<PAGE>
COINLESS SYSTEMS, INC. - 10QSB-Quarterly Report Date Filed: 1/19/2000
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________________to __________________
Commission File Number 0-25127
COINLESS SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 91-1715373
___________________________ ______________________________
(State or other jurisdiction (IRS Employer
of Incorporation or organization) Identification No.)
10601 Church Street, Suite 102, Rancho Cucamonga, California 91730
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(Address of principal executive offices)
888-222-3461
______________________________
(Issuer's telephone number)
NOT APPLICABLE.
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 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___________
As of September 30, 1999, the Company had 8,052,675 shares of it $.0001 par
value common stock issued and outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
PAGE
----
Unaudited Condensed Consolidated Balance Sheet at
September 30, 1999..................................................... 2
Unaudited Condensed Consolidated Statements of Operations
for the three month Periods and nine month periods ended
September 30, 1999 and September 30, 1998.............................. 3
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine month period ended September 30, 1999..................... 4
Notes to Condensed Consolidated Financial Statements.................... 5
1
COINLESS SYSTEMS, INC.
Consolidated Balance Sheet-September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current Assets:
Cash and Equivalent $ 454,918
Deposits 6,492
-----------
Total Current Assets $ 461,410
Equipment, Net of Accumulated Depreciation of $145,817 30,177
Other Intangible Assets, Net of Accumulated
Amortization of $109,215 48,831
-----------
Total Assets $ 540,418
===========
LIABILITIES AND SHAREHOLDER EQUITY
----------------------------------
Current Liabilities:
Accounts Payable $ 723,698
Notes Payable (Current Portion) 235,900
Long Term Liabilities 168,021
-----------
Total Liabilities $ 1,127,619
Shareholders Equity
Common Stock, 75,000,000 authorized $.001 par value,8,052,675
shares Issued and Outstanding 497,677
Additional Paid in Capital 1,098,619
Deficit Accumulated during the development stage (2,183,487)
-----------
Total Shareholders Equity $ (587,201)
Total Liabilities and Shareholders Equity $ 540,418
===========
</TABLE>
2
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COINLESS SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept.30, 1998
<S> <C> <C> <C> <C>
Revenue $ 194,190 $235,890 $ 624,052 $ 741,064
Cost of Goods Sold 122,575 133.320 358,953 418,701
---------- --------- --------- ---------
Gross Profit 71,615 102,570 265,099 322,363
Operating Expenses 309,471 154.551 738,715 488,361
---------- --------- --------- ---------
Operating Loss (237,856) (51,981) (473,616) (165,998)
---------- --------- --------- ---------
Other Income and Expenses
Interest Income 4,099 12,291
Interest Expense (8,603) (8,200) (28,893) (30,671)
Other Income (2,963) 7,127
---------- --------- --------- ---------
Total Other Income (Expense) (7,467) (8,200) (9,475) (30,671)
---------- --------- --------- ---------
Net Loss $ (245,323) $ (60,181) $(483,091) $(196,669)
---------- --------- --------- ---------
Basic and Diluted Net
Loss Per Share $ 0.01 $ 0.01 $ 0.01 $ 0.01
---------- --------- --------- ---------
</TABLE>
Basic and Diluted Weighted
Average Number of Common Shares Outstanding 8,052,675
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Cash Flow from Operating Activities:
Net Loss (245,323)
Adjustments to reconcile loss to net
Cash provided by operating activities:
Depreciation and amortization 12,244
Increase Accounts Receivable 3,936
Increase Other Receivables
Decrease Inventories (13,062)
Increase Deposits 1,200
Decrease Accounts Payable 79,613
Decrease Accrued Expenses 54,168
Net Cash used by operating activities (107,224)
Cash flow from investing activities
Increase in loans receivable 4,098
Increase in intangible assets (1,339)
Net Cash Used by Investing Activities 2,759
Cash Flow from Financing Activities
Increasing Notes Payable 136,955
Issuance of common stock
Net Cash provided by financing activities 136,995
Net Increase (decrease) in cash (32,490)
Cash at beginning of year 8,229
Cash end of year (24,261)
--------
Supplemental disclosure
Interest paid 28,893
Taxes paid -0-
</TABLE>
4
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COINLESS SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. BASIS OF PRESENTATION AND ORGANIZATION:
Basis of Presentation
The accompanying consolidated financial statements of Coinless Systems,
Inc., and its subsidiary ("the Company") for the three and nine months ended
September 30, 1999 and September 30, 1998 have been prepared in accordance with
generally accepted accounting principles and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. These financial statements have not been
audited by independent accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in Management's opinion, necessary for
a fair presentation of the financial condition, results of operations and cash
flows for such periods. However, these results are not necessarily indicative
of results for any other interim period or for the full year.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and note thereto included in the Company's Form 8-K for the preceding
fiscal year.
