United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
|X| Annual Report purSUANT TO Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 31, 2000
|_| Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________________ to _______________
Commission file number 1-8460
UNIVERSAL MONEY CENTERS, INC.
(Name of small business issuer in its charter)
Missouri 43-1242819
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6800 Squibb Road, Mission, Kansas 66202
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: (913) 831-2055
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:Common Stock, $.01
par value per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
Issuer's revenues for the fiscal year ending January 31, 2000 were
$6,409,716.
The issuer is unable to determine the aggregate market value of the voting
stock held by non-affiliates of the issuer as of a date within the past 60 days.
The number of shares of the registrant's Common Stock outstanding as of
April 21, 2000 was 39,293,069.
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DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into Part III of this Form 10-KSB is the
information included under the captions entitled "Election of Directors",
"Security Ownership of Certain Beneficial Owners and Management", "Executive
Compensation" and "Certain Relationships and Related Transactions" in the
registrant's definitive proxy statement to be filed with the SEC pursuant to
Regulation 14A with respect to its 2000 annual meeting of shareholders.
Transitional Small Business Disclosure Format (check one): Yes |_|
No |X|
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UNIVERSAL MONEY CENTERS, INC.
FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
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Section Page
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PART I........................................................................1
ITEM 1. DESCRIPTION OF BUSINESS............................................1
ITEM 2. DESCRIPTION OF PROPERTIES.........................................10
ITEM 3. LEGAL PROCEEDINGS.................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............10
PART II......................................................................10
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........11
ITEM 7. FINANCIAL STATEMENTS..............................................19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..............................................19
PART III.....................................................................35
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................35
Item 10. EXECUTIVE COMPENSATION............................................35
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....35
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................35
Item 13. EXHIBITS AND REPORTS ON FORM 8-K..................................35
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NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-KSB that are
not statements of historical fact may constitute forward-looking statements
within the meaning of Section 21E of the Exchange Act. These statements involve
risks and uncertainties that may cause actual results to differ materially from
those in such statements. See Item 6, "Management's Discussion and Analysis OR
PLAN OF OPERATION - Cautionary Statement Concerning Forward-Looking Statements"
for additional information and factors to be considered with respect to
forward-looking statements.
PART I
Item 1. DESCRIPTION OF BUSINESS
Overview
We are engaged in the business of operating a network of automated teller
machines. The ATMs provide holders of debit and credit cards access to cash,
account information and other services at convenient locations and times chosen
by the cardholder. Debit and credit cards are principally issued by banks and
credit card companies. As of January 31, 2000, the network consisted of
approximately 369 ATMs owned by us, approximately 76 ATMs owned by banks and
approximately 130 ATMs owned by third party merchants. See "-Recent Developments
in Our Business."
To promote usage of ATMs in our network, we have relationships with
national and regional card organizations (also referred to as networks) which
enable the holder of a card issued by one member of the organization to use an
ATM operated by another member of the organization to process a transaction. We
have relationships with Cirrus and Plus, the two principal national card
organizations, and Star, the dominant card organization in its markets, all of
whose members are banks and ATM network operators and other companies sponsored
by member banks. We also have relationships with major credit card issuers such
as Visa, MasterCard and Discover which enable the holder of a credit card to use
ATMs in our network to process a transaction.
Our revenues are principally derived from two types of fees, which we
charge for processing transactions on our ATM network. We receive an interchange
fee from the issuer of the credit or debit card for processing a transaction
when a cardholder uses an ATM in our network. In addition, in most cases we
receive a surcharge fee from the cardholder when the cardholder makes a cash
withdrawal from an ATM in our network. See Item 6, "Management's Discussion and
Analysis OR PLAN OF OPERATION - Overview."
In addition to revenues derived from interchange and surcharge fees, we
also derive revenues from providing network management services to banks and
third parties owning ATMs included in our ATM network. See Item 6, "Management's
Discussion and Analysis OR PLAN OF OPERATION - Overview."
We have also begun to earn revenues for processing debit card transactions
for our bank customers. Consumers use debit cards to make purchases from
merchants, with the amount of the purchase automatically deducted from their
checking accounts. We earn a small surcharge for each
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debit card transaction processed by us for our bank customers. We do not earn
a fee for transactions processed for banks that are not our customers.
Recent Developments in Our Business
In April 1996, national debt and credit card organizations changed the
rules applicable to their members, including us, to permit the imposition of
surcharge fees on cash withdrawals from ATMs. Our return to profitability
coincided with, and has been substantially dependent upon, the imposition of
surcharge fees. Any changes in laws or card association rules materially
limiting our ability to impose surcharge fees would have a material adverse
effect on us. See "--Regulatory Matters - Surcharge Regulation." Since April
1996, we have expanded the number of ATMs in our network and have expanded our
practice of imposing surcharge fees on cash withdrawals on ATMs.
On October 31, 1999, we entered into a placement arrangement with Kmart
Corporation, under which we agreed to place ATMs in 147 Kmart stores in
Michigan, Minnesota, Illinois and Wisconsin. We leased 58 of the ATMs to be
placed in the Kmart stores. We entered into an arrangement with Advanced
Financial Systems, L.L.C., Detroit, Michigan, under which Advanced Financial
agreed to place ATMs owned by it in 63 Kmart stores. As part of our arrangement
with Advanced Financial, we agreed to provide ATM network management services
for the 63 ATMs owned by Advanced Financial. We also entered into an arrangement
with American Technology Systems, Inc., under which American Technology agreed
to place ATMs owned by it in the remaining 26 Kmart stores. Under our
arrangement with Kmart Corporation, we had the right to terminate the placement
of ATMs in individual stores if the ATMs did not meet certain usage levels. On
February 1, 2000, we gave notice to Kmart Corporation that we were terminating
the placement of the 89 ATMs owned by Advanced Financial and American Technology
effective March 2, 2000, because these ATMs did not meet the specified usage
levels.
As a result of improvements in our financial condition, we recommenced
filing periodic reports with the Securities and Exchange Commission on April 29,
1999. We had not filed periodic reports for several years as a result of severe
financial distress that had placed our continued survival in serious doubt.
During that period our senior management had used our limited financial
resources to attempt to keep us operating and to resolve our serious financial
problems. We have continued to file periodic reports with the Securities and
Exchange Commission since April 29, 1999.
Our Network
General. ATM locations in our network are concentrated in the Kansas City
metropolitan area, including Topeka and Lawrence Kansas (approximately 172
ATMs), the St. Louis, Missouri metropolitan area (approximately 50 ATMs), the El
Paso, Texas metropolitan area (approximately 63 ATMs), and other areas in the
state of Kansas (approximately 45 ATMs). We also have 58 ATMs in K-Mart stores
in Illinois. Other ATMs are located in California, Colorado, Florida, Maryland,
New Mexico, North Carolina, Ohio, Oklahoma, and Pennsylvania.
The operation of the network involves the performance of many
complementary tasks and services, including principally:
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o acquiring ATMs for us or our customers,
o selecting locations for ATMs and entering into leases for access to
those locations,
o in the case of banks and third party merchants, establishing
relationships with them for processing transactions on their ATMs,
o establishing relationships with national and regional card
organizations and credit card issuers to promote usage of ATMs in the
network,
o operating and maintaining the computer system and related software
necessary to process transactions conducted on ATMs,
o processing transactions conducted on ATMs,
o supplying ATMs with cash and monitoring cash levels for resupply, and
o managing the collection of fees generated from the operation of the
network.
ATM Locations. We believe that the profitable operation of an ATM is
largely dependent upon its location. We devote significant effort to the
selection of locations that will generate high cardholder utilization. One of
the principal factors affecting our further penetration of existing markets in
the Midwest is the availability of attractive sites. We attempt to identify
locations in areas with high pedestrian counts where people need access to cash
and where use of the ATM is convenient and secure. Management believes the
identification of locations is supported by the desire of retailers of all types
to offer their customers access to cash as an alternative to cashing checks,
which avoids the financial exposure and added overhead of cashing checks. Key
target locations for our ATMs include (i) convenience stores and combination
convenience stores and gas stations, (ii) grocery stores, (iii) major regional
and national retailers, (iv) hotels, (v) shopping malls, (vi) airports, (vii)
colleges, (viii) amusement parks, (ix) sports arenas, (x) theaters, and (xi)
bowling alleys.
We enter into leases for our ATM locations. The leases generally provide
for the payment to the lessor of either a portion of the fees generated by use
of the ATM or a fixed monthly rent. Most of our leases have a term of
approximately three years. We generally have the right to terminate a lease if
the ATM does not meet certain performance standards. The ATM site owner
generally has the right to terminate a lease before the end of the lease term if
we breach the lease agreement or become the debtor in a bankruptcy proceeding.
We have relationships with two operators of combination convenience stores
and gas stations for whom approximately 44 and 45 ATMs, respectively, have been
installed at their locations as of January 31, 2000. The aggregate revenues from
these companies accounted for approximately 32% and 22% of our revenues in each
of fiscal years 2000 and 1999. We believe that we have good relationships with
these companies. Nevertheless, if one or both of the relationships was
terminated and we were unable to find new locations for the ATMs, the
termination could have a material adverse effect on us. The leases for the
locations in which the ATMs have been installed expire in 2001. Each of these
leases automatically renews for successive one-year terms, unless terminated by
either party prior to the commencement of a renewal term. In addition, each site
owner has the right to terminate the respective lease before the end of the
lease term under certain circumstances.
We believe that once a cardholder establishes a habitual pattern of using
a particular ATM, the cardholder will generally continue to use that ATM unless
there are significant problems with the
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location, such as a machine frequently being out of service. It is our goal to
secure key real estate locations before our competitors can do so, and become
the habitual ATM location of card users in our markets.
