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, 1998 Commission File No. 0-25148
Global Payment Technologies, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 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)
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 May 11, 1998 5,526,300
<PAGE>
Global Payment Technologies, Inc.
Index
<TABLE>
<CAPTION>
Page Number
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Balance Sheets - March 31, 1998 and September 30, 1997 3
Statements of Income - Six Months ended March 31, 1998 and 1997 4
Statements of Income - Three Months ended March 31, 1998 and 1997 5
Statements of Cash Flows - Six Months ended March 31, 1998 and 1997 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
SIGNATURES 13
</TABLE>
2
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---------- ------------
(Dollar amounts in thousands,
except share data)
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,113 $1,913
Accounts receivable, less allowance for doubtful accounts
of $275 and $225, respectively 7,321 4,840
Inventory, less allowance for obsolescence of $863 and
$742, respectively 7,212 5,120
Prepaid expenses 185 110
Deferred income taxes 464 421
------- -------
Total current assets 16,295 12,404
Property and equipment, net 1,618 1,335
Investment in unconsolidated affiliates 551 355
Other assets 60 60
------- -------
Total assets $18,524 $14,154
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,282 $2,302
Accrued expenses and other current liabilities 2,159 1,230
Income taxes payable 86 109
Note payable to bank 1,000 --
------- -------
Total current liabilities 6,527 3,641
------- -------
Deferred income taxes 80 96
------- -------
Shareholders' equity:
Common stock, 20,000,000 shares authorized; $.01 par value,
5,526,200 and 5,506,200 shares issued and outstanding 55 55
Additional paid-in capital 8,097 7,974
Retained earnings 3,765 2,388
------- -------
Total shareholders' equity 11,917 10,417
------- -------
Total liabilities and shareholders' equity $18,524 $14,154
======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended March 31,
1998 1997
-------- -------
(Dollar amounts in thousands,
except share and per share data)
<S> <C> <C>
Net sales $ 17,853 $ 10,000
Cost of sales 10,275 6,412
---------- ----------
Gross profit 7,578 3,588
Operating expenses 5,408 2,890
---------- ----------
Income from operations 2,170 698
Other income:
Equity in income of unconsolidated affiliates 73 13
Interest income, net 30 24
---------- ----------
Total other income 103 37
---------- ----------
Income before provision for income taxes 2,273 735
Provision for income taxes 896 319
---------- ----------
Net income $ 1,377 $ 416
========== ==========
Net income per share:
Basic $ .25 $ .08
========== ==========
Diluted $ .23 $ .07
========== ==========
Common shares used in computing net income per share amounts:
Basic 5,507,720 5,500,000
========== ==========
Diluted 6,005,825 5,717,660
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
1998 1997
------- -------
(Dollar amounts in thousands,
except share and per share data)
<S> <C> <C>
Net sales $ 10,167 $ 5,319
Cost of sales 5,890 3,407
----------- -----------
Gross profit 4,277 1,912
Operating expenses 2,959 1,495
----------- -----------
Income from operations 1,318 417
----------- -----------
Other income (expense):
Equity in income (loss) of unconsolidated affiliates 16 (12)
Interest income, net 3 9
----------- -----------
Total other income (expense) 19 (3)
----------- -----------
Income before provision for income taxes 1,337 414
Provision for income taxes 543 187
----------- -----------
Net income $ 794 $ 227
=========== ===========
Net income per share:
Basic $ .14 $ .04
=========== ===========
Diluted $ .13 $ .04
=========== ===========
Common shares used in computing net income per share amounts:
Basic 5,509,093 5,500,000
=========== ===========
Diluted 6,013,843 5,725,592
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March 31,
1998 1997
-------- --------
(Dollar amounts in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,377 $ 416
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Equity in income of unconsolidated affiliates (73) (13)
Depreciation and amortization 299 162
Provision for losses on accounts receivable 79 12
Provision for inventory obsolescence 129 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,560) 1,098
Increase in inventory (2,221) (1,753)
Increase in prepaid expenses and other assets (75) (47)
(Increase) decrease in deferred income taxes (59) 25
Increase in accounts payable 980 390
Increase in accrued expenses and other current liabilities 929 309
Decrease in income taxes payable (23) (597)
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,218) 2
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of proceeds from disposals (582) (282)
Investments in unconsolidated affiliates (123) (60)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (705) (342)
------- -------
FINANCING ACTIVITIES:
Proceeds from note payable to bank 1,000 --
Issuance of stock upon exercise of stock options and warrants 123 --
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,123 --
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (800) (340)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,913 2,727
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,113 $ 2,387
======= =======
CASH PAID DURING THE PERIOD FOR:
Interest $ 4 $ --
======= =======
Income taxes $ 1,041 $ 470
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Global Payment Technologies, Inc.
