000 shares referred to in Note (5) above, and the 50,000 shares
        referred to in Note (6) above obtainable upon exercise of outstanding
        warrants and options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      From time to time, the Company provides certain administrative and
      clerical services to three entities with whom James T. Rash, Chairman, and
      Jerrell G. Clay, Director, have an affiliation. Fees earned by the Company
      for these services totaled $42,000 for the year ended September 30, 1998.
      Amounts due to the Company from these entities totaled $234,100 at
      September 30, 1998.

      On March 30, 1997, the Company received notes with an aggregate principal
      balance of $743,000 in connection with the exercise of warrants to
      purchase common stock by James T. Rash, James L. Britton, III, Jerrell G.
      Clay and Mark K. Levenick, all directors of the Company. As of September
      30,1998, $382,063 was outstanding pursuant to the notes. These notes are
      due March 31, 1999, bear interest at 10% and are secured by 500,000 shares
      of the Company's common stock issued thereunder.



                                       18
   21
                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT
           SCHEDULES AND REPORTS ON FORM 8-K

             FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

      The audited consolidated financial statements and related financial
      statement schedules of the Company and report of its independent certified
      public accountants responsive to the requirements of Item 8 of Form 10-K
      are included herein as part of this Report. Such audited financial
      statements, related financial statement schedules, and reports as set
      forth in the accompanying index include, in the opinion of management of
      the Company, all required disclosures in the notes thereto.

                                    EXHIBITS

      The Exhibits filed as a part of this Report are listed in the attached
      Index to Exhibits.

                               REPORTS ON FORM 8-K

      The Company filed no report on Form 8-K during the last quarter of the
      fiscal year ended September 30, 1998.



                                       19
   22

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
      Exchange Act of 1934, the registrant has duly caused this report to be
      signed on its behalf by the undersigned, thereunto duly authorized.

                                      TIDEL TECHNOLOGIES, INC.
                                      (Company)


January 11, 1999                      /s/ JAMES T. RASH
                                      ------------------------------------------
                                      James T. Rash
                                      President and Principal Executive Officer

                                      /s/ JAMES T. RASH
                                      ------------------------------------------
                                      James T. Rash
                                      Principal Financial and Accounting Officer

      Pursuant to requirements of the Securities Exchange Act of 1934, this
      report has been signed below by the following persons on behalf of the
      registrant and in the capacities and on the dates indicated.




SIGNATURE                                           TITLE                                    DATE
- ---------                                           -----                                    ----
                                                                                  
/s/ JAMES T. RASH                                 Director                              January 11, 1999
- ---------------------------------
James T. Rash

/s/ JAMES L. BRITTON, III                         Director                              January 11, 1999
- ---------------------------------
James L. Britton, III

/s/ JERRELL G. CLAY                               Director                              January 11, 1999
- ---------------------------------
Jerrell G. Clay

/s/ MARK K. LEVENICK                              Director                              January 11, 1999
- ---------------------------------
Mark K. Levenick




                                       20
   23
                          INDEX TO FINANCIAL STATEMENTS





                                                                                                          PAGE
                                                                                                          ----
                                                                                                       
CONSOLIDATED FINANCIAL STATEMENTS OF TIDEL TECHNOLOGIES, INC.
         AND SUBSIDIARIES

         Independent Auditors' Report                                                                     F-2

         Consolidated Balance Sheets - September 30, 1998 and 1997                                        F-3

         Consolidated Statements of Income for the years ended
                  September 30, 1998, 1997 and 1996                                                       F-4

         Consolidated Statements of Shareholders' Equity for the years
                  ended September 30, 1998, 1997 and 1996                                                 F-5

         Consolidated Statements of Cash Flows for the years ended
                  September 30, 1998, 1997 and 1996                                                       F-6

         Notes to Consolidated Financial Statements                                                       F-7


CONSOLIDATED FINANCIAL STATEMENT SCHEDULES OF TIDEL TECHNOLOGIES, INC.
         AND SUBSIDIARIES

         The following schedules are filed as part of this Annual Report on Form
10-K:

         Schedule I        Condensed Financial Information of Registrant                                  S-1

         Schedule II       Valuation and Qualifying Accounts                                              S-6

         All other schedules are omitted because they are not required, are not
         applicable or the required information is presented elsewhere herein.





                                      F-1
   24
                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Tidel Technologies, Inc.:


         We have audited the consolidated financial statements of Tidel
Technologies, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tidel
Technologies, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.


                                                 KPMG PEAT MARWICK LLP




Houston, Texas
November 25, 1998




                                      F-2
   25

                    TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS





                                                                       SEPTEMBER 30,
                                                             ------------------------------
                              ASSETS                             1998              1997
                                                             ------------      ------------
                                                                                  
Current Assets:
    Cash and cash equivalents                                $  1,400,148      $  1,549,331
    Trade accounts receivable, net of allowance of
        $693,613 and $750,347, respectively                    10,246,075         8,732,080
    Notes and other receivables                                 1,174,055           852,514
    Inventories                                                 6,705,756         4,208,360
    Deferred tax assets                                         1,058,692           318,810
    Prepaid expenses and other                                    381,528           233,273
                                                             ------------      ------------
            Total current assets                               20,966,254        15,894,368

Investment in 3CI, at market value                                917,083           553,505

Property, plant and equipment, at cost                          2,843,723         2,126,726
    Accumulated depreciation                                   (1,550,387)       (1,189,409)
                                                             ------------      ------------
        Net property, plant and equipment                       1,293,336           937,317

Intangible assets, net of accumulated amortization of
    $813,190 and $692,814, respectively                           797,032           801,023
Deferred tax asset                                                207,575                --
Other assets                                                       65,361            77,238
                                                             ------------      ------------
        Total assets                                         $ 24,246,641      $ 18,263,451
                                                             ============      ============

               LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
    Current maturities of long-term debt
        and short-term notes payable                         $    128,000      $    948,697
    Accounts payable                                            3,014,278         3,239,412
    Accrued liabilities                                         2,385,929         2,328,917
                                                             ------------      ------------
        Total current liabilities                               5,528,207         6,517,026

Long-term debt                                                  5,234,604         3,654,604
                                                             ------------      ------------
        Total liabilities                                      10,762,811        10,171,630
                                                             ------------      ------------

Commitments and contingencies

Shareholders' Equity:
    Common stock, $.01 par value, authorized 100,000,000
        shares; issued and outstanding 15,860,468 and
        14,851,050 shares, respectively                           158,605           148,511
    Additional paid-in capital                                 14,144,553        13,387,412
    Retained earnings (accumulated deficit)                       213,364        (4,026,262)
    Stock subscriptions receivable                               (382,063)         (424,437)
    Unrealized loss on investment in 3CI                         (650,629)         (993,403)
                                                             ------------      ------------
        Total shareholders' equity                             13,483,830         8,091,821
                                                             ------------      ------------
        Total liabilities and shareholders' equity           $ 24,246,641      $ 18,263,451
                                                             ============      ============


See accompanying notes to consolidated financial statements.



