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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 File No. 0-25148
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Coin Bill Validator, Inc.
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(Exact name of registrant as specified in its charter)
New York 11-2974651
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
425B Oser Avenue Hauppauge, N.Y. 11788
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(Address of principle executive offices) Zip Code
Registrant's telephone number, Including area code (516)-231-1177
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Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Shares of Common Stock outstanding on May 20, 1996 2,750,000
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COIN BILL VALIDATOR, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Balance Sheets - March 31, 1996 and September 30, 1995 1
Statements of Operations - Six Months ended March 31, 1996
and 1995, respectively 2
Statements of Operations - Three Months ended March 31, 1996
and 1995, respectively 3
Statements of Cash Flows - Six Months ended March 31, 1996
and 1995, respectively 4
Statements of Shareholders' Equity - Six Months ended
March 31, 1996 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
PART II. OTHER INFORMATION
Not applicable.
SIGNATURES 9
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COIN BILL VALIDATOR, INC.
BALANCE SHEETS
AS OF MARCH 31, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1996 SEPTEMBER 30, 1995
------ -------------- ------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,237,857 $ 1,810,882
Accounts receivable, less allowance for doubtful accounts
of $512,535 and $159,087, respectively 3,572,922 3,322,842
Inventory, less allowance for obsolescence of $1,250,000 and
$117,547, respectively 4,549,086 4,779,501
Prepaid expenses 74,155 10,954
Deferred income tax assets 301,025 118,953
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Total current assets 9,735,045 10,043,132
PROPERTY AND EQUIPMENT, net 736,001 460,427
OTHER ASSETS 42,125 58,625
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Total assets $10,513,171 $10,562,184
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Notes payable to bank $500,000 $ --
Accounts payable 1,216,119 1,128,776
Accrued expenses 473,697 786,631
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Total current liabilities 2,189,816 1,915,407
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SHAREHOLDERS' EQUITY:
Common stock, 20,000,000 shares authorized; $.01 par value,
2,750,000 shares issued and outstanding 27,500 27,500
Additional paid-in capital 7,978,042 7,978,042
Retained earnings 317,813 641,235
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Total shareholders' equity 8,323,355 8,646,777
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Total liabilities and shareholders' equity $10,513,171 $10,562,184
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</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
1
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COIN BILL VALIDATOR, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED MARCH 31,
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1996 1995
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NET SALES $7,540,333 $6,131,915
COST OF SALES 5,897,641 3,311,850
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GROSS PROFIT 1,642,692 2,820,065
OPERATING EXPENSES 2,195,186 1,455,400
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INCOME (LOSS) FROM OPERATIONS (552,494) 1,364,665
OTHER INCOME (EXPENSE), net 13,458 641
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INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (539,036) 1,365,306
PROVISION (BENEFIT) FOR INCOME TAXES (215,614) 177,587
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NET INCOME (LOSS) $ (323,422) $1,187,719
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NET LOSS PER SHARE (Note 3) $(0.12)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,750,000
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The accompanying notes to financial statements
are an integral part of these statements.
2
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COIN BILL VALIDATOR, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1996 1995
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NET SALES $4,393,608 $3,266,220
COST OF SALES 4,012,831 1,775,023
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GROSS PROFIT 380,777 1,491,197
OPERATING EXPENSES 1,302,685 805,835
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INCOME (LOSS) FROM OPERATIONS (921,908) 685,362
OTHER INCOME (EXPENSE), net 2,212 19,482
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INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (919,696) 704,844
PROVISION (BENEFIT) FOR INCOME TAXES (377,394) 170,087
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NET INCOME (LOSS) $(542,302) $ 534,757
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NET LOSS PER SHARE (Note 3) $(0.20)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,750,000
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The accompanying notes to financial statements
are an integral part of these statements.
