<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) Of THE SECURITIES
EXCHANGE ACT of 1934
For the Calendar Year Ended December 31, 1999
Commission File No. 0-25127
COINLESS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Nevada 91-1715373
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
3720 West Oquendo Road
Suite 101
Las Vegas, NV 89119
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 891-9195
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Name of Each exchange on which registered
National Association of Securities Dealers
Securities registered Pursuant to Section 12(g) of the Act:
______________________________
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 proceedings 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 [_]
1
<PAGE>
Indicate by check mark if disclosure of
delinquent filers pursuant to item 405 of Regulation
S-K is not contained herein, and will not 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 [X]
The aggregate market value of voting stock
held by non-affiliates of the Registrant as of December 31, 1999
was approximately $1,742,250
On December 31, 1999, approximately 7,967,325
shares of the Registrant's Common Stock, $0.001 par
value, were outstanding.
Documents incorporated by Reference
e. Financial Statements for December,
1999 and 1998
f. Except for the historical information
presented, the matters discussed in this Form 10-K
include forward-looking statements that involve
risks and uncertainties. The Company's actual
results could differ materially from those discussed
herein. Factors that could cause or contribute to
such differences include, but are not limited to,
those discussed under the caption "Factors That
May Affect Future Results" under Management's
Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 1999
Financial Statements, which is incorporated by
reference in this Form 10-K
2
<PAGE>
COINLESS SYSTEMS, INC.
TABLE OF CONTENTS
PART 1
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. BUSINESS............................................................. 4
Item 2. PROPERTIES........................................................... 6
Item 3. LEGAL PROCEEDINGS.................................................... 6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 6
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................. 7
Item 6. SELECTED FINANCIAL DATA.............................................. 7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................. 7
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................... 7
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................................. 8
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................. 8
Item 11. EXECUTIVE COMPENSATION.............................................. 9
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...................................................... 9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 9
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.............................................................
</TABLE>
3
<PAGE>
PART I
Item 1. Business
Introduction
Coinless Systems, Inc.(the "Company") was formed
as a Nevada Corporation by the merger of
D&J Enterprises International, Inc., a Nevada Corporation,
and D.S.G., Inc., a California Corporation,
with Medical Resource Technologies, Ltd.
This merger took place February 12, 1999.
The name was changed to Coinless Systems, Inc.
on August 12, 1999.
Medical Resource Technologies, Ltd., a Washington Corporation
(the "Company") was formed in the State of Washington in
February, 1996. The Company was merged into a
Nevada Corporation, Ucap, Inc. which was formed
in 1932 and Ucap, Inc. was originally created
as Amalgamated Oil & Mining Corporation,
a Utah corporation which changed its name to Ucap, Inc.,
a corporation formed in February, 1954.
Ucap, Inc., Utah was then merged into Ucap, Inc.,
a Nevada Corporation, on December 3, 1991.
The corporation was inactive for many years, and its acquisition of
Medical Resource Technologies, Ltd. was its method
of reactivating the companies business interests.
Medical Resource Technologies, Ltd. was merged into
Ucap on April 23, 1996, and the company name of Ucap was
changed to Medical Resource Technologies, Ltd. as part
of the merger documents.
Coinless Systems has been developing and fine tuning
TickeTrak barcode printing and redeeming device
for almost four years and now we are within a
short time of demonstrating its workability.
However, as important as it is to function properly,
an equal issue is having the legal right to produce the
product and more importantly than the first two is,
is there a market for the device and in an industry
which is highly regulated can you get approval
to install the product on Gaming Machines.
4
<PAGE>
(PART I Cont'd)
TickeTrak is in the final stages of being interfaced to
five different Slot Machines, each manufactured by a different company.
As stated above, we are within a short time of
demonstrating machines from different manufacturers,
working in unison and all communicating with a single
TAS (Ticket Accounting System) supplied by
Gaming Systems Int'l. Our patent was issued on
January 11, 2000 (U.S. Patent No. 6,012,832).
A phenomenon has embraced the Gaming Industry which was
caused by the introduction of multi-reel, multi-line,
multi-coin slot machines. The play these video machines
get is substantial and because of the
frequent use, combined with large payouts, the interest in
coinless gaming has, by necessity,
multiplied substantially in the past four months.
