<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT # 1
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _______________ to ______________
Commission File Number 000-24569
CASH TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Delaware 95-4558331
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1434 W. 11th Street Los Angeles, CA 90015
(Address of principal executive offices) (Zip code)
(213) 745-2000
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
---------------------
Title of Each Class on Which Registered
- ------------------- -------------------
None None
Securities registered under Section 12(gg) of the Exchange Act: Nasdaq SmallCap
Name of Each Exchange
---------------------
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $ .01 Par Value Nasdaq SmallCap
<PAGE>
X Check whether the issuer (1) filed all reports required to be filed by
-
Section 13 or 15(d) of the Exchange Act during the past 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 __
-
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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.
The Company's gross revenue for its fiscal year ended May 31, 1999 was
$46,381,668 and its net revenue was $899,836. Gross revenue does not
represent revenue under generally accepted accounting principles. See
"Management Discussion and Analysis".
On August 31, 1999, the aggregate market value of the Common Stock of
Registrant held by non-affiliates of Registrant computed by reference to the
closing bid price $11.25 at which the stock was sold on such date was
approximately $39,247,481
APPLICABLE ONLY TO CORPORATE REGISTRANTS
On May 31, 1999, there were 3,488,665 shares of Common Stock, $ .01 par
value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ----------------------------
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Cash Technologies, Inc.
Los Angeles, California:
We have audited the accompanying consolidated balance sheets of Cash
Technologies, Inc. and subsidiaries (The "Company") as of May 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at May 31, 1999 and
1998, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1(a) to
the financial statements, the Company has suffered significant recurring losses
from operations and at May 31, 1999, had an accumulated deficit that raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1(a). The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO Seidman, LLP
Los Angeles, California
September 1, 1999
3
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
--------------------------
1998 1999
------------ ------------
ASSETS (NOTE 4)
- ----------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1 (g)).............................. $ 210,723 $ 1,028,586
Cash--restricted (Note 1 (h))....................................... 41,973 44,610
Accounts receivable (Note 1(r))..................................... 40,398 136,277
Coin and currency inventories (Note 1 (i)).......................... 79,785 201,555
Prepaid expenses and other current assets........................... 58,298 9,256
--------- ----------
Total current assets............................................. 431,177 1,420,284
COINBANK MACHINES HELD FOR SALE (Note 1 (j)).......................... -- 1,577,065
PROPERTY AND EQUIPMENT, Net (Notes 1 (j), 1 (k), 1 (l), 1 (p), 2 and 3) 2,639,630 1,393,689
OTHER ASSETS.......................................................... 260,441 56,682
--------- ----------
$ 3,331,248 $ 4,447,720
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
- ------------------------------------------------------
CURRENT LIABILITIES:
Current maturity of notes payable (Note 3)......................... $ 1,273,629 $ 1,172,732
Current maturity of capitalized lease obligations (Note 7).......... 86,041 42,563
Current maturity of due to stockholders (Note 4).................... 2,349,205 --
Accounts payable (Note 1(q))........................................ 559,811 208,620
Accrued expenses and other current liabilities...................... 233,406 388,588
--------- ----------
Total current liabilities........................................ 4,502,092 1,812,503
NOTES PAYABLE, Less current maturity (Note 3)......................... 3,859,567 2,564,723
CAPITALIZED LEASE OBLIGATIONS, Less current maturity (Note 7)......... 19,238 --
DUE TO STOCKHOLDERS, Less current maturity (Note 4)............... 58,325 --
COMMITMENTS AND CONTINGENCIES (Notes 4 and 7).........................