Organization
The accompanying consolidated financial statements consist of Coinless Systems,
Inc., a Nevada corporation and DSG, INC., a California corporation
Principals of Consolidation
___________________________
The accompanying consolidated financial statements include the amounts of the
Company's wholly-owned subsidiary, DSG, Inc. (100%). All significant inter-
company transactions have been eliminated in consolidation.
CSI has patented a product called Ticketrak that is designed to replace the need
for coins in casino gaming machines. The replacement product is a barcoded
ticket device that identifies a given transaction on the casinos' host computer.
The player uses the ticket as though it were cash and the patented verification
process assures its acceptability to both casino operators and customers. No
ticket will be issued to a player prior to verification and in addition only one
ticket can be redeemed. Ticketrak can either be sold on an OEM basis, for
internal installation in new machines or retrofitted to any existing gaming
machine on the floor.
Interim periods
_______________
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10QSB, to the best of the company
ability due to a lack of some information of the prior operations of the
Company, and do not include all of the information required by generally
accepted accounting principles for complete financial statements. In the
opinion of the Company's management, all adjustments (consisting of normal
recurring adjustment) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 1999 are
not necessarily indicative of results for the future period. These statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 8-K for the year ended December 31,
1998.
5
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARIES
(Notes to Unaudited Consolidated Financial Statement)
RECLASSIFICATION
Certain amounts in the previously presented financial statement have been
reclassified to conform to the current period presentation.
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Cash Flow Information Nine Months Ending
September 30, 1999
Cash paid for:
Interest $28,893
NET INCOME (LOSS) PER SHARE
In accordance with Statement of Financial Accounting Standards ("SFAS'")
No. 128, "Earnings Per Share," basic net income per share is computed by
dividing the net income attributable to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted net
income per common share is computed by dividing the net income attributable to
common shareholders by the weighted average number of common and common shares
equivalents outstanding during the period.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In April, 1998, the American Institute of Certified Public Accounts ("AICPA")
issued Statement of Position ("SOP") 98-5 entitled "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires entities to expense as incurred all
start-ups that are not otherwise capitalizable as long-lived. The Company had
previously accepted this "SOI" as to Patent and R&D expenses. No
Reclassification is necessary.
Stock options
_____________
There are no outstanding stock options
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The Company is still attempting to raise sufficient working capital to
allow it to distribute the Company's Ticketrak product to the marketplace. It
has received its first order from Spirit Mountain Casino, and is in discussion
with several other casino operators about the sale of Ticketrak, however, no
formal orders other than Spirit Mountain have as yet been received.
In September 1999, the Company opened a temporary facility in Las Vegas,
Nevada for its marketing and engineering staff.
The Company plans to move its corporate offices to Las Vegas, Nevada in the
first quarter of 2000. This combining of the marketing, engineering and
corporate administration will improve the further development of Ticketrak.
This new facility will also house the ticket production facility.
6
<PAGE>
It is also planned to open a regional office in Saint Louis, Missouri to
service the gaming establishments in the central and southern portion of the
United States. This office will be opened in December of 1999.
ITEM 3. Managements Discussion and Analysis of Financial Condition and Results
of Operations.
The Company is still in the early stages of its Ticketrak development as
relates to sales. It has had only the one sale of Ticketrak to Spirit Mountain
in the amount of $1,300,000. It has had no significant change in its operations
for the year to date. Its only other sales to date have resulted from the
operation of its wholly owned subsidiary, DSG, Inc., from the sale of bar code
products.
Unless the Company is able to raise sufficient additional working capital,
it will have a difficult time in marketing its products.
Since the Company is not in full operations of its Ticketrak product, and
has not had any other significant sales, the Company does not know if or when it
will be able to adequately market its products. There have been no significant
sales for the comparable periods ending September 30, 1998 and September 30,
1999.