In conjunction with the unprecedented interest levels,
CSI is currently initiating the required paperwork to
Oregon, Nevada, Minnesota and Arizona requesting vendor
gaming licensing documents which will pave the way for
equipment installations in the above states.
Hard work and timing
are the primary ingredients for a successful
product introduction into the market place.
COINLESS SYSTEMS, Inc's team has worked
extremely hard over the past four years and has a
patented new product ready for introduction into
the public marketplace. Then, as an added bonus,
there is an interest level by the public and casino
executives in our product, which has exceeded our expectations.
5
<PAGE>
Item 2. Properties
The Company's executive and engineering offices are located
in Las Vegas, Nevada. The company moved to its present
location at the end of December, 1999.
Item 3. Legal Proceedings
There are no legal proceedings known or pending
against the registrant or its subsidiary.
Item 4. Submission of Matters to A Vote of Security Hold
The following matters were submitted to a vote
of the Company's security holders during the
fourth quarter of its year-ended December 31, 1999:
e. To ratify the sale of certain assets of its
wholly owned subsidiary, DSG, Inc., to
Automatic Data Capture Technologies, Inc.
Assets sold were resalable inventory;
customer information and goodwill
for a total sales price of $325,000.
f. To elect and ratify the board of directors
Date and type of meeting
December 12, 1999
Special Stockholders Meeting
The matters were voted on during the
fourth quarter of 1999.
6
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
The Company's currently trading, OTC, on the
Nationals Assoc. of Securities Dealers
with a high bid at $1.625 per share
and a low bid of $.50 per share during the last quarter.
Additional information required by this item may be
found in the Company's 1999 Financial Statements
and is incorporated Herein by reference.
Item 6. Selected Financial Data
The information revised by this item is set forth
in the Company's 1999 Financial statements
and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of
Financial Condition and Reports of Operation.
The information provided by this item is set forth
in the Company's 1999 Financial statements
and is incorporated herein by reference.
Item 8. Financial Statements and Supplemental Data
The financial statements required by this
Item are in the Company's 1999 Financial Statements
and are incorporated by reference. With the
exception of the aforementioned information and
the information incorporated in Items 5, 6 and 7,
the Company's 1999 Financial Statements is not to be
deemed filed as part of this Form 10-K Annual Report.
The report of the Company's Independent Auditors
on the Company's consolidated financial statements is
included in the Company's 1999 Financial Statements and
is incorporated by reference. The report of the
Company's Independent Auditors on the financial statement
schedule required by this item is included herein.
7
<PAGE>
Item 9. Changes in and Disagreements with
Accountants on Accounting Financial Disclosure.
There are none.
Item 10. Directors and Executive Officers of the Registrant
PRESIDENT/C.E.O./DIRECTOR
Dennis W. Sorenson, age 58, residing in Alta Loma,
California is married. He began his career in
marketing with Pitney Bowes in 1972.
He advanced to Western Regional Manager for
Monarch Marketing (a Division of Pitney Bowes).
In 1982 he moved to Data Specialties, Inc. as
Western Regional Manager. In 1987 he and
two associates formed Data Recall as
Vice President of sales. He remained with
Data Recall until 1992, when he formed D.S.G., Inc.,
a full-line distributor of bar coding products and supplies.
In 1996 he formed D&J Enterprises Int'l., Inc.,
a producer of TickeTrak Gaming Devices.
VICE PRESIDENT/DIRECTOR
Daniel Weyker, age 58, residing in San Diego,
California is married. A graduate of Saint Michaels
College and the University of Southern California.
From 1965 through 1993, he held
progressive management positions until he
became Vice-President of manufacturing for
Raichem, San Diego, California
TREASURER/CORPORATE SECRETARY
Darryl D. Dorsett, Age 65, residing in
Canyon Lake, California is single.
A graduate of the University of North Carolina
and American University from 1960 through
1992 held progressive positions in the
Corporate Financial Community including
Private Tax and Financial Consulting. In 1992
joined with Dennis Sorenson to form
D.S.G., Inc., a California Corporation,
and in 1996 to form D&J Enterprises Int'l., Inc.,
Functioning Financial Consultant
8
<PAGE>
Item 11. Executive Compensation
Other than information provided in the
Company's 1999 Financial Statements incorporated
herein, Executive Officers and Directors
have received no other compensation.