STOCKHOLDERS' EQUITY (DEFICIENCY) (Note 6, 8, and 9):
Preferred stock, $.01 par value; 1,000,000 shares authorized; none
outstanding....................................................... -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
1,700,000 and 3,488,665 shares issued and outstanding............. 17,000 34,887
Additional paid-in capital.......................................... 451,235 11,323,780
Accumulated deficit................................................. (5,576,209) (11,288,173)
----------- ----------
Total stockholders' equity (deficiency).......................... (5,107,974) 70,494
----------- ----------
$ 3,331,248 $ 4,447,720
=========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended May 31,
----------------------------
1998 1999
----------- ------------
<S> <C> <C>
Gross revenues* (Note 1 (e))............................................... $55,529,942 $ 46,381,668
=========== ============
Net revenues (Note 1(c) and 1 (d))......................................... $ 878,852 $ 899,836
Cost of revenues........................................................... 509,443 765,220
----------- ------------
Gross profit............................................................... 369,409 134,616
Selling, general and administrative expenses (Note 1 (j)................... 2,342,610 5,027,693
Depreciation and amortization expenses (Note 1 (k) and) 2)................. 251,090 299,255
----------- ------------
Operating loss............................................................. (2,224,291) (5,192,332)
Interest expense, net (Notes 3 and 4)...................................... (499,840) (516,948)
----------- ------------
Loss before income taxes................................................... (2,724,131) (5,709,280)
Income taxes (Notes 1 (m) and 5)........................................... 3,014 2,684
----------- ------------
Net loss................................................................... $(2,727,145) (5,711,964)
----------- ------------
Basic and diluted net loss per common share (Note 1 (n))................... $ (l.60) (1.74)
----------- ------------
Weighted averages shares outstanding (Note 1 (n)).......................... 1,700,000 3,288,871
=========== ============
</TABLE>
- --------------
* Gross revenues include the value of coin and currency processed and does not
represent revenue under generally accepted accounting principles. (Note 1 (e))
See notes to consolidated financial statements
5
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years ended May 31, 1998 and 1999
<TABLE>
<CAPTION>
Additional Total
-------------- --------------------
Paid-in Accumulated Stockholder's
-------------- --------------- --------------------
Common Stock Capital Deficit Equity (Deficiency)
--------------------- -------------- --------------- --------------------
Shares Amount
---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, June 1, 1997 ................. 1,700,000 17,000 451,235 $ (2,849,064) $ (2,380,829)
Net loss ......................... -- -- -- (2,727,145) (2,727,145)
--------- ------- -------------- --------------- --------------
BALANCE, MAY 31, 1998 ................. 1,700,000 17,000 451,235 (5,576,209) $ (5,107,974)
IPO Common Stock and Warrants Issued
(Note 9) .................... 1,788,665 17,887 10,872,545 -- 10,890,432
Net loss ......................... -- -- -- (5,711,964) (5,711,964)
--------- ------- -------------- --------------- --------------
BALANCE, MAY 31, 1999 ................. 3,488,665 $34,887 $11,323,780 $ (11,288,173) $ 70,494
========= ======= ============== =============== ==============
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Increase(Decrease) in Cash and Cash Equivalent Years Ended May 31,
---------------------------
1998 1999
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $(2,727,145) $ (5,711,964)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization............................................. 251,090 299,255
Accrued interest on stockholders loans.................................... 160,272 --
Impairment of CoinBank Machines held for sale................... -- 155,017
Gain on sale of asset............................................ -- (511)
Changes in operating assets (liabilities):
Accounts receivable....................................................... 360,834 (95,879)
Inventories............................................................... 87,716 (121,770)
Prepaid expenses and other current assets................................. 4,407 49,042
Other assets.............................................................. -- 337,759
Accounts payable................................................. 239,476 (351,191)
Accrued expenses and other current liabilities............................ 169,607 155,182
----------- --------------
Net cash used in operating activities.................................. (1,453,743) (5,285,060)
----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................................... (1,669,818) (784,885)
Cash--restricted (Note 1 (h))................................................ (1,601) (2,637)
----------- --------------
Net cash used in investing activities.................................. (1,671,419) (787,522)
----------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable.................................................. 3,735,000 --
Payments on notes payable.................................................... (574,507) (250,000)
Borrowings from stockholders................................................. -- --
Payments on borrowings from stockholders..................................... (54,167) (995,424)
Payment on capitalized lease obligations................................ (79,809) (62,716)
Repayment on long-term debt............................................. -- (1,145,741)
Deferred financing costs..................................................... (154,237) (134,000)
Issuance of common stock and warrants........................................ -- 9,478,326
----------- --------------
Net cash provided by financing activities.............................. 2,872,280 6,890,445
----------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................... (252,882) 817,863
CASH AND CASH EQUIVALENTS:
Beginning of period.......................................................... 463,605 210,723
----------- --------------
End of period (Note 1 (g))................................................... $ 210,723 $ 1,028,586
=========== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid for:
Income taxes................................................................. $ 14,611 $ 16,968
Interest..................................................................... $ 314,240 $ 516,948
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION--
The Company issued shares of common stock as consideration for loans
due to stockholders......................................................... $ -- $ 1,412,106
The Company transferred certain assets from Property and Equipment to
CoinBank machine held for sale........................................... $ -- $ 1,557,065
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
PRESENTATION
(a) "Going Concern"--The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
The Company has incurred significant losses from operations and has used
significant amounts of cash for operations during the last three years. As of
May 31, 1999, the Company has both a working capital deficiency and accumulated
deficit. Operating losses and cash flow deficiencies have continued throughout
1999.
In view of the above, there is significant doubt about the
Company's ability to continue as a going concern. The recoverability of recorded
assets and satisfaction of the liabilities is dependent on the continued
operations of the Company, which is in turn dependent upon the Company's ability
to meet its financing requirements on a continuing basis as well as to succeed
in its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
or liabilities.
