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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________ to _________
Commission file Number 000-17288
TIDEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2193593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 San Felipe, Suite 900
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 783-8200
----------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock outstanding as of the close of
business on May 21, 2001 was 17,426,210.
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TIDEL TECHNOLOGIES, INC.
I N D E X
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001
(unaudited) and September 30, 2000...................................... 1
Consolidated Statements of Income (unaudited) for the
three months and six months ended
March 31, 2001 and 2000................................................. 2
Consolidated Statements of Comprehensive Income
(unaudited) for the three months and
six months ended March 31, 2001 and 2000................................ 3
Consolidated Statements of Cash Flows (unaudited) for
the six months ended March 31, 2001 and 2000............................ 4
Notes to Consolidated Financial Statements (unaudited)..................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risks.................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 12
Item 2. Changes in Securities........................................................ 12
Item 3. Defaults Upon Senior Securities.............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders.......................... 13
Item 5. Other Information............................................................ 13
Item 6. Exhibits and Reports on Form 8-K............................................. 13
SIGNATURE..................................................................................... 14
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
ASSETS 2001 2000
---------- --------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 2,515,504 $16,223,192
Trade accounts receivable, net of allowance of
$462,644 and $448,037, respectively 30,897,789 29,168,134
Notes and other receivables 8,474,738 1,151,680
Inventories 13,516,477 10,415,492
Deferred tax assets and other 1,609,751 1,502,723
----------- ----------
Total current assets 57,014,259 58,461,221
Investment in 3CI, at market value 207,374 130,962
Property, plant and equipment, at cost 5,575,452 4,919,186
Accumulated depreciation (3,445,311) (2,954,873
----------- ----------
Net property, plant and equipment 2,130,141 1,964,313
Intangible assets, net of accumulated amortization of
$1,180,627 and $1,161,675, respectively 520,446 539,398
Deferred financing costs and other assets 2,008,045 1,964,463
----------- ----------
Total assets $61,880,265 $63,060,357
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 128,000 $ 128,000
Accounts payable 6,574,181 8,176,905
----------- ----------
Accrued liabilities 1,824,974 3,640,264
----------- ----------
Total current liabilities 8,527,155 11,945,169
Long-term debt, net of current maturities 5,360,000 5,424,000
Convertible debentures, net of discount of
$1,010,763 and $1,155,157, respectively 16,989,237 16,844,843
----------- ----------
Total liabilities 30,876,392 34,214,012
----------- ----------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 17,426,210 shares
and 17,376,210 shares, respectively 174,262 173,762
Additional paid-in capital 17,282,262 17,207,137
Retained earnings 14,272,146 12,318,721
Deferred financing costs (364,459) (416,525
Accumulated other comprehensive loss (360,338) (436,750
----------- ----------
Total shareholders' equity 31,003,873 28,846,345
----------- ----------
Total liabilities and shareholders' equity $61,880,265 $63,060,357
=========== ===========
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31, Six Months Ended March 31,
2001 2000 2001 2000
------------------------------ -------------------------------
Revenues $ 8,155,917 $18,662,690 $24,852,380 $32,444,843