Item 12. Security Ownership of Certain
Beneficial Owners And Management
<TABLE>
<CAPTION>
Name & Address of Amount & nature Percent
Title of Class (1) Beneficial Owner of Ownership of Class
- --------------------- ---------------------- --------------- --------
<S> <C> <C> <C>
Common Dennis W. Sorenson 1,242,327 15.61
8510 Hillside Road
Alta Loma, CA 91701
Common Janis Sorenson 1,242,328 15.61
8510 Hillside Road
Alta Loma, CA 91701
Common Daniel Weyker 916,144 11.50
13260 Jacarte Court
San Diego CA 92130
Common Pamela M. Mugica 1,081,510 13.57
30067 Clearwater Drive
Canyon Lake, CA 92587
</TABLE>
Item 13. Certain Relationships and Related Transactions.
There have been no transactions which would be affected by this section.
PART IV
Item 14. Exhibits, Financial Statements,
schedules and Reports on Form 8-k
The following documents are filed as part of this
Form 10-K Annual Report:
e. Financial Statements
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities and Exchange Act of 1934,
the Company has wholly caused this report to be signed on
its behalf by the undersigned, thereunto to duly authorized.
COINLESS SYSTEMS, INC.
By: __________________________________
Dennis W. Sorenson
President/C.E.O./Director
10
<PAGE>
[LETTERHEAD OF HAROLD Y. SPECTOR APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
of Coinless Systems, Inc and subsidiary.
I have audited the accompanying consolidated balance sheets of Coinless Systems,
Inc. (F.K.A. Medical Resources Technologies, Inc., a Nevada corporation) and its
wholly-owned subsidiary, D.S.G., Inc. (a California corporation) as of December
31, 1999, and the related consolidated statements of operations and accumulated
deficit, changes in stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
consolidated financial statements based on my audit.
I conducted this audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provided a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial positions of Coinless Systems,
Inc. (FKA Medical Resources Technologies, Ltd.) and its subsidiary as of
December 31, 1999, and the results of their operations and their cash flows for
the year 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 15 to
the consolidated financial statements, the Company's uncertainty to generate
revenue and its significant net operating loss, raise substantial doubt about
its ability to continue as a going concern. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ HAROLD Y. SPECTOR
- ---------------------
Pasadena, CA
April 29, 2000
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<CAPTION>
Current Assets
<S> <C>
Cash $ 26,852
Accounts Receivable, net of allowance
For doubtful accounts of $2,185 70,689
Notes Receivable 254,436
Inventory 24,535
Prepaid Expenses 16,670
--------
Total Current Assets 393,182
--------
Fixed Assets
Automobile 44,548
Furniture and Fixtures 9,568
Leasehold Improvements 3,205
Office Equipment 25,035
--------
82,356
Less: Accumulated Depreciation (53,777)
--------
Total Fixed Assets 28,579
--------
Other Assets
Note Receivable, net of current portion 93,750
Organizational Costs, net of accumulated
amortization of $500 0
Patent Rights, net of accumulated
Amortization of $2,077 26,580
Escrow Deposits 50,000
Deposits 12,237
--------
Total Other Assets 182,567
--------
TOTAL ASSETS $604,328
========
</TABLE>
The auditor's report and accompanying notes are
an integral part of the financial statements
2
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities
Accounts Payable $ 259,774
Accrued Expenses 444,687
Income Tax Payable 6,900
Note Payable, current portion 178,750
-----------
Total Current Liabilities 890,111
-----------
Long-Term Liabilities 262,309
-----------
Total Liabilities 1,152,420
-----------
Stockholders' Equity
Common Stock, $.007 par value; 75,000,000
shares authorized; 7,967,325 shares issued
and outstanding 55,771
Paid-in Capital 1,426,071
Accumulated Deficit (2,029,934)
-----------
Total Stockholders' Equity (Deficit) (548,092)
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 604,328
===========
</TABLE>
The auditor's report and accompanying notes are
an integral part of the financial statements
3
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For the Year ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
SALES $ 854,877
Less: Returns and Discounts (40,268)
-----------
NET SALES 814,609
COST OF GOODS SOLD - SCHEDULE A 445,086
-----------
GROSS PROFIT 369,523
OPERATING EXPENSES - SCHEDULE B 1,087,878
-----------
INCOME (LOSS) FROM OPERATIONS (718,355)
-----------
OTHER INCOME (EXPENSES)
Interest Income 21,835
Other Income 15,087
Gain on Sales of Assets 258,703
Interest Expense (34,561)
