UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999 Commission File No. 0-25148
Global Payment Technologies, Inc.
(Exact name of registrant 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
(Registrant'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 registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 ___
Shares of Common Stock outstanding on May 12, 1999 5,385,300
<PAGE>
Global Payment Technologies, Inc.
Index
PART I. FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and September 30, 1998 3
Consolidated Statements of Income -
Six Months ended March 31, 1999 and 1998 4
Consolidated Statements of Income -
Three Months ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows -
Six Months ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
See Item 2 Above
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
-------- --------
(Dollar amounts in thousands,
except share data)
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,151 $ 834
Accounts receivable from affiliates 11,615 4,497
Accounts receivable, less allowance for doubtful accounts
of $283 and $248, respectively 1,910 5,854
Inventory, less allowance for obsolescence of $925 and
$942, respectively 8,805 8,090
Prepaid expenses and other current assets 345 254
Deferred income tax benefit 947 584
-------- --------
Total current assets 24,773 20,113
Property and equipment, net 1,705 1,758
Investments in unconsolidated affiliates 936 582
Other assets 124 130
-------- --------
Total assets $ 27,538 $ 22,583
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 5,794 $ 4,097
Accounts payable 3,601 2,044
Accrued expenses and other current liabilities 2,179 2,925
Income taxes payable 591 430
-------- --------
Total current liabilities 12,165 9,496
-------- --------
Shareholders' equity:
Common Stock, 20,000,000 shares authorized; $.01 par value,
5,593,900 and 5,570,300 shares issued 56 56
Additional paid-in capital 8,441 8,334
Retained earnings 8,170 5,744
-------- --------
16,667 14,134
Less: Treasury stock, at cost, 209,200 and 165,000 shares (1,294) (1,047)
-------- --------
Total shareholders' equity 15,373 13,087
-------- --------
Total liabilities and shareholders' equity $ 27,538 $ 22,583
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended March 31,
--------------------------
1999 1998
----------- -----------
(Dollar amounts in thousands,
except share and per share data)
<S> <C> <C>
Net sales
Affiliates $ 17,519 $ 202
Non-affiliates 7,973 17,651
----------- -----------
25,492 17,853
Cost of sales 15,372 10,275
----------- -----------
Gross profit 10,120 7,578
Operating expenses 5,599 5,408
----------- -----------
Income from operations 4,521 2,170
Other (expense) income:
Equity in (loss) income of unconsolidated affiliates (654) 73
Interest (expense) income, net (177) 30
----------- -----------
Total other (expense) income (831) 103
----------- -----------
Income before provision for income taxes 3,690 2,273
Provision for income taxes 1,264 896
----------- -----------
Net income $ 2,426 $ 1,377
=========== ===========
Net income per share:
Basic $ .45 $ .25
=========== ===========
Diluted $ .42 $ .23
=========== ===========
Common shares used in computing net income
per share amounts:
Basic 5,373,380 5,507,720
=========== ===========
Diluted 5,795,626 6,005,825
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------
1999 1998
------------ ------------
(Dollar amounts in thousands,
except share and per share data)
<S> <C> <C>
Net sales
Affiliates $ 8,584 $ 81
Non-affiliates 4,605 10,086
----------- -----------
13,189 10,167
Cost of sales 7,920 5,890
----------- -----------
Gross profit 5,269 4,277
Operating expenses 2,713 2,959
----------- -----------
Income from operations 2,556 1,318
Other (expense) income:
Equity in (loss) income of unconsolidated affiliates (469) 16
Interest (expense) income, net (89) 3
----------- -----------
Total other (expense) income (558) 19
----------- -----------
Income before provision for income taxes 1,998 1,337
Provision for income taxes 708 543
----------- -----------
Net income $ 1,290 $ 794
=========== ===========
Net income per share:
Basic $ .24 $ .14
=========== ===========
Diluted $ .22 $ .13
=========== ===========
Common shares used in computing net income
per share amounts:
Basic 5,376,431 5,509,093
=========== ===========
Diluted 5,865,426 6,013,843
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------
1999 1998
----------- -----------
(Dollar amounts in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,426 $ 1,377
Adjustments to reconcile net income to net cash used in
operating activities:
Equity in loss (income) of unconsolidated affiliates 654 (73)
Depreciation and amortization 376 299
Provision for losses on accounts receivable 54 79
Provision for inventory obsolescence 328 129
Deferred income taxes (363) (59)
