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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-25148
GLOBAL PAYMENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2974651
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
20 East Sunrise Highway, Suite 201, Valley Stream, New York 11581
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 516-256-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant, based on the average bid and asked prices on
December 12, 2000, was approximately $23,611,700.
As of December 12, 2000, the registrant had a total of 5,557,050 Common
Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of the registrant for the annual
meeting of stockholders to be held in 2001 are incorporated by reference into
Part III of this report.
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PART I
Item 1. Business
General
Global Payment Technologies, Inc. (the "Company") was originally incorporated in
New York in 1988 under the name Coin Bill Validator, Inc. In March 1997, the
Company's shareholders approved a change of the Company's name and state of
incorporation from New York to Delaware, effected through the merger of the
Company into the Company's wholly-owned subsidiary, Global Payment Technologies,
Inc., a Delaware corporation.
The Company designs and manufactures currency validation systems, including
paper currency validators and related paper currency stackers, and sells its
products in the United States and numerous international markets. Validators
receive and authenticate paper currencies in a variety of automated machines,
including gaming and gaming related equipment, beverage and vending machines and
retail equipment that dispense products, services, coinage and other currencies.
Note stackers are sold with most validators and are designed to store validated
paper currency and, in some cases, record and store information on contents,
usually in secure removable cassettes. Although the Company knows of no
commercially available validator that is counterfeit-currency-proof, the
Company's validators and stackers offer significant protection against tampering
and counterfeit currencies and provide tamper-evident storage of validated
currency. The Company's validators are adaptable to a wide variety of original
equipment manufacturer ("OEM") applications and have been engineered into the
design of most major gaming and numerous beverage and vending machines sold
worldwide. The Company's products offer a highly competitive level of
performance and are designed to provide ease of maintenance and repair.
In August 1996, the Company acquired a 50% non-controlling interest in a South
African affiliate, Global Payment Technologies South Africa Pty. Ltd.
("GPT-SA"), which on July 3, 1998, changed its name to Global Payment Technology
Holdings (Proprietary) Limited ("GPTHL"). On May 29, 1998, Hosken Consolidated
Investments ("HCI"), a South African investment company, purchased a one-third
interest in GPT-SA. Terms of the transaction called for HCI to purchase certain
shares from the Company and the Bevin Trust (GPT-SA's founding shareholders), as
well as additional shares directly from GPT-SA, which reduced the Company's
ownership of GPT-SA from 50% to 33%. On November 1, 1999, GPTHL formed
International Payment Systems Pty Ltd. ("IPS") and assigned its rights to all of
the non-gaming activities, primarily the distribution of Ingenico, De La Rue and
Scan Coin products. The Company currently has a 30% interest in IPS. GPTHL holds
the exclusive distribution rights to the Company's products in the South African
region. Also on November 1, 1999, On-Line Gaming Systems Inc. ("On-Line"), a
Florida-based Nasdaq listed company specializing in Internet wagering and other
casino based products, acquired a 23.5% equity interest in GPTHL through the
purchase of shares from the three partners and management. The ability to
distribute On-Line's products in South Africa allows GPTHL to broaden its market
and product line. With the closing of this transaction, the Company now has a
23.5% interest in GPTHL.
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Effective August 1, 2000, a division of IPS, GPT Cash Systems, acquired all the
assets including the service contracts of De La Rue Cash Systems (Proprietary)
("DLR"), the South African wholly owned subsidiary of De La Rue PLC. DLR
received cash and a minority interest in GPT Cash Systems. In addition to
improving GPT Cash Systems' revenue base of sales and service of the De La Rue
product suite, this transaction will provide a base of service operations which
will expand and improve upon existing service capabilities, and allow our
affiliate to service other business markets, including the South African route
market which is expected to open by September 2001.
In January 1997, the Company acquired a 50% non-controlling interest in a
China-based affiliate, Hangzhou CBV Plastics Corp. Ltd. This entity manufactures
plastic and metal components, some of which are used by the Company in its
production.
In August 1997, the Company acquired a 50% non-controlling interest in an
Australian affiliate, Global Payment Technologies Australia Pty. Ltd. ("GPTA").
This entity is responsible for sales and service of the Company's products in
Australia and New Zealand on an exclusive basis.
In June 1998, the Company formed Global Payment Technologies (Europe) Limited
("GPT-Europe"), which is based in the United Kingdom and is responsible for
sales and service of the Company's products in Europe. GPT-Europe purchased the
assets and assumed the liabilities of Global Payment Technologies (U.K.) Ltd.
("GPT-UK"), the Company's prior independent European distributor, as of February
28, 1998. The Company owns 70% of GPT-Europe, with the remaining 30% owned by
GPT-Europe's operations manager, a former principal of GPT-UK.