                                      F-3
   26
                    TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME





                                                 YEAR ENDED SEPTEMBER 30,
                                        -------------------------------------------
                                           1998            1997            1996
                                        -----------     -----------     -----------
                                                                       
Revenues                                $33,607,533     $30,152,873     $20,111,249
Cost of sales                            21,427,255      19,458,044      12,816,453
                                        -----------     -----------     -----------
    Gross profit                         12,180,278      10,694,829       7,294,796

Selling, general and administrative       7,366,444       7,630,782       5,355,426
Depreciation and amortization               489,201         474,274         341,561
                                        -----------     -----------     -----------
    Operating income                      4,324,633       2,589,773       1,597,809

Interest expense, net                       392,258         472,553         382,691
                                        -----------     -----------     -----------
Income before taxes                       3,932,375       2,117,220       1,215,118

Income tax benefit                          307,251              --              --
                                        -----------     -----------     -----------
Net income                              $ 4,239,626     $ 2,117,220     $ 1,215,118
                                        ===========     ===========     ===========


Basic earnings per share:
    Net income                          $      0.27     $      0.15     $      0.10
                                        ===========     ===========     ===========
    Weighted average common shares
        outstanding                      15,569,849      13,663,819      12,146,940
                                        ===========     ===========     ===========

Diluted earnings per share:
    Net income                          $      0.25     $      0.14     $      0.10
                                        ===========     ===========     ===========
    Weighted average common and
        dilutive shares outstanding      16,896,688      15,414,309      13,629,670
                                        ===========     ===========     ===========




See accompanying notes to consolidated financial statements.



                                      F-4
   27


                    TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY




                                                                                   RETAINED
                                    SHARES                         ADDITIONAL      EARNINGS                             TOTAL
                                   ISSUED AND        COMMON         PAID-IN      (ACCUMULATED                       SHAREHOLDERS'
                                  OUTSTANDING        STOCK          CAPITAL         DEFICIT)          OTHER            EQUITY
                                  ------------    ------------    ------------    ------------     ------------     ------------
                                                                                                           
Balance, October 1, 1995            11,882,404    $    118,824    $ 10,473,173    $ (7,358,600)    $ (1,206,499)    $  2,026,898

Conversion of note payable
   to common stock                     300,000           3,000         147,000              --               --          150,000
Exercise of warrants                   215,000           2,150         159,100              --               --          161,250
Issuance of warrants                        --              --          22,000              --               --           22,000
Net income                                  --              --              --       1,215,118               --        1,215,118
Unrealized gain on
   investment in 3CI                        --              --              --              --          553,505          553,505
                                  ------------    ------------    ------------    ------------     ------------     ------------

Balance, September 30, 1996         12,397,404         123,974      10,801,273      (6,143,482)        (652,994)       4,128,771

Conversion of note payable
   to common stock                     120,000           1,200          58,800              --               --           60,000
Exercise of warrants, net of
   registration costs                2,333,646          23,337       2,524,087              --               --        2,547,424
Issuance of warrants                        --              --           3,252              --               --            3,252
Net income                                  --              --              --       2,117,220               --        2,117,220
Stock subscriptions receivable              --              --              --              --         (424,437)        (424,437)
Unrealized loss on
   investment in 3CI                        --              --              --              --         (340,409)        (340,409)
                                  ------------    ------------    ------------    ------------     ------------     ------------

Balance, September 30, 1997         14,851,050         148,511      13,387,412      (4,026,262)      (1,417,840)       8,091,821

Exercise of warrants                 1,009,418          10,094         757,141              --               --          767,235
Net income                                  --              --              --       4,239,626               --        4,239,626
Payments of stock
   subscriptions receivable                 --              --              --              --           42,374           42,374
Unrealized gain on
   investment in 3CI                        --              --              --              --          342,774          342,774
                                  ------------    ------------    ------------    ------------     ------------     ------------

Balance, September 30, 1998         15,860,468    $    158,605    $ 14,144,553    $    213,364     $ (1,032,692)    $ 13,483,830
                                  ============    ============    ============    ============     ============     ============





See accompanying notes to consolidated financial statements.


                                      F-5
   28


                    TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS





                                                                          YEAR ENDED SEPTEMBER 30,
                                                                -------------------------------------------
                                                                   1998            1997            1996
                                                                -----------     -----------     -----------
                                                                                               
Cash flows from operating activities:
    Net income                                                  $ 4,239,626     $ 2,117,220     $ 1,215,118
    Adjustments to reconcile net income to net cash
      used in operating activities:
        Depreciation and amortization                               489,201         474,274         341,561
        (Gain) loss on sale of property, plant and equipment           (400)         28,283          (1,214)
        Deferred tax benefit                                       (947,457)       (318,810)             --
        Changes in assets and liabilities:
            Trade accounts receivable, net                       (1,513,995)     (3,497,773)     (4,372,709)
            Notes and other receivables                            (640,104)       (116,278)      2,300,000
            Inventories                                          (2,497,396)       (866,874)     (1,145,421)
            Prepaids and other assets                              (136,378)        (36,875)        (39,661)
            Accounts payable and accrued liabilities               (168,122)      2,102,843         (38,298)
                                                                -----------     -----------     -----------
        Net cash used in operating activities                    (1,175,025)       (113,990)     (1,740,624)
                                                                -----------     -----------     -----------

Cash flows from investing activities:
    Purchases of property, plant and equipment                     (724,844)       (660,928)       (352,651)
    Proceeds from sale of property, plant and equipment                 400          40,050           1,800
    Increase in intangible assets                                  (116,385)             --              --
    Increase in investment in 3CI                                   (20,804)             --              --
                                                                -----------     -----------     -----------
        Net cash used in investing activities                      (861,633)       (620,878)       (350,851)
                                                                -----------     -----------     -----------

Cash flows from financing activities:
    Proceeds from issuance of notes payable                       1,740,000       4,549,604       3,528,211
    Repayments of notes payable                                    (980,697)     (4,616,439)     (1,263,643)
    Proceeds from exercise of warrants                              767,235       1,765,674         161,250
    Proceeds from issuance of warrants                                   --           3,252          14,000
    Payments of stock subscription notes                            360,937              --              --
                                                                -----------     -----------     -----------
        Net cash provided by financing activities                 1,887,475       1,702,091       2,439,818
                                                                -----------     -----------     -----------
        Net (decrease) increase in cash and cash equivalents       (149,183)        967,223         348,343

Cash and cash equivalents at beginning of period                  1,549,331         582,108         233,765
                                                                -----------     -----------     -----------
Cash and cash equivalents at end of period                      $ 1,400,148     $ 1,549,331     $   582,108
                                                                ===========     ===========     ===========

Supplemental disclosure of cash flow information:
    Cash paid for interest                                      $   462,297     $   547,069     $   356,571
                                                                ===========     ===========     ===========
    Cash paid for taxes, net of refunds receivable              $   451,182     $    92,470     $        --
                                                                ===========     ===========     ===========

Supplemental disclosure of noncash financing activities:
    Notes received for warrant conversions                      $        --     $   743,000     $        --
                                                                ===========     ===========     ===========
    Conversion of note payable to common stock                  $        --     $    60,000     $   150,000
                                                                ===========     ===========     ===========
    Noncash exercise of warrants                                $        --     $    38,750     $        --
                                                                ===========     ===========     ===========




See accompanying notes to consolidated financial statements.



