<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR NINE MONTH PERIOD ENDED FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-24569
________________________
CASH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4558331
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1434 W. 11/TH/STREET, LOS ANGELES, CA 90015
(Address of principal executive offices) (Zip Code)
(213) 745-2000
(Registrant's telephone number, including area code)
__________________________
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
requirements for the past 90 days. Yes [X] No [ ].
__________________________
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
On April 9, 1999, there were 3,488,665 shares of common stock, $ .01 par
value, issued and outstanding.
1
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CASH TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets as of February 28, 1999 (unaudited)
and May 31, 1998................................. 3
Condensed Consolidated Statements of Operations for the three month
periods ended Feb 28,1999 and 1998 (unaudited)........................ 4
Condensed Consolidated Statements of Operations for the nine month periods
ended Feb 28, 1999 and 1998 (unaudited).................... 4
Condensed Consolidated Statements of Cash Flows for the nine month periods
ended February 28, 1999 and 1998 (unaudited)...................... 5
Notes to Condensed Consolidated Financial statements.................... 6
Item 2. Management's Discussion and Analysis................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................ 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K......... 14
SIGNATURES 14
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,302,406 $ 210,723
Cash Restricted 44,112 41,973
Accounts Receivable 41,366 40,398
Inventories 99,748 79,785
Prepaid expenses and other current assets 35,543 58,298
----------- -----------
Total Current Assets 3,523,175 431,177
PROPERTY AND EQUIPMENT (net) 3,071,324 2,639,630
OTHER ASSETS 45,252 260,441
----------- -----------
TOTAL ASSETS 6,639,751 3,331,248
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of Notes Payable 1,145,410 1,273,629
Current maturities of Capital Lease Obligations 56,481 86,041
Current maturities due to Stockholders - 2,349,205
Accounts Payable 401,592 559,811
Accrued expenses & other current liabilities 131,124 233,406
----------- -----------
Total Current Liabilities 1,734,607 4,502,092
Notes Payable less current maturities 2,868,325 3,859,567
Capital lease obligations less current maturities 1,150 19,238
Due to Stockholders less current maturities - 58,325
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS EQUITY (DEFICIENCY):
Common Stock 34,887 17,000
Additional Paid In Capital 11,323,780 451,235
Accumulated Deficit (9,322,998) (5,576,209)
----------- -----------
Total stockholders' equity (deficiency) 2,035,669 (5,107,974)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER EQUITY (DEFICIENCY) $ 6,639,751 $ 3,331,248
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
3
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED FEBRUARY 28 ENDED FEBRUARY 28
----------------- -----------------
(UNAUDITED) (UNAUDITED)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
GROSS REVENUES* $ 10,552,415 $ 12,145,378 $ 36,231,138 $ 43,998,747
============= ============= ============= =============
NET REVENUES 203,919 179,073 696,088 638,616
COST OF REVENUES 175,059 99,170 505,559 411,862
------------- ------------- ------------- -------------
GROSS PROFIT 28,860 79,903 190,529 226,754
SELLING, GENERAL, & ADMIN EXP. 1,220,514 645,155 3,317,226 1,724,606
DEPRECIATION & AMORTIZATION EXP. 81,799 68,176 196,020 191,042
------------- ------------- ------------- -------------
OPERATING LOSS (1,273,453) (633,428) (3,322,717) (1,688,894)
INTEREST EXPENSE 100,369 136,079 421,672 324,355
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (1,373,822) (769,507) (3,744,389) (2,013,249)
INCOME TAXES 2,400 - 2,400 2,400
------------- ------------- ------------- -------------
NET LOSS (1,376,222) (769,507) (3,746,789) (2,015,649)
============= ============= ============= =============
Basic and diluted net loss per share $ (0.39) $ (0.45) $ (1.07) $ (1.19)
Basic and diluted weighted average
shares outstanding 3,488,665 1,700,000 3,488,665 1,700,000
============= ============= ============= =============
</TABLE>
*Gross revenues include the value of coin and currency processed and does not
