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.
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, known as AnyCard. 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 utilized the same electronics and software platform as the AnyCard sc, but was housed in a newly designed cabinet that offered both single and multiple cassette models. 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.
In October 1998, the Company introduced its new Ignition Series products consisting of the IS-1000, a single cassette model, and the IS-6000, a multiple cassette model. These products now comprise all of the Company's ATM sales, as inventories of all other ATM products were liquidated in the year ended September 30, 1999, and the Company does not intend to produce any of the predecessor products in the future. During the year ended September 30, 1999, the Company had sales of ATM products to two major customers that accounted for more than 10% of sales in the amounts of $18,554,624 and $4,781,236, respectfully.
During the year ended September 30, 1999, the Company introduced a new product, the Chameleon, which is a web-enabled, interactive, multimedia kiosk that provides users with e-commerce and point-of-sale functionality in addition to traditional ATM features. Sales of this product in commercial quantities will commence in fiscal 2000, and the development of application software and additional features will be ongoing.
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 14% of the Company's revenues for the year ended September 30, 1999.
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 2% of total revenues in fiscal 1999, and management has terminated marketing of EMS products to shift focus to the ATM and TACC products. However, the Company will continue to supply parts to existing EMS customers on a very limited basis.
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. The research and development budget for fiscal 2000 is approximately $3,100,000. Total research and development expenditures were approximately $1,700,000, $1,400,000 and $1,200,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
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 ATM and TACC products in the United States through Company controlled national accounts and a network of more than 150 independent distributors and dealers. 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 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 Environmental Protection Agency ("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 off-premises automated teller machine market consists of other companies such as Triton Systems, Inc., Fujitsu Corporation, Cross Technologies, Inc. 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.
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 144 and 122 persons at September 30, 1999 and 1998, 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.
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 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, 1999, the Company owned tangible property and equipment costing approximately $3,912,000. Such amount is comprised primarily of manufacturing tools, manual and robotic welding equipment, computer equipment and systems, and vehicles used in servicing and delivery functions.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on July 22, 1999, in Dallas, 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.
b) Ratification of the selection of KPMG LLP as the Company's independent auditors for fiscal year 1999.
PART II
ITEM 5.
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, 1999:
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, 1999, 78% of the total 16,067,968 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 4,000 persons.
ITEM 6.
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.
(1) All amounts are in thousands, except per share dollar amounts.
(2) Income tax expense (benefit) was $1,800,000 and ($307,251) in 1999 and 1998, respectively.
(3) The sum of the quarterly amounts of diluted earnings per share does not necessarily equal 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.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues were $45,873,000 for the year ended September 30, 1999, representing an increase of $12,265,000, or 36%, from fiscal 1998 and $15,720,000, or 52%, from fiscal 1997. Operating income for the year was $5,117,000 as compared to $4,325,000 in fiscal 1998 and $2,590,000 in fiscal 1997. Net income for the periods was not comparable inasmuch as fiscal 1997 had no income tax, fiscal 1998 included a tax benefit of $307,000, and fiscal 1999 included an income tax expense of $1,800,000.
The significant sales growth was due to the continued strong demand for the Company's ATM products. The gross profit from these sales, offset somewhat by increased operating expenses, provided the overall improvement in operating income.
PRODUCT REVENUES
A breakdown of net sales by individual product line is provided in the following table:
ATM sales have significantly increased in the past year due to broad customer acceptance of the new Ignition Series and the addition of new distributors to the Company's customer base.
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, and the Company is phasing out of this segment of business.
Parts, service and other revenues vary directly with sales of finished goods, and have increased accordingly.
GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS
A comparison of certain operating information is provided in the following table:
Gross profit on product sales increased $2,780,000 and $4,265,000 from 1998 and 1997, respectively, to $14,960,000 in 1999. The gross margin in 1999 was 32.6% of product sales, compared to 36.2% in 1998 and 35.5% in 1997. The decrease in 1999 compared to 1998 resulted from a decline in average sales prices for ATM products of $512. In 1998, the average sales prices for ATM products decreased $586 from 1997, but gross margin improved slightly due to reduced manufacturing overheads from the prior year.