                                      F-6
   29

                    TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           SEPTEMBER 30, 1998 AND 1997



(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Tidel Technologies, Inc. (the "Company") is a Delaware corporation which,
through its wholly owned subsidiaries, develops, manufactures, sells and
supports automated teller machines and related software, electronic cash
security systems, and underground fuel storage monitoring and leak detection
devices.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany items have been
eliminated in consolidation.

RECLASSIFICATIONS

Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform with the current year presentation format.

CASH AND CASH EQUIVALENTS

For purposes of consolidated financial statement presentation and reporting cash
flows, all liquid investments with original maturities at date of purchase of
three months or less are considered cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined using
the standard cost method and includes materials, labor and production overhead
which approximates an average cost method. Reserves are provided to adjust any
slow moving materials or goods to net realizable values as deemed appropriate by
management of the Company.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets.
Expenditures for major renewals and betterments are capitalized; expenditures
for repairs and maintenance are charged to expense as incurred.

INTANGIBLE ASSETS

All intangible assets are amortized using the straight-line method over a period
ranging from 5 to 10 years, with the exception of goodwill, which is amortized
over 40 years.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company's long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of any assets may not be recoverable. In performing the
review for recoverability, the Company estimates the future cash flows expected
to result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows 




                                      F-7
   30

(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized.

WARRANTIES

Certain products are sold under warranty against defects in materials and
workmanship for a period of one to two years. A provision for estimated warranty
costs is included in accrued liabilities and is charged to operations at the
time of sale.

REVENUE RECOGNITION

Revenues are generally recognized when products are shipped to customers. When
customers, under the terms of specific orders, request that the Company
manufacture and invoice goods on a bill and hold basis, the Company recognizes
revenues based on the completion date required in the order and actual
completion of the manufacturing process.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred. Research and
development costs charged to expense approximated $1,400,000, $1,200,000 and
$1,030,000 for the years ended September 30, 1998, 1997 and 1996.

FEDERAL INCOME TAXES

Income taxes are accounted for under the asset and liability method, whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in determining
income or loss in the period that includes the enactment date.

INVESTMENT SECURITIES

In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"), the Company classifies its investment in 3CI Complete Compliance
Corporation ("3CI") as available for sale, with unrealized gains and losses
excluded from earnings and recorded as a separate component of shareholders'
equity.

NET INCOME PER SHARE

Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), was adopted by the Company during the year ended September 30, 1998.
SFAS No. 128 establishes new standards for computing and presenting earnings per
share ("EPS") amounts for companies with publicly held common stock or potential
common stock. The new standards require the presentation of both basic and
diluted EPS amounts for companies with complex capital structures. Basic EPS is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period, and
excludes the effect of potentially dilutive securities (such as options,
warrants and convertible securities) which are convertible into common stock.
Dilutive EPS reflects the potential dilution from options, warrants and
convertible securities.

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires companies to recognize stock-based
expense based on the estimated fair value of employee stock options.
Alternatively, SFAS No. 123 allows companies to retain the current approach 




                                      F-8
   31

set forth in APB Opinion 25, "Accounting for Stock Issued to Employees",
provided that expanded footnote disclosure is presented. The Company has not
adopted the fair value method of accounting for stock-based compensation under
SFAS No. 123, but has provided the pro forma disclosure required therein.

USE OF ESTIMATES

The preparation of the accompanying consolidated financial statements requires
the use of estimates by management in determining the Company's assets and
liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the period. Actual results could
differ from these estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments", requires the disclosure of estimated fair
values for financial instruments. Fair value estimates are made at discrete
points in time based on relevant market information. These estimates may be
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. The Company
believes that the carrying amounts of its current assets and current liabilities
approximate the fair value of such items due to their short-term nature. The
carrying amount of long-term debt approximates its fair value because the
interest rates approximate market.


(2)      MAJOR CUSTOMERS AND CREDIT RISKS

The Company generally does not require collateral or other security from its
customers and would incur an accounting loss equal to the carrying value of the
accounts receivable if a customer failed to perform according to the terms of
the credit arrangements.

During the year ended September 30, 1998, the Company had sales to two major
customers that accounted for more than 10% of sales in the amounts of $3,526,941
and $3,520,910. During the year ended September 30, 1997, the Company had such
sales to one major customer in the amount of $3,970,227. None of the Company's
sales to customers accounted for more than 10% of sales during the year ended
September 30, 1996.

Foreign sales accounted for 4%, 5% and 7% of the Company's total sales during
the years ended September 30, 1998, 1997 and 1996, respectively. Foreign sales
are transacted in U.S. dollars.


(3)      NOTES AND OTHER RECEIVABLES

Notes and other receivables consisted of the following at September 30, 1998 and
1997:



                                                                    1998              1997
                                                                -------------     -------------
                                                                                 
         Federal income tax refunds...........................  $     621,049     $     --
         Stock subscription notes.............................        --                318,563
         Non-trade notes and accounts.........................        553,006           533,951
                                                                -------------     -------------
                                                                 $  1,174,055     $     852,514
                                                                 ============     =============


In connection with the exercise of warrants to purchase common stock by certain
directors on March 30, 1997, the Company received promissory notes with an
aggregate principal balance of $743,000. During the year ended September 30,
1998, the Company received payments on these notes totaling $360,937, of 




                                      F-9
   32

which, $42,374 had previously been recorded as stock subscriptions receivable
and included as a separate component of shareholders' equity. The notes are due
March 31, 1999, bear interest at an annual rate of 10%, and are secured by
500,000 shares of the Company's common stock issued thereunder. At September 30,
1998, the notes had an aggregate balance of $382,063 which has been recorded as
stock subscriptions receivable and included as a separate component of
shareholders' equity.


(4)      INVENTORIES

Inventories consisted of the following at September 30, 1998 and 1997:



                                                      1998             1997
                                                   -----------      -----------
                                                                      
         Raw materials .......................     $ 3,993,447      $ 3,635,349
         Work in process .....................         484,884          379,708
         Finished goods ......................       2,542,177          492,636
         Other ...............................         180,248          212,667
                                                   -----------      -----------
                                                     7,200,756        4,720,360
         Inventory reserve ...................        (495,000)        (512,000)
                                                   -----------      -----------
                                                   $ 6,705,756      $ 4,208,360
                                                   ===========      ===========


(5)      INVESTMENT IN 3CI

The Company owned 698,464 and 680,818 shares of 3CI common stock at September
30, 1998 and 1997, respectively. The shares had a market value of $917,083 and
$553,505 at September 1998 and 1997, respectively. In accordance with the
provisions of SFAS No. 115, the Company recorded an unrealized gain of $342,774
and an unrealized loss of $340,409 as separate components of shareholders'
equity at September 30, 1998 and 1997.

During the year ended September 30, 1998, the Company received 17,646 additional
shares of 3CI common stock, together with 226,939 warrants to purchase 3CI
common stock at $1.50 per share, as its pro rata portion of a settlement of the
Texas class-action litigation against the former majority shareholder of 3CI.
The Company's pro rata portion of the legal fees in connection with the
settlement in the amount of $20,805 has been capitalized and included in
Investment in 3CI as the cost basis in the additional shares of stock and
warrants.