Notes to Financial Statements
March 31, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Global Payment Technologies,
Inc. (the "Company"), including the September 30, 1997 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 S-B.
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, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended September 30, 1997.
NOTE B - STOCK SPLIT
In August 1997, the Company announced a two-for-one stock split of its Common
Stock. This split was effected by a 100% stock dividend, which was distributed
on September 4, 1997. All information contained in these financial statements
for periods prior thereto has been retroactively restated to give effect to this
stock split.
NOTE C - NET INCOME PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". In accordance with
SFAS No. 128, net income per common share amounts ("basic EPS") were computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Net income per common share amounts, assuming dilution ("diluted
EPS"), were computed by reflecting the potential dilution from the exercise of
stock options and stock warrants. SFAS No. 128 requires the presentation of both
basic EPS and diluted EPS on the face of the income statement. Net income per
share amounts for the same prior-year periods have been restated to conform to
the provisions of SFAS No. 128.
7
<PAGE>
Global Payment Technologies, Inc.
Notes to Financial Statements
March 31, 1998
NOTE C - NET INCOME PER COMMON SHARE (continued)
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net income is as follows:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1998 March 31, 1997
(In thousands, except per share data) (In thousands, except per share data)
------------------------------------- -------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income $1,377 $ 416
------- ------
Basic EPS
Net income attributable to common stock 1,377 5,507.7 $ .25 416 5,500.0 $ .08
Effect of dilutive securities
Stock options and warrants -- 498.1 .02 -- 217.7 .01
------ ------- ------- ------ ------- -------
Diluted EPS
Net income attributable to common
stock and assumed option and warrant
exercises $1,377 6,005.8 $ .23 $ 416 5,717.7 $ .07
====== ======= ======= ====== ======= =======
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
(In thousands, except per share data) (In thousands, except per share data)
------------------------------------- -------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 794 $227
------ ----
Basic EPS
Net income attributable to common stock 794 5,509.1 $ .14 227 5,500.0 $ .04
Effect of dilutive securities
Stock options and warrants -- 504.7 .01 -- 225.6 --
------ ------- ------ ---- ------- ------
Diluted EPS
Net income attributable to common
stock and assumed option and warrant
exercises $ 794 6,013.8 $ .13 $227 5,725.6 $ .04
====== ======= ======= ==== ======= =======
</TABLE>
Options to purchase 42,500 shares of common stock in the six months and three
months ended March 31, 1998, and options and warrants to purchase 230,000 shares
of common stock in the six months and three months ended March 31,1997, were not
included in the computation of diluted EPS because the exercise prices exceeded
the average market price of the common shares for these periods. These options
and warrants were still outstanding at the end of the related periods.
8
<PAGE>
Global Payment Technologies, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Six months ended March 31, 1998 compared with six months ended March 31, 1997
Sales
Net sales increased by 78.5%, or $7,853,000, to $17,853,000 in the six months
ended March 31, 1998 from $10,000,000 in the comparative prior year period. The
Company attributed the strong revenue growth to increased demand for its bill
validator products in the international gaming industry, particularly in
Australia, as well as progress in penetrating the international beverage and
vending market.