On April 7, 1999, the Company acquired a 25% equity interest in Abacus Financial
Management Systems, Ltd. ("Abacus"), a UK-based software company. Abacus has
developed a cash management system, of which the Company's validators are a key
component, primarily intended to serve the retail market. In addition, the
Company and the principal of Abacus have formed Abacus Financial Management,
Inc. USA, which is 80% owned by the Company and has the exclusive right to
distribute Abacus' product in North America.
Background and History
In the 1980s, a general trend developed with respect to an increase in the
incorporation of paper currency validators in a large number of beverage, food
and novelty vending machines that offered primarily low-priced items. During the
1990s, subsequent technological improvements in the sensory capabilities of
validators created the ability to process high volumes of larger denomination
notes, which led to the extensive use of validators in many new applications
including casino gaming machines, lottery ticket dispensing devices and postage,
transportation, parking and high-value vending machines. This trend accelerated
during the 1990s as a result of the realization that currency validators
positively impacted sales revenues and the overall growth in the worldwide
gaming and beverage and vending industries.
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Since incorporation, the Company's net sales have grown from approximately
$35,000 in fiscal 1989 to $16.7 million in fiscal 1996, to $23.9 million in
fiscal 1997, to $39.4 million in fiscal 1998, and to its high of $43.9 million
in fiscal 1999. In fiscal 2000, sales declined to $22.5 million as a result of a
slowdown in the worldwide gaming market and delays in key projects, which
resulted in increased inventory at the Company's affiliates. During fiscal 2000
the Company significantly reduced inventory at its affiliates, matching demand
in those regions, which resulted in the resumption of production and shipments
in August 2000.
Prior to January 1993, the Company's marketing efforts were directed primarily
toward domestic distribution and end-users that focused on the replacement and
retrofit markets for validators in amusement and gaming machines. Commencing in
January 1993, the Company began to focus its marketing efforts on OEMs of gaming
machines and automated vending machines that dispense beverages, telephone cards
and postage stamps. In addition, since January 1993, the Company has
progressively increased its marketing efforts to the international market for
currency validation systems, particularly targeting the international gaming
industry. The Company's international sales amounted to 83%, 80% and 81% of net
sales in fiscal 2000, 1999 and 1998, respectively. Management believes the
international market for currency validation systems may grow at a faster rate
than in the United States and, therefore, may represent the Company's best
long-term growth opportunity.
Marketing Strategy
The Company has continued to focus its marketing efforts on those segments of
the marketplace which require a relatively high degree of security and
substantial custom design work that is not adequately served by larger
competitors which focus primarily on the broader, higher-volume market using
standardized product configurations. This focus has been effective in the
worldwide gaming market and is the "niche" strategy that allowed the Company to
develop a strong international customer base that originally started with
manufacturers too small to attract the Company's competition. The focus of this
strategy has, and continues to be, the creation of an increasing presence in the
international gaming industry with particular attention to markets which have
the largest opportunity for growth. In 1997, this strategy led to the Company's
products being designed into most of the major OEMs' gaming machines. In 1998,
this strategy led to new customers that opted to use the Company's products
based on its growing strength internationally and its reputation for working
closely to adapt to customers' needs. In 1999, the Company continued to
strengthen and grow its relationships with the OEMs through increased joint
marketing and advertising efforts and by creating databases to allow the OEMs an
opportunity to seek new potential markets worldwide. As a result, the Company is
now in the position to gain additional business based on its acceptance as the
currency validation standard for a number of growing markets worldwide. The
Company's strong international presence continues to provide for growth
opportunities in the domestic gaming sector, as this market is viewed as an
important target for expansion by several of the Company's international
customers. Beginning in 1999, the Company also began a seminar program that
provided certain key customers and their personnel with an in-depth orientation
of the Company and its operations.
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In 1998, the Company expanded its marketing efforts to include the end-users
(i.e., casino operators) who purchase machines from the OEMs to help ensure that
the Company's validator products will be specified as the product of choice in
new orders. The Company also focused on creating business in the retrofit market
for certain important gaming venues such as Nevada, where gaining market
presence would provide improved visibility and credibility in the domestic
market. The expected results of improved recognition were achieved in 1998. In
1999, this strategy of working with the end-users was expanded to include more
direct operator technical training and participation in seminars with the
Company's OEM customers. By marketing directly to the end-users in conjunction
with the OEMs, the Company expects its products will gain acceptance as its
customers' gaming machines gain entry into major casinos or regions previously
dominated by currency validators of the Company's competition. In 1999, the
Company began to develop programs and plans to allow for improved education of
its customers. Such programs and plans include the development of formally
documented maintenance schedules and similar programs to be proposed to
customers. These maintenance programs are being offered in coordination with the
Company's OEM customers, and are intended to broaden awareness of the Company
and its products within the gaming industry. Additionally, the Company will be
focusing increased marketing efforts on explaining the technical features and
customer support programs of current and future products in order to further
differentiate itself from the competition. This overall strategy allows the
Company's products to continue to demonstrate the high performance and quality
achieved in a number of worldwide markets.