(6)      PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at September 30, 1998
and 1997:



                                                                    1998             1997            Useful Life
                                                              ---------------- ----------------    -------------
                                                                                             
         Machinery and equipment..............................   $  1,342,038     $     991,370      2 - 10 years
         Computer equipment and systems.......................        967,857           734,513      3 - 7  years
         Furniture, fixtures and other improvements...........        533,828           400,843      3 - 5  years
                                                                -------------     -------------
                                                                 $  2,843,723      $  2,126,726
                                                                 ============      ============


Depreciation expense was $368,825, $327,661 and $198,819 for the years ended
September 30, 1998, 1997 and 1996, respectively. Repairs and maintenance expense
was $56,330, $95,338 and $41,999 for the years ended September 30, 1998, 1997
and 1996, respectively.



                                      F-10
   33
(7)      INTANGIBLE ASSETS

Intangible assets consisted of the following at September 30, 1998 and 1997:



                                                         1998            1997
                                                      ---------       ---------
                                                                      
         Electronic cash security systems:
            Software ...........................      $ 350,000       $ 350,000
            Proprietary technology .............        417,000         417,000
         Other technology ......................        259,998         143,613
         Goodwill ..............................        583,224         583,224
         Accumulated amortization ..............       (813,190)       (692,814)
                                                      ---------       ---------
                                                      $ 797,032       $ 801,023
                                                      =========       =========


(8)      SHORT-TERM NOTES PAYABLE AND LONG-TERM DEBT

Short-term notes payable consisted of the following at September 30, 1998 and
1997:



                                                                 1998             1997
                                                             ------------     ------------
                                                                                 
         Current maturities of long-term debt ..........     $    128,000     $         --
         Promissory note due May 31, 1998, interest
            payable quarterly at 12%, secured by 480,818
            shares of 3CI common stock .................
            Paid May 28, 1998 ..........................               --          400,000
         Unsecured promissory notes due May 31, 1998,
            interest payable quarterly at 12%.  Paid
            May 28, 1998 ...............................               --          540,000
         Other .........................................               --            8,697
                                                             ------------     ------------
                                                             $    128,000     $    948,697
                                                             ============     ============


Long-term debt consisted of the following at September 30, 1998 and 1997:



                                                                    1998             1997
                                                                 -----------      -----------
                                                                                    
         Revolving credit note payable to bank, due
            May 31, 2000, interest payable monthly
            at prime (8.5% at September 30, 1998 and
            1997). Secured by the assets of Tidel
            Engineering, Inc. ..............................     $ 4,754,604      $ 3,654,604
         Term note payable to bank, payable in quarterly
            installments of $32,000 plus accrued interest
            at 8.4% through May 31, 2003, secured by
            680,818 shares of 3CI stock ....................         608,000               --
                                                                 -----------      -----------
         Total long-term debt ..............................       5,362,604        3,654,604
         Less: current maturities ..........................        (128,000)              --
                                                                 -----------      -----------
         Long-term debt, less current maturities ...........     $ 5,234,604      $ 3,654,604
                                                                 ===========      ===========


During the year ended September 30, 1998, the Company amended its existing
credit agreement with a bank. The amendment increased the borrowing limit to
$7,000,000 under the existing revolving credit note and extended its maturity to
May 31, 2000. Borrowings under the revolving credit note are at the prime rate,
with certain LIBOR alternatives, and are secured by substantially all of the
assets of the Company's subsidiary, Tidel Engineering, Inc. Further, the
amendment provided for a term note in the amount of 




                                      F-11
   34

$640,000, the proceeds of which were utilized to repay existing short-term notes
payable. The term note, secured by 680,818 shares of 3CI common stock, is
payable in quarterly installments of $32,000 together with accrued interest at
8.4% through May 31, 2003. The amended credit agreement, applicable to both
borrowings, includes covenants which among other things, require the maintenance
of specified financial ratios, restrict payments of dividends and limit the
amount of capital expenditures. The Company was not in compliance with the
covenants of the amended credit agreement limiting the amount of capital
expenditures for the year ended September 30, 1998, and subsequently obtained a
waiver from the bank for this period.


(9)      ACCRUED LIABILITIES

Accrued liabilities consisted of the following at September 30, 1998 and 1997:



                                                          1998           1997
                                                       ----------     ----------
                                                                       
         Wages and related benefits ..............     $  758,745     $  732,035
         Reserved for warranty charges ...........        612,525        422,924
         Commissions .............................             --        350,726
         Taxes, other than Federal income:
               State franchise ...................        428,307         34,740
               Sales and use .....................        180,657        156,956
               Ad valorem ........................        150,807         98,334
         Other ...................................        254,888        533,202
                                                       ----------     ----------
                                                       $2,385,929     $2,328,917
                                                       ==========     ==========


(10)     WARRANTS

The Company's registration statement covering the offering and sale by selling
shareholders of the common stock underlying all of the Company's then
outstanding warrants was declared effective on January 29, 1997. The warrants
related to grants made in connection with debt and equity issues, acquisitions,
directors' remuneration and various services rendered. From the effective date
through September 30, 1998, warrants to purchase 3,343,064 shares have been
exercised generating proceeds to the Company of $3,314,659, net of registration
costs of $109,982, and warrants to purchase 791,244 shares have expired
unexercised. During the year ended September 30, 1998, 1,009,418 warrants were
exercised generating proceeds of $767,235, and 30,000 warrants expired
unexercised.

At September 30, 1998, the Company had outstanding warrants to purchase
1,383,192 shares of common stock which expire at various dates through June
2000. The warrants have exercise prices ranging from $0.50 to $1.25 per share
and, if exercised would generate proceeds to the Company of approximately
$1,200,000.


(11)     EMPLOYEE STOCK OPTION PLANS

The Company adopted a Long-Term Incentive Plan in 1997 (the "1997 Plan") and an
Incentive Stock Option Plan in 1989 (the "1989 Plan") pursuant to which the
Company's Board of Directors may grant stock options to officers and key
employees. The 1997 Plan and the 1989 Plan authorize grants of options to
purchase up to 1,000,000 and 500,000 shares of common stock, respectively.
Options are granted with an exercise price equal to the fair market value of the
stock at the date of grant. Options granted under the 




                                      F-12
   35

1997 Plan and the 1989 Plan vest over four-year and three-year periods,
respectively, and expire no later than 10 years from the date of grant.

At September 30, 1998, there were 698,700 and 32,139 additional shares available
for grant under the 1997 Plan and the 1989 Plan, respectively. The
weighted-average fair value per share of stock options granted during 1998 and
1997 was $1.39 and $1.98, respectively, on the date of grant, using the Black
Scholes model with the following assumptions: risk-free interest rate of 5.62%,
expected life of 4 years, expected volatility of 75.66%, and an expected
dividend yield of 0% for the 1998 granted options, and a risk-free interest rate
of 6.49%, expected life of 4 years, expected volatility of 118.05%, and an
expected dividend yield of 0% for the 1997 granted options.

