<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 SIX MONTH PERIOD ENDED NOVEMBER 30, 1998
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 January 11, 1999, there were 3,519,500 shares of common stock, $ .01 par
value, issued and outstanding.
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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 November 30,1998 (unaudited)
and May 31, 1998....................................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended Nov 30,1998 and 1997 (unaudited)......................... 4
Condensed Consolidated Statements of Operations for the six month periods
ended Nov 30, 1998 and 1997 (unaudited)................................ 4
Condensed Consolidated Statements of Cash Flows for the six month periods
ended November 30, 1998 and 1997 (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................................................................... 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1998 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 4,639,583 $ 210,723
Cash Restricted...................................... 43,400 41,973
Accounts Receivable.................................. 51,708 40,398
Inventories.......................................... 253,834 79,785
Prepaid expenses and other current assets............ 29,005 58,298
----------- -----------
Total current assets............................... 5,017,530 431,177
PROPERTY AND EQUIPMENT Net............................ 2,873,667 2,639,630
OTHER ASSETS.......................................... 178,872 260,441
----------- -----------
TOTAL ASSETS.......................................... 8,070,069 3,331,248
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of Notes Payable.................. $ 1,119,649 $ 1,273,629
Current maturities of capital lease obligations...... 69,192 86,041
Current maturities of due to stockholders............ 87,320 2,349,205
Accounts payable..................................... 195,719 559,811
Accrued expenses & other current liabilities......... 105,877 233,406
----------- -----------
Total current liabilities............................ 1,577,757 4,502,092
Notes Payable less current maturities................ 3,163,910 3,859,567
Capital lease obligations less current maturities.... 3,562 19,238
Due to stockholders less current maturities.......... --- 58,325
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock......................................... 35,195 17,000
Additional paid in capital........................... 11,236,428 451,235
Accumulated deficit.................................. (7,946,783) (5,576,209)
----------- -----------
Total stockholders equity (deficiency)............. 3,324,840 (5,107,974)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 8,070,069 $ 3,331,248
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
3
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CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
GROSS REVENUE*............................... $11,799,969 $17,302,823 $25,678,723 $31,853,368
=========== =========== =========== ===========
NET REVENUES................................. 242,738 207,757 492,169 459,542
COST OF REVENUES............................. 163,928 125,707 330,500 310,930
----------- ----------- ----------- -----------
GROSS PROFIT .............................. 78,810 82,050 161,669 148,612
SELLING, GENERAL &
ADMINISTRATIVE EXP.......................... 1,161,504 639,413 2,096,719 1,082,081
DEPRECIATION & AMORTIZATION EXP.............. 57,272 55,888 114,221 123,051
----------- ----------- ----------- -----------
OPERATING LOSS............................... (1,139,966) (613,251) (2,049,271) (1,056,520)
INTEREST EXPENSES............................ 110,329 85,233 321,303 188,277
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES..................... (1,250,295) (698,484) (2,370,574) (1,244,797)
INCOME TAXES................................. --- --- --- ---
NET LOSS..................................... $(1,250,295) $ (698,484) $(2,370,574) $(1,244,797)
=========== =========== =========== ===========
Basic and diluted, net loss per share........ $ (.36) $ (.41) $ (.67) $ (.73)
Basic and diluted weighted average shares
outstanding.................................. 3,519,500 1,700,000 3,519,500 1,700,000
=========== =========== =========== ===========
</TABLE>
* Gross revenues include the value of coin and currency processed and does not
represent revenue under generally accepted accounting principles.
See notes to condensed consolidated financial statements.