Selling, general and administrative expenses were $9,030,000 in 1999, an increase of $1,664,000 from 1998, as a result of higher salaries and increased legal expenses. These costs were 19.7% of sales in 1999, a decrease from the 1998 and 1997 levels of 21.9% and 25.3%, respectively. The percentage decline relates primarily to increased sales volumes.
Depreciation and amortization was $813,000, $489,000, and $474,000 for the years ended September 30, 1999, 1998 and 1997. The increase in 1999 compared to 1998 and 1997 related to additions of property, plant and equipment.
Interest expense decreased from $473,000 in 1997 to $392,000 in 1998, and to $381,000 in 1999 due to the lower cost of borrowings resulting from the Company's new revolving credit facility.
Income tax expense (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 offset with current tax expense of $640,000, resulted in a net income tax benefit of $307,000. In 1999, the Company recorded a provision for income tax expense of $1,800,000, representing an effective tax rate of 38%.
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, 1999, 1998 and 1997:
The improvement in working capital in 1999 is principally due to net cash provided by operating activities of $2,207,022 for the year ended September 30, 1999.
In 1999, 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 September 30, 2001. Despite a significant increase in revenues, the Company's borrowings pursuant to the revolving credit agreement were minimal during the year. At September 30, 1999, $4,894,634 was outstanding compared to $4,754,604 at September 30, 1998. See Note 8 to Notes to Consolidated Financial Statements for a description of all 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. Although the market value of 3CI common stock has recently declined, the Company does not believe that such decline represents a permanent impairment of the investment. The Company has no immediate plans for the disposal of the shares, and accordingly, the shares may be utilized to collateralize borrowings. At present, 680,818 shares are pledged to secure an outstanding note payable in the principal amount of $480,000.
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, 1999, the Company had outstanding warrants to purchase 1,425,692 shares of common stock at exercise prices ranging from $.50 to $2.19 per share, which expire at various dates through July 2002, and if exercised would generate proceeds to the Company of approximately $1,400,000.
The Company's research and development budget for fiscal 2000 has been estimated at $3,100,000. The majority of these expenditures are applicable to enhancements of the existing product lines, 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 $1,700,000, $1,400,000, and $1,200,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
With its present capital resources, its continuing earnings and cash flow from operations, its potential capital from the exercise of warrants, and availability of $2,100,000 from its borrowing facility, the Company believes it should have sufficient resources to meet its operating needs for the foreseeable future and to provide for debt maturities and capital expenditures.
The Company has never paid dividends on shares of its common stock, and does not anticipate paying dividends in the foreseeable future. In addition, the Company's wholly owned subsidiary is restricted from paying dividends to the Company pursuant to the subsidiary's revolving credit agreement with a bank.
SEASONALITY
The Company can experience seasonal variances in its operations and historically has its lowest dollar volume sales months between November and February. The Company's operating results for any particular quarter may not be indicative of the results for the future quarter or for the year.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new accounting and reporting standards requiring that all derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133, as amended, is effective for all fiscal years beginning after June 15, 2000. The Company has not yet determined the impact; if any, SFAS 133 will have on its financial position or results of operations, and plans to adopt this standard during the year ending September 30, 2001.
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 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. As of January 11, 2000, the Company has not encountered any problems as a result of the year 2000 issue.
To determine the Company's state of readiness, management conducted an evaluation of the Company's computer systems, software and embedded technologies to identify those that could be affected by the Year 2000 Issue. The evaluation, which was focused on the Company's products and most critical internal operating functions, revealed that the Company's accounting and manufacturing software were the major resources containing Year 2000 compliance issues. These resources were repaired during the year ended September 30, 1999.
The Company has determined that there should be no Year 2000 Issues for TACC products already sold. The Company has determined that there should be no Year 2000 Issues for EMS products sold since June 5, 1991. EMS products sold prior to June 5, 1991, were manufactured by a predecessor and have not been tested by the Company. In addition, certain EMS 3000 products contain hardware manufactured by a third party. This third party component equipment has not been tested by the Company. While none of the predecessor EMS products or EMS products containing third party component equipment are still under warranty by the Company, customer problems, if any, will be addressed as incurred.