The Company applied APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated as follows:



                                                                     1998              1997               1996
                                                                 ------------      ------------      ------------
                                                                                                     
         Net income:
            As reported.......................................   $  4,239,626      $  2,117,220      $  1.215,118
            Pro forma.........................................      4,087,605         1,963,959         1,206,051

         Basic earnings per share:
            As reported.......................................           0.27              0.15              0.10
            Pro forma.........................................           0.26              0.14              0.10


At September 30, 1998 and 1997, the range of exercise prices was $0.69 to $2.50,
and the weighted-average remaining contractual life of the outstanding options
was 6.7 and 7.7 years, respectively. Stock option activity during the periods
indicated was as follows:



                                                                  Number of      Weighted average
                                                                    shares       exercise price
                                                                -------------    ----------------
                                                                               
         Balance at September 30, 1995........................        443,250      $  1.38
            Granted...........................................         40,000          .69
            Canceled..........................................        (15,000)       (1.16)
                                                                -------------
         Balance at September 30, 1996........................        468,250         1.33
            Granted...........................................        291,300         2.50
                                                                 ------------
         Balance at September 30, 1997........................        759,550         1.78
            Granted...........................................         10,000         2.31
            Forfeited.........................................        (15,000)       (1.16)
                                                                -------------
         Balance at September 30, 1998........................        754,550         1.80
                                                                =============


At September 30, 1998 and 1997, the number of options exercisable was 453,250
and 393,252, respectively, at a weighted-average price of $1.34 per share and
$1.38 per share, respectively.




                                      F-13
   36
(12)     INCOME TAXES

Income tax expense (benefit) attributable to income from continuing operations
consisted of the following for the years ended September 30, 1998, 1997 and
1996:



                                               1998                1997                1996
                                          --------------      --------------      --------------
                                                                                    
         Federal current tax expense      $      225,755      $      318,810      $           --
         State current tax expense ..            414,451                  --                  --
         Federal deferred tax benefit           (849,125)           (318,810)                 --
         State deferred tax benefit .            (98,332)                 --                  --
                                          --------------      --------------      --------------
                                          $     (307,251)     $           --      $           --
                                          ==============      ==============      ==============


Income tax expense (benefit) differed from the amounts computed by applying the
U.S. statutory federal income tax rate of 34% to pretax income from continuing
operations as a result of the following:



                                                                  1998             1997             1996
                                                              -----------      -----------      -----------
                                                                                               
         Computed "expected" tax expense ................     $ 1,337,007      $   719,855      $   413,140
         Change in valuation allowances .................      (1,938,458)        (691,099)        (131,091)
         State taxes, net of benefit ....................         208,639               --               --
         Nondeductible items and permanent differences ..          36,355           29,000         (256,792)
         Other ..........................................          49,206          (57,756)         (25,257)
                                                              -----------      -----------      -----------
                                                              $  (307,251)     $        --      $        --
                                                              ===========      ===========      ===========


The tax effects of temporary differences that were the sources of the deferred
tax assets consisted of the following at September 30, 1998 and 1997:



                                                         1998             1997
                                                      -----------      -----------
                                                                         
         Deferred tax assets:
            Intangible assets ...................     $   207,575      $   300,105
            Accounts receivable .................         256,428          255,118
            Inventories .........................         292,136          195,383
            Investment in 3CI ...................         329,842          360,475
            Accrued expenses ....................         437,826          242,294
            Other ...............................          49,264           74,416
            AMT credit carryforward .............              --          318,810
            Net operating loss carryforward .....          23,038          840,509
                                                      -----------      -----------
               Total gross deferred tax assets ..       1,596,109        2,587,110
            Less: valuation allowance ...........        (329,842)      (2,268,300)
                                                      -----------      -----------
               Net deferred tax assets ..........     $ 1,266,267      $   318,810
                                                      ===========      ===========


The Company has a federal income tax net operating loss carryforward as of
September 30, 1998 of $62,315. The net operating loss carryforward will expire
in various amounts between the years 2001 and 2010 if not utilized. The net
operating losses are subject to limitations should the ownership of the Company
significantly change. During the year ended September 30, 1998, the net change
in the valuation allowance was a decrease of approximately $1,938,000.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The Company has established a valuation allowance for
such deferred tax assets to the extent such amounts are not expected to be
utilized.



                                      F-14
   37

(13)     EARNINGS PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and diluted computations for the years ended September 30, 1998, 1997 and
1996:



                                                                         Weighted
                                                                       Average Shares    Per Share
                                                           Income        Outstanding      Amount
                                                          ----------     -----------    ----------
                                                                                      
         Year Ended September 30, 1998:
         Basic earnings per share ...................     $4,239,626     15,569,849     $     0.27
         Effect of dilutive warrants and options ....             --      1,326,839          (0.02)
                                                          ----------     ----------     ----------
         Diluted earnings per share .................     $4,239,626     16,896,688     $     0.25
                                                          ==========     ==========     ==========

         Year Ended September 30, 1997:
         Basic earnings per share ...................     $2,117,220     13,663,819     $     0.15
         Effect of dilutive warrants, options and
            convertible notes .......................          1,200      1,750,490          (0.01)
                                                          ----------     ----------     ----------
         Diluted earnings per share .................     $2,118,420     15,414,309     $     0.14
                                                          ==========     ==========     ==========

         Year Ended September 30, 1996:
         Basic earnings per share ...................     $1,215,118     12,146,940     $     0.10
         Effect of dilutive warrants, options and
            convertible notes .......................        163,921      1,482,730             --
                                                          ----------     ----------     ----------
         Diluted earnings per share .................     $1,379,039     13,629,670     $     0.10
                                                          ==========     ==========     ==========


(14)     COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are each subject to certain litigation and
claims arising in the ordinary course of business. In the opinion of the
management of the Company, the amounts ultimately payable, if any, as a result
of such litigation and claims will not have a materially adverse effect on the
Company's financial position.

The Company leases office and warehouse space, transportation equipment and
other equipment under terms of operating leases which expire through 2005.
Rental expense under these leases for the years ended September 30, 1998, 1997
and 1996 was approximately $382,000, $355,000 and $347,000, respectively. The
Company has approximate future lease commitments as follows:



                                                                    Amount
                                                                 ------------
         Year Ending September 30:
                                                                       
            1999..............................................  $     366,128
            2000..............................................        368,724
            2001..............................................        298,654
            2002..............................................        294,901
            2003..............................................        294,901
         Subsequent to September 30, 2003.....................        391,871
                                                                 ------------
                                                                 $  2,015,179
                                                                 ============




                                      F-15
   38

(15)     RELATED PARTY TRANSACTIONS

From time to time, the Company provides certain administrative and clerical
services to three entities with which certain directors have an affiliation.
Fees earned by the Company for these services totaled approximately $42,000,
$72,000 and $144,000 for the years ended September 30, 1998, 1997 and 1996,
respectively. Amounts due to the Company from these entities totaled $234,100 at
September 30, 1998.