Management is taking certain steps to obtain additional equity financing to
finace its operations and will continue to monitor its short term cash flow
needs. See Item 6. Liquidity and Capital Resources (private offering).
Management estimates that the the proceeds contemplated by a future
private placement, which is currently in process, will be sufficient to fund the
Company's operations through the third Quarter of fiscal 2000. The Company also
plans to increase revenues through transaction processing, sales of Coinbank
machines and reduce costs as deemed necessary in order to improve overall cash
flow. However, an additional capital infusion or additional sources of financing
may still be required for the Company to meet its obligations. While the Company
believes that its plan will be successful, no assurances can be given that the
Company will be success successful and that the Company will continue as a going
concern.
(b) Basis of Consolidation--The accompanying consolidated financial
statements include the accounts of Cash Technologies, Inc. ("CTI"), a Delaware
corporation, and its wholly owned subsidiaries, National Cash Processors, Inc.
("NCP"), and CoinBank Automated Systems ("CAS") together the "Company."
CoinBank Automation Handles GmbH, Salzburg, Austria ("CoinBank Europe" or "CBE")
was treated as a division of CoinBank Automated Systems during this period and
was consolidated into CoinBank Automated Systems. All significant inter-company
transactions and accounts have been eliminated in consolidation. CTI was
incorporated in August 1995. In January 1996, certain affiliates of the Company
exchanged their stock in NCP as part of a combination of entities under common
control. CAS was incorporated in November 1995.
(c) Business--The principal business activity of each entity is as follows:
CTI is a holding company; NCP is a full-service coin-processing entity providing
sorting, counting and wrapping functions to coin-intensive businesses; CAS
offers self-service coin-counting machines. CBE functions as a European sales
office for the Company.
Approximately 75% of the Company's net revenue was derived from one customer
for the year ended May 31, 1999, and 65% of the Company's net revenue was
derived from one customer for the year ended May 31, 1998.
(d) Revenue Recognition--The Company recognizes service fee income when coins
and currency are processed. In certain instances, customers will remit funds to
the Company in advance of the coin shipments to them. In certain instances,
coins are deposited by customers before payment is made by the Company. Included
8
<PAGE>
in accounts payable are $66,102 and $179,679 at May 31, 1999 and 1998,
representing funds received in advance of coin shipment and deposits/collection
of coins received before payment was made to the customer.
(e) Gross Revenues--Include the value of coin and currency processed and does
not represent revenue under generally accepted accounting principles.
(f) Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
(g) Cash Equivalents--The Company considers all investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
does not consider restricted cash as, cash and cash equivalents.
(h) Cash-Restricted--The Company maintains a cash deposit as security toward
the daily purchase of currency. The Company does not consider restricted cash
as, cash and cash equivalents.
(i) Inventories--Inventory consists of coins and currency stated at face
value.
(j) CoinBank Machines Held for Sale--The Company has designated certain of its
CoinBank machines as being held for sale. CoinBank machines held for sale are
recorded at the lower of the cost or estimated fair value, which includes an
estimate of the costs to sell these assets. The estimated fair value is based on
information including recent sales of CoinBank machines and estimated present
value techniques. Included in Selling, General & Administrative Expense is a
$155,017 impairment adjustment for CoinBank machines held for sale.
(k) Property and Equipment--Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful life of the related asset, which ranges from 3
to 7 years. Amortization of leasehold improvements is computed using the
straight-line method over the lesser of the estimated life of the asset or the
remaining term of the lease.
(l) Impairment of Long-Lived Assets--The Company evaluates long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. If the estimated future cash
flows (undiscounted and without interest changes) from the use of an asset are
less than the carrying value, a write-down would be recorded to reduce the
related asset to its estimated fair value.
(m) Income Taxes--The Company files a consolidated federal income tax return
and a combined California franchise tax return. Deferred income taxes have been
recognized for temporary differences between the financial reporting and income
tax bases of assets and liabilities, which are based on the enacted tax rates
expected to be in effect when such amounts are expected to be realized or
settled. A valuation allowance is established when necessary, to reduce deferred
income tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the year plus or minus the change during the
year in deferred income taxes.
(n) Employee Stock Option--The Company adopted statement of financial
accounting standard No. 123, "Accounting Based Compensation"(SFAS No. 123), as
of June 1, 1998, which establishes a fair value method of accounting for stock-
based compensation plans. In accordance with SFAS No. 123, the Company has
chosen to continue to account for stock-based compensation utilizing the
intrinsic value method prescribed in APB 25. Accordingly, compensation cost for
stock option is measured as the excess, if any, of the fair market price of the
company's stock at the date of grant over the amount an employee must pay to
acquire the stock.