Penalties (14,055)
-----------
Total Other Income (Expenses) 247,009
-----------
INCOME (LOSS) BEFORE TAXES (471,346)
PROVISION FOR INCOME TAXES 7,900
-----------
NET INCOME (LOSS) (479,246)
ACCUMULATED DEFICIT
BEGINNING OF YEAR (1,550,688)
-----------
ENDING OF YEAR ($2,029,934)
===========
</TABLE>
The auditor's report and accompanying notes are
an integral part of the financial statements
4
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
COST OF GOODS SOLD
For the Year ended December 31, 1999
<TABLE>
<CAPTION>
Schedule A
<S> <C>
Cost of Goods Sold
Beginning Inventory $ 39,897
Purchases 442,482
Freight 9,821
--------
492,200
Less: Ending Inventory 47,114
--------
Total Cost of Goods Sold $445,086
========
</TABLE>
The auditor's report and accompanying notes are
an integral part of the financial statements
5
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
OPERATING EXPENSES
For the Year ended December 31, 1999
<TABLE>
<CAPTION>
Schedule B
<S> <C>
Costs and Operating Expenses
Automobile $ 24,191
Bad Debt 2,185
Business Meeting 4,976
Commissions 58,087
Computer Expenses 5,561
Depreciation and Amortization 47,380
Employee Relations 2,249
Engineering 22,154
Equipment Rental 3,693
Factoring Fees 32,125
Insurance 40,413
Legal and Professional 130,950
Mailing 3,796
Marketing and Advertising 54,488
Office Expenses & Supplies 16,189
Payroll Taxes 37,229
Rent 62,990
Research and Development 29,985
Salaries and Wages 379,158
Shows and Conventions 5,268
Stock Promotion and Expenses 89,957
Telephone and Communications 25,463
Travel 1,387
Utilities 8,004
----------
Total Costs and Operating Expenses $1,087,878
==========
</TABLE>
The auditor's report and accompanying notes are
an integral part of the financial statements
6
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For Year ended December 31, 1999
<TABLE>
<CAPTION>
Paid
Common in Accumulated
Shares Stock Capital Deficit Total
---------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at Dec 31, 1998 2,247,175 $ 15,730 $1,146,033 $(1,152,006) $ 9,757
Issuance of common stock to
Merge with D&J Enterprise 3,551,608 24,861 25,139 (398,682) (348,682)
--------- ---------- ---------- ----------- ---------
Retroactive Balance at
Dec 31, 1998 5,798,783 $ 40,591 $1,171,172 $(1,550,688) $(338,925)
Issuance of common stock to
Acquire DSG, Inc. 1,183,869 8,287 (153,991) (145,704)
Issuance of common stock for
Stock promotion 200,000 1,400 98,600 100,000
Conversion of DSG and D&J's
Notes Payable 139,173 974 74,013 74,987
Issuance stock for legal
Services 50,000 350 9,650 10,000
Issuance stock for services 60,000 420 (420) 0
Issuance stock for employee
Incentives 305,000 2,135 (2,135) 0
Private Offering 315,850 2,211 228,585 230,796
Cancellation of Stock (85,350) (597) 597 0
Net Loss Per Period (479,246) (479,246)
--------- ---------- ---------- --------- ----------
Balance at Dec 31, 1999 7,967,325 $ 55,771 $1,426,071 $(2,029,934) $(548,092)
========= ========== ========== =========== =========
</TABLE>
The auditor's report and accompanying notes are
an integral part of the financial statements
7
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year ended December 31, 1999
<TABLE>
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $(479,246)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and Amortization 47,380
Stock for Legal Service 10,000
Stock for Stock Promotion 100,000
Gain on Sales of Assets (258,703)
(Increase) Decrease in:
Accounts Receivable 19,478
Inventory (31,752)
Prepaid Expenses (16,670)
Deposits (7,995)
Increase (Decrease) in:
Accounts Payable (64,847)
Accrued Expenses 160,826
Income Tax Payable 3,700
---------
Net cash (used) by operating activities (517,829)
---------
CASH FLOW FROM INVESTING ACTIVITIES
Decrease in Loan Receivable 6,916
Purchase of Property and Equipment (6,000)
Sales of Assets 150,000
Acquisition of Patent Rights (26,157)
---------
Net cash provided by investing Activities 124,759
---------
CASH FLOW FROM FINANCING ACTIVITIES
Net Proceeds from Notes Payable 190,416
Issuance of common stock 230,796
---------
Net cash provided by financing activities 421,212
---------
NET INCREASE (DECREASE) IN CASH 28,142
CASH AT BEGINNING OF YEAR (1,290)
---------
CASH AT END OF YEAR $ 26,852
=========
</TABLE>
The auditor's report and accompanying notes are
an integral part of the financial statements 8
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Year ended December 31, 1999
SUPPLEMENTAL DISCLOSURE:
Interest paid $33,807
=======
Taxes paid $ 4,200
=======
NONCASH TRANSACTIONS INVESTING AND FINANCING ACTIVITIES:
Issue common stock to merge with D&J Enterprises International, Inc. in the
amount of $50,000.
