UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
-----------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997 Commission File No. 0-25148
-------------- -------
Coin Bill Validator, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 11-2974651
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 East Sunrise Highway, Suite 201,Valley Stream, New York 11581
- - ---------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(516) 256-1000
------------------------------------------------
(Issuer's telephone number, including area code)
Former Executive Office: 425B Oser Avenue, Hauppauge, NY 11788
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) has 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
---- ----
Shares of Common Stock outstanding on May 13, 1997 2,750,000
----------
<PAGE>
Coin Bill Validator, Inc.
-------------------------
Index
-----
PART I. FINANCIAL INFORMATION
- - ------------------------------
Page Number
-----------
Item 1. Financial Statements
Balance Sheets - March 31, 1997 and September 30, 1996 3
Statements of Income - Six Months ended March 31, 1997
and 1996 4
Statements of Income - Three Months ended March 31, 1997
and 1996 5
Statements of Cash Flows - Six Months ended March 31, 1997
and 1996 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
- - ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
INDEX OF EXHIBITS 13
- - -----------------
SIGNATURES 14
- - ----------
2
<PAGE>
COIN BILL VALIDATOR, INC.
-------------------------
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
BALANCE SHEETS
--------------
March 31, September 30,
1997 1996
------- -------
(Dollar amounts in thousands,
except per share data)
(Unaudited)
ASSETS
- - ------
Current assets:
Cash and cash equivalents $ 2,387 $ 2,727
Accounts receivable, less allowance for doubtful
accounts of $275 and $268, respectively 1,679 2,789
Inventory, less allowance for obsolescence
of $999 and $1,069, respectively 5,547 3,794
Prepaid expenses 120 83
Deferred income taxes 545 570
------- -------
Total current assets 10,278 9,963
Property and equipment, net 1,007 887
Other assets 63 53
Equity in unconsolidated affiliates 73 --
------- -------
Total assets $11,421 $10,903
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable $ 1,197 $ 807
Accrued expenses and other current liabilities 860 551
Income taxes payable -- 597
------- -------
Total current liabilities 2,057 1,955
------- -------
Deferred income taxes 29 29
------- -------
Shareholders' equity:
Common stock, 20,000,000 shares authorized;
$.01 par value, 2,750,000 shares
issued and outstanding 28 28
Additional paid-in capital 7,978 7,978
Retained earnings 1,329 913
------- -------
Total shareholders' equity 9,335 8,919
------- -------
Total liabilities and shareholders' equity $11,421 $10,903
======= =======
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
COIN BILL VALIDATOR, INC.
-------------------------
STATEMENTS OF INCOME
--------------------
(Unaudited)
-----------
Six Months ended March 31,
--------------------------
1997 1996
----------- -----------
(Dollar amounts in thousands,
except per share data)
Net sales $ 10,000 $ 7,540
Cost of sales 6,412 5,897
----------- -----------
Gross profit 3,588 1,643
Operating expenses 2,890 2,195
----------- -----------
Income (loss) from operations 698 (552)
----------- -----------
Other income:
Equity in income of unconsolidated affiliates 13 --
Interest income, net 24 13
----------- -----------
Total other income 37 13
----------- -----------
Income (loss) before provision for income taxes 735 (539)
Provision (credit) for income taxes 319 (216)
----------- -----------
Net income (loss) $ 416 ($ 323)
=========== ===========
Net income (loss) per share $ .15 ($ .12)
=========== ===========
Weighted average common shares outstanding 2,858,830 2,750,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
COIN BILL VALIDATOR, INC.
-------------------------
STATEMENTS OF INCOME
--------------------
(Unaudited)
-----------
Three Months ended March 31,
----------------------------
1997 1996
------------ ------------
(Dollar amounts in thousands,
except per share data)
Net sales $ 5,319 $ 4,394
Cost of sales 3,407 4,013
----------- -----------
Gross profit 1,912 381
Operating expenses 1,495 1,302
----------- -----------
Income (loss) from operations 417 (921)
----------- -----------
Other (expense) income:
Equity in loss of unconsolidated affiliates (12) --
Interest income, net 9 2
----------- -----------
Total other (expense) income (3) 2
----------- -----------
Income (loss) before provision for income taxes 414 (919)
Provision (credit) for income taxes 187 (377)
----------- -----------
Net income (loss) $ 227 ($ 542)
=========== ===========
Net income (loss) per share $ .08 ($ .20)
=========== ===========
Weighted average common shares outstanding 2,862,796 2,750,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
COIN BILL VALIDATOR, INC.