present revenue under generally accepted accounting principles
See notes to condensed consolidated financial statements
4
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
FEBRUARY 28,
------------
1999 1998
---- ----
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
- --------------------
<S> <C> <C>
Net Loss $(3,746,789) $(2,015,649)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 196,020 191,042
Gain on sale of asset (511) -
Changes in operating assets and liabilities:
Accrued interest - 76,268
Account receivable (968) 394,365
Inventories (19,963) 91,574
Prepaid expenses and other current assets 22,755 17,761
Other assets 349,189 (52,089)
Accounts payable (158,219) 437,300
Accrued liabilities (102,282) 156,918
----------- -----------
Net cash used by operating activities (3,460,768) (702,510)
INVESTING ACTIVITIES:
Property & equipment (629,962) (1,748,253)
Restricted Cash (2,139) (1,066)
Sale of Equipment 2,759 -
----------- -----------
Net cash used by investing activities (629,342) (1,749,319)
FINANCING ACTIVITIES:
Deferred financing cost (134,000) (134,000)
Payments on capital lease obligation (47,648) (59,248)
Repayments on long-term debt (2,114,885) (472,445)
Net proceeds from issuance of common stock 9,478,326 -
Net proceeds from long-term debt - 3,485,000
----------- -----------
Net cash provided by financing activities 7,181,793 2,819,307
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 3,091,683 367,478
Cash, Beginning of period 210,723 463,605
----------- -----------
Cash, End of period $ 3,302,406 $ 831,083
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 421,672 $ 224,769
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION
Conversion of debt to equity $ 1,412,106 $ -
</TABLE>
See notes to condensed consolidated financial statements
5
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CASH TECHNOLOGIES, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: GENERAL
PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Cash Technologies, Inc. (the "Company"),
the accompanying unaudited condensed consolidated financial statements include
all normal adjustments considered necessary to present fairly the financial
position as of February 28, 1999 and the results of operation and cash flows for
the nine months ended February 28, 1999 and 1998. Interim results are not
necessarily indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-QSB. These condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted pursuant to
such SEC rules and regulations. These financial statements should be read in
conjunction with the Company's audited financial statements and the accompanying
notes included in the Company's Form 10-K for the year ended May 31, 1998 filed
with the SEC. The results of operations for the three month and nine month
periods ended February 28, 1999 are not necessarily indicative of the results to
be expected for the fourth quarter or for the entire fiscal year.
BASIS OF PRESENTATION:
The unaudited condensed consolidated financial statements of Cash
Technologies, Inc. and its subsidiaries National Cash Processors Inc. and
CoinBank Automated Systems, Inc. (collectively, the "Company") included herein
reflect all adjustments, consisting only of normal recurring adjustments which,
in the opinion of management, are necessary to present fairly the Company's
financial position, results of operations and cash flows for the periods
presented.
NOTE 2: COMMITMENT AND CONTINGENCIES
As previously disclosed, in June 1997, Coinstar, Inc. (''Coinstar''), a
competitor of the Company, filed a complaint against CAS, a subsidiary of the
Company, in the U.S. District Court for the Northern District of California
alleging infringement of one of its patents. In June 1997, CAS filed an answer
denying the claims of Coinstar and interposed a counterclaim seeking declaratory
judgment as to the invalidity and unenforceability of Coinstar's patent and
instituted a third-party complaint against ScanCoin AB for breach of warranty.
Although the Company believes that Coinstar's complaint is without merit, there
can be no assurance that the Coinstar litigation will either be settled on terms
acceptable to the Company or decided in favor of the Company. An adverse ruling
could have a material adverse effect on the Company. Moreover, even if the
Company successfully defends the Coinstar action, the time and effort expended
by the Company's personnel in connection with the Coinstar litigation could
adversely affect the Company's operations.