4
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CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED NOVEMBER 30,
-----------------
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................................................... $(2,370,574) $(1,244,797)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization................................................... 114,222 123,051
Increase (decrease) from changes in:
Accrued Interest............................................................. 29,325 56,253
Accounts receivable.......................................................... (11,310) 397,400
Inventories.................................................................. (174,049) 106,845
Prepaid expenses and other current assets.................................... 29,293 (35,488)
Other assets.................................................................. 215,569 (61,920)
Accounts payable.............................................................. (364,092) 136,295
Accrued liabilities........................................................... (127,529) 122,834
----------- -----------
Net cash used by operating activities............................................ $(2,659,145) (399,527)
INVESTING ACTIVITIES:
Property & equipment............................................................ (348,259) (1,477,864)
Restricted Cash................................................................. (1,427) (1,066)
----------- -----------
Net cash used by investing activities............................................ (349,686) $(1,478,930)
FINANCING ACTIVITIES:
Deferred financing cost......................................................... (134,000) (65,000)
Payments on capital lease obligation............................................ (32,525) (9,919)
Repayments on long-term debt.................................................... $(1,874,387) $ (285,852)
Net proceeds from issuance of common stock....................................... 9,478,603 ----
Net proceeds - Long Term debt.................................................... ----- $ 2,250,000
----------- -----------
Net cash provided by financing activities........................................ $ 7,437,691 $ 1,889,229
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS............................................... $ 4,428,860 $ 10,772
Cash, Beginning of period......................................................... $ 210,723 $ 463,605
----------- -----------
Cash, End of period............................................................... $ 4,639,583 $ 474,377
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid for:
Interest......................................................................... $ 291,978 $ 142,762
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION
Conversion of debt to Equity..................................................... $ 1,324,786 $ ---
</TABLE>
See notes to condensed consolidated financial statements.
5
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 November 30, 1998 and the results of operation and cash flows for
the six months ended November 30, 1998 and 1997. 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 six month
periods ended November 30, 1998 are not necessarily indicative of the results to
be expected for any subsequent 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.
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. In addition, although the Company
does not anticipate that a material portion of the proceeds of initial public
offering will be required to be used in connection with the Coinstar litigation,
and although Mr. Korman and Mr. Miller have agreed to pledge an aggregate of
50,000 shares of their Common Stock against costs and expenses incurred by the
Company in connection with the Coinstar litigation in excess of approximately
$175,000, if the Company is required to use an additional portion of the
proceeds of for litigation expenses, it will have less financial resources
available to it for other purposes, which could have a material adverse effect
on the Company.
6
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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. 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.
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.
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.
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 approximately $8,845,000
after deducting commissions and expenses of approximately $1,550,000. 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
approximately $1,324,700 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 $1,055,071 after deducting commissions and expenses
of $154,179.
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 $1,055,071 after deducting
commissions and expenses of $154,179.
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 small 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 $2,727,144 respectively. For the three month and six month
periods ended November 30, 1998, the Company has incurred a net loss of
$1,250,295 and $2,370,574, respectively. Marketing expenses, executive salaries
and general and other administrative costs are expected to increase as the
Company increases its marketing of CoinBank(R) machines and expands its base of
operations beyond the Southern California region. Inasmuch as the Company will
continue to have a high level of operating expenses and will be required to make
certain up-front expenditures in connection with its proposed expansion, the
Company anticipates that losses will continue for the foreseeable future.
On July 9, 1998 the Company completed its initial public offering of 1,485,000
shares of Common Stock and received net proceeds of approximately $8,845,000
after deducting commissions and expenses of approximately $1,550,000. 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
approximately $1,324,700 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 $1,055,071 after deducting
commissions and expenses of $154,179.
8
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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.
The Company intends to concentrate its future efforts on marketing CoinBank(R)
machines, since revenues from CoinBank(R) machines have the potential to produce
greater profit margins. Although revenues generated from CoinBank(R) machines
accounted for only approximately 18% of revenues for the fiscal year ended May
31, 1998, compared to approximately 82% of revenues generated from coin and
currency processing, the Company anticipates that the revenues generated from
the operation of CoinBank(R) machines will eventually become the primary source
of the Company's future revenues.