-------------------------
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months ended March 31,
--------------------------
1997 1996
------- -------
(Dollar amounts in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 416 ($ 323)
------- -------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in income of unconsolidated affiliates (13) --
Depreciation and amortization 162 93
Provision for losses on accounts receivable 12 --
Provision for inventory obsolescence -- 1,132
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,098 (250)
(Increase) in inventory (1,753) (902)
(Increase) in prepaid expenses (37) (63)
Decrease (increase) in deferred income taxes 25 (182)
(Increase) decrease in other assets (10) 16
Increase in accounts payable 390 87
Increase in accrued expenses 309 27
(Decrease) in income taxes payable (597) (340)
------- -------
Total adjustments (414) (382)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2 (705)
------- -------
INVESTING ACTIVITIES:
Investments in unconsolidated affiliates (60) --
Purchases of property, plant and equipment, net of proceeds from
disposals (282) (368)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (342) (368)
------- -------
FINANCING ACTIVITIES:
Increase in notes payable to bank -- 500
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 500
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (340) (573)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,727 1,811
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,387 $ 1,238
======= =======
CASH PAID DURING THE PERIOD FOR:
Interest $ -- $ --
======= =======
Income taxes $ 470 $ 499
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Coin Bill Validator, Inc.
-------------------------
Notes to Financial Statements
-----------------------------
March 31, 1997
--------------
NOTE A - BASIS OF PRESENTATION
- - ------------------------------
The accompanying unaudited financial statements of Coin Bill Validator, Inc.
(the "Company"), including the September 30, 1996 balance sheet which has been
derived from audited financial statements, have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Rule 310 of Regulation SB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The operating
results for the six-month and three-month periods ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the period ended September 30, 1996.
NOTE B - EQUITY IN UNCONSOLIDATED AFFILIATES
- - --------------------------------------------
In August 1996, the Company acquired a 50% non-controlling interest in a South
African affiliate. This entity is responsible for sales and service of the
Company's products in the South African region, on an exclusive basis. The
results of operations for the six months and three months ended March 31, 1997
include equity in income (loss) of this affiliate in the amount of $13,000 and
($12,000), respectively.
During the second quarter of 1997, the Company acquired a 50% non-controlling
interest in a China-based affiliate, through the Company's Delaware affiliate,
CBV China Venture Limited. This entity will manufacture plastic components, some
of which will be used by the Company in its production. In addition to a $1,000
equity investment, the Company is obligated to loan up to $299,000 on the
following terms; loans shall bear interest at the rate of 1 1/2% above the prime
rate prevailing from time to time at Chase Manhattan Bank, per annum. The
Delaware affiliate will repay principal and interest on the loan, in amounts not
less than 60% of its China-based subsidiary's net income, on a quarterly basis.
During the quarter ended March 31, 1997, the Company invested $60,000 in this
entity, which has not yet commenced principal operations.
NOTE C - INVENTORY OBSOLESCENCE
- - -------------------------------
During the second quarter of 1996, the Company wrote down inventory in the
amount of $1.1 million associated with early generation products, the future
sales of which management believed would be adversely impacted by sales of newly
released products. This writedown was charged to cost of sales.
NOTE D - NET INCOME (LOSS) PER SHARE
- - ------------------------------------
For the six months and three months ended March 31, 1997, net income per share
includes the impact of 108,830 and 112,796 weighted average common stock
equivalents, respectively, based on stock options outstanding using the treasury
stock method. Primary and fully diluted net income per share are the same
amounts for the six months and three months ended March 31, 1997. For the six
months and three months ended March 31, 1996, common stock equivalents, as
calculated using the treasury stock method, were anti-dilutive and therefore not
included in the net loss per share calculation.
7
<PAGE>
Coin Bill Validator, Inc.
-------------------------
Notes to Financial Statements
-----------------------------
March 31, 1997
--------------
(continued)
-----------
NOTE E - RECENTLY ISSUED ACCOUNTING STANDARDS
- - ---------------------------------------------
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per share
("EPS"), replacing the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of operations. Under this new standard, Basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently required fully diluted EPS. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, and earlier application is not
permitted. When adopted, the Company will be required to restate its EPS data
for all prior periods presented. The Company does not expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- - ---------------------
Six months ended March 31, 1997 compared to six months ended March 31, 1996
- - ---------------------------------------------------------------------------
Sales
Net sales increased by 32.6%, or $2,460,000, to $10,000,000 in the six months
ended March 31, 1997 from $7,540,000 in the comparative prior year period. The
Company attributed the strong revenue growth to increased demand for its bill
validator products primarily in the international gaming industry.
Gross Profit
Gross profit increased to $3,588,000 or 35.9% of net sales, in the six months
ended March 31, 1997 from $1,643,000, or 21.8% of net sales, in the comparative
prior year period. The prior year's results were significantly impacted by an
inventory writedown of approximately $1.1 million. Excluding this writedown, the
Company's gross profit as a percent of sales was 36.8%. This decrease in gross
profit as a percent of sales is due to increased product costs, manufacturing
labor and benefit costs as well as a reduced gross profit on sales to a new
customer in the beverage and vending division.