The Company's strategy in the large worldwide beverage and vending industry has
been, and will continue to be, the same "niche" effort that has been successful
in the gaming marketplace. In 1998 and 1999, the Company continued to focus its
efforts on creating relationships with the major OEMs and end-user customers in
certain emerging international markets. By working with both the OEMs and
end-users to adapt its products to meet their needs, the Company is beginning to
create a growing presence in the beverage and vending market with its current
product lines. This flexibility to adapt its products to meet customers' needs
led to a successful product launch in Russia during 1998 and has allowed the
Company to establish new sales in Europe with major vending operators. In 2001,
this strategy will continue to be used to develop particular areas such as the
emerging markets in the Middle East and Southeast Asia. Management believes this
strategy will assist in providing the Company with increased visibility and
credibility in the overall beverage and vending industry. The Company has
recognized the need to develop a product that can more effectively compete in
terms of price and features with other manufacturers' validators in these
industries and has placed a high priority on this product development effort.
The Company expects to begin field trials of its vending validator during Spring
2001. Also in 2000, in an effort to gain momentum and facilitate the transition
to this new vending product in the worldwide vending market, the Company has
modified its current Generation II product to be more price competitive,
primarily in the international vending marketplace.
The Company's revenue growth through fiscal 1999 was due primarily to its focus
on the customer as well as on the development of products that utilize features
that add value to its customers in the gaming and beverage and vending
industries. This strategy will be further
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expanded with the anticipated release and trials of new products beginning in
fiscal 2001. The Company has striven to raise the level of currency acceptance
and counterfeit rejection of its validators to new standards, in addition to
expanding the functions of the validator to handle the processing of payments or
transactions through a variety of media, both paper and electronically based.
The Company's overall sales and marketing strategy in both the worldwide gaming
and beverage and vending markets is to deliver a high quality product supported
by a local sales and service organization in order to make the Company's
products the market standard for currency validation products. The Company has
successfully pursued this strategy in Australia and South Africa where the
Company's products are accepted as the industry standard in the gaming market.
Also toward this end, during fiscal 1996 and fiscal 1997, the Company
established joint ventures that provide local sales and service in both
Australia and South Africa and strengthened its distributor relationship in
Italy. In addition, during fiscal 1998 the Company formed GPT-Europe to provide
local sales and service in Europe. During 1999, the Company expanded its local
sales and service network in Southeast Asia, as it signed a three-year
distribution agreement with RGB Ltd., a Malaysian company ("RGB"). RGB has been
a customer of the Company for several years and, through its organization and
many contacts in the region, this alliance should strengthen the Company's
reputation in this region and provide new sales opportunities.
To date, the Company's success has been dependent upon the use of paper or
simulated paper currency in automated payment systems for gaming and beverage
and vending applications. A substantial diminution of the use of paper currency
as a means of payment through a return to extensive use of high-value,
metal-based coinage or the widespread adoption of electronic funds transfer
systems based on credit, debit or "smart-cards" could materially and adversely
affect the Company's future growth until and unless the Company develops other
products that are not solely dependent on the use of paper or simulated paper
currency. The Company is currently investigating, and will continue to
investigate, such opportunities and endeavor to develop new product applications
where markets for such products may exist. However, no assurance can be given
that the Company will be able to successfully develop and market such new
products and systems.
Products
Since inception, the Company has endeavored, through its research and
development and manufacturing efforts, to provide products that meet the
specific performance requirements of its customers. These requirements are
continually evolving as the markets for currency validators continue to grow and
as technological advances are incorporated into the products' design. The
Company spent approximately $225,000, $300,000 and $350,000 during fiscal 2000,
1999 and 1998, respectively, on research and development. The Company's research
and development consists primarily of efforts to expand its product lines into
new applications, as well as to achieve improvements in technology. The
Company's new product development efforts have been focused on the design of its
next generation of validator products, the first of which is Argus(TM). Argus,
the Company's new gaming validator, was
7
launched at the World Gaming Congress in October 2000. The Company received its
first significant order for Argus, amounting to in excess of $1 million, prior
to this show. In the Spring 2001, the Company plans to introduce a new product
designed specifically to address the requirements of the beverage and vending
marketplace. Building from its engineering libraries, the Company anticipates
the introduction of a third new product in early 2002 that will provide the
Company additional flexibility in meeting its customers' needs in both the
domestic and international gaming markets.
The Company's principal products include three basic validator models and a wide
range of comprehensive currency databases and note stacker configurations. In
fiscal 1997, the Company planned for a shift in demand toward its Generation II
product line and such sales amounted to 58% of unit sales. During fiscal 1999
and 2000, this shift continued and Generation II product line sales accounted
for 79% and 76%, respectively of unit sales. The Argus product has been designed
to be a drop-in replacement for Generation II IDS and is focused toward bringing
new technological features to the marketplace. The Company expects sales to
start shifting from its Generation II product line over the course of fiscal
2001. The Company believes it has adequately reserved for inventory obsolescence
for the shift in demand from its Generation I products to its Generation II
products and will continually assess the adequacy of inventory reserves for the
anticipated shift in demand towards its Argus product and its new beverage and
vending product.