Changes in operating assets and liabilities:
Increase in accounts receivable (4,234) (2,560)
Increase in inventory (1,043) (2,221)
Increase in prepaid expenses and other assets (85) (75)
Increase in accounts payable 1,557 980
(Decrease) increase in accrued expenses and other current liabilities (746) 929
Increase (decrease) in income taxes payable 161 (23)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (915) (1,218)
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of proceeds from disposals (323) (582)
Investments in unconsolidated affiliates (3) (123)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (326) (705)
------- -------
FINANCING ACTIVITIES:
Net proceeds from note payable to bank 1,697 1,000
Purchase of treasury stock (247) --
Issuance of stock upon exercise of stock options and warrants 108 123
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,558 1,123
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 317 (800)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 834 1,913
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,151 $ 1,113
======= =======
CASH PAID DURING THE PERIOD FOR:
Interest $ 172 $ 4
======= =======
Income taxes $ 1,465 $ 1,041
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Global Payment Technologies, Inc.
Notes to Consolidated Financial Statements
March 31, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Global Payment
Technologies, Inc. (the "Company"), including the September 30, 1998
consolidated 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-Q 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- and
six-month periods ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended September 30, 1998.
NOTE B - RECLASSIFICATION
Certain prior-year financial statement amounts have been reclassified to conform
to the current year's presentation.
NOTE C - STOCK REPURCHASE
In June 1998, the Board of Directors approved a common stock repurchase plan,
providing for the purchase of up to 500,000 shares of the Company's common stock
over a one-year period, using a separately established line of credit. In
September 1998, the Company purchased 165,000 shares of its common stock at a
cost of $1,047,000 and in October 1998, the Company purchased 41,000 shares of
its common stock at a cost of $223,000. During January 1999, the Company
purchased an additional 3,200 shares of its common stock at a cost of $24,000.
NOTE D - NET INCOME PER COMMON SHARE
The Company accounts for earnings per share pursuant to Statement of Financial
Accounting Standards 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.
7
<PAGE>
Global Payment Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
March 31, 1999
NOTE D - NET INCOME PER COMMON SHARE (continued)
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net income appears below:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1999 March 31, 1998
(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 $2,426 $ 1,377
------ -------
Basic EPS
Net income attributable to Common Stock 2,426 5,373.4 $.45 1,377 5,507.7 $.25
Effect of dilutive securities
Stock options and warrants -- 422.2 (.03) -- 498.1 (.02)
------ ------- ---- ------- ------- -----
Diluted EPS
Net income attributable to Common
Stock and assumed option and warrant
exercises $2,426 5,795.6 $.42 $ 1,377 6,005.8 $ .23
====== ======= ==== ======= ======= =====
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
(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 $1,290 $ 794
------ -----
Basic EPS
Net income attributable to Common Stock 1,290 5,376.4 $ .24 794 5,509.1
$ .14
Effect of dilutive securities
Stock options and warrants -- 489.0 ( .02) -- 504.7 (.01)
------ ------- ----- ----- ------- -----
Diluted EPS
Net income attributable to Common
Stock and assumed option and warrant
exercises $1,290 5,865.4 $ .22 $ 794 6,013.8 $ .13
====== ======= ===== ===== ======= =====
</TABLE>
Options to purchase 93,250 shares of Common Stock in the six months and three
months ended March 31, 1999 and options to purchase 42,500 shares of Common
Stock in the six months and three months ended March 31, 1998, 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 were
still outstanding at the end of the related periods.
NOTE E - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
8
<PAGE>
Global Payment Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
March 31, 1999
NOTE E - RECENTLY ISSUED ACCOUNTING STANDARDS (continued)
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).
While the Company operates in international markets, it does so presently
without the use of derivative instruments and therefore SFAS No. 133 is not
currently applicable.
In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity
during a period, except those resulting from investments by owners and
distributions to owners, for the period in which they are recognized.