Cost of sales 5,145,773 11,564,350 15,540,890 20,324,709
----------- ----------- ----------- -----------
Gross profit 3,010,144 7,098,340 9,311,490 12,120,134
Selling, general and administrative 2,220,400 2,863,885 4,975,768 5,226,330
Depreciation and amortization 341,618 318,111 682,472 628,890
----------- ----------- ----------- -----------
Operating income 448,126 3,916,344 3,653,250 6,264,914
Interest expense, net 347,720 89,169 669,825 191,672
----------- ----------- ----------- -----------
Income before income taxes 100,406 3,827,175 2,983,425 6,073,242
Income tax expense 35,000 1,308,000 1,030,000 2,073,000
----------- ----------- ----------- -----------
Net income $ 65,406 $ 2,519,175 $ 1,953,425 $ 4,000,242
----------- ----------- ----------- -----------
Basic earnings per share:
Net income $ 0.00 $ 0.15 $ 0.11 $ 0.25
=========== =========== =========== ===========
Weighted average common shares
outstanding 17,418,988 16,290,536 17,397,364 16,193,449
=========== =========== =========== ===========
Diluted earnings per share:
Net income $ 0.00 $ 0.14 $ 0.11 $ 0.22
=========== =========== =========== ===========
Weighted average common and
dilutive shares outstanding 18,360,759 18,320,446 18,469,933 17,887,557
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- --------------------------
2001 2000 2001 2000
---------------------------- --------------------------
Net income $ 65,406 $ 2,519,175 $ 1,953,425 $ 4,000,242
Other comprehensive income:
Unrealized gain on investment in 3CI 109,170 130,962 76,412 130,962
----------- ------------ ------------ ------------
Comprehensive income $ 174,576 $ 2,650,137 $ 2,029,837 $ 4,131,204
=========== ============ ============ =============
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31,
----------------------------
2001 2000
-------- -------------
Cash flows from operating activities:
Net income $ 1,953,425 $ 4,000,242
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 682,472 628,890
Amortization of debt issuance costs and discounts 196,460 --
Changes in assets and liabilities:
Trade accounts receivable, net (1,729,655) (2,442,432)
Notes and other receivables (7,323,058) (245,126)
Inventories (3,100,985) (4,071,428)
Prepaids and other assets (323,692) 23,256
Accounts payable and accrued liabilities (3,418,014) 1,669,074
------------ -----------
Net cash used in operating activities (13,063,047) (437,524)
------------ -----------
Cash flows from investing activities -
Purchases of property, plant and equipment (656,266) (243,059)
------------ -----------
Cash flows from financing activities:
Repayments of long-term debt -- (894,634)
Repayments of notes payable (64,000) (64,000)
Proceeds from exercise of warrants and options 75,625 342,086
------------ -----------
Net cash provided by (used in) financing activities 11,625 (616,548)
------------ -----------
Net decrease in cash and cash equivalents (13,707,688) (1,297,131)
Cash and cash equivalents at beginning of period 16,223,192 2,423,844
------------ -----------
Cash and cash equivalents at end of period $ 2,515,504 $ 1,126,713
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 859,614 $ 225,640
=========== ===========
Cash paid for taxes $ 1,640,000 $ 1,880,000
=========== ===========
See accompanying notes to consolidated financial statements.
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TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheets and related interim
consolidated statements of operations and cash flows of Tidel
Technologies, Inc. (the "Company"), a Delaware corporation, are unaudited.
In the opinion of management, these financial statements include all
adjustments (consisting only of normal recurring items) necessary for
their fair presentation in accordance with generally accepted accounting
principles. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from these
estimates. Interim results are not necessarily indicative of results for a
full year. The information included in this Form 10-Q should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended September 30, 2000.
