-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R26bNrEUloVwcG8Wy+zUkXXbBGsisLVmaXqim+k1HCEONsXJu6IlgW2qsVJ3wWd1 6TIo8VjFuYGX46pETVq6ww== 0000950129-99-000117.txt : 19990113 0000950129-99-000117.hdr.sgml : 19990113 ACCESSION NUMBER: 0000950129-99-000117 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19990112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIDEL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000842695 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 752193593 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17288 FILM NUMBER: 99505198 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE STE 900 STREET 2: SAN FELIPE PLZ CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137838200 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE STREET 2: SUITE 900 CITY: HOUSTON STATE: TX ZIP: 77057 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MEDICAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 10-K 1 TIDEL TECHNOLOGIES, INC. - DATED 9/30/98 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. 2 --------------------------------------------------- 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 4 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. 4 7 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. 5 8
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. 6 9 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. 7 10 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. 8 11 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 9 12 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: E-4 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 E-5 EX-27 2 FINANCIAL DATA SCHEDULE
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR SEP-30-1998 SEP-30-1998 1,400,148 0 10,246,075 693,613 6,705,756 20,966,254 2,843,723 1,550,387 24,246,641 5,528,207 5,234,604 0 0 158,605 13,325,225 24,246,641 33,607,533 33,607,533 21,427,255 21,427,255 0 0 392,258 3,932,375 (307,251) 4,239,626 0 0 0 4,239,626 .27 .25
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