Operating Expenses
Operating expenses increased to $2,890,000, or 28.9% of net sales, in the six
months ended March 31, 1997 from $2,195,000, or 29.1% of net sales, in the
comparative prior year period. This increase was principally due to increased
staffing and related payroll costs to support expansion of engineering efforts
as well as increased selling and administrative expenses to support marketing
activities associated with the Company's growth strategy.
Other Income
Other income was $37,000 in the six months ended March 31, 1997 as compared with
$13,000 in the comparative prior year period. This increase was due principally
to $13,000 equity in income of an unconsolidated affiliate in South Africa and
increased interest income. The Company obtained this 50% non-controlling
interest in August 1996 while its significant operations commenced in fiscal
1997.
Net Income (Loss)
Net income for the six months ended March 31, 1997 was $416,000, or $.15 per
share, as compared with ($323,000), or ($.12) per share, in the comparative
prior year period. The increased net income for the six months ended March 31,
1997 was primarily attributable to the pre-tax inventory writedown recorded in
the prior year. Excluding the impact of the inventory writedown, net income
would have been $356,000, or $.13 per share, in the six months ended March 31,
1996. A large portion of the increased gross profit dollars, as a result of
increased sales, were used to strengthen the Company's manufacturing, sales and
engineering departments to support the current and anticipated sales growth and
increased spending on research and development for new products.
9
<PAGE>
Results of Operations (continued)
- - ---------------------------------
Three months ended March 31, 1997 compared to three months ended March 31, 1996
- - -------------------------------------------------------------------------------
Sales
Net sales increased by 21.1%, or $925,000, to $5,319,000 in the three months
ended March 31, 1997 from $4,394,000 in the comparative prior year period. The
Company attributed the strong revenue growth to increased demand for its bill
validator products primarily in the international gaming industry.
Gross Profit
Gross profit increased to $1,912,000 or 35.9% of net sales, in the three months
ended March 31, 1997 from $381,000, or 8.7% of net sales, in the comparative
prior year period. Excluding the inventory writedown of approximately $1.1
million in the prior year, the Company's gross profit as a percent of sales was
34.4%. This increase in gross profit, as a percentage of sales, was principally
due to operational efficiencies.
Operating Expenses
Operating expenses increased to $1,495,000, or 28.1% of net sales, in the three
months ended March 31, 1997 from $1,302,000, or 29.6% of net sales, in the
comparative prior year period. This increase was principally due to increased
staffing and related payroll costs to support expansion of engineering efforts
and increased selling and administrative expenses to support marketing
activities associated with the Company's growth strategy.
Other (Expense) Income
Other income was ($3,000) in the three months ended March 31, 1997 as compared
with $2,000 in the comparative prior year period. This decrease was due to
($12,000) equity in loss of an unconsolidated affiliate in South Africa offset
by an increase in interest income.
Net Income (Loss)
Net income for the quarter was $227,000, or $.08 per share, as compared with
($542,000), or ($.20) per share, in the comparative prior year period. The
increased net income for the quarter was primarily attributable to the pre-tax
inventory writedown recorded in the prior year. Excluding the impact of the
inventory writedown, net income would have been $126,000, or $.05 per share, in
the three months ended March 31, 1996. A large portion of the increased gross
profit dollars, as a result of increased sales, were used to strengthen the
Company's manufacturing, sales and engineering departments to support the
current and anticipated sales growth and increased spending on research and
development for new products.
Liquidity and Capital Resources
- - -------------------------------
The Company's capital requirements consist primarily of those necessary to
continue to expand and improve manufacturing and product development
capabilities, sales and marketing operations, investments in affiliates, and to
a lesser extent, interest payments should the Company decide to utilize
borrowings to fund future growth. The Company believes that its available
resources, including its credit facility, should be sufficient to meet its
obligations as they become due and permit continuation of its planned expansion
throughout fiscal 1997 and beyond.
At March 31, 1997, the Company's cash and cash equivalents were $2,387,000
compared with $2,727,000 at September 30, 1996. The Company has a $5,000,000
secured line of credit from a financial institution, none of which was
outstanding at March 31, 1997 or at September 30, 1996.
Cash provided by operations was $2,000 in the six months ended March 31, 1997.
This cash provided was primarily attributable to net income of $416,000,
decreased accounts receivables of $1,098,000 due primarily from improved
customer collections and increased accounts payable and accrued expenses of
$699,000, offset by an increase in inventory of $1,753,000 and a decrease in
income taxes payable of $597,000. While inventory as of March 31, 1997 was 25%
to 30% higher than management believed optimum, sales, which are already
accelerating, are expected to
10
<PAGE>
Liquidity and Capital Resources (continued)
- - -------------------------------------------
continue to increase thereby reducing inventory levels by year end. During the
six months ended March 31, 1996, cash used in operations was $705,000. This use
of cash was primarily attributable to the net loss of $323,000, increased
inventory of $902,000, decreased income taxes payable of $340,000 and increased
accounts receivable of $250,000, offset by a provision for inventory
obsolescence of $1,132,000.