(2) INVENTORIES
Inventories consisted of the following at March 31, 2001 and September 30,
2000:
March 31, September 30,
2001 2000
----------------- -------------
Raw materials........................................ $ 8,214,134 $ 9,047,215
Work in process...................................... 10,782 12,191
Finished goods....................................... 4,842,925 1,244,944
Other................................................ 458,935 398,560
-------------- --------------
13,526,776 10,702,910
Inventory reserve.................................... (10,299) (287,418)
---------------- --------------
$ 13,516,477 $ 10,415,492
============ ============
(3) EARNINGS PER SHARE
Basic earnings per share is computed by dividing the income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the income available to common shareholders by the weighted
average number of common shares and dilutive potential common shares. The
following is a reconciliation of the numerators and denominators of the
basic and diluted per-share computations for net income for the three
months and six months ended March 31, 2001 and 2000:
Weighted
Average Shares Per Share
Income Outstanding Amount
-------------- -------------- ----------
Three Months Ended March 31, 2001:
Basic earnings per share............................. $ 65,406 17,418,988 $ .00
Effect of dilutive warrants and options.............. -- 941,771 --
-------------- ------------ ----------
Diluted earnings per share........................... $ 65,406 18,360,759 $ .00
============== ============ ==========
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Weighted
Average Shares Per Share
Income Outstanding Amount
-------------- -------------- ----------
Three Months Ended March 31, 2000:
Basic earnings per share............................. $ 2,519,175 16,290,536 $ .15
Effect of dilutive warrants and options.............. -- 2,029,910 (.01)
-------------- ------------ ----------
Diluted earnings per share........................... $ 2,519,175 18,320,446 $ .14
============== ============ ==========
Six Months Ended March 31, 2001:
Basic earnings per share............................. $ 1,953,425 17,397,364 $ .11
Effect of dilutive warrants and options.............. -- 1,072,569 --
-------------- ------------ ----------
Diluted earnings per share........................... $ 1,953,425 18,469,933 $ .11
============== ============ ==========
Six Months Ended March 31, 2000:
Basic earnings per share............................. $ 4,000,242 16,193,449 $ .25
Effect of dilutive warrants and options.............. -- 1,694,108 (.03)
-------------- ------------ ----------
Diluted earnings per share........................... $ 4,000,242 17,887,557 $ .22
============== ============ ==========
(4) INVESTMENT IN 3CI
The Company owned 698,464 shares of 3CI Complete Compliance Corporation
common stock at March 31, 2001 and September 30, 2000, which is carried at
market value. In addition, the Company recorded unrealized gains of
$109,170 and $76,412 as components of other comprehensive income for the
three months and six months ended March 31, 2001, respectively.
(5) MAJOR CUSTOMERS
During the six months ended March 31, 2001, the Company made loans to
three customers pursuant to a distributor financing program. The aggregate
principal amount of the loans was $8,073,000, of which $6,873,000 was
outstanding as of March 31, 2001. The loans are secured, bear interest at
12% per annum and are due at varying dates. One of these customers, Credit
Card Center ("CCC"), accounted for $11,607,516 and $18,787,833 of sales
during the six months ended March 31, 2001 and 2000, respectively. See
"Major Customers and Credit Risks", "Risk Factors" and "Part II, Item 1,
Legal Proceedings" for additional information about the Company's
relationship with CCC and other major customers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company develops, manufactures, sells and supports automated teller
machines (the "ATM" products) and electronic cash controller safes (the
"Timed Access Cash Controller" or "TACC" products).
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PRODUCT REVENUES
The Company's revenues were $8,156,000 for the quarter ended March 31, 2001,
representing a decrease of $10,507,000, or 56%, from $18,663,000 for the same
quarter in 2000. The decrease in sales was due to the curtailment of ATM
shipments to CCC while the Company is trying to resolve delinquent notes and
accounts receivable due from CCC. See "Major Customers and Credit Risks", "Risk
Factors" and "Part II, Item 1, Legal Proceedings" for additional information
about the Company's relationship with CCC. A breakdown of sales by product is
presented in the following table:
(Dollars in 000's)
-----------------------------------------------------------------
Three Months Ended March 31, Six Months Ended March 31,
------------------------------ -------------------------------
2001 2000 2001 2000
------------ ------------- ------------- -----------
ATM................................ $ 5,459 $ 15,104 $ 18,556 $ 26,015
TACC............................... 1,911 1,988 3,383 3,660
Parts, service and other........... 786 1,571 2,913 2,770
--------- -------- -------- --------
$ 8,156 $ 18,663 $ 24,852 $ 32,445
========= ======== ======== ========
The three month and six month periods ended March 31, 2000 included sales to CCC
of $10,850,000 and $18,788,000, respectively, or 58% of total revenues for each
of the respective periods. Although ATM unit shipments to non-CCC customers were
up 32% for the quarter ended March 31, 2001 compared to the same quarter in
2000, average sales prices per unit were approximately $960 lower due to the
introduction of the lower-priced is2000 model in August 2000.