Also as previously disclosed, in January 1998, the district court granted
CAS's motion for summary judgment of noninfringement of the CBIII CoinBank(R)
models having a solid input tray. The Court granted in part and denied in part
CAS's motion for summary judgment of noninfringement concerning the earlier CBII
model. The Court also denied CoinStar's motion for summary judgment.
Coinstar has recently amended its complaint against the Company to include
claims emanating from a new patent granted to Coinstar. The Company continues to
defend this matter and believes that the new claims are without merit. The
Company cannot determine the likelihood of an unfavorable outcome and range of
possible loss, if any.
As previously reported by the Company, in December 1997, Vindex USA, Inc.
filed a complaint against CAS, a subsidiary of the Company, in the Superior
Court of California, Los Angeles County seeking to recover $40,000, an
unspecified amount of commissions and interest accrued thereon allegedly due it
under the terms of a consulting agreement it alleges was breached by the
Company. The Company believes that the complaint is without merit and is
defending this lawsuit. The Company cannot determine the likelihood of an
unfavorable outcome and range of possible loss, if any.
6
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NOTE 3: STOCKHOLDERS EQUITY
On July 9, 1998, the Company completed its initial public offering of
1,485,000 shares of Common Stock and received net proceeds of $8,467,880 after
deducting commissions and expenses of $1,927,120. The offering price of the
shares was $7.00 per share. At the same time the Company issued 130,915 shares
of its common stock and certain officers and stockholders exchanged 161,830
shares owned by them in exchange for $1,412,106 of indebtedness owed by the
Company.
On August 18, 1998, the underwriters in the Company's public offering
exercised the over allotment option and purchased an additional 172,750 shares
of the Company. Net proceeds to the Company were $1,010,446 after deducting
commissions and expenses of $198,804.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
In addition to historical information, the information included in this Form
10-QSB contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such as
those pertaining to the Company's capital resources, performance and results of
operations. Forward-looking statements involve numerous risks and uncertainties
and should not be relied upon as predictions of future events. Certain such
forward-looking statements can be identified by the use of forward-looking
terminology such as "believes", "expects", "may", "will", "should", "seeks",
"approximately", "intends", "plans", "pro forma", "estimates", or "anticipates"
or the negative thereof or other variations thereof or comparable terminology,
or by discussions of strategy, plans or intentions. Such forward-looking
statements are necessarily dependent on assumptions, data or methods that may be
incorrect or imprecise and may be incapable of being realized. The following
factors, among others, could cause actual results and future events to differ
materially from those set forth or contemplated in the forward-looking
statements: market acceptance of the Company's products, limited marketing
experience, uncertainty of product development, dependence upon new technology,
need for qualified management personnel and competition. The success of the
Company also depends upon economic trends generally, governmental regulation,
legislation, and population changes. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect management's analysis
only. The Company assumes no obligation to update forward-looking statements.
See also the Company's reports filed from time to time with the Securities and
Exchange Commission pursuant to the Securities Act or the Exchange Act.
OVERVIEW
The Company was organized in August 1995, but its coin processing operations
were commenced by its now wholly-owned subsidiary, National Cash Processors,
Inc. ("NCP") in May 1994. The Company acquired NCP in January 1996 from certain
affiliates of the Company. The CoinBank portion of the business is conducted
through the Company's wholly-owned subsidiary CoinBank Automated Systems, Inc.,
which was incorporated in November 1995. The Company generates revenues through
(i) the purchase of loose United States coin and currency which is acquired in
bulk at a small discount from face value and then counted, sorted, wrapped and
re-sold primarily to a variety of retail businesses at face value plus a fee or
deposited to the Federal Reserve Bank for credit to the Company's account and
(ii) fees charged on CoinBank(R) processing. The Company's expenses have
exceeded net revenues since inception and for the fiscal years ended May 31,
1996, 1997 and 1998 the Company sustained net losses of $705,585, $1,547,805 and
$2,727,145 respectively. For the three month and nine month periods ended
February 28, 1999, the Company incurred a net loss of $1,376,222 and
$3,746,789, respectively. Marketing expenses, executive salaries, and general
& administrative expenses have increased as the Company has pursued the
development of its electronic commerce platform and expanded its testing and
marketing of CoinBank(R) machines. The Company has completed its CoinBank(R)
field test placement program and is now exploring distribution relationships
with existing retail industry leaders for the use and placement of its
CoinBank(R) machines.