Issue common stock to acquire a subsidiary at a negative book value of 145,704.
Convert both the Company's and subsidiary's notes payable and accrued interest
into common stock in the amount of $74,897.
Officer's advance was incurred for disposal of fixed assets with a book value
of $7,960.
Convert officer's advance of $68,284 into a note receivable.
A note receivable of $125,000 and an escrow deposit of $50,000 were incurred
for sales of assets.
The auditor's report and accompanying notes are
an integral part of the financial statements 9
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended December 31, 1999
NOTE 1 - NATURE OF BUSINESS
Coinless Systems, Inc. formerly known as Medical Resources Technologies, Ltd.,
(the "Company") was incorporated under the laws of the state of Nevada on March
1, 1983. The Company is also a California foreign corporation.
The Company produces and sells a product known as "TickeTrak", a coinless device
to be used in the Gaming Industry.
NOTE 2 - SUMMARY of SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Company uses the accrual basis of accounting for financial reporting, in
accordance with generally accepted accounting principles.
Principal of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, D.S.G., Inc. (a California
corporation), after elimination of all material intercompany accounts and
transactions.
Use of Estimate
The preparation of financial statement in conformity with GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
Revenue Recognition
Revenue is recognized when the products are shipped. The Company did not have
any operating revenue in 1999. All sales are derived from the subsidiary.
Accounts Receivable
The Company has provided for an allowance for doubtful accounts based on
management's estimate of the collectibility of accounts receivable. Bad debt
expense was $2,185 in 1999.
10
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended December 31, 1999
NOTE 2 - SUMMARY of SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventory
Costs incurred for materials, technology and shipping are capitalized as
inventory and charged to cost of sales when revenue is recognized.
Inventory consists of finished goods and is stated at the lower of cost of
market, using the first-in, first-out method.
Property and Equipment
Property and Equipment are recorded at costs, and depreciated over their useful
lives, using the straight-line methods. Repairs and maintenance charges, which
do not increase the useful lives of the assets, are charged to operations as
incurred.
Depreciation for year ended December 31, 1999 was $18,949.
Organizational Costs
Organizational Costs are capitalized and amortized on a straight-line basis over
60 months.
Patent Rights
Patent Rights is capitalized and amortized on a straight-line basis over 180
months.
Statements of Cash Flows
The Company prepares its statement of cash flows using the indirect method as
defined under Financial Accounting Standards Board Statement No. 95. For
purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
Income Taxes
The Company accounts income taxes in accordance with Financial Accounting
standards Board Statement No. 109 "Accounting For Income Taxes" (SFAS No. 109).
SFAS No. 109 requires a company to recognize deferred tax liabilities and assets
for the expected future income tax consequences of events that have been
recognized in the Company's financial statements. Under this method, deferred
tax assets and liabilities are determined based on temporary differences between
the financial carrying amounts and the tax bases of assets and liabilities using
the enacted tax rates in effect in the years in which the temporary differences
are expected to reverse.
11
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended December 31, 1999
NOTE 3 - MERGER
On February 9, 1999, the Company merged with D & J Enterprises International,
Inc. ("D&J", a Nevada corporation), and changed name to Coinless Systems, Inc.