The Company has tested the hardware and software platforms for its ATM products already sold, excluding the Company's initial AnyCard tube-type model ATM. The discontinued tube-type model ATM contains a point-of-sale interface manufactured by a third party. In addition, this model is dependent on a certain third party host processor for its date and time information during a transaction. Neither the point-of-sale interface nor the systems of the third party host processor have been tested by the Company. The Company believes, however, that there are less than 1,500 tube-type models still in service 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.
Expenditures in fiscal 1999 for the Year 2000 Issue were approximately $25,000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates as a result of significant financing through its issuance of variable-rate and fixed-rate debt. If market interest rates were to increase 1% in fiscal 2000, 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.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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, 1999. 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.
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.
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.
Charles E. Engelman, an advisory director since July 1999, has for more than the past 5 years managed his own investments, including controlling interest of a worldwide manufacturer of high pressure valves and tanks. Mr. Engelman earned a degree in Engineering from the University of Texas at Austin.
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. In addition, the directors, including the advisory director, were each granted warrants to
purchase of 50,000 shares of the Company's common stock at exercise prices ranging from $1.25 to $2.19 per share during the year ended September 30, 1999.
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 employee stock option plans, and reviews and evaluates matters with respect to the payment of direct salaries and incentive compensation to the Company's executive officers and senior management personnel.
ITEM 11.
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, 1999, 1998 and 1997 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]:
SUMMARY COMPENSATION TABLE
The following table provides the number of options granted and the respective valuations to the Company's executive officers during the year ended September 30, 1999:
OPTION GRANTS IN THE YEAR ENDED SEPTEMBER 30, 1999
The following table provides the number of options exercisable by the respective optionees and the respective valuations at September 30, 1999:
OPTIONS EXERCISABLE AND RELATED VALUES SEPTEMBER 30, 1999
No options were exercised by executive officers pursuant to the Company's employee stock option plans during the years ended September 30, 1999, 1998 and 1997.
EMPLOYMENT AGREEMENTS
Messrs. Levenick and Hudson, both executive officers of the Company, have employment agreements with the Company's wholly owned operating company, Tidel Engineering, L.P., 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 operating company which provide for minimum annual salaries ranging from $75,000 to $100,000 for the same term, which also contain change of control provisions.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 20, 1999, 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.
* Less than one percent.
(1) Based upon 16,137,968 shares outstanding as of December 20, 1999.
(2) Includes 150,000 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, (ii) $1.00 per share as to 50,000 shares and (iii) $1.25 per share as to 50,000 shares.
(3) Includes 230,000 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, (iii) $1.25 per share as to 50,000 and (iv) $1.6875 per share as to 80,000 shares.
(4) Includes 250,000 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 70,000 shares, (v) $1.4375 per share as to 25,000 shares and (vi) $1.75 per share as to 30,000 shares.
(5) Includes of 50,000 shares which could be acquired within 60 days upon exercise of outstanding options at 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 150,000 shares for each of the two individuals referred to in Note (2) above, the 230,000 shares referred to in Note (3) above, the 250,000 shares referred to in Note (4) above, and the 50,000 shares referred to in Note (5) above obtainable upon exercise of outstanding warrants and options.
ITEM 13.
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 $26,000 for the year ended September 30, 1999. Amounts due to the Company from these entities totaled $260,532 and $234,000 at September 30, 1999 and 1998, respectively.
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 30,1999, $382,063 was outstanding pursuant to the notes. These notes are due March 31, 2000, bear interest at 10% and are secured by 500,000 shares of the Company's common stock issued thereunder.
PART IV
ITEM 14.
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, 1999.
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, 2000 /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.
All other schedules are omitted because they are not required, are not applicable or the required information is presented elsewhere herein.
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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1999 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 LLP
Houston, Texas December 10, 1999
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
See accompanying notes to consolidated financial statements.