The Company is focusing its primary efforts on the completion of its e-
commerce platform, which will provide transaction processing for Internet and
non-Internet based e-commerce transactions such as electronic bill payment,
check cashing, the issuance of money orders and pre-paid phone cards, dispensing
of event tickets, etc. on Automated Teller Machines, CoinBank(R) machines and
other similar devices, as well as providing added functionality and security to
Internet commerce activities generated from personal computers.
As a result of these activities the Company will continue to have a high
level of operating expenses.
On July 9, 1998 the Company completed its initial public offering of
1,485,000 shares of Common Stock and received net proceeds of $8,467,880 after
deducting commissions and expenses of $1,927,120. The offering price of the
shares was $7.00 per share. At the same time the Company issued approximately
130,915 shares of its common stock and certain officers and stockholders
exchanged 161,830 shares owned by them in exchange for $1,412,106 of
indebtedness owed by the Company. Prior to July 9, 1998, the Company was not a
reporting company under the Securities and Exchange Act of 1934 and did not file
reports with the SEC.
On August 18, 1998, the underwriters in the Company's public offering
exercised the overallotment option and purchased an additional 172,750 shares of
the Company. Net proceeds to the Company were $1,010,446 after deducting
commissions and expenses of $198,804.
8
<PAGE>
The Company records as revenue the service fee charged for coin and currency
processed on behalf of a customer but not purchased by the Company. The Company
also records as revenue the service fee charged to persons using CoinBank(R)
machines. Gross revenues include the value of coin and currency processed and
does not represent revenue under generally accepted accounting principles.
Revenues generated from CoinBank(R) machines accounted for approximately 18%
of revenues for the fiscal year ended May 31, 1998, compared to approximately
82% of revenues generated from coin and currency processing. For the three
months ended February 28, 1999, 26% of the Company's revenue was generated from
CoinBank(R) operations, while 74% was generated from coin and currency
processing. For the nine months ended February 28, 1999, 22% of the Company's
revenue was generated from CoinBank(R) operations, while 78% was generated from
coin and currency processing.
The Company has a contract to count, process and purchase currency for the
Los Angeles County Metropolitan Transportation Authority ("LACMTA") for the
period from April 1, 1997 to March 31, 2000 for a fee of approximately 1% of all
currency processed. The Company expects to process and purchase between
$35,000,000 - $50,000,000 per annum pursuant to this contract. This contract
will be re-bid by the LACMTA at the end of this contract period. The Company
records as revenue the service fee charged for the processing of tokens and/or
currency processed pursuant to such contracts. From time to time, the Company
may submit bids for additional similar contracts. There can be no assurance,
however, that it will be awarded any contract for which it submits a bid.
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1998
Gross revenues include the value of the coins and currency processed for the
three months ended February 28, 1999 and amounted to $10,552,415 compared to
$12,145,378 for the comparable 1998 period. Due to increased efficiency in coin
and currency processing, net revenues for the three months ended February 28,
1999 increased to $203,919 compared to $179,073 for the comparable 1998 period.
The decrease in coin and currency volume was primarily attributable to the
Company's reduction of certain low-margin cash processing transactions and
normal periodic fluctuations in the value of currency processed for the LACMTA
during the three month period.
Cost of revenues for the three months ended February 28, 1999 was $175,059,
compared to $99,170 in the comparable 1998 period. The cost increase is
primarily the result of an increase in CoinBank(R) activity as the Company
increased both the number of machines and the number of geographic areas
serviced.