Also, in accordance with SFAS No. 123, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The cost of stock-
based employee compensation is measured at the grant date on
9
<PAGE>
the value of the award and is recognized over the service period. The value of
the stock-based ward is determined using a pricing model whereby compensation
cost in excess of the fair value of the stock as determined by the model at the
grant date or other measurement date over the amount an employee must pay to
acquire the stock.
(o) Basic and Diluted Net Loss per Common Share--Basic and diluted net loss
per common share is based on the weighted average number of common shares
outstanding during the respective periods. Statement of Financial Accounting
Standards No. 128, "Earnings per Share" issued by the FASB is effective for
financial statements with fiscal years and interim periods ending after December
15, 1997. SFAS 128 provides for the calculation of Basic and Diluted earnings
per share. Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the periods presented. Diluted earnings per
share reflect the potential dilution of securities that could share in the
earnings, such as stock options, warrants or convertible debentures. Stock
options and warrants outstanding during the periods presented were not included
in diluted earnings per share since their effect would be anti-diluted. The
Company had 1,322,330 options and warrants outstanding at May 31, 1999.
(p) Fair Value of Financial Instruments--Financial instruments consist of
accounts receivable and payable, which have a book value approximating the fair
value due to their short-term nature; interest rates on long-term debt
approximate current interest rates, accordingly the book value approximates fair
value and amounts due to stockholders have a fair value that cannot be
determined due to the related-party nature of the transactions.
(q) Concentration of Suppliers--The Company is dependent on third-party
manufacturers for the production of the components incorporated into CoinBank
machines and currently purchases substantially all of its requirements of
specially designed or modified components from single source suppliers. The
Company purchases certain of these components pursuant to open purchase orders
placed from time to time in the ordinary course of business. Although the
Company currently believes that alternative sources for these components are
readily available, failure or delay by any manufacturer in providing components
to the Company on commercially reasonable terms, or at all, in the absence of
readily available alternative sources, could result in interruptions in the
Company's ability to continue its assembly and installations of CoinBank
machines and have a material adverse effect on the Company's operations.
(r) Concentration of Credit Risk--Financial instruments that potentially
subject the Company to a concentration of credit risk consists primarily of
accounts receivable. The receivables are unsecured, and the Company performs
ongoing credit evaluations of its customers. At May 31, 1999, the receivable
from a major customer was $56,606.
(s) Research and Development--Approximately $770,000 of cost were incurred in
the research and development of new software products and enhancements to
existing software products which were expensed as incurred (and recorded in the
consolidated statement of operation) until technological feasibility has been
established. Technological feasibility is established upon completion of a
detailed program design or working model. Once technological feasibility is
established all software production cost will be capitalized and reported at the
lower of unamortized cost or net realizable value until the product is available
for general release to customers. Capitalized software cost will be amortized
based on current and future expected revenue for each product subject to an
annual minimum based on straight-line amortization over the remaining estimated
life of the product, not to exceed 5 years. The Company will evaluate the
recoverability of all capitalized software cost on a quarterly basis by
comparing the net realizable value, determined pursuant to management's
estimates of future product cash flows, with the unamortized capitalized
software cost balance.
(t) New Accounting Pronouncements--Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) issued by
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. The adoption of this
statement had no effect on the financial position or results of operations.
10
<PAGE>
Statements of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The adoption of SFAS No. 131 did
not have an effect, on its results of operations.
Statement of Financial Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) issued by the FASB is
effective for financial statements with fiscal quarters of fiscal years
beginning after June 15, 1999. The new standard provides for standardized
accounting and reporting for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. The
guidance applies to all entities. SFAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. Fair value measurements are based on the guidance
contained in SFAS 107, Disclosures about Fair Value of Financial Instruments.
The Company does not expect adoption of SFAS No. 133 to have a material effect,
if any, on its results of operations.
