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 December 31, 1996 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.)
425B Oser Avenue, Hauppauge, New York 11788
(Address of principal executive offices) Zip Code
(516) 231-1177
Issuer's telephone number, including area code
Not applicable
(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 February 12, 1997 2,750,000
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Coin Bill Validator, Inc.
Index
PART I. FINANCIAL INFORMATION
- - -----------------------------
Page Number
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Item 1. Financial Statements (Unaudited)
Balance Sheets - December 31, 1996 and September 30, 1996 3
Statements of Income - Three Months ended December 31, 1996
and 1995 4
Statements of Cash Flows - Three Months ended
December 31, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 7 - 8
PART II. OTHER INFORMATION
- - --------------------------
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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2
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COIN BILL VALIDATOR, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(Dollar amounts in thousands)
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,290 $ 2,727
Accounts receivable, less allowance for doubtful accounts
of $323 and $268, respectively 2,817 2,789
Inventory, less allowance for obsolescence of $1,069 and
$1,069, respectively 3,949 3,794
Prepaid expenses 129 83
Deferred income taxes 589 570
------- -------
Total current assets 9,774 9,963
Property and equipment, net 1,001 887
Other assets 45 53
Equity in unconsolidated affiliate (Note B) 25 --
------- -------
Total assets $10,845 $10,903
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,143 $ 807
Accrued expenses and other current liabilities 496 551
Income taxes payable 69 597
------- -------
Total current liabilities 1,708 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 1,102 913
------- -------
Total shareholders' equity 9,108 8,919
------- -------
Total liabilities and shareholders' equity $10,845 $10,903
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
COIN BILL VALIDATOR, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Dec. 31,
---------------------------
1996 1995
---- ----
(Dollar amounts in thousands,
except per share data)
<S> <C> <C>
Net sales $4,681 $3,147
Cost of sales 3,005 1,885
---------- ----------
Gross profit 1,676 1,262
Operating expenses 1,396 892
---------- ----------
Income from operations 280 370
Other income:
Equity in income of unconsolidated affiliate (Note B) 25 --
Interest income (expense), net 15 11
---------- ----------
Total other income 40 11
---------- ----------
Income before provision for income taxes 320 381
Provision for income taxes 131 162
---------- ----------
Net income $189 $219
========== ==========
Net income per share (Note C) $.07 $.08
========== ==========
Weighted average common shares outstanding (Note C) 2,854,864 2,750,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
COIN BILL VALIDATOR, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Dec. 31,
---------------------------
1996 1995
---- ----
(Dollar amounts in thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 189 $ 219
------- -------
Adjustments to reconcile net income to net cash used in
operating activities:
Equity in income of unconsolidated affiliate (25) --
Depreciation and amortization 78 24
Provision for losses on accounts receivable 17 25
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (45) 375
Increase in inventory (155) (770)
(Increase) decrease in prepaid expenses (46) 4
Increase in deferred income taxes (19) --
Decrease (increase) in other assets 8 (8)
Increase (decrease) in accounts payable 336 (169)
Decrease (increase) in accrued expenses (55) 115
(Decrease) in income taxes payable (528) (331)
------- -------
Total adjustments (434) (735)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (245) (516)
------- -------
INVESTING ACTIVITIES:
Deposits on purchases of property, plant and equipment -- (204)
Purchases of property, plant and equipment, net of proceeds from
disposals (192) (51)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (192) (255)
------- -------
NET DECREASE IN CASH (437) (771)
CASH AT BEGINNING OF PERIOD 2,727 1,811
------- -------
CASH AT END OF PERIOD $ 2,290 $ 1,040
======= =======
CASH PAID DURING THE PERIOD FOR:
Interest $ -- $ --
======= =======
Income taxes $ 677 $ 499
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Coin Bill Validator, Inc.
Notes to Financial Statements
December 31, 1996
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 10-01 of Regulation S-X.