Typical ATM Transaction. In a typical ATM transaction processed by us, a
debit or credit cardholder inserts a credit or debit card into an ATM to
withdraw funds or obtain a balance inquiry. The transaction is routed from the
ATM to our processing center by dedicated, dial-up and wireless communication
links. Our processing center computers identify the card issuer by the bank
identification number contained within the card's magnetic strip. The
transaction is then switched to the local issuing bank or card organization (or
its designated processor) for authorization. Once the authorization is received,
the authorization message is routed back to the ATM and the transaction is
completed.
Some card issuers do not maintain on-line balance information for their
cardholders, but instead send us authorization limits on a daily basis. We store
the cardholder authorization limits on our processing center computers and
authorize transactions on behalf of the card issuer relying on this information.
We transmit records of all transactions processed in this manner to the card
issuers who then update their cardholder account records.
Authorization of ATM transactions processed on ATMs in our network is the
responsibility of the card issuer. We are not liable for dispensing cash in
error if we receive a proper authorization message from a card issuer.
Transaction Fees. Our revenues are principally derived from two types of
fees. We receive an interchange fee for processing a transaction when a
cardholder uses an ATM in our network. In addition, in most cases we receive a
surcharge fee when a cardholder makes a cash withdrawal from an ATM in our
network. See Item 6, "Management's Discussion and Analysis OR PLAN OF OPERATION
- - Overview."
ATM Network Management Services. We offer ATM network management services
to banks and other third party owners of ATMs included in our ATM network. These
services include 24 hour transaction processing, monitoring and notification of
ATM status and cash condition, notification of ATM service interruptions, in
some cases, dispatch of field service personnel for necessary service calls and
cash settlement and reporting services. Banks may choose whether to limit
transactions on their ATMs to cards issued by the bank or to permit acceptance
of all cards accepted on our network.
Other Services. Our network has capabilities for services in addition to
cash withdrawal and balance inquiry transactions. These include (i) the ability
to distribute financial and other products and services at a low incremental
cost, (ii) the ability to dispense postage stamps, coupons and prepaid calling
cards, (iii) the ability to provide on screen advertising, and (iv) the
provision of on-line point of sale authorization for purchases made at retail
outlets with credit and debit cards. In addition, a majority of our ATMs are
upgradable for new technologies, including computer chip "smart cards." Smart
cards are electronic debit cards that can be used to withdraw cash from ATMs and
can be "charged up" through the ATM network and then used to purchase goods from
retail
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locations. We are exploring the viability of these uses and may implement
additional services as markets develop.
Transaction Volumes. We monitor the number of transactions that are made
by cardholders on ATMs in our network. The transaction volumes processed on any
given ATM are affected by a number of factors, including location of the ATM,
the amount of time the ATM has been installed at that location, and market
demographics. Our experience is that the number of transactions on a newly
installed ATM is initially very low and increases for a period of three to six
months after installation as consumers become familiar with the location of the
machine. We processed a total of 10,357,731 transactions on our network in the
fiscal year ended January 31, 2000, of which 3,300,731 were surcharge
transactions. We processed a total of 8,389,752 transactions on our network in
the fiscal year ended January 31, 1999, of which 2,675,198 were surcharge
transactions.
Vault Cash. An inventory of cash ("vault cash") is maintained in each ATM
that is replenished periodically based upon cash withdrawals. Our affiliate,
Universal Funding, and commercial vault cash providers currently supply vault
cash for most of the ATMs owned by us. Certain of our ATMs are sponsored by
banks. Vault cash for these ATMs is supplied by the sponsoring bank. We do not
supply vault cash for the ATMs in our ATM network that are owned by banks and
third party vendors. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources."
ATM Network Technology
ATMs. Most of the ATMs in our network are manufactured by Fujitsu,
IBM/Diebold, NCR, or Triton. The wide range of advanced technology available for
new ATMs provides our customers with state-of-the-art electronics features and
reliability through sophisticated diagnostics and self-testing routines. The
different machine types can perform basic functions, such as dispensing cash and
displaying account information, as well as providing revenue opportunities for
advertising and selling products through the use of color monitor graphics,
receipt message printing and stamp and coupon dispensing. Many of our ATMs are
modular and upgradable so we may adapt them to provide additional services in
response to changing technology and consumer demand.
Our field services staff tests each ATM prior to placing it into the
network. All ATM models considered for use in our network are first tested by
the manufacturer and by independent testing laboratories. We monitor field
testing as well as live actual results in the market place. Then, if there
appears to be practical added value to us, we will start our own internal
testing and certification process. Upon successful completion of this process,
we will place the new equipment into a limited number of sites for actual
consumer use.
Processing Center. We operate a central processing center located in our
headquarters in Mission, Kansas. The processing center is connected to each ATM
in our network through dedicated, dial-up and wireless communications circuits.
The processing center is staffed 24 hours a day, seven days a week by an
experienced staff of information system specialists. The efficient operation of
our processing center is critical to the successful operation of our ATM
network.
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At the processing center, we maintain a "switch" which links in a
compatible manner ATMs in our network, the processing center and similar
processing or transaction authorization centers operated by card issuers and
card organizations. The switch makes possible the electronic exchange of
information necessary to conduct transactions at ATMs in our network. The switch
consists of a Tandem computer system, telecommunications equipment, and
proprietary software developed for the operation of our network.
We lease the Tandem computer system currently used by us. Management
believes the computer system has sufficient capacity to meet any growth in
transaction volume achieved over the next three years and to permit the
development of new services being considered by us.
Although the switch translates between computers and makes routing
decisions, it does not execute the transactions. Transactions originated at ATMs
in our network are routed by the switch operated in our processing center to the
card organization and card issuer that processes the account records for the
particular cardholder's financial institution. In turn, the switch relays reply
information and messages from the computer center to the originating terminal.
The processing center also authorizes transactions executed on our network on
behalf of card issuers that do not maintain on-line balance information for
their cardholders.
To protect against power fluctuations or short-term interruptions, the
processing center has full uninterruptable power supply systems with battery
back-up. The processing center's data back-up systems would prevent the loss of
transaction records due to power failure and permit the orderly shutdown of the
switch in an emergency. To provide continued operation in the event of a
catastrophic failure, we have an agreement with Sungard Recovery Systems, Inc.
Relationship with Universal Funding Corporation
We have maintained a business relationship with Universal Funding
Corporation, a Missouri corporation, since August 1989. The relationship began
in 1989 as a result of our severe financial problems. The operation of our ATM
network generally requires that we supply vault cash to ATMs owned by us to fund
cash withdrawals. As a result of our financial problems, lenders were generally
unwilling to extend loans, partly because of the concern that our creditors
would assert claims against cash physically located in ATMs owned by us. We did
not have sufficient cash to supply the vault cash for these ATMs. In order to
resolve this problem and to permit us to continue to operate certain ATMs,
Universal Funding was formed in 1989 by David S. Bonsal, the chairman of our
board of directors, John L. Settles, our President, and William Smithson, a
shareholder. Each of these individuals has a one-third ownership interest in
Universal Funding.
In 1989, we sold approximately 60 ATMs to Universal Funding for which
Universal Funding had agreed to provide vault cash. Universal Funding requested
the sale of the ATMs to Universal Funding as a condition to providing vault
cash, in order to provide additional protection against seizure of Universal
Funding's vault cash by our creditors. We entered into a Management Agreement
with Universal Funding in 1989. The Management Agreement was designed to provide
us with the economic benefits of ownership and operation of the ATMs sold to
Universal Funding, while providing to shareholders and lenders of Universal
Funding the protection from our creditors and the investment return necessary to
attract their investment.
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In the Management Agreement, Universal Funding agreed to enter into
contracts with site owners for the placement of the ATMs acquired from us, to
provide vault cash necessary for the operation of the ATMs and to contract for
an armored security service for deliveries of cash to ATMs. In exchange for
these services, Universal Funding received all interchange fees for transactions
processed on the ATMs for which it provided vault cash. Under the Management
Agreement, we agreed to "drive" the ATMs sold to Universal Funding and to
provide accounting, maintenance and communication services. In exchange for
these services, Universal Funding agreed to pay us a management fee equal to
Universal Funding's "net income". Universal Funding's "net income" is defined in
the Management Agreement as revenues from interchange fees, less armored
security charges, interest expense on funds borrowed to provide vault cash, ATM
location expenses, debt service related to the purchase of the ATMs, taxes or
insurance on ATMs, and a monthly payment to each of Universal Funding's
shareholders representing a return on their equity investment in Universal
Funding. The amount of the monthly payment to the shareholders is based upon the
amount of their equity investment in Universal Funding and is paid on the equity
investment at a rate of 18% per annum, or a total of $24,894 per year. The
management fee is to be paid to us on a monthly basis after Universal Funding
has met all of its other cash expenses, including the payment of interest on
outstanding borrowings and the monthly payment to Universal Funding's
shareholders. In addition, in the Management Agreement, the shareholders of
Universal Funding grant us an option to purchase all of the outstanding stock of
Universal Funding at any time for an amount equal to 110% of the capital
contributed by the shareholders to Universal Funding plus any arrearages in the
payment of expenses due under the Management Agreement. Management believes that
the amount of the exercise price would have been approximately $165,000 as of
January 31, 2000. The Management Agreement extends for successive twelve (12)
month terms, unless either party provides written notice of termination to the
other party at least thirty (30) days prior to the end of a twelve (12) month
term.
Since 1989, the relationship between Universal Funding and us has expanded
to cover additional ATMs, as a result of the loss of other sources of financing
and in order for us to take advantage of opportunities to place additional ATMs.
Universal Funding currently supplies vault cash for a majority of the ATMs owned
by us. We lease to Universal Funding the ATMs for which Universal Funding
provides vault cash for rent of $10.00 per month. Universal Funding requested
the leasing arrangement for our ATMs in order to provide protection against
seizure of its vault cash. We have replaced the ATMs originally purchased by
Universal Funding, and Universal Funding no longer owns any ATMs in our network.