TACC sales decreased slightly for the three months and six months ended March
31, 2001 compared to the same periods in 2000, due to a lower number of unit
shipments during the period. Due to the timing of large TACC orders, results
vary from quarter to quarter.
The decrease in parts, service and other revenues was attributable to the
discontinuance of sales to CCC.
GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS
A comparison of certain operating information is provided in the following
table:
(Dollars in 000's)
-----------------------------------------------------------------
Three Months Ended March 31, Six Months Ended March 31,
------------------------------ -------------------------------
2001 2000 2001 2000
------------ ------------- ------------- -----------
Gross profit....................... $ 3,010 $ 7,098 $ 9,311 $ 12,120
Selling, general and administrative 2,220 2,864 4,976 5,226
Depreciation and amortization...... 342 318 682 629
Operating income................... 448 3,916 3,653 6,265
Interest expense................... 348 89 670 192
Income before taxes................ 100 3,827 2,983 6,073
Income taxes....................... 35 1,308 1,030 2,073
Net income......................... 65 2,519 1,953 4,000
Gross profit on product sales was $3,010,000 for the quarter ended March 31,
2001, a decrease of $4,088,000, or 58%, compared to the same quarter in 2000.
The gross margin, as a percentage of sales, was 36.9% for the quarter ended
March 31, 2001 compared to 38.0% for the same quarter in
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2000. The decline in gross margin was principally due to lower production
levels during the period as a result of suspending shipments to CCC.
Selling, general and administrative expenses were $2,220,000 for the quarter
ended March 31, 2001, a decrease of $644,000, or 22%, compared to the same
quarter in 2000. The decrease was primarily a result of reduced marketing and
warranty costs related to the sharp decline in revenues. As a percentage of
sales, these costs were 27% for the quarter ended March 31, 2001 compared to 15%
for the same quarter in 2000.
Depreciation and amortization was $342,000 for the quarter ended March 31, 2001,
an increase of $24,000, or 8%, compared to the same quarter in 2000. The
increase was due to the additions of property, plant and equipment primarily for
the production of new models in the Ignition and Chameleon series ATM product
lines.
Interest expense was $348,000 for the quarter ended March 31, 2001, an increase
of $259,000, or 291%, compared to the same quarter in 2000. The increased
interest expense relates to the $18,000,000 convertible debentures issued in
September 2000.
Income tax expense provisions of $35,000 and $1,308,000 for the quarters ended
March 31, 2001 and 2000, respectively, represented an effective tax rate of
35.0% in 2001 and 34.2% in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The following is a summary of key indicators as of March 31, 2001 and
September 30, 2000:
(Dollars in 000's)
----------------------------------
March 31, September 30,
2001 2000
------------- --------------
Cash................................................. $ 2,516 $ 16,223
Working capital...................................... 48,487 46,516
Total assets......................................... 61,880 63,060
Shareholders' equity................................. 31,004 28,846
Although there was a slight increase in working capital during the period, the
Company utilized a significant amount of cash due to a lack of payments from CCC
on its amounts due to the Company. In addition, the Company provided certain of
its major customers with financing as described in Note 5 to the financial
statements.
The Company has a credit agreement with a bank which provides for a $10,000,000
revolving line of credit with interest equal to the prime rate and a $640,000
term loan at 8.4% interest per annum. At March 31, 2001 and September 30, 2000,
$5,200,000 was outstanding pursuant to the revolving line of credit. Pursuant to
the terms of the credit agreement, the Company is restricted from borrowing any
of the unused portion of the revolving line of credit. See "Risk Factors" for
additional information about financing matters.