The Company issued 3,551,608 shares of its common stock in exchange for all the
issued and outstanding shares of D&J. The combination was accounted for as a
pooling of interest under which the net assets was combined at book value and no
gain or loss was recognized.
The Company has reported its operations for 1999 as if the combination occurred
at the beginning of the year.
NOTE 4 - ACQUISITION OF A SUBSIDIARY
On February 9, 1999, the Company acquired 100% of the issued and outstanding
stock of D.S.G., Inc. ("DSG", a California corporation) from a related party, in
exchange for 1,183,869 shares of the Company's common stock. The acquisition of
D.S.G., Inc. was accounted for as a pooling of interests under which the net
assets were combined at book value. The results of operations of D.S.G., Inc.
were included in the historical financial statements from the beginning of the
year.
NOTE 5 - SALES OF SUBSIDIARY' ASSETS
In December 1999, the Subsidiary sold certain assets and inventories to an
unrelated party ("ADT") for $325,000. ADT paid $200,000 in cash, of which
$50,000 was deposited into an escrow account against any sales tax liability
borne by the Subsidiary. The balance of $125,000 will be paid in twelve(12)
calendar quarter installments of $10,417 commencing June 30, 2000 until paid.
Net gain recognized on this sale was as follows:
<TABLE>
<CAPTION>
<S> <C>
Total Sales Price $325,000
--------
Assets sold at book value:
Inventories 47,114
Goodwill, net 19,183
--------
66,297
--------
Gain on Sales of Assets $258,703
========
</TABLE>
NOTE 6 - NOTES RECEIVABLE
A note receivable of $125,000 was incurred for the sales of subsidiary's assets
(See Note 5). The current portion of the note as of December 31, 1999 was
$31,250.
12
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended December 31, 1999
NOTE 6 - NOTES RECEIVABLE (Continued)
In 1999, the Company converted officer's advances of $68,284 into a note
receivable. The note bears interest at 10% per annum and is due on demand.
Interest income accrued on the note during the year was $5,690.
The Company had a note receivable from a related party. The note bears interest
at 10% per annum and is payable on demand. Interest income accrued on the note
during 1999 was $16,145. As of December 31, 1999, the balance of the note was
$147,962.
NOTE 7 - NOTES PAYABLE
As of December 31, 1999, notes payable consist of following:
(a) Payable to a related party, monthly
payment of $580, including interest at
11.9% per annum, due December 1, 2000 $ 19,100
(b) Payable to a related party, interest
paid monthly at 10% per annum,
due November 30, 2000 9,500
(c) Payable to a related party, interest
accrued at 10% per annum, due December
31, 1998. Commencing January 29, 1999,
weekly payment of $500. Secured by a
life insurance. 13,000
(d) Payable to a American General, monthly
payment of $420, including interest at
21.0% per annum. 11,755
(e) Payable to Rockford Industries; monthly
payment of $3,294. Delinquent 105,964
(f) Payable to a related party, interest
accrued at 10% per annum, due on demand 159,620
(g) Payable to a related party, interest
accrued at 10% per annum, due on demand 100,000
(h) Payable to a related party, interest
accrued at 15% per annum, due on demand 17,500
13
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended December 31, 1999
NOTE 7 - NOTES PAYABLE (Continued)
(i) Payable to a related party, interest
accrued at 15% per annum, due on demand. 4,620
---------
441,059
Less: Current Portion (178,750)
---------
Long-Term Debt $ 262,309
=========
Maturities on notes payable are as follows:
December 31,
------------
2000 $178,750
2001 262,309
--------
$441,059
========
NOTE 8 - INVESTMENT LOSS
In November 1996, the Company entered to an agreement to loan to Medical
Resources Clinics, Inc., $150,000 for the purchase of certain assets of Facet,
Inc., a Washington corporation, which owns and manages medical clinics in the
Seattle area. After then, the clinics went out of business in March 1997 and the
Company is liable for its debt. As of December 31, 1999, the balance of the debt
was $105,964 and payable in a monthly installments of $3,924. The note was
delinquent and the balance was current (See Note 7e).
NOTE 9 - PROVISION FOR INCOME TAXES
The Company files separate federal and state income tax returns with its
subsidiary.
Provision for income taxes in the consolidated statements of operations for year
ended December 31, 1999 consist of $800 minimum state income taxes for the
Company and $7,100 for the Subsidiary.