Universal Funding does not provide vault cash for ATMs in our network which are
owned by banks or by third party vendors. At January 31, 2000 and 1999,
Universal Funding had vault cash of approximately $3,600,000 and $2,200,000,
respectively, located in approximately 249 and 242 ATMs, respectively, owned by
us.
Universal Funding borrows the funds that are used to supply vault cash
principally from (i) Electronic Funds Transfer, Inc., our wholly owned
subsidiary ("EFT"), (ii) David S. Bonsal, our Chairman and Chief Executive
Officer, and a limited partnership in which Mr. Bonsal is the general partner,
(iii) our employees and (iv) other lenders. The loans generally have a term of
30 days and typically are rolled over at maturity. As of January 31, 2000,
Universal Funding paid interest on loans at rates ranging from 12 - 18% per
annum. At January 31, 2000, the aggregate outstanding amount of the loans was
approximately $3,579,000, of which $650,300 was owed to EFT, approximately
$1,975,500
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was owed to Mr. Bonsal and the related limited partnership, approximately
$155,450 was owed to John L. Settles, our President, approximately $24,300 was
owed to other employees of ours and approximately $773,000 was owed to other
lenders. The maximum outstanding balances of the loans made by EFT to Universal
Funding in fiscal 2000 and 1999 were $815,300 and $489,000, respectively. The
total interest earned by us on loans from EFT to Universal Funding in fiscal
2000 and 1999 was $72,325 and $34,338, respectively.
We have obtained access to additional sources of vault cash in recent
years as a result of the improvement in our financial condition. We entered into
an agreement with Pinnacle Systems, L.L.C. ("Pinnacle") in August 1997 pursuant
to which Pinnacle provided funds for vault cash for a service fee equal to the
amount of vault cash provided multiplied by the prime rate published from time
to time by the Wall Street Journal, plus a specified percentage. In addition to
the payment of this service fee, the agreement required us to pay monthly "bank"
fees and insurance charges to Pinnacle. As of January 31, 1999, Pinnacle
provided vault cash of approximately $600,000 for approximately 40 ATMs. The
agreement was terminated by Pinnacle in March 1999. Pinnacle informed us that
Pinnacle's lender would no longer permit Pinnacle to provide vault cash to ATM
companies because of losses suffered by the lender due to problems monitoring
vault cash transfers through certain ATM networks (not including our ATM
network). In June 1999, we entered into a vault cash arrangement with Tehama
Bank under which we could obtain up to $3,000,000 in vault cash. As of January
31, 2000, we were renting approximately $2,000,000 under the Tehama Bank
arrangement. In October 1999, we entered into an arrangement with Charter Bank
allowing us to obtain up to $5,000,000 in vault cash, of which $3,600,000 was
outstanding as of January 31, 2000. In November 1999, we entered into a vault
cash arrangement with Humboldt Bank under which we could obtain up to $1,000,000
in vault cash. We had not obtained funds under the arrangement with Humboldt
Bank as of January 31, 2000. Under each arrangement, we are required to pay a
monthly service fee on the outstanding amount equal to the prime rate of
interest, plus a specified percentage, and must pay monthly "bank" and insurance
fees.
Competition
Competitive factors in our business are network availability and response
time, price to both the card issuer and to our customers, ATM location and
access to other networks. The market for the transaction processing and payment
services industry and specifically ATM services is highly competitive. Our
principal competitors are national ATM companies that have a dominant share of
the market. These companies have greater sales, financial, production,
distribution and marketing resources than us.
We have identified the following additional categories of ATM network
operators:
Financial Institutions. Banks have been traditional deployers of
ATMs at their banking facilities. However, many banks are starting to
place ATMs in retail environments where the bank has an existing
relationship with the retailer. This may limit the availability of
locations for our ATMs.
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Credit Card Processors. Several of the credit card processors have
diversified their business by taking advantage of existing relationships
with merchants to place ATMs at sites with those merchants.
Third Party Operators. This category includes data processing
companies that have historically provided ATM services to financial
institutions, but also includes small and regional network operators such
as us.
Management believes that many of the above providers deploy ATMs to
diversify their operations and that the operation of the ATM network provides a
secondary income source to a primary business.
Since April 1996, when national debt and credit card organizations changed
rules applicable to their members to permit the imposition of surcharge fees, we
have experienced increased competition, both from existing ATM network operators
and from new companies entering the industry. There can be no assurance that we
will continue to be able to compete successfully with national ATM companies. A
continued increase in competition could adversely affect our margins and may
have a material adverse effect on our financial condition and results of
operations.
Employees
At March 31, 2000, we had 28 full time employees. None of our employees is
represented by a labor union or covered by a collective bargaining agreement. We
have not experienced work stoppages and consider our employee relations to be
good. Our business is highly automated and we outsource specialized, repetitive
functions such as cash delivery and security. As a result, our labor
requirements for operation of the network are relatively modest and are centered
on monitoring activities to ensure service quality and cash reconciliation and
control.
Regulatory Matters
Federal Banking Regulation. Because we provide transaction processing
services to banks, our procedures and operations are indirectly subject to
federal regulation by, and are monitored by, the Federal Deposit Insurance
Corporation ("FDIC"), the Office of the Comptroller of the Currency
("Comptroller") and the Federal Reserve Bank ("Fed"). The FDIC, the Comptroller
and the Fed have adopted regulations addressing many aspects of our operations,
including management, data security, computer systems and programming controls,
and electronic funds transfer procedures. The FDIC, the Comptroller and the Fed
conduct periodic examinations to ensure our compliance with these regulatory
requirements. We believe that we are in material compliance with these
regulations, and that we are taking appropriate action to respond to
recommendations made by regulatory authorities as a result of their
examinations. However, there can be no assurance that we will be able to respond
in a satisfactory manner to all matters raised from time to time by the FDIC,
the Comptroller and the Fed.
Surcharge Regulation. The imposition of surcharges is not currently
subject to federal regulation, but has been banned by several states in which
we currently have no operations. Legislation to ban surcharges has been
introduced but not enacted in many other states as a result of activities of
consumer advocacy groups that believe that surcharges are unfair to
consumers. Voters in San
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Francisco and Santa Monica, California voted in 1999 to bar banks from charging
fees to non-customers who use their ATMs. Similar restrictions have been
proposed by other cities. The banking industry has resisted these efforts to
impose restrictions. We are not aware of the introduction of such legislation or
the submission to voters of such referendums in any of the states or cities in
which we currently do business. Nevertheless, there can be no assurance that
surcharges will not be banned in the states where we operate, and such a ban
would have a material adverse effect on us. Most of the ATMs in our network are
located in Kansas (156 ATMs), Missouri (148 ATMs) and Texas (63 ATMs).
Network Regulations. National and regional networks have adopted extensive
regulations that are applicable to various aspects of our operations and the
operations of other ATM network operators. We believe that we are in material
compliance with these regulations and, if any deficiencies were discovered, that
we would be able to correct them before they had a material adverse impact on
our business.
Item 2. DESCRIPTION OF PROPERTIES
Our principal executive offices and our central transaction processing
center are located in 12,851 square feet of leased space located at 6800 Squibb
Road, Shawnee Mission, Kansas. The telephone number for our principal executive
offices is 913-831-2055. We lease the facility at rates we believe were
consistent with market rates at the time the facility was leased under a lease
that expires in 2004. We believe that the facility is adequate for our needs for
the foreseeable future.
Item 3. LEGAL PROCEEDINGS
As of January 31, 2000 and the date of this Form 10-KSB, the Company is
not a party to any material pending legal proceeding. The Company is a party to
routine litigation in the ordinary course of business from time to time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders in the fourth
quarter of fiscal year 2000.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Related Stockholder Matters
There is currently no public trading market for our common stock. The
common stock is currently eligible to be traded in the over-the-counter market,
both on the OTC Bulletin Board and in the "pink sheets". We are not aware of any
public trading of the common stock for several years.
On January 31, 2000, there were 1,402 record holders of our common stock.
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We have not declared or paid any dividends for many years. We do not
anticipate that we will pay dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to provide funds for the growth and
development of our business.
Recent Sales of Unregistered Securities
We have not sold any securities within the past three years.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Our revenues are principally derived from two types of fees, which we
charge for processing transactions on our ATM network. We receive an interchange
fee from the issuer of the credit or debit card for processing a transaction
when a cardholder uses an ATM in our network. In addition, in most cases we
receive a surcharge fee from the cardholder when the cardholder makes a cash
withdrawal from an ATM in our network.
Interchange fees are processing fees that are paid by the issuer of the
credit or debit card used in a transaction. Interchange fees vary for cash
withdrawals, balance inquiries, account transfers or uncompleted transactions,
the primary types of transactions that are currently processed on ATMs in our
network. The maximum amount of the interchange fees is established by the
national and regional card organizations and credit card issuers with whom we
have a relationship. We (or our affiliate, Universal Funding Corporation)
receive the full interchange fee for transactions on ATMs that we own, but
sometimes we rebate a portion of the fee to the owner of the ATM location under
the applicable lease for the ATM site. We also receive the full interchange fee
for transactions on ATMs owned by banks or third party vendors included within
our network, but we rebate a portion of each fee to the bank or third party
vendor based upon negotiations between us. The interchange fees received by us
vary from network to network and to some extent from issuer to issuer, but
generally range from $0.35 to $0.75 per cash withdrawal. Interchange fees for
balance inquiries, account transfers and denied transactions are generally
substantially less than fees for cash withdrawals. The interchange fees received
by us from the card issuer are independent of the service fees charged by the
card issuer to the cardholder in connection with ATM transactions. Service fees
charged by card issuers to cardholders in connection with transactions through
our network range from zero to as much as $2.50 per transaction. We do not
receive any portion of these service fees.