The Model 125 ("M-125") is the Company's first generation multi-country,
multi-denominational validator model specifically designed for the beverage and
vending industries where its space-saving upstack design makes it popular for
use in machines where space is at a premium. The M-125's note stackers are fully
detachable and available with capacities of 150, 300 and 600 notes. During
fiscal 1998, 1999 and 2000, M-125 sales were primarily in vending applications
in Italy, helping to grow the Company's presence and credibility in that
important European market. It is expected that this product will begin to be
replaced in fiscal 2001 by a new beverage and vending product currently under
development.
The Model 150 ("M-150") is the Company's first generation multi-country,
multi-denominational validator designed to fit machines where space is available
either to the rear or downward. The M-150 is available with locking removable
cassette bill stackers in 500, 1,000 and 2,000 bill capacities and is United
States Postal Service, Department of Gaming Enforcement ("DGE") and Gaming
Laboratories, Inc. ("GLI") approved. Due to the growth and acceptance of the
Generation II product line, the M-150 product has been substantially reduced in
1999 and 2000 and is expected to be completely phased out during 2001.
The Company's Generation II product line features several technological advances
designed specifically to meet the exacting requirements of the gaming industry.
The Generation II line includes the Company's "IDS," "IDUS," "IBS," and "IBSi"
validators. The IBSi has been positioned as a replacement for the Company's
first generation M-150 validator. Generation II products have been approved by
DGE and GLI, as well as by a number of U.S. and international test labs.
8
Generation II validators are offered in a wide variety of configurations that
can provide solutions for most worldwide gaming markets, as well as for many
beverage and vending markets. Generation II validators can be configured for
down-stack applications which allow the note stacker, a security removable
cassette, to be reached through a separate front entrance in the gaming machine.
Rear stacker configurations are also available. The front section of all
Generation II validator units can be opened easily to allow for maintenance,
repair or clearance of the currency pathway without violating the integrity of
the associated security stacker. Generation II validators offer currency
acceptance of notes up to 3.34 inches (85 mm) in width and have enhanced
features for gaming and high security applications. These features include a
multi-level high security validation process with side-looking sensors, an
animated bill runway with "smart visuals" for customer attraction and
diagnostics, a user-selectable currency denomination acceptance and an optional
bar-code reader for tickets and coupons. The Generation II line also offers a
"soft drop analyzer" ("SDA") option. This patented SDA feature allows the note
stacker cassette to maintain and track specific information such as currency or
coupons in the cassette by quantity and denomination; the specific machine or
game that the cassette was removed from; the acceptance rate of the validator;
and time-in/time-out of the cassette from the gaming machine. This information
can be easily downloaded, via a docking station provided by the Company, to a
personal computer allowing instant feedback/tracking for the machine operator.
Argus(TM) is a worldwide gaming note validator, which can process multi-country
databases, with a substantially greater number of notes (between 2.44 inches to
3.35 inches in width), in 4 directions. Argus is designed to be a one size fits
all validator that uses essentially the same hardware for every currency
throughout the world. It is a drop in replacement for the existing GII
validator. Argus is also equipped with a standard bar code reader, which has the
added capability of reading coupons and currency at the same time. In the
future, GPT plans to offer with Argus the option of incorporating smart-card and
mag-card technologies. Its sensor system has a patented Red, Green, Blue and
Infrared (RGBI) optical array, which generates 56 channels of high-resolution
data. It is arranged in a unique layout that allows for the analysis of a note's
signature (fingerprint) without any gaps between optical sensors. The optical
information provided by Argus is reflective (off the note), transmissive
(through the note) and a combined RGBI pattern of reflective data to create a
color signature of the note being evaluated. The Argus validator also has a
high-sensitivity magnetic sensor and high-resolution Side-Looking Sensors(TM).
Product Performance and Warranties
The Company's validator and note stacker products are generally covered by a
one-year warranty against defects in materials or workmanship, which the Company
believes is standard for the industry. This warranty will essentially double
with its new Argus validator. The Company or its authorized service agents will
repair or replace any units that require warranty service. The Company does not
warrant that its validators will reject all counterfeit currencies and believes
that there is no commercially available validator that is
counterfeit-currency-proof or warranteed as such. To support its increasing
international market presence, the Company has expanded its warranty and
non-warranty support coverage to provide in-country capability
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in key worldwide markets (e.g. Australia, South Africa, Europe and Southeast
Asia). In these markets, the local sales and service joint venture partners and
distributors provide warranty labor while the Company's primary product support
in these markets is in the form of warranty parts. The Company expects to expand
its international service capabilities during 2001 as the opportunities arise.