Comprehensive income is the total of net income and all other non-owner changes
in equity (or other comprehensive income) such as unrealized gains/losses on
securities classified as available-for-sale, foreign currency translation
adjustments and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of annual financial statements
or in the case of interim reporting, the footnote approach may be utilized. For
fiscal years 1998 and 1997, and for the quarters ended March 31, 1999 and 1998,
the Company's operations did not give rise to items includable in comprehensive
income which were not already included in net income. Accordingly, the Company's
comprehensive income is the same as its net income for all periods presented.
NOTE F - SUBSEQUENT EVENT
On April 7, 1999, the Company acquired a 25% equity interest in Abacus Financial
Management Systems Ltd ("Abacus"), a UK-based software company, for a diminimus
amount. This investment will be accounted for under the equity method. Abacus
has developed a cash management system of which the Company's validators are a
key component. In addition, the Company and the principal of Abacus have formed
Abacus Financial Management, Inc. USA, which is 80% owned by the Company and
which has the exclusive right to distribute Abacus' system in North America.
9
<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, 1999 compared with six months ended March 31, 1998
Sales
Net sales increased by 42.8%, or $7,639,000, to $25,492,000 in the six months
ended March 31, 1999 as compared with $17,853,000 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.
Gross Profit
Gross profit increased to $10,120,000, or 39.7% of net sales, in the six months
ended March 31, 1999 from $7,578,000, or 42.4% of net sales, in the comparative
prior-year period. The decrease in gross profit as a percentage of sales was
primarily the result of a change in the Company's distribution method which
began during the fourth quarter of fiscal 1998, whereby the Company sells
directly to its Australian and South African affiliates which subsequently sell
the Company's products into those respective markets. Previously, the Company
sold directly to the customer, recognizing additional revenues and the related
commission expense. In the six months ended March 31, 1999, the Company's gross
profit as a percent of net sales was consistent with the comparative prior-year
period, after excluding the effects of this change in distribution method. As a
result of this change, the Company expects future operating results to reflect a
lower gross profit percentage from these sales, as compared with the prior year,
and a commensurate reduction in sales commissions within its operating expenses.
Operating Expenses
Operating expenses increased to $5,599,000, or 22.0% of net sales, in the six
months ended March 31, 1999 as compared with $5,408,000, or 30.3% of net sales,
in the comparative prior-year period. The primary reason for the increase in
operating expenses was additional staffing and related payroll costs to support
the Company's growth strategy in fiscal 1999 and beyond, and to a lesser extent,
the inclusion of the operating expenses of the Company's 70%-owned European
subsidiary, formed in June 1998 and consolidated in the results of the Company's
operations thereafter. These increased costs were offset, in part, by a
reduction in sales commissions on sales to Australia and South Africa as a
result of the shift in the distribution method noted above.
Net Income
Net income for the six months ended March 31, 1999 was $2,426,000, or $0.42 per
share, as compared with $1,377,000, or $0.23 per share, in the comparative
prior-year period. The Company owns a one-third interest in its South African
affiliate and 50% non-controlling interests in a local sales and service
organization in Australia and in a manufacturing firm in China, all of which are
accounted for using the equity method. Included in the results of operations for
the six months ended March 31, 1999 and 1998 are the Company's share of (net
losses) net profits of these affiliates of ($654,000) and $73,000, respectively.
In the six months ended March 31, 1999, equity in income of unconsolidated
affiliates has been reduced by approximately $1,005,000, which represents the
gross profit on the Company's sales to its affiliates that have not yet been
recognized by the affiliates. Excluding the $1,005,000 elimination of
inter-company gross profit, the Company's share of net income of these
unconsolidated
10
<PAGE>
Global Payment Technologies, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
Net Income (continued)
affiliates was $351,000. In addition, the Company owns 70% of GPT-Europe
Limited, a local sales and service organization in Europe whose results are not
significant and are consolidated in the Company's financial statements.
Three months ended March 31, 1999 compared with three months ended March 31,
1998
Sales
Net sales increased by 29.7%, or $3,022,000 to $13,189,000 in the three months
ended March 31, 1999 as compared with $10,167,000 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.