In most markets we impose a surcharge fee for cash withdrawals. We
expanded our practice of imposing surcharge fees in April 1996 when national
debt and credit card organizations changed rules applicable to their members to
permit these fees. Surcharge fees have become a substantial additional source of
revenue for us and other ATM network operators. The surcharge fee for ATMs in
our network owned by or located in banks ranges between $0.50 and $1.50 per
withdrawal. The surcharge fee for other ATMs in our network ranges between $0.50
and $2.50 per withdrawal. We receive the full surcharge fee for cash withdrawal
transactions on ATMs that we own, but sometimes we rebate a portion of the fee
to the owner of the ATM location under the applicable lease for the ATM site. We
also receive the full surcharge fee for cash withdrawal transactions on ATMs
owned by banks and third party vendors included within our network, but we
rebate a portion of each fee to
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the bank or third party vendor based upon a variety of factors, including
transaction volume and the party responsible for supplying vault cash to the
ATM.
In addition to revenues derived from interchange and surcharge fees, we
also derive revenues from providing network management services to banks and
third parties owning ATMs included in our ATM network. These services include 24
hour transaction processing, monitoring and notification of ATM status and cash
condition, notification of ATM service interruptions, in some cases, dispatch of
field service personnel for necessary service calls and cash settlement and
reporting services. The fees for these services are paid by the owners of the
ATMs.
Interchange fees are credited to us by networks and credit card issuers on
a daily or monthly basis, depending upon the party. Surcharge fees are charged
to the cardholder and credited to us by networks and credit card issuers on a
daily basis. We periodically rebate the portion of these fees owed to ATM owners
and owners of ATM locations. Fees for network management services are generally
paid to us on a monthly basis.
Comparison of Results of Operations for the Fiscal Years Ended January 31, 2000
and 1999.
Revenues. Our total revenues increased to $6,409,716 for the fiscal year
ended January 31, 2000 ("fiscal 2000") from $5,016,828 for the fiscal year ended
January 31, 1999 ("fiscal 1999"). This increase is primarily attributable to an
increase in the number of ATMs in our network on which we imposed surcharge fees
for cash withdrawals to 571 in fiscal 2000 from 373 in fiscal 1999. Surcharge
fees increased to $4,228,151 or 66% of total revenues in fiscal 2000 from
$3,035,059 or 60.5% of total revenues in fiscal 1999. The increase in revenues
is also partially due to an increase in the number of ATMs in our network to 575
in fiscal 2000 from 396 in fiscal 1999. The increase in the number of ATMs
resulted in an increase in the number of transactions processed on ATMs in our
network. Revenues derived from interchange fees increased to $1,464,141 in
fiscal 2000 from $981,667 in fiscal 1999. Revenues received from Universal
Funding under the Management Agreement between Universal Funding and us
decreased to $32,972 in fiscal 2000 from $541,380 in fiscal 1999. See the
discussion below under "--Revenues from Universal Funding." Our revenues from
network services provided to banks and third parties increased to $684,452 in
fiscal 2000 from $458,722 in fiscal 1999.
Revenues from Universal Funding. We have a relationship with our
affiliate, Universal Funding Corporation, under which Universal Funding provides
vault cash for certain ATMs owned by us. At the request of Universal Funding, we
lease all of these ATMs to Universal Funding so that it may protect its vault
cash in the ATMs. At January 31, 2000 and 1999, Universal Funding had vault cash
located in approximately 249 and 242 ATMs, respectively, owned by us.
We derive management fees from Universal Funding pursuant to a Management
Agreement between Universal Funding and us. Under the Management Agreement,
Universal Funding receives all interchange fees for transactions processed on
ATMs owned by us for which Universal Funding provides vault cash. In exchange
for "driving" the ATMs leased to Universal Funding and providing accounting,
maintenance and communication services, we receive a management fee equal to
Universal Funding's "net income." Universal Funding's "net income" is defined in
the Management Agreement as revenues from interchange fees, less armored
security charges, interest expense on funds borrowed to provide vault cash, ATM
location expenses, debt
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service related to the purchase of the ATMs, taxes or insurance on ATMs, and a
monthly payment to each of Universal Funding's shareholders representing a
return on their equity investment in Universal Funding.
The revenues received by us from Universal Funding under the Management
Agreement were $32,972 in fiscal 2000, equal to Universal Funding's "net income"
under the Management Agreement for the same period. Universal Funding's "net
income" of $32,972 consisted of $1,140,542 in revenues from interchange fees
earned by Universal Funding, less Universal Funding's expenses in the amount of
$1,082,676 and Universal Funding's return on equity payment to shareholders of
Universal Funding in the amount of $24,894. Pursuant to the Management
Agreement, Universal Funding's expenses for purposes of computing its "net
income" did not include Universal Funding's depreciation, amortization and bad
debt expenses, which were $1,173 for the respective period. The revenues
received by us from Universal Funding under the Management Agreement were
$541,380 in fiscal 1999, equal to Universal Funding's "net income" under the
Management Agreement for the same period. Universal Funding's "net income" of
$541,380 consisted of $1,254,735 in revenues from interchange fees earned by
Universal Funding, less Universal Funding's expenses in the amount of $688,461
and Universal Funding's return on equity payment to shareholders of Universal
Funding in the amount of $24,894. Pursuant to the Management Agreement,
Universal Funding's expenses for purposes of computing its "net income" did not
include Universal Funding's depreciation, amortization and bad debt expenses,
which were $2,345 for the respective period.
The revenues earned by Universal Funding from interchange fees declined in
fiscal 2000 from fiscal 1999, as a result of fewer interchange transactions on
ATMs for which Universal Funding provided vault cash. The number of transactions
decreased despite the fact that Universal Funding provided vault cash for a
greater number of ATMs in fiscal 2000. The number of transactions decreased
principally because a greater number of our ATMs charged surcharge fees in
fiscal 2000. The imposition of surcharge fees on cash withdrawals from an ATM
generally causes a decrease in use of the ATM for transactions for which
interchange fees are charged. The increase in Universal Funding's expenses from
fiscal 1999 to fiscal 2000 was caused principally by higher outstanding balances
on borrowings by Universal Funding and higher armored security charges.
Universal Funding placed substantially higher amounts of vault cash in ATMs in
fiscal 2000 because of concerns that Year 2000 issues would substantially
increase demand for cash from ATMs and because the amounts placed in the ATMs in
prior years were low due to limited financial resources.
Cost of Revenues. Our total cost of revenues increased to $4,994,709 in
fiscal 2000 from $3,422,417 in fiscal 1999. The principal components of cost of
revenues are salaries, telecommunication services and transaction processing
charges, interchange and surcharge rebates, ATM site rentals, maintenance and
repairs, and depreciation and amortization. This increase is partially due to an
increase in interchange and surcharge rebates paid to banks and third party
owners of ATMs included in our ATM network and to ATM site owners. These rebates
increased to $2,197,500 in fiscal 2000 from $1,774,687 in fiscal 1999. In recent
years, as a result of increased competition, rebates paid to banks and third
party owners of ATMs included in our ATM network and to ATM site owners have
increased at a higher rate than revenues have increased. The increase in cost of
revenues is also attributable to costs incurred in connection with the placement
of ATMs in Kmart stores in fiscal 2000. On October 31, 1999, we entered into a
placement arrangement with
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Kmart Corporation, under which we agreed to place ATMs in 147 Kmart stores in
Michigan, Minnesota, Illinois and Wisconsin. See "-Trends" and Item 1
"DESCRIPTION OF BUSINESS - Recent Developments in Our Business." The increase in
cost of revenues is also attributable to increased depreciation associated with
the larger number of ATMs owned by us and increased telecommunications expenses
and vault cash fees associated with the larger number of ATMs in our network.
Gross Margin. Gross profit as a percentage of revenues was 22.1% in fiscal
2000 and 31.8% in fiscal 1999. The decrease in fiscal 2000 was caused by a
number of factors, including lower revenues from Funding, increased interchange
and surcharge rebates (due to increased competition), increased depreciation
expense resulting from the purchase of new ATMs, costs incurred in connection
with the placement of ATMs in Kmart stores and increased personnel expense and
telecommunications charges and vault cash fees resulting from growth in the ATM
network.
Operating Expenses. Our total operating expenses increased to $1,500,798
in fiscal 2000 from $1,215,100 in fiscal 1999. The principal components of
operating expenses are professional fees, administrative salaries and benefits,
consulting fees, occupancy costs, sales and marketing expenses and
administrative expenses. This increase is principally attributable to increased
professional fees incurred in connection with our efforts to resume filing
periodic reports with the Securities and Exchange Commission.
Other Income (Expense). Through our subsidiary, EFT, we extend short-term
loans to Universal Funding, which uses the proceeds as vault cash in the ATMs
owned by us. These loans generally have a term of one month and bear interest at
12% per annum. Interest income primarily represents the interest paid by
Universal Funding to us on the outstanding balance of these loans. Interest
income increased to $73,195 in fiscal 2000 from $34,481 in fiscal 1999 as a
result of higher average outstanding balances.
Interest Expense. Interest expense increased to $106,152 in fiscal 2000
from $101,122 in fiscal 1999. This increase was attributable to increased
capital lease obligations and notes payable related to the acquisition of
additional ATMs.
Net Income or Loss before Taxes. We had a net loss before taxes of
$120,723 during the fiscal year ended January 31, 2000 compared to net income
before taxes of $312,670 during the fiscal year ended January 31, 1999 as a
result of the factors discussed above.
Income Taxes. We paid no income taxes in fiscal 2000 as a result of the
net loss. We paid no income taxes in fiscal 1999, utilizing operating loss
carryforwards to reduce taxable income to zero. In addition, we recorded a
deferred tax credit of $60,000 at January 31, 1999, which is primarily a result
of operating loss carryforwards which management believes are more likely than
not to be realized prior to their expiration between 2005 and 2015. Realization
is dependent on generating sufficient future taxable income to absorb the
carryforwards. The amount of the deferred tax credits considered realizable
could be increased or reduced in the near term if estimates of future taxable
income during the carryforward period change. As of January 31, 2000, we had
approximately $112,000 of tax credits available to offset future federal income
taxes. These credits expire between
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2001 and 2002. We also have unused operating loss carryforwards of approximately
$1,900,000, which expire between 2005 and 2020.