Over the last three years, the Company's cost of warranting its products has
varied primarily as a direct result of the increase or decrease in the unit
sales. Warranty expense for 2000, 1999 and 1998 was $328,000, $490,000 and
$175,000, respectively, which represents actual costs incurred and an estimate
of future costs to be incurred.
Marketing and Sales
An "in-house" sales force consisting of sales representatives, sales/product
technicians and customer service support personnel, as well as strategic joint
ventures and distributors, conducts the Company's primary sales and marketing
efforts in both the domestic and international markets. During the latter part
of fiscal 1996 and during fiscal 1997, the Company established joint ventures
providing local sales and service in the key markets of South Africa and
Australia and a Company-owned sales and service office was opened in the
important Las Vegas, Nevada market. During fiscal 1998, the Company formed
GPT-Europe, a 70%-owned entity, to provide local sales and service in Europe and
acquired the assets and liabilities of its former independent European
distributor. During 1999, the Company expanded its local sales and service
capabilities in Southeast Asia as it signed a three-year distribution agreement
with RGB Ltd., a Malaysian company. The overall sales and service network
provides effective international coverage for the Company's products and
customers and is an indication of the Company's commitment to providing superior
service worldwide.
During fiscal 1998 and 1999, the Company expanded its "Technical Services" and
"Customer Service" groups, which were formed in 1997 and allowed the Company to
become more customer focused. During fiscal 2001, the Company has already
enhanced its capabilities with the addition of a Director of Gaming to support
additional sales opportunities worldwide and to provide superior support and
customer service to OEMs and end-users worldwide.
Customer Concentration
During fiscal 2000, the Company's largest customer, GPTA, accounted for
approximately 48% of net sales. A significant portion of GPTA's sales is to
Aristocrat Technologies Australia Pty Ltd. Net sales to the gaming industry
accounted for approximately 88% of the Company's revenues, with the remaining
12% primarily from product applications in the beverage and vending industry.
The Company anticipates a further reduction of its dependence on its largest
customer and the gaming industry by expanding its customer base and by the
introduction of its next generation of validation products for the beverage and
vending marketplace expected in the Spring 2001.
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Manufacturing
Since 1995, the Company's operations have been conducted from a leased facility,
currently 44,000 square feet, which houses the manufacturing and administrative
functions in Hauppauge, New York.
The Company's manufacturing operations consist primarily of mechanical and
electro-optical assembly and the provision of wiring harnesses between
components and between the validator and the OEM machine in which the finished
product is to be used. The Company routinely tests all components and has
extensive "burn-in" procedures for the final assembled product. Direct control
over fabrication, via its key suppliers, and testing permits the Company to
shorten its production cycle and protect patented and proprietary technology.
During fiscal 1998 the Company significantly improved its overall manufacturing
productivity, as measured by a production capacity increase of approximately 48%
without adding a production shift. This was achieved by a combination of
increased staff as well as improved manufacturing efficiencies. In fiscal 1999
the Company achieved additional manufacturing productivity improvements, which
enabled the Company to achieve a 26% unit sales increase to approximately 98,000
validators. During fiscal 2000, the Company transitioned a portion of its
manufacturing to demand flow technology ("DFT"). In addition, the Company has
and will continue to evaluate its suppliers in an effort to reduce its total
cost of manufacturing, a process that may include vendor consolidation and
selected outsourcing. Despite these efforts, the Company's manufacturing
efficiencies significantly declined in fiscal 2000 as a direct result of the 49%
sales decline resulting in higher manufacturing costs per unit, as well as less
efficient operations as a result of lower and more frequent production runs.
The Company depends on a limited number of suppliers for various stamped or
formed housings, gears, cogs and wheels and electronic assemblies or components,
including certain microprocessor chips. The Company believes that concentrating
its purchases from its existing suppliers provides, in certain cases, better
prices, better quality and consistency and more reliable deliveries. The Company
maintains on-going communications with its suppliers to prevent interruptions in
supply and, to date, generally has been able to obtain adequate supplies in a
timely manner. The Company has entered into volume blanket purchase agreements
with selected suppliers to guard against shortages of unique components, thereby
limiting the Company's exposure to business interruptions. Furthermore, many of
the electronic components used by the Company, including its microprocessors,
are widely used in many applications and are available from a number of sources.
However, the short wavelength light source that forms a critical part of the
Company's optical scanning device is now commercially available from only a very
limited number of suppliers. The Company believes that if such supply were to
become unavailable, its units could be redesigned to use other light sources and
still remain competitive in the marketplace. However, any interruption in the
supply of key components which cannot be quickly remedied could have a
materially adverse effect on the Company's results of operations.