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(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 primarily in the United States.
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.
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 and goodwill 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 (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 $1,700,000, $1,400,000 and $1,200,000 for the years ended September 30, 1999, 1998 and 1997.
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 component of other comprehensive income.
NET INCOME PER SHARE In accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"), the Company computes and presents both basic and diluted earnings per share ("EPS") amounts. 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 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 financial instruments included in 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 retains a security interest in the underlying equipment that is sold to customers until it receives payment in full. In addition, one major customer has pledged additional collateral to the Company. The Company would incur an accounting loss equal to the carrying value of the accounts receivable, less any amounts recovered from liquidation of collateral, if a customer failed to perform according to the terms of the credit arrangements.
During the year ended September 30, 1999, the Company had sales to two major customers that accounted for more than 10% of sales in the amounts of $18,554,624 and $4,781,236. During the year ended September 30, 1998, the Company had such sales to two major customers 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.
Foreign sales accounted for 5%, 4% and 5% of the Company's total sales during the years ended September 30, 1999, 1998 and 1997, 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, 1999 and 1998:
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. The notes are due March 31, 2000, 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, 1999, 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.
At September 30, 1999, the Company had a note due from a non-affiliated corporation with an outstanding principal balance of $163,058. The note bears interest at 12% per annum and is secured by the personal guaranty of the majority shareholder of the corporation and a pledge of outstanding common stock of the corporation. The note matures March 31, 2000. Non-trade accounts also include amounts due from related parties as described in Note 15.
(4) INVENTORIES
Inventories consisted of the following at September 30, 1999 and 1998:
(5) INVESTMENT IN 3CI
The Company owned 698,464 shares of 3CI common stock at September 30, 1999 and 1998 with a market value of $261,924 ($.375 per share) and $917,083 ($1.313 per share), respectively. In accordance with the provisions of SFAS No. 115, the Company recorded an unrealized loss of $655,159 and an unrealized gain of $342,774 as components of other comprehensive income, net of tax at September 30, 1999 and 1998, respectively.
In addition, the Company owns 226,939 warrants to purchase 3CI common stock at $1.50 per share exercisable through April 2000, which have no carrying value.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30, 1999 and 1998:
Depreciation expense was $596,438, $368,825 and $327,661 for the years ended September 30, 1999, 1998 and 1997, respectively. Repairs and maintenance expense was $112,637, $56,330 and $95,338 for the years ended September 30, 1999, 1998 and 1997, respectively.
(7) INTANGIBLE ASSETS
Intangible assets consisted of the following at September 30, 1999 and 1998:
(8) LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1999 and 1998:
The Company has a credit agreement with a bank which provides for a $7,000,000 revolving line of credit, of which $2,105,366 was unused and available at September 30, 1999, and a $640,000 term loan. The facility is secured by substantially all of the assets of the Company and its subsidiaries. Borrowings under the revolving line of credit are limited to the balance of eligible accounts receivable and inventory, and accrue interest at the prime rate with certain LIBOR alternatives. The term loan is payable in quarterly principal installments of $32,000 together with accrued interest at 8.4% per annum. Borrowings under the revolving line of credit mature in September 2001 and the term loan matures in May 2003. The credit agreement 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 in compliance with all covenants at September 30, 1999.
The scheduled maturities of long-term debt outstanding at September 30, 1999 are summarized as follows: $128,000 in 2000, $5,022,634 in 2001, $128,000 in 2002 and $96,000 in 2003.
(9) ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 1999 and 1998:
(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, 1999, warrants to purchase 3,550,564 shares have been exercised generating proceeds to the Company of $3,471,554, net of registration costs of $109,982, and warrants to purchase 791,244 shares have expired unexercised. During the year ended September 30, 1999, 207,500 warrants were exercised generating proceeds of $156,895.
During the year ended September 30, 1999, the Company issued warrants to purchase 250,000 shares of common stock for directors' remuneration at exercise prices ranging from $1.25 to $2.19; such prices being equal to the fair market value of the common stock at the date of the grants. At September 30, 1999, the Company had outstanding warrants to purchase 1,425,692 shares of common stock which expire at various dates through July 2002. The warrants have exercise prices ranging from $0.50 to $2.19 per share and, if exercised, would generate proceeds to the Company of approximately $1,400,000.