The gross profit for the three months ended February 28, 1999, was $28,860
compared to the gross profit of $79,903 in the comparable 1998 period. The
decrease in gross profit was due to the increased costs of revenue associated
with the CoinBank(R) activity.
Selling, general and administrative expenses for the three months ended
February 28, 1999 increased to $1,220,514 compared to expenses of $645,155 for
the three months ended February 28, 1998. Selling, general & administrative
expenses consisted primarily of wages (and wage related costs), outside
contractor expense, travel/promotion expense, professional services, and
facilities/office related expenses. The increase in selling, general and
administrative expenses is attributable to the increase in administrative and
marketing personnel as well as the expenses associated with marketing and
promoting as the Company expanded its operations and technical development
efforts. Included in the $1,220,514 is $118,800 for organizational, marketing,
and sales consulting.
Depreciation and amortization expenses for the three months ended February
28, 1999 and 1998 were $81,799 and $68,176, respectively. The increased
depreciation expense was due to more CoinBank(R) machines in operation. Net
interest expense for the three months ended February 28, 1999 and 1998 were
$100,369 and $136,079, respectively. The decrease in interest expense was due to
a lower level of indebtness.
Net losses for the three months ended February 28, 1999 and 1998 were
$1,376,222 and $769,507, respectively. The Company has recorded a full valuation
allowance for its deferred tax asset. It has done so since management believes
that it is more likely than not that the deferred tax asset will not be
realized.
9
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NINE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
1998
Gross revenues include the value of the coins and currency processed for the
nine months ended February 28, 1999 and amounted to $36,231,138 compared to
$43,998,747 for the comparable fiscal '98 period. The decrease in coin and
currency was primarily attributable to the Company's reduction of certain low-
margin cash processing transactions and normal periodic fluctuations in the
value of currency processed for the LACMTA during the nine months. However, due
to the increase in service fees, net revenues for the nine months ended February
28, 1999 increased to $696,088 compared to $638,616 for the comparable fiscal
'98 period.
Cost of revenues for the nine months ended February 28, 1999 were $505,559,
compared to $411,862 in the comparable 1998 period, reflecting a decrease in NCP
net revenues and an increase in CoinBank(R) activities.
Gross profit for the nine months ended February 28, 1999, was $190,529
compared to the gross profit of $226,754 in the comparable 1998 period. The
decrease in gross profit was due to the increased costs of revenue associated
with CoinBank(R) activity.
Selling, general and administrative expenses for the nine months ended
February 28, 1999 increased to $3,317,226 compared to expenses of $1,724,606 for
the nine months ended February 28, 1998. Selling, general & administrative
expenses consisted primarily of wages (and wage related costs), outside
contractor expense, travel/promotion expense, professional services and
facilities/office related expenses is attributable to the increase in
administrative and marketing personnel as well as the expenses associated with
marketing and promoting as the Company has expanded its operations and technical
development efforts. Included in the $3,317,226 is a one time bridge financing
expense of $80,000 and $378,000 for organizational, marketing and sales
consulting.
Depreciation and amortization expenses for the nine months ended February 28,
1999 and 1998 were $196,020 and $191,042, respectively. Net interest expense for
the nine months ended February 28, 1999 and 1998 were $421,672 and $324,355,
respectively. The increase in depreciation expenses is a result of an increased
number of CoinBank(R) Machines in operation. The increase in interest expense
was due to a higher level of outstanding indebtedness associated with equipment
acquired during the 1998 period.
As a result of the foregoing, net losses for the nine months ended February
28, 1999 and 1998 were $3,746,789 and $2,015,649, respectively. The company has
recorded a full valuation allowance for its deferred tax asset. It has done so
since management believes that it is more likely than not that the deferred tax
asset will not be realized.
10
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LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been and will continue to be
significant and its cash requirements have been exceeding its cash flow from
operations. At February 28, 1999, the Company had working capital of $1,788,568
and unrestricted cash and cash equivalents of $3,302,406 compared to a working
capital deficit of $2,343,096 and unrestricted cash and cash equivalents of
$831,083 at February 28, 1998. Since inception, the Company has satisfied its
working capital requirements through revenues generated from operations, the
issuance of equity and debt securities, borrowing under a line of credit and
loans from stockholders and an affiliate of an executive officer of the Company.