As the Company transitions to its Argus product line it expects to incur
increased costs related to lower volumes on the two product lines. Once the
transition is substantially completed, the
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Argus product is expected to be produced in a more efficient manner and cost,
while at the same time allowing the Company increased flexibility to meet the
customer's demand.
Competition
The market for the Company's products is very competitive and the number of
competitors and their product offerings have increased due to the growing
worldwide marketplace. A number of competitors have significantly greater
financial, technical, sales and marketing resources than the Company.
Additionally, certain of these companies have acquired competitors with
synergistic product lines in an effort to offer a more complete product line. In
1998, Coin Controls Limited ("Coin Controls") acquired Ardac, Inc. ("Ardac"), a
domestic currency validator manufacturer. Coin Controls had primarily focused on
the validation of coins worldwide for the gaming and amusement industries. With
the acquisition of Ardac, Coin Controls changed its name to Money Controls PLC
("MCP") and the two companies together had the ability to package its coin
mechanism with a currency validator for both the gaming and beverage and vending
industries. In November 1999 MCP announced, and subsequently completed, its
agreement to be acquired by Coin Acceptors, Inc. ("Coinco"), a St. Louis based
supplier of primarily vending products. This results in Coinco being a
competitor that has an integrated gaming and beverage and vending product line,
as well as relationships in both industries. A similar competitor is Mars
Electronics International ("MEI"), an entity that has products able to serve
both the gaming and the beverage and vending marketplace.
In the domestic market, certain competitors are divisions or affiliates of
manufacturers of vending machines. For example, Royal Vendors, Inc. is an
affiliate of Coinco. Such validator manufacturers enjoy a competitive advantage
in providing for the significant validator requirements of their affiliates. For
validators sold for use in the beverage, food, snack and lower-priced goods or
amusement markets, Coinco dominates the domestic market. MEI, Ardac, Japan Cash
Machines Co., Ltd. ("JCM"), Sanyo, Conlux, Coegis and Cashcode Company, Inc. are
recognized competitors in the growing international beverage and vending market.
The largest supplier of validators used in the domestic gaming and lottery
markets is JCM. Internationally, the Company competes for gaming machine
business with JCM, MEI and Ardac. In the secondary low-value gaming markets,
Innovative Technology, Ltd. maintains a significant market share due to this
markets price sensitivity and its low-cost approach to this market. The Company
has focused its marketing efforts on the higher-priced domestic and
international gaming validator business and competes on the basis of quality,
durability and performance while maintaining a high level of protection against
tampering and counterfeit currencies, as well as a competitive price point.
The Company historically has been more willing to address smaller markets than
its larger competitors and expects to encounter increased competition as the
markets addressed by its products continue to grow. Also, the Company has been
willing to adapt its products to a variety of OEMs, which has allowed it to be
flexible to expand when new markets open up to sales. The Company believes that
performance, quality and protection against tampering and
12
counterfeit currency are relatively more important, and price relatively less
important, as competitive factors in the worldwide gaming marketplace.
Intellectual Property
The Company relies on certain proprietary know-how and trade secrets to protect
its technology. Important components of this proprietary information are the
Company's library of distinguishing characteristics of the currencies, which its
validators scan and validate, and its proprietary algorithms. The Company has
entered into non-disclosure and secrecy agreements with all of its employees
having access to this technology.
The Company holds eight U.S. patents as follows: design for "Escrow Box for Coin
Operated Machines," U.S. Patent No. 0283518 issued April 22, 1986; "Paper
Currency Acceptor and Method of Handling Paper Currency for Vending Machines and
the Like," U.S. Patent No. 4884671 issued December 5, 1989; "Anti-fraud Currency
Acceptor," U.S. Patent No. 5259490 issued November 9, 1993; "Bill Accumulating
and Stacking Device," U.S. Patent No. 5322275 issued June 21, 1994; "Soft Count
Tracking System," U.S. Patent No. 5630755 issued May 20, 1997; "Paper Currency
Validator (Side-Looking Sensors)," U.S. Patent No. 5806649 issued September 15,
1998; "Electrical Switch Connectors," U.S. Patent No. 5842879 issued December 1,
1998 and "Stacker Mechanism for Stacking Bank Notes" U.S. Patent No. 5899452
issued May 4, 1999. Certain patents cover technology used in the Company's first
and second generation validator product lines and the remaining patents cover
technology used in certain special models. The Company has also applied for two
additional U.S. patents, the most important of which covers the use of short
wave-length light in a validator to discern the color and other characteristics
of bills being scanned. The Company has received notification of this patent
being approved and is awaiting the issuance thereof. In addition, on September
30, 1999 the Company filed a reissue application with the U.S. Patent and
Trademark Office to amend and broaden the claims of U.S. Patent No. 5630755.