Cash used in investing activities for the six months ended March 31, 1997
amounted to $342,000 compared with $368,000 in the prior year period. In 1997,
the Company made an initial investment of $60,000 in a China-based plastic
manufacturing entity, through its Delaware affiliate, with commitments of
additional loans of up to $240,000 expected in the next two quarters. The
remaining investing activities of $282,000 in the six months ended March 31,
1997 and all investing activities in the comparable prior period of $368,000
were for the purchase of property and equipment. The Company is currently
negotiating to expand its presence in South Africa which may require additional
investments in the future.
Cash provided by financing activities in the six months ended March 31, 1996 was
related to borrowings of $500,000, which were subsequently repaid by September
30, 1996. On April 14, 1997, the Company's $5 million credit line was extended
through March 31, 1998.
Special Note Regarding Forward-Looking Statements:
- - --------------------------------------------------
A number of statements contained in this discussion and analysis are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the
applicable statements. These risks and uncertainties include but are not limited
to: the Company's dependence on the paper currency validator market and its
potential vulnerability to technological obsolescence; the risks that its
current and future products may contain errors or defects that would be
difficult and costly to detect and correct; potential manufacturing
difficulties; potential difficulties in managing growth; dependence on key
personnel; the Company's limited customer base and reliance on a relatively
small number of customers; the possible impact of competitive products and
pricing; and other risks described in the Company's Securities and Exchange
Commission filings.
11
<PAGE>
COIN BILL VALIDATOR, INC.
-------------------------
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1997 Annual Meeting of Stockholders held on March 17, 1997,
stockholders:
(a) Elected the following persons to serve as directors until the Company's
1998 Annual Meeting of Stockholders and until their respective successors are
duly elected and qualified, by the following votes:
For Against
--- -------
Henry B. Ellis 2,705,613 7,800
Richard Gerzof 2,659,615 53,798
Jay Goldberg 2,706,613 6,800
Stephen Katz 2,705,613 7,800
Edward Seidenberg 2,705,613 7,800
Joan Vogel 2,659,615 53,798
William H. Wood 2,659,615 53,798
(b) Approved the Company's 1996 Stock Option Plan, and an amendment
thereto, authorizing grants of options to officers, directors, key employees and
others who perform services for the Company and increasing the number of shares
of Common Stock authorized for issuance under the plan to 450,000 shares, by the
following vote:
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
1,855,453 86,906 1,605 769,449
(c) Approved a change of the Company's state of incorporation from New York
to Delaware to be effected by the merger of the Company into the Company's
wholly-owned subsidiary, Global Payment Technologies, Inc., a Delaware
corporation ("GPTI"), pursuant to an Agreement and Plan of Merger between the
Company and GPTI, by the following vote:
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
1,861,803 3,850 77,811 769,949
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits. See Index of Exhibits (page 13) for a listing filed with
this Quarterly Report on Form 10-QSB.
b) Reports on Form 8-K. No reports on 8-K were filed for the quarter
for which this report is filed.
12
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit
Number Description
- - ------ -----------
2(a) Agreement and Plan of Merger dated as of March 17, 1997
between Global Payment Technologies, Inc. and the Company.
(Incorporated by reference to Exhibit B to the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders, File
No. 0-25148).
10(a) Company's 1996 Stock Option Plan. (Incorporated by reference
to Exhibit A to the Company's Proxy Statement for the 1997
Annual Meeting of Shareholders, File No. 0- 25148).
27 Financial Data Schedule.
13
<PAGE>
Coin Bill Validator, Inc.
-------------------------
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Coin Bill Validator, Inc.
-------------------------
By: s/ Edward Seidenberg
-------------------------
Vice President and
Chief Operating Officer
Dated: May 14, 1997
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,387
<SECURITIES> 0
<RECEIVABLES> 1,954
<ALLOWANCES> 275
<INVENTORY> 5,547
<CURRENT-ASSETS> 10,278
<PP&E> 1,595
<DEPRECIATION> 588
<TOTAL-ASSETS> 11,421
<CURRENT-LIABILITIES> 2,057
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 9,307
<TOTAL-LIABILITY-AND-EQUITY> 11,421
<SALES> 10,000
<TOTAL-REVENUES> 10,000
<CGS> 6,412
<TOTAL-COSTS> 9,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 735
<INCOME-TAX> 319
<INCOME-CONTINUING> 416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 416
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