Liquidity and Capital Resources
At January 31, 2000, we had a working capital deficit of $537,192,
compared to a working capital deficit of $145,914 at January 31, 1999. The ratio
of current assets to current liabilities fell to .63 at January 31, 2000 from
.83 at January 31, 1999. The increase in the working capital deficit and
decrease in the ratio of current assets to current liabilities was due mainly to
the net loss we incurred and to additional capital lease obligations and
accounts payable relating to the expansion of our ATM network.
We have funded our operations and capital expenditures from cash flow
generated by operations, capital leases and borrowings from lenders. Net cash
provided by operating activities was $850,355 and $682,095 in fiscal 2000 and
fiscal 1999, respectively. Net cash provided by operating activities in fiscal
2000 consisted primarily of depreciation of $568,494 and an increase in accounts
payable and accrued expenses of $450,835, partially offset by the net loss of
$120,723 and an increase in accounts receivable of $41,661. The cash provided by
operating activities in fiscal 2000 and fiscal 1999 allowed us to purchase plant
and equipment (principally ATMs) totaling $410,404 and $368,816 in fiscal 2000
and fiscal 1999, respectively. In addition, we utilized cash provided by
operating activities in fiscal 2000 to loan $650,300 to our affiliate, Universal
Funding Corporation, to provide vault cash for our ATMs. We also utilized cash
provided by operating activities in fiscal 2000 to make principal payments on
long-term debt and capital lease obligations due in fiscal 2000. We had cash and
cash equivalents of $118,991 at January 31, 2000, compared to cash and cash
equivalents of $601,922 at January 31, 1999.
Non-cash items for fiscal 2000 and fiscal 1999 include purchases of ATMs
acquired under capital leases of approximately $750,210 and $517,739,
respectively, during the applicable fiscal year. We anticipate that our capital
expenditures for fiscal 2001 will total approximately $1,000,000, primarily for
the acquisition of ATMs and related ATM installation costs. We lease 190 of our
ATMs under capital lease agreements that expire between 2000 and 2004 and
provide for lease payments at interest rates up to 10.5% per annum. See Note 4
to the Consolidated Financial Statements.
Much of our cash requirements relate to the need for vault cash for ATMs
owned by us. Universal Funding currently provides vault cash for a majority of
these ATMs. At January 31, 2000, Universal Funding had vault cash of
approximately $3,600,000 located in approximately 249 ATMs owned by us.
Universal Funding borrows the money that it provides as vault cash for our ATMs.
The loans generally have a term of 30 days and typically are rolled over at
maturity. Through our subsidiary EFT, we loan funds to Universal Funding for
vault cash to the extent that Universal Funding cannot obtain financing on
reasonable terms from other sources and to the extent that we have cash
available to lend to Universal Funding. The outstanding balance of the loans
from EFT to Universal Funding at January 31, 2000 was $650,300. See Item 1
"DESCRIPTION OF BUSINESS - Relationship with Universal Funding Corporation." In
June 1999, we entered into a vault cash arrangement with Tehama Bank under which
we could obtain up to $3,000,000 in vault cash. As of January 31, 2000, we were
renting approximately $2,000,000 under the Tehama Bank arrangement.
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The Tehama Bank arrangement has a one-year term, may be terminated by Tehama
Bank at any time upon 60 days notice and may be terminated by Tehama Bank upon
breach by us and upon the occurrence of certain other events. In October 1999,
we entered into an arrangement with Charter Bank allowing us to obtain up to
$5,000,000 in vault cash, of which $3,600,000 was outstanding as of January 31,
2000. The Charter Bank arrangement has a term of three years and may be
terminated by Charter Bank upon breach by us and upon the occurrence of certain
other events. In November 1999, we entered into a vault cash arrangement with
Humboldt Bank under which we could obtain up to $1,000,000 in vault cash. We had
not obtained funds under the arrangement with Humboldt Bank as of January 31,
2000. The Humboldt Bank arrangement has a term of one year and may be terminated
by Humboldt Bank upon breach by us and upon the occurrence of certain other
events. Under each arrangement, we are required to pay a monthly service fee on
the outstanding amount equal to the prime rate of interest, plus a specified
percentage, and must pay monthly "bank" and insurance fees.
Management believes that the anticipated cash flow from operations will
provide the capital resources necessary to meet our current working capital
needs and existing capital expenditure obligations. We expect that our capital
expenditures will increase in the future to the extent that we are able to
pursue our strategy of expanding our network and increasing the number of
installed ATMs. Expansion requires funds for purchase or lease of additional
ATMs and for use as vault cash in the ATMs. These increased expenditures are
expected to be funded from cash flow from operations, proceeds from the rights
offering, if any, capital leases and additional borrowings, to the extent
financing is available. There can be no assurance that we will be able to obtain
financing under a credit facility on terms that are acceptable to us or at all.
If any of our existing financing arrangements are terminated or if we seek
additional funding to expand our ATM network, additional financing may not be
available when needed or may not be available on acceptable terms. In that
event, our ability to maintain and expand our ATM network may be adversely
affected. The loss of one or more sources of vault cash funding could have a
material adverse effect on our business, results of operations and financial
condition.
Impact of Inflation and Changing Prices
While subject to inflation, we were not impacted by inflation during the
past two fiscal years in any material respect.
Trends
The following is a description of certain trends, events and uncertainties
that may affect our future financial results. Due to the potential for change in
factors associated with our business, it is impossible to predict or quantify
future changes in our business, results of operations and financial condition.
See "-Cautionary Statement Concerning Forward-Looking Statements."
Since April 1996, when national debt and credit card organizations changed
rules applicable to their members to permit the imposition of surcharge fees, we
have experienced increased competition, both from existing ATM network operators
and from new companies entering the industry.
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We have been required to pay higher interchange and surcharge rebates to
certain ATM site owners and owners of ATMs in our network, as a result of
increased competition in the industry. Management believes that rebates may
continue to increase during fiscal 2001 due to competitive pressures. A
continuation of this trend could have a material impact on our results of
operations.
The amount of surcharge fee most commonly charged in the industry for
withdrawal transactions has recently increased from $1.00 per transaction to
$1.50 per transaction in certain markets. We have initiated the higher surcharge
fees in certain, but not all, of our markets.
The use of debit cards by consumers has been growing. Consumers use debit
cards to make purchases from merchants, with the amount of the purchase
automatically deducted from the consumers' checking accounts. An increasing
number of merchants are accepting debit cards as a method of payment, and are
also permitting consumers to use the debit cards to obtain cash. The increasing
use of debit cards to obtain cash may reduce the number of cash withdrawals from
our ATMs, and may adversely affect our revenues from surcharge fees. A continued
increased in the use and acceptance of debit cards could have a material adverse
effect on our business, results of operations and financial condition.
On October 31, 1999, we entered into a placement arrangement with Kmart
Corporation, under which we agreed to place ATMs in 147 Kmart stores in
Michigan, Minnesota, Illinois and Wisconsin. On February 1, 2000, we gave notice
to Kmart Corporation that we were terminating the placement of 89 ATMs effective
March 2, 2000, because these ATMs did not meet specified usage levels. 63 of
these ATMs were owned by Advanced Financial Systems, L.L.C. Advanced Financial
Systems has not paid us any amounts owed for ATM management services provided to
Advanced Financial prior to the termination of the placement of the ATMs. We
increased our allowance for doubtful accounts by $45,000 in fiscal 2000 in
connection with the default by Advanced Financial Systems. See Item 1,
"DESCRIPTION OF BUSINESS - Recent Developments in our Business."
Future Changes in Accounting Principles
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). This statement, as amended by SFAS No. 137,
requires all derivatives to be recorded on the balance sheet at fair value and
establishes standard accounting methodologies for hedging activities. The
standard will result in the recognition of offsetting changes in value or cash
flows of both the hedge and the hedged item in earnings or comprehensive income
in the same period. The statement is effective for the Company's fiscal year
ending January 31, 2001. Because the Company generally does not hold derivative
instruments, the adoption of this statement is not expected to have a material
impact on the financial statements.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-KSB that are
not statements of historical fact may constitute "forward-looking statements"
within the meaning of Section 21E of the Exchange Act. These statements are
subject to risks and uncertainties, as described below.
Examples of forward-looking statements include, but are not limited to:
(i) projections of revenues, income or loss, earnings or loss per share,
capital expenditures, the payment or non-
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payment of dividends, capital structure and other financial items, (ii)
statements of plans and objectives of our management or Board of Directors,
including plans or objectives relating to our products or services, (iii)
statements of future economic performance, and (iv) statements of assumptions
underlying the statements described in (i), (ii) and (iii). Forward-looking
statements can often be identified by the use of forward-looking terminology,
such as "believes," "expects," "may," "will," "should," "could," "intends,"
"plans," "estimates" or "anticipates," variations thereof or similar
expressions.
Forward-looking statements are not guarantees of future performance or
results. They involve risks, uncertainties and assumptions. Our future results
of operations, financial condition and business operations may differ materially
from those expressed in these forward-looking statements. Investors are
cautioned not to put undue reliance on any forward-looking statement.