In September 2000, the Company issued an aggregate of $18,000,000 of the
Company's 6% Convertible Debentures, due September 8, 2004, to two investors
convertible into the Company's common stock at a price of $9.50 per share. The
debentures provide for three methods to convert the debentures into shares of
the Company's common stock: (1) conversion at the option of the investors at
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any time at a price of $9.50 per share; (2) conversion at the option of the
Company at a price of $9.50 per share, if the per share market value of the
Company's common stock exceeds 150% of the then applicable conversion price for
20 trading days (which need not be consecutive); and (3) a put option whereby
the investors may put the debentures back to the Company on either the 270th day
or 540th day following the original issue date. However, on either the 250th day
or 520th day following the original issue date, the Company may indicate to the
investors the maximum amount of cash that the Company will pay upon the put
dates. If the investors still elect to put all or a portion of the debentures,
then any amounts in excess of the maximum amount of cash that the Company will
pay will convert into shares of common stock at a conversion price equal to the
average of the per share market values for the five trading days preceding the
put date, without regard to the stated conversion price of $9.50 per share. If
the investors exercise the put option, the Company shall pay the investors the
put price, up to the maximum amount of cash that the Company will pay, within 60
days following the put date. The Company has notified the holder of $15 million
of the debentures that it will pay the maximum of cash should the put be
exercised on June 5, 2001. See "Risk Factors" for additional information about
the convertible debentures and other financing matters
The Company's research and development budget for fiscal 2001 has been estimated
at $3,200,000. 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 applications such
as check cashing, electronic bill payment, money order issuance and full-motion
video advertising. Total research and development expenditures were
approximately $515,000 and $1,074,000 for the three months and six months ended
March 31, 2001, respectively.
With its present capital resources and continuing earnings from operations, the
Company believes it should have sufficient resources to meet its operating needs
for the foreseeable future and to provide for debt maturities and capital
expenditures.
The Company has never paid dividends on shares of its common stock, and does not
anticipate paying dividends in the foreseeable future. In addition, the
Company's wholly owned subsidiary is restricted from paying dividends to the
Company pursuant to the subsidiary's revolving credit agreement with a bank.
SEASONALITY
The Company can experience seasonal variances in its operations and historically
has its lowest dollar volume sales months between November and February. The
Company's operating results for any particular quarter may not be indicative of
the results for the future quarter or for the year.
MAJOR CUSTOMERS AND CREDIT RISKS
The Company generally retains a security interest in the underlying equipment
that is sold to customers until it receives payment in full. In addition, CCC
and two other major customers have pledged additional collateral to the Company
pursuant to financing agreements. The Company would incur an accounting loss
equal to the carrying value of the notes and accounts receivable, less any
amounts recovered from liquidation of collateral, if a customer failed to
perform according to the terms of the credit arrangements. See also "Risk
Factors" and "Part II, Item 1, Legal Proceedings" for additional information
about the Company's relationship with CCC.
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The Company has good relationships with its customers, but there can be no
assurance that these relationships will continue. The loss of any of the
Company's major customers, or a substantial portion of these accounts, could
have a material adverse effect on the Company. Sales to major customers were as
follows for the three months and six months March 31, 2001 and 2000:
(Dollars in 000's)
--------------------------------------------------------------
Three Months Ended March 31, Six Months Ended March 31,
----------------------------- ---------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Credit Card Center................. $ -- $10,850,432 $11,607,516 $18,787,833
Customer B......................... 1,890,296 874,460 3,728,316 2,044,606
Customer C......................... 908,515 490,518 1,564,784 790,405
Customer D......................... 172,020 838,588 342,910 1,591,967
Foreign sales accounted for 13% and 6% of the Company's total sales during the
three months ended March 31, 2001 and 2000, respectively. On a year to date
basis, foreign sales accounted for 6% of sales in both 2001 and 2000.
RISK FACTORS
Please see the risk factors contained in the Company's Annual Report on Form
10-K for the year ended September 30, 2000 as filed with the Securities and
Exchange Commission. Subsequent to the filing, the risk factors should be
amended as follows:
We have extended substantial amounts of credit to one major customer, and we
could incur a substantial accounting loss if we fail to collect amounts owed to
us.