3
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COIN BILL VALIDATOR, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30, 1995 2,750,000 $27,500 $7,978,042 $641,235 $8,646,777
Net loss for the six months
ended March 31, 1996 -- -- -- (323,422) (323,422)
--------- ------- ---------- -------- -----------
BALANCES AT MARCH 31, 1996
(unaudited) 2,750,000 $27,500 $7,978,042 $317,813 $8,323,355
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</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
4
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COIN BILL VALIDATOR, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended March 31,
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1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(323,422) $1,187,719
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 92,682 24,000
Inventory obsolescence provision (note 4) 1,132,453 --
Changes in operating assets and liabilities:
Accounts receivable, net (250,080) (468,354)
Inventory (902,038) (1,543,271)
Deferred registration costs and prepaid expenses (63,201) 30,598
Deferred income tax assets (182,072) --
Other assets 16,500 (201,728)
Accounts payable 87,343 (36,085)
Accrued expenses (312,934) 546,354
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Total adjustments (381,347) (1,648,486)
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Net cash used in operating activities (704,769) (460,767)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of proceeds
from disposals (368,256) (157,799)
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Net cash used in investing activities (368,256) (157,799)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to bank 500,000 (800,000)
Issuance of stock, net of offering expenses -- 6,784,762
Distribution to shareholders -- (4,000,000)
Net cash provided by financing activities 500,000 1,984,762
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Net increase (decrease) in cash and cash equivalents (573,025) 1,366,196
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,810,882 532,550
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,237,857 $1,898,746
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CASH PAID DURING THE YEAR FOR:
Interest $ -- $ 32,593
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Income taxes $ 499,193 $ 12,500
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</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
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COIN BILL VALIDATOR, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. The financial statements reflect all adjustments which, in management's
opinion, are necessary to present fairly the financial position of the
Company as of March 31, 1996 and September 30, 1995, and the results of
operations for the three and six month periods ended March 31, 1996 and
1995 and its cash flows for the six month periods ended March 31, 1996 and
1995. Results of operations for the three and six month period ended March
31, 1996 are not necessarily indicative of the results to be expected for
the full fiscal year.
2. In February 1995, the Company issued 750,000 shares of Common Stock in an
initial public offering for $11.00 per share, generating net proceeds of
approximately $6,890,000. In connection with this offering, the Company
issued warrants to the representative of the several underwriters to
purchase 75,000 shares of the Company's Common Stock at $13.20 per share.
Concurrent with this public offering, the Company no longer qualified as a
Subchapter "S" Corporation, and became subject to "C" Corporation taxation
from that point on. The Company has used a portion of the proceeds to make
a final distribution to shareholders existing prior to the offering of $4
million, which amount represents the accumulated "S" Corporation earnings
which were eligible for such a distribution pursuant to the terms of the
initial public offering. Approximately 40% of the amount of this
distribution has been made available to the Company by certain shareholders
receiving the distribution pursuant to three-year line of credit
agreements.
3. Net loss per share for the three and six month periods ended March 31, 1996
was computed by dividing the Company's net loss by the weighted average
common shares outstanding during the three and six month periods ended
March 31, 1996. The impact of outstanding stock options and warrants was
not included in the calculation of net loss per share, as such effect, if
included, would have been anti-dilutive. Pro forma net income per share in
the three and six month periods ended March 31, 1995, adjusted to reflect
the pro forma effect of a "C" Corporation income tax provision for that
period and the retroactive effect of a 1.639909 stock split, in the form of
a stock dividend, which resulted in pro forma weighted average common
shares outstanding of 2,000,000 and 2,476,149, respectively, was $.16 and
$.33 per share, respectively .
4. During the three month period ended March 31, 1996, the Company wrote down
inventory associated with a product line which the Company has decided to
discontinue effective with the end of fiscal 1996. This write-down, in the
approximate amount of $1.1 million, was charged to cost of sales in the
three month period ended March 31, 1996, which is the period in which the
Company made the determination to discontinue this product due to plans to
place emphasis on recently introduced products and the expected impact of
these new products on sales of the products to be discontinued.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
SALES
Net sales increased by 23.0%, or $1,408,418, to $7,540,333 in the six months
ended March 31, 1996 from $6,131,915 in the comparative prior year period. This
increase is attributable to increased sales of the Company's new product line of
paper currency validators and related paper currency stackers to domestic and
international OEM customers in the gaming industry.
GROSS MARGIN
Gross margin decreased to $1,642,692, or 21.8% of net sales, in the six months
ended March 31, 1996, from $2,820,065, or 46.0% of net sales, in the comparative
prior year period. The decrease in gross margin as a percentage of sales was
primarily the result of the inventory write-down in the approximate amount of
$1.1 million associated with the Company's decision in the second quarter to
discontinue sales of a product line, as well as increased product costs,
increased labor costs and other costs related to additional overhead,
principally in manufacturing. Absent the inventory write-down, the Company's
gross margin was approximately 36.8%, which the Company believes to be the gross
margin typically associated with the sales mix in the six months ended March 31,
1996.