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 three-month period ended December 31, 1996 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 INCOME OF AN UNCONSOLIDATED AFFILIATE
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 first quarter of fiscal 1997 include $25,000
equity in income of this affiliate.
NOTE C - NET INCOME PER SHARE
For the quarter ended December 31, 1996, net income per share includes the
impact of 104,864 weighted average common stock equivalents based on stock
options outstanding, using the treasury stock method. Primary and fully diluted
net income per share are the same amounts for the quarter ended December 31,
1996. For the quarter ended December 31, 1995, common stock equivalents, as
calculated using the treasury stock method, were anti-dilutive and therefore not
included in the net income per share calculation.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three months ended December 31, 1996 compared to three months ended December 31,
1995
Sales
Net sales increased by 48.7%, or $1,534,000, to $4,681,000 in the three months
ended December 31, 1996 from $3,147,000 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, as well
as gains in product acceptance in the beverage and vending industries.
Gross Profit
Gross profit increased to $1,676,000 or 35.8% of net sales, in the three months
ended December 31, 1996 from $1,262,000, or 40.1% of net sales, in the
comparative prior year period. The decrease in gross profit as a percentage of
sales was primarily the result of increased product costs, increased
manufacturing labor and benefit costs as well as a reduced gross profit
percentage on sales to a new customer in the beverage and vending division.
Operating Expenses
Operating expenses increased to $1,396,000, or 29.8% of net sales, in the three
months ended December 31, 1996 from $892,000, or 28.3% 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 Income
Other income was $40,000 in the three months ended December 31, 1996 as compared
with $11,000 in the comparative prior year period due principally to $25,000
equity in income of an unconsolidated affiliate in South Africa. The Company
obtained this 50% non-controlling interest in August 1996, with significant
operations commencing in fiscal 1997.
Net Income
Net income for the quarter was $189,000, or $.07 per share, as compared with
$219,000, or $.08 per share, in the comparative prior year period. The lower net
income for the quarter was attributable to expenses associated with
strengthening the Company's manufacturing, sales and engineering departments to
support anticipated future sales growth, including the hiring of additional
personnel and increased spending on research and development for new products,
as well as lower gross profit margins resulting from the Company's entry into
the beverage market.
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, 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 December 31, 1996, the Company's cash and cash equivalents were $2,290,000
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 December 31, 1996 or at September 30, 1996.
7
<PAGE>
Cash used in operations was $245,000 in the three months ended December 31,
1996. This use of cash was primarily attributable to net income of $189,000 and
increased trade credit of $336,000 offset by an increase in inventory of
$155,000 and payments of income taxes of $677,000. During the three months ended
December 31, 1995, cash used in operations was $516,000. This use of cash was
primarily attributable to increased inventory of $770,000 and payments of income
taxes of $499,000 offset by a reduction in accounts receivable of $375,000 and
net income of $219,000.
Cash used in investing activities for the three months ended December 31, 1996
amounted to $192,000 in 1996 compared with $255,000 in the prior year. Such
amounts were used for the purchase of property and equipment.
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.
8
<PAGE>
COIN BILL VALIDATOR, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule (1)
- - ------------------------
(1) Filed herewith.
b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
9
<PAGE>
Coin Bill Validator, Inc.
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Coin Bill Validator, Inc.
By: /s/ Edward Seidenberg
-------------------------
Vice President and
Principal Financial Officer
Dated: February 12, 1997
10
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,290
<SECURITIES> 0
<RECEIVABLES> 3,140
<ALLOWANCES> 323
<INVENTORY> 3,949
<CURRENT-ASSETS> 9,774
<PP&E> 1,506
<DEPRECIATION> 505
<TOTAL-ASSETS> 10,845
<CURRENT-LIABILITIES> 1,708
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 9,080
<TOTAL-LIABILITY-AND-EQUITY> 10,845
<SALES> 4,681
<TOTAL-REVENUES> 4,681
<CGS> 3,005
<TOTAL-COSTS> 4,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 320
<INCOME-TAX> 131
<INCOME-CONTINUING> 189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