The following table presents for the three and nine months ending September 30,
1999 and 1998, the Consolidated Statements of Operation of the Company expressed
as percentages (%) of total revenue. The results of operations for the first
nine months of 1999 are not necessarily indicative of the results to be expected
for the full year ending December 31,1999.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
Three months ended Six months ended
September 30 September 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues 100.0 100.0 100.0 100.0
Cost of Goods Sold 63.1 56.5 57.5 56.5
------ ------ ------ -----
Gross Profit 36.9 43.5 42.5 43.5
Operating Expenses (159.4) (65.5) (118.3) (65.8)
------ -----
Operating Profit (Loss) (59.4) (22.0) (75.8) (22.3)
Other Income (Expense)
Interest Expense (4.4) (3.5) (4.6) (4.1)
Interest Income 2.1 0.0 2.0 0.0
Other Income (1.5) 0.0 1.1 0.0
------ ------ ------ -----
Total Other Income (Expense) (3.8) (3.5) (1.5) (4.1)
Net Income (Loss) (63.2) (25.5) (77.3) (26.5)
------ ------ ------ -----
</TABLE>
7
<PAGE>
COINLESS SYSTEMS, INC. AND SUBSIDIARIES
(Notes to Unaudited Consolidated Financial Statement)
RESULTS OF OPERATION
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998.
Revenues for the three months ended September 30, 1999 decreased approximately
$41,700 or 17.7%, to approximately $194,190 for the 1999 quarter from
approximately $234,890 for the 1998 quarter.
The wholly owned subsidiary DSG, Inc. contributed 100% of the revenue both in
1999 and 1998. D&J was in a research development mode during this reporting
period. Management attributes the decrease in revenue primarily due to
additional involvement needed in the development of Ticketrak. To address the
above decreases, the Company believes that the advancement to a production
phase, January, 2000, the revenues will increase for both DSG and CSI.
Cost of Sales, as a percentage of revenue, decreased 8.1% to 56.5% for the 1998
quarter.
Operating expenses which include research and development and marketing startup
costs, increased 98.9% for the 1999 quarter from 6.5% for the 1998 quarter.
The increase in other income of approximately $2,963 for the second quarter
resulted from entries reversing prior period overstatement of other income. An
increase of interest income of $4,099 was created by the assumption of a note
during the merger.
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998.
Revenue decreased approximately $117,012, or 14.9% to approximately $624,052 for
the 1999 nine month period from approximately $741,064 for the 1998 nine month
period. The majority of this decrease is attributed to a large order billed in
the quarter ended September 30, 1998.
Cost of sales as a percentage of revenue decreased 1.0% to 57.5% for the 1999
period from 56.5% for the 1998 period.
Operating expenses, as a percentage of revenues increased 52.5% to 118.4% for
the 1999 period from 65.9% for the 1998 period. The large increase is attributed
to hiring qualified engineers and marketing start-up for the Ticketrak device.
The increase in other income of approximately $40,146for the 1999 nine month
period from approximately ($30,671) for the same 1998 period, resulted from a
decrease of interest paid and an increase of interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for the development of
Ticketrak moving from a R&D status to a production mode. Software is being
developed for Ticketrak to be fully functional on all manufactured gaming
devices.
CSI announced an order from Spirit Mountain in Oregon, for 1200 units, which
will generate $1.3 million in revenue. CSI plans o demonstrate, in early first
quarter 2000, all of the slot machines used at Spirit Mountain working with
CSI's new ticket accounting system.
8
<PAGE>
Statements made herein are not historical facts but are forward looking
statements and are subject to a number of risk factors, including the gaming's
public acceptance of the coinless system's technology into coinless gaming,
the costs and delays experienced in the course of developing software, the
amount and rate of growth of administrative expenses associated with building
the infrastructure needed for future growth, the availability, amount, type and
cost of financing for the Company and general economic conditions and other
factors.
PART II - OTHER INFORMATION
Item 1. Legal Proceeding
________________
Inapplicable.
Item 2. Changes in Securities and Use of Proceeds.
_________________________________________
Inapplicable
Item 3. Defaults Upon Senior Securities.
_______________________________
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
___________________________________________________
Inapplicable.
Item 5. Other Information.
_________________
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
________________________________
(a) Reports on Form 8-k
Inapplicable
(b) Financial data schedule, exhibit 27
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COINLESS SYSTEMS, INC.
-------------------------------------
(Registrant)
Dated: January 18, 2000 By: /s/ DANIEL C. WEYKER
_________________________________
DANIEL C. WEYKER
Its: Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> (24,261)
<SECURITIES> 0
<RECEIVABLES> 363,348
<ALLOWANCES> 0
<INVENTORY> 48,041
<CURRENT-ASSETS> 461,410
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 540,418
<CURRENT-LIABILITIES> 723,698
<BONDS> 0
0
0
<COMMON> 1,596,286
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 540,418
<SALES> 624,052
<TOTAL-REVENUES> 643,470
<CGS> 358,953
<TOTAL-COSTS> 738,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,893
<INCOME-PRETAX> (483,091)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (483,091)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