At May 21, 2001, CCC owed us approximately $26,700,000, excluding any amounts
for interest and other charges. The obligation is secured by a collateral pledge
of accounts receivable, inventories and transaction income. We have not received
any payments from CCC since January 2001, and we are presently in negotiation
with CCC to resolve the outstanding amounts due us. Notwithstanding these
negotiations, we have taken additional action to perfect our security interests
in the collateral supporting these receivables. On May 14, 2001, we filed a
petition in the State of Texas that seeks to secure our security interests in
certain inventories and revenue streams owned by CCC. We will continue to
monitor this matter closely and, if necessary, we may take additional action
depending on our assessment of the situation from time to time. We believe that
the inventory, receivables and revenue streams comprising the collateral are
sufficient to support the recoverability of all amounts, and accordingly, no
reserves for collection loss are deemed necessary at this time. In the event CCC
is unable to repay all amounts due and it becomes necessary to take possession
of the collateral, however, we may not be able to realize all of the anticipated
value. In that event, we could incur a significant charge to earnings in future
periods. See also "Major Customers and Credit Risks" and "Part II, Item 1, Legal
Proceedings" for additional information about the Company's relationship with
CCC.
We are not presently doing business with CCC, which previously accounted for a
significant portion of revenues and earnings, and we may not be able to replace
this business.
CCC accounted for 70% of our net sales for the quarter ended December 31, 2000,
and 61% and 40% of our net sales for the years ended September 30, 2000 and
1999, respectively. We made no shipments to CCC during the quarter ended March
31, 2001 due to the ongoing efforts to resolve the seriously delinquent amounts
due to us. In the event that this matter is not resolved and business does
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not resume with CCC, sales and earnings for future periods would be adversely
impacted if we are unable to replace this business with sales to new customers.
See also "Major Customers and Credit Risks" and "Part II, Item 1, Legal
Proceedings" for additional information about the Company's relationship with
CCC.
We may be required to repay up to $18,000,000 of our 6% Convertible Debentures;
any such repayment would require an amendment.
The holders of our 6% Convertible Debentures in the aggregate amount of $18
million have the right to put the debentures back to us on each of the 270th and
540th day following the date of issuance of the Convertible Debentures. However,
on either the 250th or 520th day following the original issue date, we may
indicate to the investors the maximum amount of cash that we will pay in
connection with such put rights. We have notified the debenture holder of $15
million of the Convertible Debentures (and we will notify the debenture holder
of $3 million of the Convertible Debentures) that we intend to pay in cash that
portion of the principal amount of and interest under the Convertible Debentures
that the debenture holders may put back to us on the 270th day following the
effective date of the respective Convertible Debentures. This date falls on June
5, 2001 with respect to Convertible Debentures in the aggregate principal amount
of $15 million and on June 26th with respect to Convertible Debentures in the
aggregate principal amount of $3 million. At this time, we do not know whether
any of the debenture holders intend to put any of the Convertible Debentures to
us. However, in the event that the Debenture Holders exercise their put right,
we would be required to repay all of the principal amount, together with all
accrued but unpaid interest, on the 60th day following such respective put
dates. At the present time we do not have the funds available to make such
payments, should they be required. In the event we are unable to obtain such
funds necessary to pay any such amounts, to the extent due, it may have a
material adverse effect against us. In addition, any such repayments would
require an amendment of the Revolving Credit Facility, and absent such
amendment, would be a violation thereto. In the event prepayments of all or a
portion of the Convertible Debentures are required, and we fail to prepay any
portion due, the debenture holders may either rescind their put notice or
convert into our shares all or a portion of the unpaid amount due at a
conversion price equal to the lower of the market price on the date the cash
payment becomes due or the date of recission by the debenture holders. Such a
conversion would result in substantial dilution of your shares. However, any
issuance of stock required by such conversion in excess of 19.99% of our issued
and outstanding shares will require shareholder approval under Nasdaq Rules,
accordingly, it is unlikely that such an issuance would be permitted, which
would subject the Company to additional penalties. In the event we fail to
prepay the Convertible Debentures as required, the Convertible Debenture holders
would also have the right to declare an Event of Default under the Convertible
Debentures.