Gross Profit
Gross profit increased to $5,269,000, or 39.9% of net sales, in the three months
ended March 31, 1999 from $4,277,000, or 42.1% of net sales, in the comparative
prior-year period. The decrease in gross profit as a percentage of sales was
primarily the result of a change in the Company's distribution method which
began during the fourth quarter of fiscal 1998, whereby the Company sells
directly to its Australian and South African affiliates which subsequently sell
the Company's products into those respective markets. Previously, the Company
sold directly to the customer, recognizing additional revenues and the related
commission expense. In the three months ended March 31, 1999, the Company's
gross profit as a percent of net sales increased by approximately one percentage
point as compared with the comparative prior-year period, excluding the effects
of this change in distribution method. As a result of this change, the Company
expects future operating results to reflect a lower gross profit percentage from
these sales, as compared with the prior year, and a commensurate reduction in
sales commissions within its operating expenses.
Operating Expenses
Operating expenses decreased to $2,713,000, or 20.6% of net sales, in the three
months ended March 31, 1999 as compared with $2,959,000, or 29.1% of net sales,
in the comparative prior-year period. The Company increased operating expenses
by increasing staffing and related payroll costs to support its growth strategy
in fiscal 1999 and beyond, and to a lesser extent, through inclusion of the
operating expenses of the Company's 70%-owned European subsidiary as noted for
the six months ended March 31, 1999. However, due to the change in distribution
strategy described previously, the reduction in sales commissions more than
offset these increases.
Net Income
Net income for the three months ended March 31, 1999 was $1,290,000, or $0.22
per share, as compared with $794,000, or $0.13 per share, in the comparative
prior-year period. The Company owns a one-third interest in its South African
affiliate and 50% non-controlling interests in a local sales and service
organization in Australia and in a manufacturing firm in China, all of which are
accounted for using the equity method. Included in the results of operations for
the three months ended March 31, 1999 and 1998 are the Company's share of (net
losses) net profits of these affiliates of ($469,000) and
11
<PAGE>
Global Payment Technologies, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Net Income (continued)
$16,000, respectively. In the three months ended March 31, 1999, equity in
income of unconsolidated affiliates has been reduced by approximately $580,000,
which represents the gross profit on the Company's sales to its affiliates that
have not yet been recognized by the affiliates. Excluding the $580,000
elimination of inter-company gross profit, the Company's share of net income of
these unconsolidated affiliates was $111,000. In addition, the Company owns 70%
of GPT-Europe Limited, a local sales and service organization in Europe whose
results are not significant and are consolidated in the Company's financial
statements.
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 facilities which are currently in the
final stages of negotiation with its bank which will result in a substantial
increase in borrowing capabilities, should be sufficient to meet its obligations
as they become due and permit continuation of its planned expansion throughout
fiscal 1999 and beyond.
At March 31, 1999, the Company's cash and cash equivalents were $1,151,000 as
compared with $834,000 at September 30, 1998. In February 1999, the Company
renewed its $5,000,000 line of credit with The Chase Manhattan Bank which allows
for borrowings on an unsecured basis and expires on March 31, 2000. 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, 1999, $4,500,000 was outstanding under this
line of credit.
In September 1998, the Company entered into an agreement with The Chase
Manhattan Bank for an additional unsecured line of credit in the amount of
$3,500,000 for the repurchase of up to 500,000 shares of the Company's Common
Stock. Outstanding borrowings 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, 1999, $1,294,000 was outstanding
under this line of credit which expires on March 31, 2000.
Net cash used in operating activities was $915,000 in the six months ended March
31, 1999. This amount is due to an increase in accounts receivable of
$4,234,000, an increase in inventory of $1,043,000, an increase in prepaid
expenses and other assets of $85,000 and a decrease in accrued expenses and
other current liabilities of $746,000, offset, in part, by net income for the
period, adjusted for non-cash items, of $3,475,000, increased accounts payable
of $1,557,000 and an increase in income taxes payable of $161,000. Net cash used
in operating activities was $1,218,000 in the six months ended March 31, 1998.