There are a number of factors that could cause actual results to differ
materially from those discussed in the forward-looking statements, including
those factors described below. Other factors not identified herein could also
have such an effect. Among the factors that could cause actual results to differ
materially from those discussed in the forward-looking statements are the
following:
o Changes in laws or card association rules affecting our ability to
impose surcharge fees, and continued customer willingness to pay
surcharge fees;
o Our ability to form new strategic relationships and maintain
existing relationships with issuers of credit cards and national and
regional card organizations;
o Our ability to expand our ATM base and transaction processing business;
o The availability of financing at reasonable rates for vault cash and
for other corporate purposes, including funding our expansion plans;
o Our ability to maintain our existing relationships with two
operators of combination convenience stores and gas stations at
which we maintain 45 and 44 ATMs, respectively, as of January 31,
2000;
o Our ability to keep our ATMs at other existing locations at
reasonable rental rates and to place additional ATMs in preferred
locations at reasonable rental rates;
o The extent and nature of competition from financial institutions,
credit card processors and third party operators, many of whom have
substantially greater resources;
o Our ability to maintain our ATMs and information systems technology
without significant system failures or breakdowns;
o The extent of vault cash losses from certain ATMs funded by
Universal Funding Corporation, for which we do not maintain
insurance;
o Our ability to develop new products and enhance existing products to
be offered through ATMs, and our ability to successfully market
these products;
o Our ability to identify suitable acquisition candidates, to finance
and complete acquisitions and to successfully integrate acquired
assets and businesses into existing operations;
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o Our ability to retain senior management and other key personnel;
o Changes in general economic conditions.
Any forward-looking statement contained herein is made as of the date of
this document. We do not undertake to publicly update or correct any of these
forward-looking statements in the future.
Item 7. FINANCIAL STATEMENTS
UNIVERSAL MONEY CENTERS, INC.
JANUARY 31, 2000 AND 1999
CONTENTS
Page
----
INDEPENDENT ACCOUNTANTS' REPORT...................................... 20
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets.................................................... 21
Statements of Operations.......................................... 23
Statements of Changes in Stockholders' Equity .................... 24
Statements of Cash Flows.......................................... 25
Notes to Financial Statements..................................... 26
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Independent Accountants' Report
-------------------------------
Board of Directors
Universal Money Centers, Inc.
Mission, Kansas
We have audited the accompanying consolidated balance sheets of UNIVERSAL
MONEY CENTERS, INC. as of January 31, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UNIVERSAL
MONEY CENTERS, INC. as of January 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Baird, Kurtz & Dobson
--------------------------------
Kansas City, Missouri
April 10, 2000
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UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2000 AND 1999
ASSETS
2000 1999
---------- ----------
CURRENT ASSETS
Cash $ 118,991 $ 601,922
Accounts receivable - trade, less allowance
for doubtful accounts: 2000 - $66,370; 105,517 39,012
1999 - $21,370
Accounts receivable - affiliate 7,228 35,064
Note receivable - affiliate 650,300 --
Prepaid expenses and other 22,058 13,194
Interest receivable - affiliate 6,628 3,636
---------- ----------
Total Current Assets 910,722 692,828
---------- ----------
PROPERTY AND EQUIPMENT, At cost
Equipment 4,139,601 3,453,071
Leasehold improvements 117,803 117,803
Vehicles 21,156 9,722
---------- ----------
4,278,560 3,580,596
Less accumulated depreciation 1,977,738 1,873,919
---------- ----------
2,300,822 1,706,677
---------- ----------
OTHER ASSETS
Deferred income taxes 375,000 375,000
Other 26,232 30,531
---------- ----------
401,232 405,531
---------- ----------
$3,612,776 $2,805,036
========== ==========
See Notes to Consolidated Financial Statements
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UNIVERSAL MONEY CENTERS, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
---------- ----------
CURRENT LIABILITIES
Current maturities of long-term debt and
capital lease obligations $ 472,943 $ 314,606
Accounts payable 732,546 313,319
Accounts payable--affiliate 25,559
Accrued expenses 216,866 210,817
----------- -----------
Total Current Liabilities 1,447,914 838,742
----------- -----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 1,033,378 714,087
----------- -----------
STOCKHOLDERS' EQUITY
Common stock; no par value; $.01 stated
value; 40,000,000 shares authorized; 398,514 398,514
39,851,380 issued
Additional paid-in capital 18,593,430 18,593,430
Retained earnings (deficit) (16,198,152) (16,077,429)
----------- -----------
2,793,792 2,914,515
Less treasury stock, at cost; common;
558,311 shares (1,662,308) (1,662,308)
----------- -----------
1,131,484 1,252,207
----------- -----------
$ 3,612,776 $ 2,805,036
=========== ===========
See Notes to Consolidated Financial Statements
-22-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 2000 AND 1999
2000 1999
---------- ----------
NET REVENUES $6,409,716 $5,016,828
COST OF REVENUES 4,994,709 3,422,417
---------- ----------
GROSS PROFIT 1,415,007 1,594,411
OPERATING EXPENSES 1,500,798 1,215,100
---------- ----------
INCOME FROM OPERATIONS (85,791) 379,311
---------- ----------
OTHER INCOME (EXPENSE)
Interest income 73,195 34,481
Interest expense (106,152) (101,122)
Loss on disposal of fixed assets (1,975) --
---------- ----------
(34,932) (66,641)
INCOME (LOSS) BEFORE INCOME TAXES (120,723) 312,670
INCOME TAX CREDIT -- (60,000)
---------- ----------
NET INCOME (LOSS) $ (120,723) $ 372,670
========== ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $(.003) $ .009
======= ======
See Notes to Consolidated Financial Statements
-23-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings Treasury
Stock Capital (Deficit) Stock Total
-------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE , JANUARY 31, 1998 $398,514 $18,593,430 $(16,450,099) $(1,662,308) $ 879,537
Net income 372,670 372,670
-------- ----------- ------------ ----------- ----------
BALANCE , JANUARY 31, 1999 398,514 18,593,430 (16,077,429) (1,662,308) 1,252,207
Net loss (120,723) (120,723)
-------- ----------- ------------ ----------- ----------
BALANCE , JANUARY 31, 2000 $398,514 $18,593,430 $(16,198,152) $(1,662,308) $1,131,484
======== =========== ============ =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-24-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2000 AND 1999
2000 1999
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (120,723) $ 372,670
Items not requiring (providing) cash:
Depreciation and amortization 568,494 410,047
Loss on disposal of property and equipment 1,975
Deferred income taxes -- (60,000)
Changes in:
Accounts receivable (41,661) 13,943
Prepaid expenses and other (8,565) (23,199)
Accounts payable and accrued expenses 450,835 (31,366)
----------- ---------
Net cash provided by operating activities 850,355 682,095
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in note receivable - affiliate (650,300)
Purchase of property and equipment (410,404) (368,816)
----------- ---------
Net cash used in investing activities (1,060,704) (368,816)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under long-term debt and
capital lease obligations (365,226) (250,445)
Proceeds from issuance of long-term debt 92,644 164,413
----------- ---------
Net cash used in financing activities (272,582) (86,032)
----------- ---------
INCREASE (DECREASE) IN CASH (482,931) 227,247
CASH, BEGINNING OF YEAR 601,922 374,675
----------- ---------
CASH, END OF YEAR $ 118,991 $ 601,922
=========== =========
See Notes to Consolidated Financial Statements
-25-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
The Company is engaged primarily in providing network and switching
services for automated teller machines (ATMs). Fees are received from the
members of the Company's network as well as card users from other ATM networks
using the Company's network. The Company grants unsecured credit to its
customers. As of January 31, 2000 and 1999, the Company had approximately 575
and 396 ATMs in the network, respectively.
Operating Segments
- ------------------
The Company conducts business under one primary operating segment:
operating and servicing of automated teller machines (ATMs). Revenues are
generated from surcharges, interchange fees and transaction processing in ATMs
located in 16 states with a concentration in Missouri, Kansas and Texas. The
Company's major revenue source, which exceeds 10% of revenues, is discussed in
Note 8.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
- ----------------------
Property and equipment are depreciated over the estimated useful life of
each asset, primarily five to seven years. Annual depreciation is computed using
the straight-line method.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Universal
Money Centers, Inc., and its wholly-owned subsidiary, Electronic Funds Transfer,
Inc. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Income Taxes
- ------------
Deferred income tax liabilities and assets are recognized for the tax
effects of differences between the financial statement and tax bases of assets
and liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.
-26
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Inventory
- ---------
All inventories are stated at the lower of cost or market. As of January
31, 1999, inventory consisted primarily of repair parts for ATMs, with the cost
of such parts being determined using the FIFO (first-in, first-out) method.
Future Changes in Accounting Principles
- ---------------------------------------
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). This statement, as amended by SFAS No. 137,
requires all derivatives to be recorded on the balance sheet at fair value and
establishes standard accounting methodologies for hedging activities. The
standard will result in the recognition of offsetting changes in value or cash
flows of both the hedge and the hedged item in earnings or comprehensive income
in the same period. The statement is effective for the Company's fiscal year
ending January 31, 2001. Because the Company generally does not hold derivative
instruments, the adoption of this statement is not expected to have a material
impact on the financial statements.
NOTE 2: RELATED PARTY TRANSACTIONS
The chairman and chief executive officer (CEO), who is the largest
stockholder of the Company, is also the CEO and a stockholder of Universal
Funding Corporation (UFC). In addition, the other two stockholders of UFC are
also stockholders of the Company.
The Company receives management fees from UFC to provide administrative
services, computer switching, maintenance, ATMs and software for the ATMs. The
agreement with UFC for management fees provides that the fee will equal the net
income of UFC (excluding depreciation, amortization and stockholder return on
original capital investment, which are treated as distributions). Such fees
totaled $32,972 and $541,380 for the years ended January 31, 2000 and 1999,
respectively. Under the agreement, these fees are paid on a monthly basis
subsequent to UFC meeting all other monthly cash flow obligations. As of January
31, 2000 and 1999, the Company had a receivable of $7,228 and $35,064,
respectively, for these fees.