We may be unable to sell debt or equity securities in the event we need
additional funds for operations.
We have a credit agreement with a bank which provides for a $10,000,000
revolving line of credit, of which $5,200,000 was outstanding at March 31, 2001.
Pursuant to the terms of the credit agreement, we lack the necessary borrowing
base to enable us to borrow any of the unused portion of the revolving line of
credit. As of March 31, 2001, we had cash and cash equivalents of $2,515,504 as
compared to $16,223,192 as of September 30, 2000.
If we are unable to collect on a significant portion of our outstanding
receivables, we will need to sell additional equity or debt securities to
continue operations. We cannot predict whether we will be successful in raising
additional funds. We have no commitments, agreements or understandings regarding
additional financings at this time, and we may be unable to obtain additional
financing on satisfactory terms or at all. If we were to raise additional funds
through the issuance of equity or convertible debt securities, the current
stockholders could be substantially diluted and those additional securities
could have preferences and privileges that current security holders do not have.
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FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, (including without
limitation, the Company's future product sales, gross profit, selling, general
and administrative expense, the Company's financial position, working capital
and seasonal variances in the Company's operations, as well as general market
conditions) though the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Form 10-Q will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to changes in interest rates as a result of financing
through its issuance of variable-rate and fixed-rate debt. If market interest
rates were to increase 1% in fiscal 2001, however, there would be no material
impact on the Company's consolidated results of operations or financial
position.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are each subject to certain litigation and
claims arising in the ordinary course of business. In the opinion of the
management of the Company, the amounts ultimately payable, if any, as a result
of such litigation and claims will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
On May 14, 2001, Tidel Engineering L.P. filed its Plaintiff's Original Petition
and Application for Temporary Injunction Including Temporary Restraining Order
against JRA222, Inc. d/b/a Credit Card Center ("CCC"). In conjunction therewith,
Tidel Engineering L.P. also filed its Application for Sequestration, seeking to
secure its security interests in certain inventory located in the State of
Texas, and its Application for Writ of Garnishment, seeking to secure its
security interests in processing income generated from ATM transactions
processed by two processors located in the Sate of Texas. On May 14, 2001, the
134th Judicial Court of Dallas County, Texas granted the Temporary Restraining
Order restricting the activities of CCC in derogation of Tidel Engineering's
credit and security agreements and otherwise preserving Tidel Engineering's
collateral. Furthermore, on the same date, the 134th Judicial District Court
granted Tidel Engineering's Application for Sequestration allowing the seizure
of inventory collateral in El Paso, Bexar and Travis counties, Texas. A hearing
on the temporary injunction has been set for May 21, 2001.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on February 8, 2001 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.
Number of Shares
-----------------------------
For Withheld
-------------- --------
James T. Rash........................................ 15,429,411 77,550
James L. Britton, III................................ 15,366,671 140,290
Jerrell G. Clay...................................... 15,423,411 83,550
Mark K. Levenick..................................... 15,429,711 77,250
Raymond P. Landry.................................... 15,339,371 167,590
Michael F. Hudson.................................... 15,341,771 165,190
b) Ratification of the selection of KPMG LLP as the Company's independent
auditors for fiscal year 2001.
For.................................................. 15,371,041
Against.............................................. 87,636
Abstentions.......................................... 48,284
c) Approval of an amendment to the 1997 Long-Term Incentive plan to
increase the authorized shares from 1,000,000 to 2,000,000.
For.................................................. 6,896,238
Against.............................................. 708,830
Abstentions.......................................... 135,509
Non-Votes............................................ 7,766,384
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
None
B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the three months ended
March 31, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
TIDEL TECHNOLOGIES, INC.
(Registrant)
DATE: May 21, 2001 By: /s/ JAMES T. RASH
--------------------------------------
James T. Rash
Principal Executive
and Financial Officer
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