This amount was primarily due to increased accounts receivable of $2,560,000, an
increase in inventory of $2,221,000 and an increase in prepaid expenses and
other assets of $75,000, offset, in part, by net income for the period, adjusted
for non-cash items of $1,752,000, increased accounts payable of $980,000 and an
increase in accrued expenses and other current liabilities of $929,000.
12
<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 used in investing activities in the six months ended March 31, 1999
amounted to $326,000 as compared with $705,000 in the prior year period.
Investments in property and equipment in the six months ended March 31, 1999
amounted to $323,000 as compared with $582,000 in 1998. In addition, the Company
loaned its joint ventures approximately $123,000 in the six months ended March
31, 1998. These loans have been added to the investment in unconsolidated
affiliates based on the terms of the related agreements.
Cash provided by financing activities in the six months ended March 31, 1999 and
1998, consisted of net proceeds from bank borrowings of $1,697,000 and
$1,000,000, respectively, augmented by proceeds of $108,000 and $123,000,
respectively, received from the exercise of stock options and warrants. In
addition, in the six months ended March 31, 1999, cash provided by financing
activities was used for the repurchase of the Company's common stock for
$247,000.
Quantitative and Qualitative Disclosures About Market Risk
In the opinion of management, the Company's operations do not give rise to
transactions or financial instruments which are subject to material quantitative
or qualitative market risk.
Year 2000
The Company has developed a comprehensive plan to address Year 2000 issues. The
plan addresses two main areas: (a) information systems and (b) supply chain
readiness. To oversee the process, the Company has established a Steering
Committee comprised of senior executives. The Company has identified minimal
potential deficiencies related to Year 2000 in its information systems and is in
the process of addressing them through upgrades and other remediation.
Completion of the remediation and testing is expected in the summer of 1999. To
mitigate the risk of Year 2000 non-compliance by third parties, the Company has
identified, contacted and met with critical inventory suppliers. The Company is
also in the process of communicating with its larger customers about their Year
2000 readiness. These meetings and communications are ongoing and the Company is
assessing the state of readiness of the various suppliers and customers. The
Company believes it is difficult to specifically identify the cause of the most
reasonable worst case Year 2000 scenario, however, based upon its work to date,
the Company believes it would likely be the result of the failure of third
parties to be Year 2000 compliant. Accordingly, the Company will formulate
contingency plans to limit, to the extent possible, lost revenues and other
adverse effects arising from third party failures. Such plans would necessarily
be limited to matters over which the Company can reasonably exercise control and
may require the acceleration of certain shipments that may necessitate
adjustments to the production and procurement schedules. Incremental
out-of-pocket costs incurred through March 31, 1999 have not been significant
and, based upon the Company's current estimates, the costs of its Year 2000
program are expected to be immaterial. Such costs do not include internal
employee costs and costs related to
13
<PAGE>
Global Payment Technologies, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 (continued)
the deferral of other information technology projects. While the Company does
not have a system to track internal employee costs specifically related to the
Year 2000, those costs are not expected to be material to the Company's results
of operations or financial condition. The Company's Year 2000 efforts are
ongoing and its overall plan, as well as the implementation of contingency
plans, will continue to evolve as new information becomes available. While the
Company anticipates continuity of its business activities, that continuity will
be dependent upon its ability, and the ability of third parties with whom the
Company relies on, directly or indirectly, to be Year 2000 compliant.
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; possible risks of product inventory obsolescence; potential
shortages of key parts and/or raw materials; 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 Company's and its
customers' and vendors' readiness for Year 2000 compliance; 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.
14
<PAGE>
Global Payment Technologies, Inc.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's 1999 Annual Meeting of Stockholders held on March 23,
1999, stockholders re-elected Richard E. Gerzof to serve as a Class I
Director of the Company, to serve until the 2002 Annual Meeting, by a vote
of 4,710,602 for and 128,049 withheld.
Stephen Katz and Martin H. Kern, Class II Directors, continue to serve as
directors whose terms expire at the 2000 Annual Meeting.
Edward Seidenberg and Henry B. Ellis, Class III Directors, continue to
serve as directors whose terms expire at the 2001 Annual Meeting.
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.
15
<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 14, 1999
16
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