For federal income tax purposes, the Company has net operating losses
carryforward of $1,017,377 to reduce future taxable income. For state income tax
purposes, the net operating losses carryforward is $428,218. To the extent not
utilized, both federal and state NOL carryforwards will begin to expire in 1998.
The Subsidiary, approximately, has net operating losses carryforward of $147,703
to reduce future taxable income. To the extent not utilized, the NOL
carryforwards will begin to expire in 2010.
14
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended December 31, 1999
NOTE 10 - COMMON STOCK TRANSACTIONS
During 1999, the Company converted $23,000 notes payable into 46,000 shares of
its common stock.
The Company assumed and converted the subsidiary's notes payable and accrued
interest of $51,987 into 93,173 shares of common stock.
The Company issued 50,000 shares of common stock for legal fee of $10,000.
The Company issued 260,000 shares of common stock for stock promotion and
offering, in the amount of $100,000.
The Company issued 305,000 shares of common stock for employee incentives.
NOTE 11 - PRIVATE OFFERING
In 1999, the Company completed a private placement offering of 315,850 shares of
its common stock, in the amount of $230,796.
NOTE 12 - STOCK OPTIONS
None.
NOTE 13 - RELATED PARTY TRANSACTIONS
During 1999, the Company disposed certain fixed assets to a related party at
book value of $7,960, which was treated as his advances.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company lease facilities on a month-to-month basis. The leases require
monthly payments of $3,707.
Rent expense for year ended December 31, 1999 was $62,990.
Factoring Agreement
The Subsidiary had a factoring agreement with Winston Financial Group, Inc. The
agreement provides that the minimum quarterly volume factoring to Winston is
$120,000. The maximum rebate available to the Company descends from 16% to 10%,
and the factor fees charged on the factored and paid accounts starts from 4%, up
to 10%. The agreement was terminated in December 1999.
15
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year ended December 31, 1999
NOTE 14 - COMMITMENTS AND CONTINGENCIES (Continued)
Delinquent Sales Tax and Payroll Taxes
The Subsidiary has delinquent sales tax liability and payroll tax liability of
$157,955 and $69,472, respectively, as of December 31, 1999. The Subsidiary
agreed to pay $5,000 per month commencing October 1999 until April 2000. The
balance will be paid in full in May 2000.
NOTE 15 - GOING CONCERN
The accompanying consolidated financial statements are presented on the basis
that the Company will continue as a going concern. Going concern contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business over a reasonable length of time. As shown in the
accompanying consolidated financial statements, the Company incurred a net loss
of $730,049, excluding capital gain on sales of assets for the year ended
December 31, 1999. As of that date, the Company has an accumulated deficit of
$2,029,934. Furthermore, the Company has an uncertainty to generate revenue from
its existing operations.
Management negotiated with creditors to convert the notes payable into common
stock (See Note 7). Management is currently involved in active negotiations to
obtain additional financing and actively increasing marketing efforts to
increase revenues. The Company continued existence depends on its ability to
meet its financing requirements and the success of its future operations. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 16 - YEAR 2000
The Year 2000 issue is the result of shortcomings in many electronic data
processing systems and other electronic equipment that may adversely affect the
Company's operations as early as fiscal year 1999.
The Company had assessed its various types of electronic equipment and does not
believe the Year 2000 issue will pose significant operational problems.
16
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 26,852
<SECURITIES> 0
<RECEIVABLES> 418,874
<ALLOWANCES> 0
<INVENTORY> 24,535
<CURRENT-ASSETS> 393,182
<PP&E> 16,670
<DEPRECIATION> (53,777)
<TOTAL-ASSETS> 604,328
<CURRENT-LIABILITIES> 890,111
<BONDS> 0
0
0
<COMMON> 1,481,842
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 604,328
<SALES> 814,608
<TOTAL-REVENUES> 851,531
<CGS> 445,086
<TOTAL-COSTS> 1,087,878
<OTHER-EXPENSES> 14,055
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<INTEREST-EXPENSE> 34,561
<INCOME-PRETAX> (471,346)
<INCOME-TAX> 7,900
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<EXTRAORDINARY> 258,703
<CHANGES> 0
<NET-INCOME> (479,246)
<EPS-BASIC> (0.01)
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