Statement of Financial Accounting Standards No. 134, " Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale By a Mortgage Banking Enterprise," ("SFAS 134") is effective for
financial statements with fiscal year beginning after December 15, 1998. SFAS
134 amends SFAS No. 65. "Accounting for Certain Mortgage Banking Activities"
which establishes accounting and reporting standards for certain activities of
mortgage banking enterprises and other enterprises that conduct operations which
are substantially similar to the primary operations of a mortgage banking
enterprise. The Company does not expect adoption of SFAS 134 to have material
effect, if any, on its consolidated financial position or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
Machinery and equipment.............................................. $2,609,383 $1,562,643
Security systems..................................................... 7,523 7,523
Furniture and fixtures............................................... 15,911 22,519
Vehicles............................................................. 14,415 14,415
Computer equipment................................................... 63,031 148,561
Leasehold improvements............................................... 110,892 117,989
Equipment under capital Lease........................................ 289,716 289,716
---------- ----------
Total Property and Equipment....................................... $3,110,871 $2,163,366
Less accumulated depreciation...................................... 471,241 769,677
---------- ----------
$2,639,630 $1,393,689
========== ==========
</TABLE>
Included in property and equipment are the following assets held under capital
leases:
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
Machinery and equipment........................................... $206,959 $206,970
Security systems.................................................. 35,264 35,264
Computer equipment................................................ 47,482 47,482
-------- --------
289,705 289,716
Less accumulated depreciation at May 31, 1998 and 1999............ 171,473 215,573
-------- --------
$118,232 $ 74,143
======== ========
</TABLE>
Depreciation expense for the years ended May 31, 1998 and 1999 on assets held
under capital leases was $44,100 and $44,100.
11
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Equipment loans were secured by the personal guarantees of the two
Principal Stockholders of the Company and the Company's equipment. The
guarantors were released 90 days after the Company's initial public
offering. Interest rates range from 3.88% to 9.25%, with the loans
maturing through 2002. Pursuant to a loan and security agreement and
related note, as revised (collectively the "Agreement"), with a
finance company, the Company borrowed $5,500,000. The Company is
required to make monthly payments of principal and interest which is
currently approx. $120,000.............................................. $4,883,196 $3,737,455
Subordinated Note payable to a company with interest payable at 9% per
Annum, repaid during 1999................................................ 250,000 --
---------- ----------
5,133,196 3,737,455
Less current portion.................................................. 1,273,629 1,172,732
Long term maturity....................................................... $3,859,567 $2,564,723
========== ==========
</TABLE>
Maturity of Notes Payable are as follows at May 31, 1999
<TABLE>
Year Ending May 31,
- -------------------
<S> <C>
2000........................................ $1,172,732
2001........................................ 1,175,512
2002........................................ 1,389,211
----------
$3,737,455
==========
</TABLE>
12
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. DUE TO STOCKHOLDERS
Notes and loans payable to stockholders repaid in 1999, consist of the
following:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Note payable to a partnership, whose principal partner is a stockholder of the
Company.......................................................................... $ 530,614
Notes payable secured by the assets of the Company............................... 255,000
Note payable to a stockholder.................................................... 258,400
Note payable to lender whose owner is a stockholder of the Company............... 142,102
Note payable to a stockholder.................................................... 55,487
Note payable to a stockholder.................................................... 37,252
Note payable to a stockholder.................................................... 23,992
Note payable to a stockholder.................................................... 12,242
Note payable to a stockholder.................................................... 59,341
Note payable to a stockholder.................................................... 222,312
Note payable to a stockholder.................................................... 12,342
Notes payable to stockholders.................................................... 748,446
In November 1996, the Company entered into an agreement with a major
Stockholder to purchase all the rights under a software licensing agreement...... 50,000
-----------
2,407,530
Less current maturity............................................................ 2,349,205
-----------
Long-term maturity............................................................... $ 58,325
===========
</TABLE>
An officer of the Company, who is an affiliate of a partnership that is a
principal stockholder of the Company, borrowed funds amounting to $475,000 (this
amount is included in note payable to a partnership of $533,201 at May 31, 1998)
in his own name from a bank and loaned it to the Company and had also personally
guaranteed $142,772 of capital lease obligations assumed by the Company (Note
7). The loans from stockholders included accrued interest of $368,483 at May 31,
1998. See Note 9--Initial Public Offering and Related Events regarding
repayments and conversions to equity.
13
<PAGE>
CASH TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. INCOME TAXES
As of May 31, 1999, the Company has available federal net operating loss
("NOL") carry-forwards that approximate $10,800,000 and may be applied against
future taxable income through 2019. State NOL carry-forward are approximately
50% of federal amounts and expire through 2004. Since management can not
determine if it is more likely than not that the deferred tax asset will be
realized, a 100% valuation reserve has been set up to entirely offset the
deferred tax asset of $4,200,000. The utilization of NOLs may be subject to
limitations imposed by the Internal Revenue Code. Temporary differences other
than the NOL are not material. The current tax expense is due to payment of
state minimum taxes.
6. STOCK OPTION PLAN AND WARRANTS
The Company adopted a 1996 stock option plan (the "Option Plan"). A total
of 775,887 shares of the Company's common stock have been reserved for issuance
under the Option Plan. The Option Plan is administered by the Board of
Directors, or a committee appointed by the Board of Directors, which determine
the recipients and term of the awards granted.
In addition to the above mentioned stock options, in July 1998, in
conjunction with the Company's initial public offering certain debt holders were
granted options/warrants in exchange for note repayments.