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, 1999 for a fee approximately 1% of all currency
processed. The Company expects to process and purchase between $35,000,000 and
$60,000,000 per annum pursuant to this contract, which may be renewed by the
LACMTA for two additional six month periods. 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 NOVEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1997
Gross revenues include the value of the coins and currency processed for the
three months ended November 30, 1998 and amounted to $11,799,969 compared to
$17,302,823 for the comparable 1997 period. The decrease in coin and currency
processed was primarily attributable to the Company's reduction in transactions
for certain vending companies and normal periodic fluctuations in the value of
currency processed for the LACMTA during the three month period. However, due
to the increase in profit margin in coin and currency processing , net
revenues for the three months ended November 30, 1998 increased to $242,738
compared to $207,757 for the comparable 1997 period.
Cost of revenues for the three months ended November 30, 1998 was $163,928,
compared to $125,707 in the comparable 1997 period, reflecting primarily an
increase in margins on currency processing
Gross profit for the three months ended November 30, 1998, was $78,810
compared to the gross profit of $82,050 in the comparable 1997 period. The
decrease in gross profit was due to one time adjustment of $ 22,000 (reduction)
to the cost of sales, during the 1997 period.
Selling, general and administrative expenses for the three months ended
November 30, 1998 increased to $1,161,504 compared to expenses of $639,413 for
the three months ended November 30, 1997. Such expenses consisted of office
rent, salaries of executive officers and administrative personnel and other
administrative expenses. The increase in selling, general and administrative
expenses is attributable to the increase in administrative, marketing, personnel
and promotion as the Company has expanded its operations and customer base.
Included in $1,161,504 is a one time bridge financing expense of $20,000, and
$212,000 for organizational, marketing and sales consulting.
Depreciation and amortization expenses for the three months ended November 30,
1998 and 1997 were $57,272 and $55,888, respectively. Net interest expense for
the three months ended November 30, 1998 and 1997 were $110,329 and $85,233,
respectively. The increase in interest expense was due to a higher level of
outstanding indebtedness associated with equipment acquired during the 1998
period.
Net losses for the three months ended November 30, 1998 and 1997 were
$1,250,295 and $698,484, 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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SIX MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED NOVEMBER 30,
1997
Gross revenues include the value of the coins and currency processed for the
six months ended November 30 , 1998 and amounted to $25,678,723 compared to
$31,853,368 for the comparable 1997 period. The decrease in coin and currency
processed was primarily attributable to the Company's reduction in transactions
for certain vending companies and normal periodic fluctuations in the value of
currency processed for the LACMTA during the six month period. However, due to
the increase in profit margin in coin and currency processing , net revenues
for the six months ended November 30, 1998 increased to $492,169 compared to
$459,542 for the comparable 1997 period.
Cost of revenues for the six months ended November 30, 1998 was $330,500,
compared to $310,930 in the comparable 1997 period, reflecting primarily an
increase in net revenues.
Gross profit for the six months ended November 30, 1998, was $161,669 compared
to the gross profit of $148,612 in the comparable 1997 period. The increase in
gross profit was due to increases in profit margins on cash processing.
Selling, general and administrative expenses for the six months ended November
30, 1998 increased to $2,096,719 compared to expenses of $1,082,081 for the six
months ended November 30, 1997. Such expenses consisted of office rent,
salaries of executive officers and administrative personnel and other
administrative expenses. The increase in selling, general and administrative
expenses is attributable to the increase in administrative, marketing, personnel
and promotion as the Company has expanded its operations and customer base.
Included in the $2,096,719 is a one time bridge financing expense of $80,000 and
$260,000 for organizational, marketing and sales consulting.
Depreciation and amortization expenses for the six months ended November 30,
1998 and 1997 were $114,221 and $123,051, respectively. Net interest expense for
the six months ended November 30, 1998 and 1997 were $321,303 and $188,277,
respectively. 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 six months ended November
30, 1998 and 1997 were $2,370,574 and $1,244,797, 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 November 30, 1998, the Company had working capital of $3,439,773
and unrestricted cash and cash equivalents of $4,639,583 compared to a working
capital deficit of $2,343,096 and unrestricted cash and cash equivalents of
$474,377 at November 30, 1997. 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 $2,659,145 for the six months ended
November 30, 1998, as compared to net cash used in operating activities of
$399,527 for the six months ended November 30, 1997. The increase in net cash
used in operating activities compared to the 1997 period was primarily the
result of the Company's expanded operations offset by increases in receivables
and coin and currency inventories plus decreases in accounts payable and accrued
liabilities.