Net cash used in operating activities was $3,460,768 for the nine months
ended February 28, 1999, as compared to net cash used in operating activities of
$702,510 for the nine months ended February 28, 1998. The increase in net cash
used in operating activities compared to the 1998 period was primarily the
result of the Company's expanded operations and net loss incurred.
Net cash used in investing activities was $629,342 for the nine months ended
February 28, 1999, as compared to $1,749,319 for the nine months ended February
28, 1998. The decrease in net cash used in investing activities was primarily
attributable to a decrease in purchases of equipment.
Net cash provided by financing activities for the nine months ended February
28, 1999 was $7,181,793 as compared to $2,819,307 for the nine months ended
February 28, 1998. The increase in net cash provided by financing activities was
primarily attributable to IPO proceeds, along with the exercise of the
overallotment option.
The Company has entered into a credit agreement with GE Capital Corporation
(the "Lender") pursuant to which the Company has borrowed $5,500,000 for the
purchase of CoinBank(R) component equipment, working capital and general
corporate purposes as of February 28, 1998. A portion of the amount drawn under
the line of credit is secured by certain of the Company's assets. Amounts
borrowed under this line bear interest at approximately 9.5% per annum, payable
over a period of 60 months, subject to certain pre-payment penalties. The
Company is required to make monthly payments of principal and interest on this
line of credit, currently approximately $120,000.
Based on the Company's current proposed plans and assumptions relating to the
implementation of its expansion strategy, the Company anticipates that the net
proceeds of its recent initial public offering will not be sufficient to satisfy
its contemplated cash requirements. The Company anticipates that it will be
required to secure additional financing during the next six months. There can be
no assurance that additional financing will become available to the Company.
The inability to secure additional financing would have a material adverse
effect on the company. The Company has no current arrangements with respect to,
or potential sources of, additional financing except for certain equipment
financing for the purchase of CoinBank(R) machine components, and it is not
anticipated that, in the future, any stockholders will provide any additional
guarantees for Company obligations. Consequently, there can be no assurance
that any additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all.
11
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YEAR 2000 EFFECT
The Company, like most other companies, is faced with the Year 2000 Issue.
The Year 2000 issue has developed because some computer programs were written
using a two-digit field rather than a four-digit field to define the applicable
year. As a result any computer program that affects the Company's activities may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a variety of problems depending upon the system(s) affected.
Potential problems include temporary inability to process transactions, transfer
funds, or engage in similar business activities. The potential problems
associated with the Year 2000 Issue may cause widespread disruption of business
worldwide because of the interdependence on computer and communication systems.
The Company has completed an initial assessment of potential Year 2000 for
its own computer systems and business processes. Based upon this assessment, the
Company believes its computer software, hardware, and the embedded technologies
will present limited Year 2000 issues. Additionally the Company does not expect
that its CoinBank (R) machines will incur any material problems with the Year
2000 change. The Company has not been able to completely evaluate whether the
software, hardware and embedded technologies used by the third parties, with
whom it conducts business, are Year 2000 compliant. If third parties,
particularly those involved in the regulation and administration of the banking
systems fail to address Year 2000 Issues then the Company may experience
business interruptions, and in a worst case scenario the inability to engage in
the normal course of business. The effect of such related difficulties could
have a materially adverse impact on the financial condition of the Company. The
Company does not believe that any material expenditure will be required to
complete its internal assessment regarding this issue.