The Company has granted the following options to purchase common stock as
of May 31, 1999.
<TABLE>
<CAPTION>
Number of Weighted Average
Options Price $/Sh
--------------------------------------
<S> <C> <C>
Options Outstanding - June 1, 1997 285,887 $ 3.50
Employee Stock Options
- ----------------------
Granted - -
Exercised - -
Shareholder Warrants and Options
- --------------------------------
Granted - -
Exercised - -
Option Outstanding - June 1, 1998 285,887 $ 3.50
Employee Stock Options
- ----------------------
Granted 383,143 $ 7.06
Exercised - -
Shareholder Warrants and Options
- --------------------------------
Granted 653,300 $ 7.46
Exercised - -
--------------------------------------
Options Outstanding - May 31, 1999 1,322,330 $ 6.49
--------------------------------------
</TABLE>
Stock Based Compensation
All stock options issued to employees have an exercise price not less than
the fair market value of the company's Common Stock on the date of grant, and in
accounting for such options utilizing the intrinsic value method there is no
related compensation expense recorded in the Company's financial statements. If
the compensation had been determined based on the fair market value of the stock
option on their dates of grant in accordance with SFAS 123, the Company's net
loss and loss per share for the years ended May 31, 1999 would have been
decreased to the pro forma amounts present below:
14
<PAGE>
<TABLE>
<CAPTION>
Net Loss 1999
- -------- ------------
<S> <C>
As Reported...................................................... $(5,711,964)
Pro Forma........................................................ $(7,806,292)
Basic and Diluted Loss Per Common Share
- ---------------------------------------
As Reported...................................................... $ (1.74)
Pro Forma........................................................ $ (2.37)
</TABLE>
The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option-pricing model with the weighted average assumption for
options granted during 1997-1999, expected life of the option is 5 years,
expected volatility of 51%, risk free interest rate of 6% and a 0% dividend
yield. The weighted average fair value at the grant date for such options is
$6.49 per option.
<TABLE>
<CAPTION>
Outstanding Exercisable
Weighted Average Weighted Average
--------------------------------- ------------------------
Life Exercise Exercise
Exercise Price Per share Shares (Years) Price Shares Price
- ---------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
$ 3.50 290,000 4.00 $ 3.50 193,258 $ 3.50
$ 6.00 94,300 4.50 $ 6.00 6,000 $ 6.00
$ 6.30 50,000 4.50 $ 6.30 16,667 $ 6.30
$ 7.00 476,830 4.50 $ 7.00 329,259 $ 7.00
$ 8.00 350,000 4.50 $ 8.00 350,000 $ 8.00
$ 8.50 100 4.50 $ 8.50 - $ 8.50
$ 8.56 50,000 4.50 $ 8.56 - $ 8.56
$ 10.50 3,000 4.50 $ 10.50 - $ 10.50
$ 10.75 8,100 4.75 $ 10.75 - $ 10.75
--------------------------------------------------------------------------------
Total option outstanding 1,322,330 $ 6.49 895,184 $ 6.62
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
No employee stock options were exercised as of the fiscal year end May 31,
1999.
No Shareholders warrants/options were exercised as of the fiscal year end May
31, 1999.
Life (year) is the estimated remainder term of options/warrants.
15
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
Operating Agreement and Disputes
In January 1997, the Company entered into a five-year licensing and
manufacturing services agreement with Geld Bearbeitungs Systeme GES.M.B.H., an
Austrian corporation ("GBS"), pursuant to which GBS granted the Company the
exclusive, perpetual right to use certain technology incorporated in CoinBank
machines in North and South America and Asia, provided that the Company
purchases a minimum quantity of coin-counting components used in CoinBank
machines over the term of the agreement. Failure to satisfy such minimum
purchase requirement could result in the termination of the Company's agreement
with such manufacturer, which is likely to lead to the termination of the
Company's exclusivity with respect to such technology, which could have a
material adverse effect on the Company. The agreement also requires GBS to
provide information regarding the software, hardware and manufacturing
techniques used in the manufacturing of its money processing equipment to the
Company in exchange for certain payments. The agreement is subject to early
termination in the case of bankruptcy or breach by either party, provided that
if the Company has purchased the minimum number of components from GBS, it will
continue to be entitled to use, sell and distribute CoinBank machines containing
GBS technology. Although the Company believes that alternative sources for
components similar to the components to be supplied by GBS are available,
failure or delay by GBS to provide components to the Company could result in
interruptions in the Company's ability to continue to assemble and install
CoinBank machines and have a material adverse effect on the Company's
operations.