In addition to its U.S. patents and pending applications, the Company has also
applied for patent protection in a large number of international markets. If
corresponding foreign patents are obtained, the Company believes that these
patents could provide important protection for certain technological advantages
its validators possess in international markets. However, the Company does not
believe that it will be materially and adversely affected if these patents are
not issued. No assurances can be given that any patent applications will result
in the issuance of additional patents. In December 1999, the Company received
its first international patent issued by the Eurasian Patent Convention covering
the use of short wave-length light in a validator to discern the color and other
characteristics of bills being scanned.
The Company licensed certain patented proprietary technology covered by U.S.
Patent No. 5630755 to Ardac, Inc. in 1999. Such license settled a patent
infringement suit initiated by the Company and provides for the payment of
license fees based on unit sales of certain of Ardac's products.
13
Although the Company has not received any claims asserting infringement of the
proprietary rights of third parties, there can be no assurances that third
parties will not assert such claims against the Company in the future or that
any such assertion may not require the Company to enter into royalty
arrangements or result in protracted or costly litigation.
Government Regulation
As a supplier of paper currency validators to customers subject to gaming
regulations and postal regulations, the Company is indirectly subject to such
regulations that are reflected in customer purchase orders or customer
specifications. The Company believes that it is in full compliance with such
regulations. Any failure to comply with such regulations, however, could have a
materially adverse effect on the results of operations of the Company.
Employees
On December 11, 2000, the Company had 172 employees, consisting of 5 executives;
18 sales, technical support and customer service representatives; 40 engineers
and software developers; 24 materials, quality control and quality assurance
personnel; 20 administrative and clerical personnel; and 65
assembly/manufacturing personnel. The Company believes its relationship with its
employees is good.
Special Note Regarding Forward-Looking Statements
A number of statements contained in this report 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 possible impact of competitive products and
pricing; uncertainties with respect to the Company's business strategy; general
economic conditions in the domestic and international market in which the
Company operates; the relative strength of the United States currency; and other
risks described in the Company's Securities and Exchange Commission filings.
Item 2. Properties
The Company leases approximately 44,000 square feet which houses the
manufacturing and administrative functions in Hauppauge, New York, for a term
expiring June 30, 2006, at an annual base rental of approximately $299,000 in
fiscal 2000, increasing to approximately $372,000 in the final year of the term.
The Company believes this facility is adequate for its manufacturing needs for
the foreseeable future. The Company leases approximately 6,600
14
square feet in Valley Stream, New York, for a term expiring February 28, 2002,
at an annual base rental of approximately $159,000 in fiscal 2000, increasing
annually to approximately $170,000 in the final year of the term. This facility
houses the executive, accounting and certain sales functions of the Company. The
Company also leases approximately 3,600 square feet in Las Vegas, Nevada, for a
term expiring January 31, 2004, at an annual base rental of approximately
$46,000 increasing annually to approximately $52,000 in the final year of the
term. This facility houses certain sales and service functions of the Company.
15
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
a) Market Information
The Company's Common Stock is listed and trades on the NASDAQ National Market
System under the symbol GPTX. The following table sets forth, on a per share
basis, the high and low sale prices for the Company's Common Stock for each
quarter of fiscal 1999 and 2000.
Common Stock
------------
Quarter Ended High Low
------------- ---- ---
December 31, 1998 8 7/8 5 5/8
March 31, 1999 12 11/16 7 3/8
June 30, 1999 15 3/4 7 1/4
September 30, 1999 9 3/8 7 5/8
December 31, 1999 11 5/8 7 3/4
March 31, 2000 10 3/8 7 3/4
June 30, 2000 8 5/8 4 7/8
September 30, 2000 6 7/8 5 1/2
b) Holders
The approximate number of beneficial holders and holders of record of the
Company's Common Stock as of December 12, 2000, were 1,326 and 56, respectively.
c) Dividends
The holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. The Company has not declared or
paid any cash dividends and does not expect to declare or pay any cash dividends
in the foreseeable future.
16
Item 6. Selected Financial Data
FINANCIAL HIGHLIGHTS
(In thousands, except earnings per share)
- -----------------------------------------
- ----------------------------------------------------------------------------------------------------
Year Ended September 30 1996 1997 1998 1999 2000
- ----------------------------------------------------------------------------------------------------
Net sales $16,693 $23,868 $39,388 $43,896 $22,507
Net income (loss) 272 1,475 3,356(2) 3,962 (1,229)(2)
Diluted earnings (loss) per share (1) .05 .25 .56 .68 (.22)(3)
Total assets 10,903 14,154 22,583 26,122 24,460
Long term debt obligations -- -- -- 4,994 3,617
Stockholders' equity 8,919 10,417 13,087 17,038 16,795
(1) Diluted earnings per share have been adjusted to give a retroactive effect
to a two-for-one stock split, in the form of a stock dividend, distributed
on September 4, 1997.
(2) Includes an after-tax gain of $225,000 and $221,000 in 1998 and 2000,
respectively, from the sale of a portion of the Company's unconsolidated
South African affiliate.