The Company assumes the risks of theft or other shortages of cash from the
ATMs funded by UFC. As of January 31, 2000 and 1999, UFC had vault cash
obligations of approximately $3,600,000 (located in 249 ATMs) and $2,200,000
(located in 242 ATMs), respectively. During the years ended January 31, 2000 and
1999, the Company incurred losses of $19,470 and $10,075 from vault cash
shortages. Included in accounts payable--affiliate on the accompanying
consolidated balance sheet at January 31, 2000 is a payable of $19,660 to UFC
for such shortages.
-27-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 2: RELATED PARTY TRANSACTIONS (Continued)
The Company and certain members of the Company's management extends loans
on an unsecured basis to UFC. UFC uses the proceeds from these loans to provide
vault cash to the ATMs. The interest UFC pays on these loans directly reduces
UFC's income subject to the management fee. As of January 31, 2000 and 1999, the
balance of these loans was approximately $3,353,000 (with $650,300 being due to
the Company) and $1,800,000, respectively, with interest rates ranging from 12%
to 18%, respectively. During the years ended January 31, 2000 and 1999, the
Company earned interest income of $72,325 and $34,338, respectively, from these
loans.
The Company has the option to purchase UFC from its current stockholders
for approximately $165,000.
Since the end of fiscal year 1987, the Company has issued 17,201,897 shares
which have not been registered with the Securities and Exchange Commission. All
of these shares are restricted as to resale. Of the shares issued, 12,112,644
were issued to related parties.
The Company has a liability for back wages due to the chairman and CEO of
the Company of approximately $140,000 plus $36,000 in accrued interest (at 5%).
This represents an informal, negotiated deferral in compensation in an attempt
to improve the Company's cash flow during prior years.
NOTE 3: OPERATING LEASES
The Company leases office space under noncancellable operating leases which
expire through August 2004. Rent expense for office space for the years ended
January 31, 2000 and 1999 was $79,691 and $76,320, respectively.
The Company leases computer equipment under noncancellable operating leases
which expire through February 2001. The Company also leases locations to place
ATMs under noncancellable operating leases which expire through March 2003.
Total rent expense related to the lease of computer equipment and locations to
place ATMs for the years ended January 31, 2000 and 1999 was $111,023 and
$97,014, respectively.
The Company has several agreements with banks and (at January 31, 1999) a
financial services company to provide vault cash, on a rental basis, for ATM's
owned by the Company. Under the agreements, the Company is required to pay a
monthly service fee on the outstanding amount equal to the prime rate of
interest, plus a specified percentage, plus additional fees as defined in the
agreements. The life of the agreements range from one year to three years but
may be terminated by the banks upon the occurrence of certain events. As of
January 31, 2000 and 1999, the Company was renting vault cash from these
providers in the approximate amount of $5,600,000 and $600,000, respectively.
The fees for the usage of such cash are included in the accompanying financial
statements in cost of revenues and totaled $196,978 and $73,504 for the years
ended January 31, 2000 and 1999, respectively.
-28-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 4: LONG-TERM DEBT
Future minimum lease payments at January 31, 2000 are as follows:
2001 $196,704
2002 136,424
2003 140,043
2004 120,260
Thereafter 68,825
--------
Future minimum lease payments $662,256
========
2000 1999
---------- ----------
Installment notes payable (A) $ 223,311 $ 306,369
Capital lease obligations (B) 1,139,905 641,357
Installment notes payable (C) 49,515 74,489
Installment notes payable (D) 81,200 --
Other 12,390 6,478
---------- ----------
1,506,321 1,028,693
Less current maturities 472,943 314,606
---------- ----------
$1,033,378 $ 714,087
========== ==========
(A) Various installment notes payable; due on demand; if no demand
made, due at various dates through May 2003; with interest at
10.25% to 10.5%; collateralized by equipment and personally
guaranteed by the Company's Chairman and CEO. Subsequent to the
year ended January 31, 2000, the demand feature was waived
through January 31, 2001.
(B) Capital leases covering ATMs and office equipment with monthly
payments through January 2005 with $9,511 being personally
guaranteed by the Company's Chairman and CEO.
(C) Various installment notes payable; due on demand; if no demand
made, due at various dates through February 2003, with interest
at 9.25% to 10%; collateralized by equipment. Subsequent to the
year ended January 31, 2000, the demand feature was waived
through January 31, 2001.
(D) Installment note payable; due in two lump sum payments in March
2000 and in September 2000.
-29-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 4: LONG-TERM DEBT (Continued)
Aggregate annual maturities of long-term debt and payments on capital lease
obligations at January 31, 2000 are as follows:
Long-Term Debt Capital Lease
(Excluding Obligations
Leases)
2001 $ 203,078 $ 354,894
2002 103,432 310,560
2003 47,095 310,560
2004 12,811 270,059
2005 113,299
---------- ----------
$ 366,416 1,359,372
Less amount representing 219,467
interest
Present value of future
minimum lease payments 1,139,905
Less current maturities 269,865
$ 870,040
==========
Property and equipment include the following property under capital leases:
2000 1999
---------- ----------
Equipment cost $1,830,214 $ 922,611
Less accumulated depreciation 612,615 332,966
---------- ----------
$1,217,599 $ 589,645
========== ==========
As of January 31, 2000 and 1999, the carrying amount of long-term debt
approximates its fair value.
On February 8, 2000, the Company entered into a note agreement with a bank
for $178,000. Such amount is due in monthly payments of $4,534 through February
2004, with interest at 10%, and is collateralized by equipment.
-30-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 5: EARNINGS PER SHARE
The details of the basic and diluted earnings per share calculations for
the year ended January 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000
-----------------------------------------------
Weighted Average
Net Shares Per Share
Income Outstanding Amount
---------- ---------------- ----------
<S> <C> <C> <C>
Net income (loss) $ (120,723)
----------
Basic and diluted earnings(loss) per share:
Income (loss) available to common
stockholders $ (120,723) 39,293,069 $ (.003)
========== ========== ==========
1999
-----------------------------------------------
Weighted Average
Net Shares Per Share
Income Outstanding Amount
---------- ---------------- ----------
Net income $ 372,670
----------
Basic and diluted earnings per share:
Income available to common
stockholders $ 372,670 39,293,069 $ .009
========== ========== ======
</TABLE>
NOTE 6: INCOME TAXES
The credit for income taxes includes these components:
<TABLE>
<CAPTION>
2000 1999
-------- ---------
<S> <C> <C>
Deferred income taxes $(16,000) $ 185,000
Change in deferred tax asset valuation allowance 16,000 (245,000)
-------- ---------
$ 0 $ (60,000)
======== =========
</TABLE>
-31-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 6: INCOME TAXES (Continued)
A reconciliation of income tax (credit) at the statutory rate to the
Company's actual income tax expense (credit) is shown below:
2000 1999
-------- --------
Computed at the statutory rate $(41,046) $107,000
Increase (decrease) resulting from:
Change in deferred tax asset 16,000 (245,000)
valuation allowance
Other (25,046) (78,000)
-------- --------
Actual tax credit $ 0 $(60,000)
======== ========
The tax effects of temporary differences related to deferred taxes were:
2000 1999
--------- ---------
Deferred tax assets:
Allowance for doubtful accounts $ 25,000 $ 7,000
Net operating loss carryforwards 739,000 640,000
General tax credits 112,000 142,000
Other 14,000 14,000
--------- ---------
890,000 803,000
--------- ---------
Deferred tax liabilities:
Property and equipment (139,000) (68,000)
Net deferred tax asset before valuation
allowance 751,000 735,000
--------- ---------
Valuation allowance:
Beginning balance (360,000) (605,000)
Decrease (increase) (16,000) 245,000
--------- ---------
Ending balance (376,000) (360,000)
--------- ---------
Net deferred tax asset $ 375,000 $ 375,000
========= =========
As of January 31, 2000, the Company had approximately $112,000 of tax
credits available to offset future federal income taxes. These credits expire
between 2001 and 2002. The Company also has unused operating loss carryforwards
of approximately $1,900,000, which expire between 2005 and 2020.
-32-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 7: PROFIT SHARING PLAN
During the fiscal year ended January 31, 1999, the Company established a
SIMPLE IRA profit-sharing plan covering employees with two years or more of
service. Contributions are limited to 3% of total compensation paid participants
during the plan year. Contributions to the Plan were $20,800 and $16,900 for
2000 and 1999, respectively.
NOTE 8: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Those matters include the following:
Significant Agreements
- ----------------------
Approximately 1% and 11% for 2000 and 1999, respectively, of the Company's
revenues come from services provided for Universal Funding Corporation (UFC), a
related party (see Note 2). Additionally, the Company earned approximately 40%
and 70% of its surcharging fees from ATMs containing UFC's vault cash during the
years ended January 31, 2000 and 1999, respectively. Currently, UFC obtains cash
to fund its ATMs primarily from short-term borrowings from various private
investors, including members of Universal Money Center's management and the
Company. UFC is uncertain if additional sources of cash would be available if
these notes were not renewed.
Significant Customers
- ---------------------
The Company has relationships with two operators of combination convenience
stores and gas stations for whom approximately 44 and 45 ATMs, respectively, as
of January 31, 2000 and 1999, respectively, have been installed at their
locations. The aggregate revenues from these companies accounted for
approximately 32% and 22% of the Company's revenues for 2000 and 1999,
respectively.
Fees
- ----
Currently, the Company is permitted to charge a "surcharge" to users of the
Company's network who are members of other networks. Such surcharges are being
challenged at various governmental levels. Successful litigation to eliminate
these surcharges could have a material adverse effect on the results of
operations and financial condition of the Company. During the years ended
January 31, 2000 and 1999, the Company recognized revenue of $4,228,151 and
$3,035,059, respectively, from surcharges.
-33-
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
NOTE 8: SIGNIFICANT ESTIMATES AND CONCENTRATIONS (Continued)
Deferred Income Taxes
- ---------------------
The Company has recorded a deferred tax asset of $375,000 at January 31,
2000, which is primarily a result of operating loss carryforwards which
management believes are more likely than not to be realized prior to their
expiration between 2005 and 2020. Realization is dependent on generating
sufficient future taxable income to absorb the carryforwards. The amount of the
deferred tax assets considered realizable could be increased or decreased in the
near term if estimates of future taxable income during the carryforward period
change.