(11) EMPLOYEE STOCK OPTION PLANS
The Company adopted a Long-Term Incentive Plan in 1997 (the "1997 Plan") pursuant to which the Company's Board of Directors may grant stock options to officers and key employees. The 1997 Plan authorizes grants of options to purchase up to 1,000,000 shares of common stock. Options are granted with an exercise price equal to the fair market value of the common stock at the date of grant. Options granted under the 1997 Plan vest over four-year periods and expire no later than 10 years from the date of grant. At September 30, 1999, there were 277,500 additional shares available for grant under the 1997 Plan.
The Company's predecessor employee stock option plan, the 1989 Incentive Stock Option Plan (the "1989 Plan"), was terminated in June 1999. At the date of termination of the 1989 Plan, there were outstanding options to purchase 438,250 shares of common stock, all of which were outstanding at September 30, 1999.
The weighted-average fair value per share of stock options granted during 1999, 1998 and 1997 was $.78, $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 6.0%, expected life of 4 years, expected volatility of 80.16%, and an expected dividend yield of 0% for the 1999 granted options; a 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:
At September 30, 1999, the range of exercise prices was $0.69 to $1.69 per share under the 1989 Plan and $1.25 to $2.50 per share under the 1997 Plan. At September 30, 1999 and 1998, the weighted-average remaining contractual life of the outstanding options was 6.8 and 6.7 years, respectively. Stock option activity during the periods indicated was as follows:
At September 30, 1999 and 1998, the number of options exercisable was 438,250 and 453,250, respectively, at a weighted-average price of $1.34 per share.
(12) INCOME TAXES
Income tax expense (benefit) attributable to income from operations consisted of the following for the years ended September 30, 1999, 1998 and 1997:
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 operations as a result of the following:
The tax effects of temporary differences that were the sources of the deferred tax assets consisted of the following at September 30, 1999 and 1998:
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.
(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, 1999, 1998 and 1997:
(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, 1999, 1998 and 1997 was approximately $366,128, $382,000 and $355,000, respectively. The Company has approximate future lease commitments as follows:
(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 $26,000, $42,000 and $72,000 for the years ended September 30, 1999, 1998 and 1997, respectively. Amounts due to the Company from these entities totaled $260,532 and $234,100 at September 30, 1999 and 1998, respectively.
SCHEDULE I TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY) CONDENSED BALANCE SHEETS
See accompanying notes to condensed financial information of registrant.
S-1
TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY) CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
See accompanying notes to condensed financial information of registrant.
S-2
TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS
See accompanying notes to condensed financial information of registrant.
S-3
TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(A) LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1999 and 1998:
(B) GUARANTEES
The parent company and its subsidiaries have guaranteed the revolving credit note issued by its wholly owned operating company, Tidel Engineering, L.P., to a bank in the maximum principal amount of $7,000,000 due September 30, 2001 (the "Revolving Credit Note"). At September 30, 1999, $4,894,634 was outstanding pursuant to the Revolving Credit Note.
(C) DIVIDENDS FROM SUBSIDIARIES
No dividends have been paid to the parent company by its subsidiaries as of September 30, 1999. The Company's wholly owned operating company, Tidel Engineering, L.P., is restricted from paying dividends to the parent company and its subsidiaries pursuant to the Revolving Credit Note.
(D) 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 tax benefits of $325,000, $1,114,150 and $1,209,820 for the years ended September 30, 1999, 1998 and 1997, respectively.
S-4
TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
(E) 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 $26,000, $42,000 and $72,000 for the years ended September 30, 1999, 1998 and 1997, respectively. Amounts due to the Company from these entities totaled $260,532 and $234,100 at September 30, 1999 and 1998, respectively.
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, 1999, $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, 1999, 1998 and 1997. 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 SCHEDULE II
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
S-6
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.