In August 1998, the Company entered into a three-year distribution agreement
with GBS, subject to successive one-year renewal periods, pursuant to which GBS
granted the Company the exclusive right to distribute and sell cash processing
equipment in all areas of the world not covered by the January 1997 agreement
between GBS and the Company (the "Territory"), except to certain financial
institutions in Austria, provided that the Company purchases a minimum number of
cash processing machines from GBS over a specified period during the initial
three-year term of the April 1997 agreement upon the schedule provided in the
agreement. The agreement provides that failure to satisfy such minimum purchase
requirement will result in the Company having only a non-exclusive right to
distribute the equipment in the Territory. Though the Company believes that the
minimum purchase requirement is reasonable and achievable, there can be no
assurance that the Company will be able to satisfy such purchase requirements.
In March 1999, the Company entered into a letter of intent to acquire 51% of
the capital stock of the Austrian based manufacturer of coin counting components
of the Company's CoinBank machines, Geld Bearbeitungs Systems GES.M.B.H. ("GBS")
(the "Acquisition"). GBS is the largest manufacturer of coin processing
equipment in Austria. The Company and GBS are currently parties to a License
and Manufacturing Services Agreement whereby GBS manufactures the Company's
CoinBank machines. The Company is the single largest customer of GBS.
Pursuant to the terms of the Letter of Intent, the Company will acquire 51% of
GBS' capital stock from the existing shareholders for a combination of cash and
Common Stock of the Company. The Letter of Intent states that the principal
owners of GBS have agreed to have key employees of GBS enter into employment and
non-competition agreement with the Company as a condition to closing of the
acquisition. The parties are currently completing their due diligence and
financial statements while negotiating the terms of a definitive purchase
agreement, as well as side agreements such as the terms of the employment
agreements for the key employees. Additionally the Company and GBS are in
dispute over certain matters related to the license and manufacturing agreement
that has delayed negotiation of the acquisition. There can be no assurance that
the transaction will be completed or that the terms of the definitive agreement
will be as described above.
The Company and GBS have recently been in a dispute regarding the 1998
Distribution Agreement. The dispute involves primarily the quantity of machines
to be produced by GBS for the European market. The dispute does not affect the
Company's North American rights pursuant to the January, 1997 Licensing
Agreement. Although the Company believes that these matters will be resolved
amicably, there can be no assurance that the
16
<PAGE>
dispute can be resolved. The proposed acquisition of GBS may not occur or may be
delayed until resolution of these disputes is accomplished.
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 US Patent No.
5,564,546 ("the 546 patent"). 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.
In January 1998, the district court granted CAS's motion for summary judgment
of noninfringement of the CBIII CoinBank 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. In October 1998 Coinstar amended its
complaint to allege infringement by CAS of newly issued U.S. Patent No.
5,799,767 ("the 767 patent"). CAS has filed a motion for summary judgment of
invalidity and non-infringement of the 767 patent. That motion is currently set
to be heard on September 29,1999. Although the company believes that Coinstar's
amended 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. The Company believes that the final outcome of this
action will not have a material adverse effect on its financial statements.
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.
Lease Agreements
On September 12, 1997, the Company entered into a commercial single tenant
lease agreement with a related party. The new lease became effective on
September 13, 1997 and will expire on September 13, 2002. The annual rent is
$67,416. Rent expense is recognized using the effective rent method over the
life of the lease. The lease contains rent escalations and certain rent
abatements. There is a provision for a 60-month renewal option. The lease
requires the payment of costs such as insurance and other operating costs in
addition to minimum rentals.
The Company is committed under non-cancelable facility lease agreements and
equipment operating and capital leases as follows:
<TABLE>
<CAPTION>
Years Ending
------------
May 31 Capital Operating
------ -------- ---------
<S> <C> <C>
2000.................................................. $42,783 $ 89,616
2001.................................................. 493 84,916
2002.................................................. -- 70,316
2003.................................................. -- 16,854
--------------------
$43,276 $261,702
--------------------
Less interest......................................... 714 --
Less current maturity................................. 42,076 --
--------------------
$ 486 $261,702
======== ========
</TABLE>
Rent expense was $71,971 and $77,224 for the years ended May 31, 1999 and
1998.
Rent expense includes branch offices in Austria and Germany. Obligations
are in local currency.
17
<PAGE>
Stock Options
Subsequent to May 31, 1999 the Company committed 30,000 stock options to each
of its four Directors.
Employment Agreements
The Company has entered into a three (3) year employment agreement with Mr.
Korman effective July 1998 which provides for an initial annual base salary of
$120,000, base salaries of $150,000 and $180,000 in the second and third years,
respectively, and payment of such bonuses as the Board of Directors determines.