The Company does recognize the need for Year 2000 contingency plans because
of the uncertainty associated with this global issue. The Company will replace
any personal computer or network related software or hardware if this issue
impacts them. The cost of such replacements is not expected to have a material
impact. Furthermore the Company believes that it will not be able to require the
third parties or governmental agencies with which it conducts business to
resolve all Year 2000 issues. The Company has not developed comprehensive
contingency plans that will assure that it will not be adversely impacted by the
effect of the Year 2000 Issue. The Company does not intend to prepare such
plans.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1997, Coinstar, Inc. (''Coinstar''), a competitor of the Company,
filed a complaint against CAS, a subsidiary of the Company, in the U.S. District
Court for the Northern District of California alleging infringement of one of
its patents. In June 1997, CAS filed an answer denying the claims of Coinstar
and interposed a counterclaim seeking declaratory judgment as to the invalidity
and unenforceability of Coinstar's patent and instituted a third-party complaint
against ScanCoin AB for breach of warranty. Although the Company believes that
Coinstar's complaint is without merit, there can be no assurance that the
Coinstar litigation will either be settled on terms acceptable to the Company or
decided in favor of the Company. An adverse ruling could have a material adverse
effect on the Company. Moreover, even if the Company successfully defends the
Coinstar action, the time and effort expended by the Company's personnel in
connection with the Coinstar litigation could adversely affect the Company's
operations.
In January 1998, the district court granted CAS's motion for summary judgment
of noninfringement of the CBIII CoinBank(R) models having a solid input tray.
The Court granted in part and denied in part CAS's motion for summary judgment
of noninfringement concerning the earlier CBII model. The Court also denied
CoinStar's motion for summary judgment. The Company has recently been notified
that an additional patent granted to Coinstar by the U.S. Patent office will be
used by Coinstar to assert new infringement allegations against CAS. Although
there can be no assurance, the Company believes that the final outcome of this
action will not have a material adverse effect on its operations.
In December 1997, Vindex USA, Inc. filed a complaint against CAS, a
subsidiary of the Company, in the Superior Court of California, Los Angeles
County seeking to recover $40,000, an unspecified amount of commissions and
interest accrued thereon allegedly due it under the terms of a consulting
agreement it alleges was breached by the Company. The Company believes that the
complaint is without merit and is defending this lawsuit. The company cannot
determine the likelihood of an unfavorable outcome and range of possible loss,
if any.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
On July 9, 1998 the Company completed its initial public offering of
1,485,000 shares of Common Stock and received net proceeds of $8,467,880 after
deducting commissions and expenses of $1,927,120. The offering price of the
shares was $7.00 per share. At the same time the Company issued 130,915 shares
of its common stock and certain officers and stockholders exchanged 161,830
shares owned by them in exchange for $1,412,106 of indebtedness owed by the
Company to them. Prior to July 9, 1998, the Company was not a reporting company
under the Securities and Exchange Act of 1934 and did not file reports with the
SEC.
On August 18, 1998, the underwriters in the Company's public offering
exercised the over allotment option and purchased an additional 172,750 shares
of the Company. Net proceeds to the Company from the over allotment exercise
were $1,010,446 after deducting commissions and expenses of $198,804.
Through February 28, 1999 the Company has used approximately $2.7 million for
the repayment of notes and loans. Approximately $725,000 has been used for
marketing and advertising. Approximately $480,000 has been used to purchase
CoinBank and miscellaneous equipment. Approximately $550,000 has been spent on
research & development, networks and related equipment. The remainder of the
funds have been used for working capital and operational expenses. The Company
had approximately $2.9 million remaining as of February 28, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
13
<PAGE>
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
___________ ___________
27 Financial Data Schedule
(b) Reports of Form 8-K
During the quarter ended no reports on Form 8-K were filed by the
Registrant:
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 on Form
for the fiscal quarter ended February 28, 1999 to be signed on its behalf
by the undersigned, thereunto duly authorized the 16/th/ of April, 1999
CASH TECHNOLOGIES, INC.
By: /s/ Bruce Korman
------------------------------
Bruce Korman
President and Chief Executive Officer
By: /s/ Robert M. Gielow
------------------------------
Robert M. Gielow
Chief Financial Officer
14
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