Litigation
- ----------
In May 1999, a former officer and employee threatened litigation against
the Company for unpaid severance compensation and issuance of common stock for
past services rendered. The Company has responded to the former officer/employee
that it finds no merit for deferred compensation. If this issue is litigated,
now or in the future, management and legal counsel believe that the Company has
reasonable defenses. The amount of ultimate loss, if any, could differ
materially from these estimates.
Securities and Exchange Commission Filings
- ------------------------------------------
The Company resumed its periodic reporting to the SEC and stockholders upon
the filing of the Form 10-KSB for the fiscal year ended January 31, 1998 and has
remained current on required filings since that date.
Prior to such filings, the Company had not filed certain of the information
required by the Securities Exchange Act of 1934 including, but not limited to,
Forms 10-K, 10-Q and 8-K and other reports to stockholders. The effect on the
Company's financial statements, if any, arising from these non filings has not
been determined.
NOTE 9: ADDITIONAL CASH FLOW INFORMATION
2000 1999
Noncash Investing and Financing Activities -------- --------
- ------------------------------------------
Capital lease obligations incurred for equipment $750,210 $515,750
Additional Cash Payment Information
- -----------------------------------
Interest paid 99,204 71,822
-34-
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in the Company's accountants during the two most
recent fiscal years or any subsequent interim period.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Item 10. EXECUTIVE COMPENSATION
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the captions entitled "Election of
Directors", "Security Ownership of Certain Beneficial Owners and Management" and
"Executive Compensation" and "Certain Relationships and Related Transactions" in
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A with respect to its 2000 annual meeting of
shareholders, is incorporated into Items 9, 10, 11 and 12 above by reference.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required by this item are listed in the Index to
Exhibits set forth at the end of this Form 10-KSB.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of the year ended January 31, 2000.
-35-
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL MONEY CENTERS, INC.
/s/ David S. Bonsal
-----------------------------------
David S. Bonsal
Chairman of the Board
and Chief Executive Officer
Dated: April 27, 2000
In accordance with the requirements of the Securities Exchange Act
of 1934, as amended, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ David S. Bonsal Chairman of the Board, Chief April 27, 2000
- ------------------------ Executive Officer and Director
David S. Bonsal (Principal Executive Officer)
/s/ John L. Settles President April 27, 2000
- ------------------------ (Principal Financial and
John L. Settles Accounting Officer)
*/s/ Jeffrey M. Sperry Director April 27, 2000
- ------------------------
Jeffrey M. Sperry
*/s/ Arthur M. Moglowsky Director April 27, 2000
- ------------------------
Arthur M. Moglowsky
/s/ David S. Bonsal
*By: ----------------------
David S. Bonsal
Attorney-in-fact
-36-
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
3.1* Articles of Incorporation of the Company, as amended
3.2* Amended and Restated By-laws of the Company
4.1* Promissory Note dated June 3, 1996 issued by the Company to
Bank 21 (formerly The Farmers Bank)
4.2* Business Loan Agreement dated June 3, 1996 between
the Company and Bank 21 (formerly The Farmers
State Bank)
4.3* Promissory Note dated August 26, 1996 issued by
the Company to Bank 21 (formerly The Farmers State
Bank)
4.4* Business Loan Agreement dated August 26, 1996
between the Company and Bank 21 (formerly The
Farmers State Bank)
4.5* Commercial Security Agreement dated August 26,
1996 between the Company and Bank 21 (formerly The
Farmers State Bank)
4.6** Promissory Note dated April 9, 1998 issued by the Company to
Bank 21 (formerly The Farmers Bank)
4.7** Negative Pledge Agreement dated April 9, 1998
between the Company and Bank 21 (formerly The
Farmers State Bank)
4.8** Commercial Security Agreement dated April 9, 1998
between the Company and Bank 21 (formerly The
Farmers State Bank)
10.1* Agreement dated August 15, 1989 among the Company, Funding,
David S. Bonsal, John L. Settles and William Smithson
10.2* Addendum dated August 29, 1989 among the Company, Funding,
David S. Bonsal, John L. Settles and William Smithson
10.3* Letter Agreement dated June 12, 1997 between the Company and
Funding
10.4* Master Equipment Lease Agreement dated October 18, 1996
between the Company and Newcourt Communications Finance
Corporation (formerly AT&T Credit Corporation)
-37-
<PAGE>
10.5* Master Equipment Lease Agreement Schedule dated December 30,
1996, between the Company and Newcourt Communications Finance
Corporation (formerly AT&T Credit Corporation)
10.6* Master Equipment Lease Agreement Schedule dated October 30,
1996, between the Company and Newcourt Communications Finance
Corporation (formerly AT&T Credit Corporation)
10.7* Master Equipment Lease Agreement Schedule dated February 28,
1997, between the Company and Newcourt Communications Finance
Corporation (formerly AT&T Credit Corporation)
10.8 Master Lease Agreement dated February 28, 1998 between the
Company and Diebold Credit Corporation (Incorporated by
reference from Exhibit 10.8 to the registrant's Quarterly
Report on Form 10-QSB for the quarter ended April 30, 1998).
10.9 Lease Schedule dated April 20, 1998 between the Company and
Diebold Credit Corporation (Incorporated by reference from
Exhibit 10.9 to the registrant's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1998).
10.10 Assignment and Delegation dated September 25, 1998 among the
Company, as assignor, Diebold Incorporated, as seller, and
Diebold Credit Corporation, as assignee (Incorporated by
reference from Exhibit 10.10 to the registrant's Quarterly
Report on Form 10-QSB for the quarter ended October 31, 1998).
10.11 Master Lease Agreement dated November 20, 1998 between the
Company and Dana Commercial Credit (Incorporated by
reference from Exhibit 10.11 to the registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31,
1999).
10.12 Master Lease Agreement dated January 18, 1999 between the
Company and Dana Commercial Credit (Incorporated by
reference from Exhibit 10.12 to the registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31,
1999).
10.13 Lease Schedule No. 2 dated May 11, 1999 to the Master Lease
Agreement dated January 18, 1999 between the Company and Dana
Commercial Credit (Incorporated by reference from Exhibit 10.1
to the registrant's Quarterly Report on Form 10-QSB for the
quarter ended July 31, 1999).
10.14 Lease Schedule No. 3 dated June 2, 1999 to the Master Lease
Agreement dated January 18, 1999 between the Company and Dana
Commercial Credit (Incorporated by reference from Exhibit 10.2
to the registrant's Quarterly Report on Form 10-QSB for the
quarter ended July 31, 1999).
-38-
<PAGE>
10.15 Lease Schedule No. 4, dated October 1, 1999 and accepted
October 31, 1999, to the Master Lease Agreement dated
January 18, 1999 between the Company and Dana Commercial
Credit (incorporated by reference from Exhibit 10.2 to the
registrant's Current Report on Form 8-K dated October 31,
1999).
21* Subsidiaries of the Registrant
24 Powers of Attorney
27 Financial Data Schedule
* Incorporated by reference from the exhibit to the registrant's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1998 which bears the same
exhibit number.
** Incorporated by reference from the exhibit to the registrant's Quarterly
Report on Form 10-QSB for the quarter ended April 30, 1998 which bears the same
exhibit number.
-39-
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints David S. Bonsal, John L.
Settles and Christopher D. Greek, and each of them with full power to act
without the others, with full power of substitution, as the true and lawful
attorneys-in-fact and agents for the undersigned and in the undersigned's name,
place and stead, to sign in the name and on behalf of the undersigned the Annual
Report on Form 10-KSB of Universal Money Centers, Inc. for its fiscal year ended
January 31, 2000, and any and all amendments thereto, and to file the same, with
all exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Dated: January 21, 2000
/s/ Arthur M. Moglowsky
-------------------------------
Arthur M. Moglowsky
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints David S. Bonsal, John L.
Settles and Christopher D. Greek, and each of them with full power to act
without the others, with full power of substitution, as the true and lawful
attorneys-in-fact and agents for the undersigned and in the undersigned's name,
place and stead, to sign in the name and on behalf of the undersigned the Annual
Report on Form 10-KSB of Universal Money Centers, Inc. for its fiscal year ended
January 31, 2000, and any and all amendments thereto, and to file the same, with
all exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Dated: January 21, 2000
/s/ Jeffrey M. Sperry
--------------------------------
Jeffrey M. Sperry
Director
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
FINANCIAL DATA SCHEDULE
January 31, 2000
10-KSB
<ARTICLE> 5
<LEGEND> This Schedule Contains Summary Financial
Information Extracted From the Consolidated
Balance Sheets as of January 31, 2000 and
Consolidated Statements of Income for the Fiscal
Year Ended January 31, 2000 and is qualified in
its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000702167
<NAME> Universal Money Centers, Inc.
<CURRENCY> United States
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-1-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 769,727
<ALLOWANCES> 66,370
<INVENTORY> 0
<CURRENT-ASSETS> 910,722
<PP&E> 4,278,560
<DEPRECIATION> 1,977,738
<TOTAL-ASSETS> 3,612,776
<CURRENT-LIABILITIES> 1,447,914
<BONDS> 1,033,378
0
0
<COMMON> 398,514
<OTHER-SE> 2,395,278
<TOTAL-LIABILITY-AND-EQUITY> 3,612,776
<SALES> 0
<TOTAL-REVENUES> 6,409,716
<CGS> 0
<TOTAL-COSTS> 4,994,709
<OTHER-EXPENSES> 1,535,730
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,152
<INCOME-PRETAX> (120,723)
<INCOME-TAX> 0
<INCOME-CONTINUING> (120,723)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120,723)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>