                                      F-16
   39

                                                                      SCHEDULE I

                            TIDEL TECHNOLOGIES, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                (PARENT COMPANY)
                            CONDENSED BALANCE SHEETS



                                                                     SEPTEMBER 30,
                                                             ------------------------------
                              ASSETS                            1998              1997
                                                             ------------      ------------
                                                                                  
Current Assets:
    Cash and cash equivalents                                $    116,095      $     32,459
    Notes and other receivables                                   415,227           641,250
    Prepaid expenses and other assets                             670,935            36,610
                                                             ------------      ------------
        Total current assets                                    1,202,257           710,319

Investment in 3CI, at market value                                917,083           553,505

Property, plant and equipment, at cost                            106,839            95,327
    Accumulated depreciation                                      (68,799)          (55,325)
                                                             ------------      ------------
        Net property, plant and equipment                          38,040            40,002

Investment in subsidiaires, at equity                          10,408,994         6,513,289
Receivables from subsidiaries                                   1,814,032         1,535,190
Other assets                                                        6,015            31,015
                                                             ------------      ------------
        Total assets                                         $ 14,386,421      $  9,383,320
                                                             ============      ============

               LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Current maturities of long-term debt
        and short-term notes payable                         $    128,000      $    940,000
    Accounts payable                                              191,735           225,144
    Accrued liabilities                                           102,856           126,355
                                                             ------------      ------------
        Total current liabilities                                 422,591         1,291,499

Long-term debt                                                    480,000                --
                                                             ------------      ------------
        Total liabilities                                         902,591         1,291,499
                                                             ------------      ------------

Commitments and contingencies

Shareholders' Equity:
    Common stock, $.01 par value, authorized 100,000,000
        shares; issued and outstanding 15,860,468 and
        14,851,050 shares, respectively                           158,605           148,511
    Additional paid-in capital                                 14,144,553        13,387,412
    Retained earnings (accumulated deficit)                       213,364        (4,026,262)
    Stock subscriptions receivable                               (382,063)         (424,437)
    Unrealized loss on investment in 3CI                         (650,629)         (993,403)
                                                             ------------      ------------
        Total shareholders' equity                             13,483,830         8,091,821
                                                             ------------      ------------
        Total liabilities and shareholders' equity           $ 14,386,421      $  9,383,320
                                                             ============      ============



See accompanying notes to condensed financial information of registrant.



                                      S-1
   40

                            TIDEL TECHNOLOGIES, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                (PARENT COMPANY)
                         CONDENSED STATEMENTS OF INCOME




                                                                      YEAR ENDED SEPTEMBER 30,
                                                           ---------------------------------------------
                                                              1998             1997             1996
                                                           -----------      -----------      -----------
                                                                                            
Revenues                                                   $        --      $        --      $        --

Costs and expenses:
Selling, general and administrative                            738,433          710,281          557,245
Depreciation and amortization                                   13,474           27,694           17,283
                                                           -----------      -----------      -----------
    Operating loss                                            (751,907)        (737,975)        (574,528)

Interest expense, net                                           18,322          159,100          172,500
                                                           -----------      -----------      -----------
Loss before equity in income of subsidiaries and taxes        (770,229)        (897,075)        (747,028)

Equity in income of subsidiaries                             3,895,705        1,804,475        1,855,446
                                                           -----------      -----------      -----------
Income before taxes                                          3,125,476          907,400        1,108,418

Income tax benefit                                           1,114,150        1,209,820          106,700
                                                           -----------      -----------      -----------
Net income                                                 $ 4,239,626      $ 2,117,220      $ 1,215,118
                                                           ===========      ===========      ===========




See accompanying notes to condensed financial information of registrant.




                                      S-2
   41

                            TIDEL TECHNOLOGIES, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                (PARENT COMPANY)
                       CONDENSED STATEMENTS OF CASH FLOWS




                                                                             YEAR ENDED SEPTEMBER 30,
                                                                 ---------------------------------------------
                                                                    1998             1997             1996
                                                                 -----------      -----------      -----------
                                                                                                  
Cash flows from operating activities:
    Net income                                                   $ 4,239,626      $ 2,117,220      $ 1,215,118
    Adjustments to reconcile net income to
      net cash used in operating activities:
        Depreciation and amortization                                 13,474           27,694           17,283
        Loss on sale of property, plant and equipment                     --              275              245
        Deferred tax benefit                                      (1,114,150)      (1,209,820)        (106,700)
        Equity in income of subsidiaries                          (3,895,705)      (1,804,475)      (1,855,446)
        Changes in assets and liabilities:
            Notes and other receivables                              (92,540)        (237,660)         559,539
            Prepaid expenses and other assets                       (609,325)         (37,942)          (1,709)
            Receivables from subsidiaries                            835,308               --               --
            Accounts payable and accrued liabilities                 (56,908)          82,857         (207,055)
                                                                 -----------      -----------      -----------
        Net cash used in operating activities                       (680,220)      (1,061,851)        (378,725)
                                                                 -----------      -----------      -----------

Cash flows from investing activities:
    Purchases of property, plant and equipment                       (11,512)          (8,148)         (16,360)
    Proceeds from sale of property, plant and equipment                   --              300               --
    Increase in investment in 3CI                                    (20,804)              --               --
                                                                 -----------      -----------      -----------
        Net cash used in investing activities                        (32,316)          (7,848)         (16,360)
                                                                 -----------      -----------      -----------

Cash flows from financing activities:
    Proceeds from issuance of notes payable                          640,000          895,000        1,864,000
    Repayments of notes payable                                     (972,000)      (1,956,250)      (1,254,000)
    Proceeds from exercise of warrants                               767,235        1,765,674          161,250
    Proceeds from issuance of warrants                                    --            3,252           14,000
    Payments of stock subscription notes                             360,937               --               --
                                                                 -----------      -----------      -----------
        Net cash provided by financing activities                    796,172          707,676          785,250
                                                                 -----------      -----------      -----------
        Net increase (decrease) in cash and cash equivalents          83,636         (362,023)         390,165

Cash and cash equivalents at beginning of year                        32,459          394,482            4,317
                                                                 -----------      -----------      -----------
Cash and cash equivalents at end of year                         $   116,095      $    32,459      $   394,482
                                                                 ===========      ===========      ===========

Supplemental disclosure of cash flow information:
    Cash paid for interest                                       $    93,559      $   243,402      $   151,700
                                                                 ===========      ===========      ===========
    Cash paid for taxes, net of refunds receivable               $   451,182      $    92,470      $        --
                                                                 ===========      ===========      ===========

Supplemental disclosure of noncash financing activities:
    Conversion of note payable to common stock                   $        --      $    60,000      $   150,000
                                                                 ===========      ===========      ===========
    Notes received for warrant conversions                       $        --      $   743,000      $        --
                                                                 ===========      ===========      ===========
    Noncash exercise of warrants                                 $        --      $    38,750      $        --
                                                                 ===========      ===========      ===========



See accompanying notes to condensed financial information of registrant.



                                      S-3
   42

                            TIDEL TECHNOLOGIES, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                (PARENT COMPANY)
             NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT


(A)      SHORT-TERM NOTES PAYABLE

Short-term notes payable consisted of the following at September 30, 1998 and
1997:



                                                                1998             1997
                                                            ------------     ------------
                                                                                
         Current maturities of long-term debt .........     $    128,000     $         --
         Promissory note due May 31, 1998, interest
            payable at maturity at 12%, secured by
            480,818 shares of 3CI common stock ........
            Paid May 28, 1998 .........................               --          400,000
         Unsecured promissory notes due May 31, 1998,
            interest payable quarterly at 12%. Paid
            May 28, 1998 ..............................               --          540,000
                                                            ------------     ------------
                                                            $    128,000     $    940,000
                                                            ============     ============


(B)      LONG-TERM DEBT

Long-term debt consisted of the following at September 30, 1998 and 1997:



                                                                   1997                1998
                                                              --------------      --------------
                                                                                       
         Term note payable to bank, payable in quarterly
            installments of $32,000 plus accrued interest
            at 8.4% through May 31, 2003, secured by
            680,818 shares of 3CI stock .................     $      608,000      $           --
                                                              --------------      --------------
         Total long-term debt ...........................            608,000                  --
         Less: current maturities .......................           (128,000)                 --
                                                              --------------      --------------
         Long-term debt, less current maturities ........     $      480,000      $           --
                                                              ==============      ==============


(C)      GUARANTEES

The parent company has guaranteed the revolving credit note issued by its
subsidiary, Tidel Engineering, Inc., in the maximum principal amount of
$7,000,000 due May 31, 2000 (the "Revolving Credit Note"). At September 30,
1998, $4,754,604 was outstanding pursuant to the Revolving Credit Note.


