News

Tidel improves its balance sheet with refinancing

December 8, 2003

HOUSTON - Tidel Technologies, Inc. (Other OTC: ATMS) has closed a $6.85 million financing with Laurus Master Fund, Ltd., a New York-based investment group that makes direct investments in small and mid cap companies.

According to a news release, the financing is comprised of a three-year convertible note in the amount of $6.45 million and a one-year convertible note in the amount of $400,000. The notes are secured by all of the assets of Tidel and its subsidiaries and bear interest at the annual rate of prime plus 2 percent.

The notes may be converted, at Laurus Funds' option, into Tidel common stock at a conversion price of 40 cents per share. Tidel also issued seven-year warrants to Laurus Funds to purchase 4.25 million shares of Tidel common stock at an exercise price of 40 cents per share.

According to the release, Tidel expects to record a substantial non-cash charge to earnings related to the issuance of securities to Laurus Funds at conversion prices that were below the market price of the underlying common stock at the closing date of the transaction.

Among other things, the three-year convertible note has provisions to partially amortize the principal of the loan over its term with monthly principal payments beginning in April 2004.  As a condition of the Laurus Funds financing, a company controlled by James T. Rash, Tidel's chairman and CEO, loaned an additional $100,000 to Tidel on substantially the same terms and conditions as the Laurus Funds one-year term note.

Of the total proceeds, $6 million was utilized to retire Tidel's 6 percent convertible subordinated debentures with the balance to be used for transaction fees and expenses and working capital purposes. Tidel has attributed accrual of interest and penalties applicable to the subordinated convertible debentures with reduced earnings over the past year.

Under terms of agreements with the holders of the debentures, Tidel paid $6 million in full and complete satisfaction of all amounts due and payable by Tidel under the debentures, which aggregated approximately $24.4 million in principal, interest, penalties and fees. Additionally, all warrants previously issued to the holders of the debentures were canceled and all outstanding litigation was dismissed with prejudice.

Concurrent with the Laurus Funds financing, Tidel also repaid its existing senior secured facility with JP Morgan Chase in the principal amount of $2 million. Tidel utilized its $2.2 million in pledged cash collateral to repay the bank note, with the balance of $200,000 being returned to working capital.

In the 60-day period prior to the Laurus Funds transaction, Tidel issued short-term, unsecured promissory notes to three major shareholders in the amount of $720,000, together with warrants to purchase 240,000 shares of Tidel common stock. The maturities of the notes range from three to six months.

Tidel plans to apply for listing on the Nasdaq exchange. In connection with the Laurus Funds financing, a timetable for the filing of Tidel's past due periodic reports with the Securities and Exchange Commission and a future registration statement covering the securities underlying the Laurus Funds notes and warrants was specified.

Nasdaq delisted Tidel's stock in March, citing the company's failure to file its 2002 annual report and report for the quarter ended Sept. 30, 2002. Tidel has been trading on the National Quotation Bureau's Pink Sheets market under the symbol ATMS.PK since then.

Tidel has not reported any earnings since the quarter ended June 30, 2002. For that quarter, the company said it posted a net loss of $1 million on revenues of $6.2 million. It also reported a $5.1 million loss for the nine months ended June 30, 2002.

According to the latest news release, Tidel has continued to sustain substantial losses since the quarter ended June 30, 2002. Accordingly, Tidel expects to report substantial losses for the quarter and the fiscal year ended Sept. 30, 2002, and for each of the quarters and for the fiscal year ended Sept. 30, 2003.

Unaudited revenues for the fiscal years ended Sept. 30, 2002 and 2003 were approximately $19.4 million and $17.8 million, respectively, according to the release.

Tidel attributes its losses to severely depressed sales during these periods, reduced gross profit margins arising from declines in productivity, higher than normal legal fees due to litigation pending during the periods, and significant accrual of interest and penalties applicable to the subordinated convertible debentures prior to their extinguishments.