Gross Profit
Gross profit increased to $7,578,000, or 42.4% of net sales, in the six months
ended March 31, 1998 from $3,588,000, or 35.9% of net sales, in the comparative
prior year period. The increase in gross profit as a percentage of sales was
primarily the result of increased operating efficiencies and reduced product
costs.
Operating Expenses
Operating expenses increased to $5,408,000, or 30.3% of net sales, in the six
months ended March 31, 1998 from $2,890,000, or 28.9% of net sales, in the
comparative prior year period. The primary reason for the increase in operating
expenses was the result of increased commission expense of $1,263,000 paid to
distributors of the Company's products, including certain 50%-owned affiliates
providing in-country sales and service in Australia and South Africa. In
addition, the Company incurred increased staffing and related payroll costs to
support its growth strategy planned for fiscal 1998 and beyond.
Net Income
Net income for the six months ended March 31, 1998 was $1,377,000, or $.23 per
share, on a diluted basis, as compared with $416,000, or $.07 per share, on a
diluted basis, in the comparative prior year period. The Company owns 50%
non-controlling interests in local sales and service organizations in South
Africa and Australia and a manufacturing firm in China. Included in the results
of operations for the six months ended March 31, 1998 and 1997 are the Company's
share of profits (net of losses) of these affiliates of $73,000 and $13,000,
respectively.
Three months ended March 31, 1998 compared with three months ended March 31,
1997
Sales
Net sales increased by 91.1%, or $4,848,000, to $10,167,000 in the three months
ended March 31, 1998 from $5,319,000 in the comparative prior year period. The
Company attributed the strong revenue growth to increased demand for its bill
validator products in the international gaming industry, particularly in
Australia, as well as progress in penetrating the international beverage and
vending market.
Gross Profit
Gross profit increased to $4,277,000, or 42.1% of net sales, in the three months
ended March 31, 1998 from $1,912,000, or 35.9% of net sales, in the comparative
prior year period. The increase in gross profit as a percentage of sales was
primarily the result of increased operating efficiencies and reduced product
costs.
9
<PAGE>
Global Payment Technologies, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Operating Expenses
Operating expenses increased to $2,959,000, or 29.1% of net sales, in the three
months ended March 31, 1998 from $1,495,000, or 28.1% of net sales, in the
comparative prior year period. The primary reason for the increase in operating
expenses was the result of increased commission expense of $755,000 paid to
distributors of the Company's products, including certain 50%-owned affiliates
providing in-country sales and service in Australia and South Africa. In
addition, the Company incurred increased staffing and related payroll costs to
support its growth strategy in fiscal 1998 and beyond.
Net Income
Net income for the quarter was $794,000, or $.13 per share, on a diluted basis,
as compared with $227,000, or $.04 per share, on a diluted basis, in the
comparative prior year period. The Company owns 50% non-controlling interests in
local sales and service organizations in South Africa and Australia and a
manufacturing firm in China. Included in the results of operations for the three
months ended March 31, 1998 and 1997 are the Company's share of net profits (net
losses) of these affiliates of $16,000 and ($12,000), respectively.
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 and sales and marketing operations, and to a lesser degree,
interest payments on the Company's indebtedness. 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 1998 and beyond.
At March 31, 1998, the Company's cash and cash equivalents were $1,113,000
compared with $1,913,000 at September 30, 1997. On February 6, 1998, the Company
renewed its $5,000,000 line of credit with The Chase Manhattan Bank. This
facility allows for borrowings on an unsecured basis and expires on March 31,
1999. Outstanding borrowings will bear interest at the bank's prime rate per
annum or, at the Company's option, for borrowings greater than $500,000, LIBOR
plus 175 basis points per annum. As of March 31, 1998, $1,000,000 was
outstanding under this line of credit.