Net cash used in investing activities was $349,686 for the six months ended
November 30, 1998, as compared to $1,478,930 for the six months ended November
30, 1997. The decrease in net cash used in investing activities was
attributable to a decrease in purchases of equipment.
Net cash provided by financing activities for the six months ended November
30, 1998 was $7,437,691 as compared to $1,889,229 for the six months ended
November 30, 1997. 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 are 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 be sufficient to satisfy its
contemplated cash requirements. In the event that the Company's plans change or
its assumptions prove to be inaccurate (due to unanticipated expenses, increased
competition, unfavorable general economic conditions, decreased demand for coin
processing services or otherwise), the Company could be required to seek
additional financing sooner than currently anticipated. 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
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. In addition, although the Company
does not anticipate that a material portion of the proceeds of initial public
offering will be required to be used in connection with the Coinstar litigation,
and although Mr. Korman and Mr. Miller have agreed to pledge an aggregate of
50,000 shares of their Common Stock against costs and expenses incurred by the
Company in connection with the Coinstar litigation in excess of approximately
$175,000, if the Company is required to use an additional portion of the
proceeds of for litigation expenses, it will have less financial resources
available to it for other purposes, which could have a material adverse effect
on the Company.
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. 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.
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.
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.
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 approximately $8,845,000
after deducting commissions and expenses of approximately $1,550,000. 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
approximately $1,324,700 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 approximately $1,055,071 after deducting commissions and expenses of
$154,179.
13
<PAGE>
Through November 30, 1998, the Company has used approximately $270,000 for
other IPO related costs, $2,270,000 for the repayment of Notes and Loans
Payable, $ 200,000 for marketing and advertising, $380,000 for the accrued
expenses, $100,000 for the development of new products and upgrades and the
remainder for working capital and operating expenses. The Company had
approximately $ 4,500,000 remaining as of November 30, 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
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 November 30, 1998 the following reports on Form 8-K
were filed by the Registrant:
<TABLE>
<CAPTION>
Date of Report Item Reported Description of Item
- --------------------- ------------- ---------------------
<S> <C> <C>
September 14, 1998 Item 4 Change in Registrants
Certifying Accountant
October 2, 1998 Item 4 Change in Registrants
Certifying Accountant
</TABLE>
14
<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 on Form for the fiscal
quarter ended November 30, 1998 to be signed on its behalf by the undersigned,
thereunto duly authorized the 19/th/ of January, 1999
CASH TECHNOLOGIES, INC.
By: /s/ Bruce Korman
----------------------------------------
Bruce Korman
President and Chief Executive Officer
By: /s/ Richard Miller
---------------------------------------
Richard Miller
Chief Financial Officer
By: /s/ Aftab Zahed
---------------------------------------
Aftab Zahed
Controller (Principal Accounting
Officer)
15
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<PAGE>
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<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> MAY-31-1999 MAY-31-1998
<PERIOD-START> JUN-01-1998 JUN-01-1997
<PERIOD-END> NOV-30-1998 NOV-30-1997
<CASH> 4,639,583 515,816
<SECURITIES> 0 0
<RECEIVABLES> 51,708 3,830
<ALLOWANCES> 0 0
<INVENTORY> 253,834 60,656
<CURRENT-ASSETS> 5,017,530 678,495
<PP&E> 2,873,667 2,575,897
<DEPRECIATION> 57,272 123,051
<TOTAL-ASSETS> 8,070,069 3,487,335
<CURRENT-LIABILITIES> 1,577,757 3,021,591
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0 0
0 0
<COMMON> 35,195 17,000
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<SALES> 492,169 459,542
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<TOTAL-COSTS> 25,517,054 31,704,756
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 321,303 188,277
<INCOME-PRETAX> (2,370,574) (1,244,797)
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