(D)      DIVIDENDS FROM SUBSIDIARIES

No dividends have been paid to the parent company by its subsidiaries as of
September 30, 1998. The Company's principal operating subsidiary, Tidel
Engineering, Inc., is restricted from paying dividends to the parent company
pursuant to the Revolving Credit Note.





                                      S-4
   43
                            TIDEL TECHNOLOGIES, INC.
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                (PARENT COMPANY)
             NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                   (CONTINUED)


(E)      INCOME TAXES

The parent company and its subsidiaries (collectively the "Companies") have
entered into a tax sharing agreement providing that each of the Companies will
be responsible for its tax liability for the years that the Companies were
included in the parent company's consolidated income tax returns. Income taxes
have been allocated to each of the Companies based on its pretax income and
calculated on a separate company basis. Further, the agreement provides for
reimbursements to the parent company for payment of the consolidated tax
liability based on the allocations, and compensates each of the Companies for
use of its losses or tax credits. As a result of the agreement, the parent
company recognized a deferred tax benefit of $1,114,150, $1,209,820 and $106,700
for the years ended September 30, 1998, 1997 and 1996, respectively.


(F)      AFFILIATED TRANSACTIONS

From time to time, the parent company provides certain administrative and
clerical services to three entities with which certain directors have an
affiliation. Fees earned by the parent company for these services totaled
approximately $42,000, $72,000 and $144,000 for the years ended September 30,
1998, 1997 and 1996, respectively. Amounts due to the Company from these
entities totaled $234,100 at September 30, 1998.

On March 30, 1997, the Company received notes with an aggregate principal
balance of $743,000 in connection with the exercise of warrants to purchase
common stock by certain directors. As of September 30, 1998, $382,063 was
outstanding pursuant to the notes.

The subsidiaries paid management fees to the parent company in the aggregate
amount of $180,000 per annum in each of the years ended September 30, 1998, 1997
and 1996. In addition, the parent company bills the subsidiaries for direct
expenses paid on their behalf and from time to time makes interest bearing
advances for working capital purposes.



                                      S-5
   44
                                INDEX TO EXHIBITS


EXHIBITS

Except as otherwise indicated, the following documents are incorporated by
reference as Exhibits to this Report [the inclusion of certain Exhibits herein
through incorporation by reference to "Form 10 of the Company" refer in each
case to the indicated Exhibits as listed in Item 15.2 of the Company's Form 10
dated November 7, 1988 as amended by Form 8 dated February 2, 1989]:




      Exhibit
      Number                                Description
      ------                                -----------
                        

        2.01.              Copy of Stock Purchase Agreement dated February 4,
                           1994 between Waste Systems, Inc. and the Company
                           (incorporated by reference to Exhibit 1.2. of the
                           Company's Report on Form 8-K filed under date of
                           February 18, 1994).

        2.02.              Copy of Option to Purchase 3CI Complete Compliance
                           Corporation shares dated February 4, 1994 issued by
                           the Company to Waste Systems, Inc. (incorporated by
                           reference to Exhibit 1.3. of the Company's Report on
                           Form 8-K filed under date of February 18, 1994).

        2.03.              Copy of Registration Rights Agreement dated February
                           4, 1994 between 3CI Complete Compliance Corporation
                           and the Company (incorporated by reference to Exhibit
                           1.4. of the Company's Report on Form 8-K filed under
                           date of February 18, 1994).

        3.01.              Copy of Certificate of Incorporation of American
                           Medical Technologies, Inc. (filed as Articles of
                           Domestication with the Secretary of State, State of
                           Delaware on November 6, 1987 and incorporated by
                           reference to Exhibit 2 to Form 10 of the Company).

        3.02.              Copy of By-Laws of the Company (incorporated by
                           reference to Exhibit 3 to Form 10 of the Company).

        3.03               Amendment to Certificate of Incorporation dated July
                           16, 1997 (incorporated by reference to Exhibit 3 of
                           the Company's Report on Form 10-Q for the quarterly
                           period ended June 30, 1997).

        4.01.              Copy of form of series BOD common stock purchase
                           warrants of the Company issued to each of the seven
                           directors of the Company as of October 23, 1995, each
                           such warrant providing for the purchase of 50,000
                           shares of common stock at an exercise price of $0.625
                           per share (incorporated by reference to Exhibit 4.15.
                           of the Company's Report on Form 10-K for the year
                           ended September 30, 1995).







                                      E-1
   45

        4.02.              Credit Agreement dated June 12, 1997 by and between
                           Tidel Engineering, Inc. and Texas Commerce Bank
                           National Association (incorporated by reference to
                           Exhibit 4.01 of the Company's Report on Form 10-Q for
                           the quarterly period ended June 30, 1997).

        4.03.              Promissory Note dated June 12, 1997 executed by Tidel
                           Engineering, Inc. payable to the order of Texas
                           Commerce Bank National Association (incorporated by
                           reference to Exhibit 4.02 of the Company's Report on
                           Form 10-Q for the quarterly period ended June 30,
                           1997).

        4.04.              Security Agreement (Personal Property) dated as of
                           June 12, 1997, by and between Tidel Engineering, Inc.
                           and Texas Commerce Bank National Association
                           (incorporated by reference to Exhibit 4.03 of the
                           Company's Report on Form 10-Q for the quarterly
                           period ended June 30, 1997).

        4.05.              Patent Security Agreement dated June 12, 1997
                           executed by Tidel Engineering, Inc. in favor of Texas
                           Commerce Bank National Association (incorporated by
                           reference to Exhibit 4.04 of the Company's Report on
                           Form 10-Q for the quarterly period ended June 30,
                           1997).

        4.06.              Trademark Security Agreement dated June 12, 1997
                           executed by Tidel Engineering, Inc. in favor of Texas
                           Commerce Bank National Association (incorporated by
                           reference to Exhibit 4.05 of the Company's Report on
                           Form 10-Q for the quarterly period ended June 30,
                           1997).

        4.07.              Unconditional Guaranty Agreement dated June 12, 1997
                           executed by the Company for the benefit of Texas
                           Commerce Bank National Association (incorporated by
                           reference to Exhibit 4.06 of the Company's Report on
                           Form 10-Q for the quarterly period ended June 30,
                           1997).

        4.08.              Pledge and Security Agreement dated June 12, 1997
                           executed by the Company in favor of Texas Commerce
                           Bank National Association (incorporated by reference
                           to Exhibit 4.07 of the Company's Report on Form 10-Q
                           for the quarterly period ended June 30, 1997).