Net cash used in operating activities was $1,218,000 in the six months ended
March 31, 1998. This amount is due to increased inventory of $2,221,000 and
increased accounts receivable of $2,560,000, offset, in part, by net income for
the period, adjusted for non-cash items, of $1,811,000 and an increase in
accounts payable and accrued expenses and other current liabilities of $980,000
and $929,000, respectively. Net cash provided by operating activities was $2,000
in the six months ended March 31, 1997. This cash provided by operations was
primarily attributable to net income for the period, adjusted for non-cash
items, of $577,000, decreased accounts receivable of $1,098,000 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.
Cash used in investing activities for the six months ended March 31, 1998
amounted to $705,000 as compared with $342,000 in the prior year period.
Investments in property and equipment for the six months ended March 31, 1998
amounted to $582,000 as compared with $282,000 in 1997. In addition, the Company
loaned its joint ventures approximately $123,000 and $60,000 for the six months
ended March 31, 1998 and 1997, respectively. These loans have been added to the
investment in unconsolidated affiliates as a result of the terms of the related
agreements.
10
<PAGE>
Global Payment Technologies, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
Cash provided by financing activities in the six months ended March 31, 1998 was
related primarily to bank borrowings of $1,000,000 for working capital needs to
fund the growth of the Company, as well as proceeds of $123,000 received from
the exercise of stock options and warrants.
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 shortages of key parts and/or raw
materials; possible risks of product inventory obsolescence; potential
difficulties in managing growth; dependence on key personnel; the Company's
dependence on a limited base of customers for a significant portion of sales;
the possible impact of competitive products and pricing; uncertainties with
respect to the Company's business strategy; general economic conditions in the
domestic and international markets in which the Company operates; and other
risks described in the Company's Securities and Exchange Commission filings.
11
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1998 Annual Meeting of Stockholders held on March 10, 1998,
stockholders:
(a) Elected the following persons to serve as directors of the Company, by the
following votes:
For Withheld
--- --------
Stephen Katz 5,455,222 50
William H. Wood 5,453,222 2,050
Edward Seidenberg 5,455,222 50
Henry B. Ellis 5,455,222 50
Richard E. Gerzof 5,455,222 50
Martin H. Kern 5,455,222 50
(b) Approved an amendment to the Company's By-laws to provide for a classified
Board of Directors, by the following vote:
For: 2,991,129
Against: 31,230
Abstained: 28,150
Broker Non-Votes 2,404,763
(c) Approved an amendment to th e Company's 1994 Stock Option Plan to limit the
number of shares for which options may be granted to any one individual in
any fiscal year to 200,000, by the following vote:
For: 5,428,642
Against: 9,600
Abstained: 17,030
Broker Non-Votes 0
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit # Description
--------- ----------------------------------------
27 Financial Data Schedule (1)
- ----------
(1) Filed herewith.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this report
is filed.
12
<PAGE>
Global Payment Technologies, Inc.
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Global Payment Technologies, Inc.
By: s/ Thomas McNeill
-----------------
Vice President,
Chief Financial Officer and
Principal Accounting Officer
Dated: May 12, 1998
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,113
<SECURITIES> 0
<RECEIVABLES> 7,596
<ALLOWANCES> 275
<INVENTORY> 7,212
<CURRENT-ASSETS> 16,295
<PP&E> 2,687
<DEPRECIATION> 1,069
<TOTAL-ASSETS> 18,524
<CURRENT-LIABILITIES> 6,527
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 11,862
<TOTAL-LIABILITY-AND-EQUITY> 18,524
<SALES> 17,853
<TOTAL-REVENUES> 17,853
<CGS> 10,275
<TOTAL-COSTS> 15,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 79
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 2,273
<INCOME-TAX> 896
<INCOME-CONTINUING> 1,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,377
<EPS-PRIMARY> .25
<EPS-DILUTED> .23
</TABLE>