OPERATING EXPENSES
Operating expenses increased to $2,195,186, or 29.1% of net sales, in the six
months ended March 31, 1996 from $1,455,400, or 23.7% of net sales, in the
comparative prior year period. This increase was due principally to increased
staffing and related payroll costs to support expansion of engineering and new
product development efforts, increased selling expenses to support marketing
activities associated with the Company's introduction and planned introduction
of new products and additional provision for doubtful accounts receivable due
to the financial condition of certain customers with which the Company has
since changed selling terms to include letters of credit and other forms of
security.
OTHER INCOME (EXPENSE), NET
Other income (expense), net, was $13,458 in the six months ended March 31, 1996
compared to $641 in the comparative prior year period due principally to
interest income earned on the Company's cash and cash equivalents in the 1996
period, partially offset by interest expense incurred in the second quarter,
compared to lower levels of available cash to generate interest income, as well
as interest expense associated with the Company's working capital line of
credit facility, in the same period in 1995.
NET INCOME (LOSS)
Net loss was $(323,422) in the six months ended March 31, 1996 compared to net
income, as adjusted to reflect income taxes which would have been paid had the
Company not been an S Corporation in a portion of the 1995 period, of $819,194
in the comparative prior year period even though sales increased, due
principally to the one-time inventory write-down of approximately $1.1 million
described in "GROSS MARGIN" above, as well as general increases in manufacturing
costs and operating expenses, including provision for doubtful accounts
receivable, as a percentage of sales.
7
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THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
SALES
Net sales increased by 34.5%, or $1,127,388, to $4,393,608 in the three months
ended March 31, 1996 from $3,266,220 in the comparative prior year period. This
increase is attributable to increased sales of the Company's new product line of
paper currency validators and related paper currency stackers to domestic and
international OEM customers in the gaming industry.
GROSS MARGIN
Gross margin decreased to $380,777, or 8.7% of net sales, in the three months
ended March 31, 1996 from $1,491,197, or 45.7% of net sales, in the comparative
prior year period. The decrease in gross margin as a percentage of sales was
primarily the result of the inventory write-down in the approximate amount of
$1.1 million associated with the Company's decision in the second quarter to
discontinue sales of a product line, as well increased product costs, increased
labor costs and other costs related to additional overhead, principally in
manufacturing. Absent the inventory write-down, the Company's gross margin was
approximately 34.4 %, which the Company believes to be the gross margin
typically associated with the sales mix in the three months ended March 31,
1996.
OPERATING EXPENSES
Operating expenses increased to $1,302,685, or 29.6% of net sales, in the three
months ended March 31, 1996 from $805,835, or 24.7% of net sales, in the
comparative prior year period. This increase was due principally to increased
staffing and related payroll costs to support expansion of engineering and
product development efforts, increased selling expenses to support marketing
activities associated with the Company's introduction and planned introduction
of new products and additional provision for doubtful accounts receivable due
to the financial condition of certain customers with which the Company has
since changed selling terms to include letters of credit and other forms of
security.
OTHER INCOME (EXPENSE), NET
Other income (expense), net, was $2,212 in the six months ended March 31, 1996
compared to $19,482 in the comparative prior year period due principally to
lower levels of cash and cash equivalents available to generate interest income
during the quarter compared to interest income earned on the Company's higher
levels of cash and cash equivalents in the same period in 1995.
NET INCOME (LOSS)
Net loss was $(542,302) in the three months ended March 31, 1996 compared to
net income, as adjusted to reflect income taxes which would have been paid had
the Company not been an S Corporation in a portion of the 1995 period, of
$422,906 in the comparative prior year period even though sales increased, due
principally to the one-time inventory write-down of approximately $1.1 million
described in "GROSS MARGIN" above, as well as general increases in
manufacturing costs and operating expenses, including provision for doubtful
accounts receivable, as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company's cash and cash equivalents were $1,237,857
compared to $1,810,882 at September 30, 1995. The Company has a $2,500,000 line
of credit from a financial institution, $500,000 of which was outstanding at
March 31, 1996 in the form of notes payable.
Cash used in operations was ($704,769) in the six months ended March 31, 1996.
This use of cash was attributable to increases in the Company's inventory and
accounts receivable related to sales and sales backlog and decreases in accrued
liabilities related primarily to income tax payments, offset partially by
increases in accounts payable due to purchasing activity associated with
increased sales.
8
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COIN BILL VALIDATOR, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: /s/ William H. (Bill) Wood
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William H. (Bill) Wood
President and Chief Executive Officer
By: /s/ Henry B. Kayser
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Henry B. Kayser
Vice President and
Chief Financial Officer
Dated: May 20, 1996
9