        4.09.              First Amendment to Exhibit 4.02. above dated February
                           1, 1998 by and between Tidel Engineering, Inc. and
                           Chase Bank of Texas, N. A. (incorporated by reference
                           to Exhibit 4.01 of the Company's Report on Form 10-Q
                           for the quarterly period ended June 30, 1998).

        4.10.              Second Amendment to Exhibit 4.02. above dated May 27,
                           1998 by and among Tidel Engineering, Inc., the
                           Company and Chase Bank of Texas, N. A. (incorporated
                           by reference to Exhibit 4.02 of the Company's Report
                           on Form 10-Q for the quarterly period ended June 30,
                           1998).

        4.11.              Promissory Note dated May 27, 1998 executed by Tidel
                           Engineering, Inc. payable to the order of Chase Bank
                           of Texas, N. A. (incorporated by reference to Exhibit
                           4.03. of the Company's Report on Form 10-Q for the
                           quarterly period ended June 30, 1998).



                                      E-2
   46

        4.12.              Promissory Note dated May 27, 1998 executed by Tidel
                           Technologies, Inc. payable to the order of Chase Bank
                           of Texas, N. A. (incorporated by reference to Exhibit
                           4.04 of the Company's Report on Form 10-Q for the
                           quarterly period ended June 30, 1998).

        4.13.              First Amendment to Exhibit 4.04. above dated as of
                           May 27, 1998, by and between Tidel Engineering, Inc.
                           and Chase Bank of Texas, N. A. (incorporated by
                           reference to Exhibit 4.05 of the Company's Report on
                           Form 10-Q for the quarterly period ended June 30,
                           1998).

        4.14.              First Amendment to Exhibit 4.08. above dated as of
                           May 27, 1998 executed by the Company in favor of
                           Chase Bank of Texas, N. A. (incorporated by reference
                           to Exhibit 4.06 of the Company's Report on Form 10-Q
                           for the quarterly period ended June 30, 1998).

       10.01.              Copy of 1989 Incentive Stock Option Plan of the
                           Company (incorporated by reference to Appendix A of
                           the Company's Proxy Statement filed under Regulation
                           14A with respect to the Annual Meeting of
                           Shareholders held June 13, 1989).

       10.02.              Copy of Lease Agreement dated February 21, 1992
                           between the Company, as Lessee, and San Felipe Plaza,
                           Ltd., as Lessor, related to the occupancy of the
                           Company's executive offices (incorporated by
                           reference to Exhibit 10.10. of the Company's Report
                           on Form 10-K for the year ended September 30, 1992).

       10.03.              Copy of Lease dated as of December 9, 1994 (together
                           with the Addendum and Exhibits thereto) between
                           Booth, Inc., a Texas corporation, as Landlord and
                           Tidel Engineering, Inc., as Tenant, covering
                           approximately 65,000 square feet of manufacturing and
                           office premises at 2310 McDaniel Drive, Carrollton,
                           Texas (incorporated by reference to Exhibit 10.7. of
                           the Company's Report on Form 10-K for the year ended
                           September 30, 1994).

       10.04.              Copy of Agreement dated October 30, 1991 between ACS
                           and Tidel Engineering, Inc. (incorporated by
                           reference to Exhibit 10.14. of the Company's Report
                           on Form 10-K for the year ended September 30, 1992).

       10.05.              Copy of EFT Processing Services Agreement dated
                           February 3, 1995 by, between and among Affiliated
                           Computer Services, Inc. ("ACS"), AnyCard
                           International, Inc. and the Company related to the
                           electronic fund transfer services to be provided by
                           ACS to AnyCard (incorporated by reference to Exhibit
                           10.9. of the Company's Report on Form 10-K for the
                           year ended September 30, 1995).

       10.06.              Copy of Amendment No. 1 dated as of September 14,
                           1995 to Exhibit 10.05. above (incorporated by
                           reference to Exhibit 10.10. of the Company's Report
                           on Form 10-K for the year ended September 30, 1995).



                                      E-3
   47

       10.07.              Copy of Purchase Agreement dated February 3, 1995
                           between ACS and AnyCard International, Inc. related
                           to the purchase by ACS of AnyCard Systems
                           (incorporated by reference to Exhibit 10.11. of the
                           Company's Report on Form 10-K for the year ended
                           September 30, 1995).

       10.08.              Copy of Amendment No. 1 dated as of September 14,
                           1995 to Exhibit 10.07. above (incorporated by
                           reference to Exhibit 10.12. of the Company's Report
                           on Form 10-K for the year ended September 30, 1995).

       10.09.              Secured Promissory Note dated March 30, 1997 executed
                           by James L. Britton, III and payable to the order of
                           the Company (incorporated by reference to Exhibit
                           10.01 of the Company's Report on Form 10-Q for the
                           quarterly period ended June 30, 1997).

       10.10.              Secured Promissory Note dated March 30, 1997 executed
                           by Jerrell G. Clay and payable to the order of the
                           Company (incorporated by reference to Exhibit 10.02
                           of the Company's Report on Form 10-Q for the
                           quarterly period ended June 30, 1997).

       10.11.              Secured Promissory Note dated March 30, 1997 executed
                           by Mark K. Levenick and payable to the order of the
                           Company (incorporated by reference to Exhibit 10.03
                           of the Company's Report on Form 10-Q for the
                           quarterly period ended June 30, 1997).

       10.12.              Secured Promissory Note dated March 30, 1997 executed
                           by James T. Rash and payable to the order of the
                           Company (incorporated by reference to Exhibit 10.04
                           of the Company's Report on Form 10-Q for the
                           quarterly period ended June 30, 1997).

       10.13.              Form of Stock Pledge Agreement dated March 30, 1997
                           executed by each of the four directors of the Company
                           in favor of the Company (incorporated by reference to
                           Exhibit 10.05 of the Company's Report on Form 10-Q
                           for the quarterly period ended June 30, 1997).

       10.14.              Copy of Amendment No. 2 dated as of September 15,
                           1997 to Exhibit 10.02. above (incorporated by
                           reference to Exhibit 10.14. of the Company's report
                           on Form 10-K for the year ended September 30, 1997).

       10.15.              Form of employment agreement dated July 16, 1997 by
                           and between Tidel Engineering, Inc. and Michael F.
                           Hudson, Eugene W. Moore, M. Flynt Moreland and
                           Roberto M. Gutierrez (incorporated by reference to
                           Exhibit 10.15. of the Company's report on Form 10-K
                           for the year ended September 30, 1997).

       10.16.              Form of employment agreement dated July 16, 1997 by
                           and between Tidel Engineering, Inc. and Mark K.
                           Levenick (incorporated by reference to Exhibit 10.16.
                           of the Company's report on Form 10-K for the year
                           ended September 30, 1997).

       22.                 The Registrant has three subsidiaries doing business
                           in the names set forth below:




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   48
EXHIBIT 
NUMBER                                   State of            Percent
- ------     Name                          Incorporation        Owned
           ----                          -------------        -----

           Tidel Cash Systems, Inc.      Delaware              100%
           AnyCard International, Inc.   Delaware              100%
           Tidel Engineering, Inc.       Delaware              100%


 *27.      Financial Data Schedule.

- --------------
* filed herewith



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