Any such bonus will be voted on by the entire Board, including Mr. Korman,
unless Mr. Korman or another director chooses to abstain from voting on the
matter. Mr. Korman also receives the use of a company automobile. The
agreement includes Mr. Korman's covenant not to compete with the Company's
business during the term of the Agreement and for a period of one year
thereafter. The agreement requires Mr. Korman to devote not less than 40 hours
per week of his business time to the business of the Company. Mr. Korman also
participates in other business endeavors which require a portion of his business
time. Although Mr. Korman has advised the Company that his participation in
outside business matters should not interfere with his performance of his duties
as President and Chief Executive Officer of the Company, there can be no
assurance that a conflict of interest will not arise with respect to the
allocation of Mr. Korman's time or that such conflict would be resolved in the
Company's favor. The loss of the services of Mr. Korman could have a material
adverse effect on the Company's business and prospects.
Effective January 11, 1999, the Company entered into an employment agreement
with Robert M. Gielow, pursuant to which the Company retained Mr. Gielow as its
Chief Financial Officer and Secretary. The agreement provides for an initial
annual base salary of $175,000 with annual increases and bonuses to be
determined by the Board of Directors. Mr. Gielow receives a monthly automobile
allowance of $600 per month. Mr. Gielow also received options to purchase
50,000 shares of Common Stock with an exercise price of $8.56 per share, which
options vest in one-fourth increments commencing in December 1999. The
agreement further provides that Mr. Gielow may receive a severance payment of
$150,000.
The Company has entered into an employment agreement with Christine Dobbings
effective January 1, 1998 whereby Ms. Dobbings is employed as Vice President of
Marketing and Sales. The agreement terminates in January 2003. Pursuant to the
employment agreement, Mrs. Dobbings receives a base salary of $8,533 per month
subject to annual increases of 15% per annum. Ms. Dobbings also receives a
monthly automobile allowance of $500 per month. In addition, Ms. Dobbings
received five-year Common Stock options under the Employee Stock Option Plan to
purchase an aggregate of 50,000 shares with exercise prices ranging between
$3.50 and $7.00 per share. The options vest over a two-year period. The
agreement further provides that Ms. Dobbings may receive a severance payment
equal to the total amount of her previous twelve-month's base salary if she is
terminated without cause.
8. COMMON STOCK
In February 1997, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock to 20,000,000.
9. INITIAL PUBLIC OFFERING AND RELATED EVENTS
On July 9, 1998 the Company completed an initial public offering of 1,485,000
shares of its common stock and received net proceeds of $8,467,880 after
deducting commissions and expenses of $1,927,120. At the same time, the Company
issued 130,915 shares of its common stock and certain officers and stockholders
exchanged 161,830 shares of the Company's common stock owned by them in exchange
for $1,412,106 of indebtedness to shareholders.
In August 1998, the Company issued 172,750 shares of common stock in
connection with the partial exercise of the over-allotment option. Net proceeds
to the Company were $1,010,446 after deducting $198,804 for commissions and
expenses.
18
<PAGE>
Prior to the initial public offering, the Company had issued various
subordinated promissory notes. These notes were repaid with a portion of the net
proceeds from the initial public offering of the Company's common stock. In
conjunction with liquidation of the notes, the Company issued warrants to
purchase 653,300 shares of Common Stock at prices ranging from of $3.50 to $8.00
per share. (Note 6)
10. SUBSEQUENT EVENT (UN-AUDITED)
The Company is presently engagaed in discussions with two entities
regarding an acquisition of all or part of the Company (including stock and
assets transfers). The Board of Directors has not been requested to consider any
definitive transaction. No letters of intent have been entered into by the
Company. There can be no assurance that any such transactions will be
consummated, or that the terms will be favorable to the Company or its
shareholders.
19
<PAGE>
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 the 20th day of
September, 1999.
CASH TECHNOLOGIES, INC.
/s/ Bruce Korman
By:------------------------
Bruce Korman
President and Chief
Executive Officer
Pursuant to the 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.
<TABLE>
<CAPTION>
Signature Title Date
------------------- --------------------- -----------
<S> <C> <C>
/s/ Bruce Korman President, Chief Executive Officer September 20, 1999
and Director (Principal
Bruce Korman Executive Officer)
/s/ Robert M. Gielow Chief Financial Officer and September 20, 1999
Secretary (Principal Financial
Robert M. Gielow Officer)
/s/ Richard Miller Director September 20, 1999
Richard Miller
/s/ Robert Fagenson Director September 20, 1999
Robert Fagenson
/s/ Vincent A. Carrino Director September 20, 1999
Vincent A. Carrino
/s/ Edward G. Harshfield Director September 20, 1999
Edward G. Harshfield
/s/ Robin Richards Director September 20, 1999
Robin Richards
</TABLE>
20