(3) The weighted average shares outstanding used in the calculation of net loss
per common share did not include potential shares outstanding because they
were anti-dilutive.
QUARTERLY INFORMATION
(In thousands, except earnings per share)
- -----------------------------------------
Quarter Ended
- ------------------------------------------------------------------------------------------------------
Dec. 31 Mar. 31 June 30 Sept. 30 Year
- ------------------------------------------------------------------------------------------------------
Fiscal 1999
Net sales $ 12,302 $ 13,189 $ 13,251 $ 5,154 $ 43,896
Gross profit 4,852 5,269 5,273 1,842 17,236
Net income 1,136 1,290 1,249 287 3,962
Diluted earnings per share 0.20 0.22 0.21 0.05 0.68
- -----------------------------------------------------------------------------------------------------
Fiscal 2000
Net sales $ 6,850 $ 6,305 $ 3,292 $ 6,060 $ 22,507
Gross profit 2,442 2,130 384 1,832 6,788
Net income (loss) 461 11 (1,433) (268) (1,229)
Diluted earnings (loss) per share 0.08 0.00 (0.26) (0.05)(1) (0.22)(1)
(1) The weighted average shares outstanding used in the calculation of net loss
per common share did not include potential shares outstanding because they were
anti-dilutive.
17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fiscal year ended September 30, 2000 compared with September 30, 1999
Sales
Net sales for fiscal 2000 decreased by 48.7% to $22.507 million as compared with
$43.896 million in fiscal 1999. The sales decline in fiscal 2000 is primarily
due to decreased demand for the Company's bill validator products and delays in
several projects. A decline in sales in Australia and domestically to the gaming
industry amounted to approximately $15.8 million and $4.9 million, respectively.
Accordingly, gaming sales decreased 50% to $19.9 million and beverage and
vending sales decreased 40% to $2.6 million. Net sales to international
customers accounted for 83.1% and 80.4% of net sales in fiscal 2000 and 1999,
respectively.
Gross Profit
Gross profit decreased to $6.788 million, or 30.2% of net sales, in fiscal 2000
as compared with $17.236 million, or 39.3% of net sales, in the prior-year
period. The decrease in gross profit as a percentage of sales was primarily the
result of less efficient operations resulting from lower sales and production
during the period.
Operating Expenses
Operating expenses in fiscal 2000 decreased to $9.251 million, or 41.1% of net
sales, as compared with $10.306 million, or 23.5% of net sales, in fiscal 1999.
This decrease of $1.055 million was primarily the result of a reduction in
certain personnel related costs, which includes the results of cost reduction
efforts, as well as lower shipping and warranty costs. During the year ended
September 30, 2000, the Company was able to reduce operating expenses in light
of reduced revenue performance. However, the significant revenue decrease
resulted in an increase in operating expenses as a percentage of net sales.
During the quarter ended June 30, 2000, the Company took action to reduce its
workforce which lowered expenses, the full benefit of which was realized in the
fourth quarter and will continue to be realized through the fiscal quarter ended
June 2001.
Net (Loss) Income
Net (loss) income for fiscal 2000 was ($1.229) million, or ($0.22) per share, as
compared with $3.962 million, or $0.68 per share, for fiscal 1999. In addition
to its operations, the Company owns interests in various unconsolidated
affiliates in key regions of the world, all of which are accounted for using the
equity method. Included in the results of operations for fiscal 2000 and 1999
are the Company's share of net profits (net losses) of these affiliates of
$742,000 and ($678,000), respectively. In fiscal 2000 and 1999, equity in income
(loss) of unconsolidated affiliates includes an increase (decrease) of
approximately $689,000 and ($1,125,000), respectively, which represents the
recognition (deferral) of the Company's share of the gross profits on
intercompany sales to its affiliates that have (have not then) been recognized
by these affiliates. This improvement in profit is the result of a significant
decrease of inventory at the
18
Company's affiliates. Excluding the intercompany gross profit adjustment, the
Company's share of net income of these unconsolidated affiliates was $53,000 and
$447,000 for fiscal 2000 and 1999, respectively. This decrease is primarily the
result of lower sales and profits at the Company's South African and Australian
affiliates, both of which remain profitable, and start-up costs relating to
Abacus Financial Management Systems, Ltd. In addition, the Company has a
majority ownership in Global Payment Technologies (Europe) Limited and Abacus
Financial Management Systems, Ltd., USA, whose results are consolidated in the
Company's financial statements. During fiscal 2000, the Company recognized an
after-tax gain of $221,000, or $.04 per share, which was the result of the sale
of a portion of the Company's shares in its South African affiliate (see Note
11). Excluding the effect of this one-time gain, net loss was ($1,450,000), or
($.26) per share.
Fiscal year ended September 30, 1999 compared with September 30, 1998
Sales
Net sales for fiscal 1999 increased by 11.4% to $43.896 million as compared with
$39.388 million in fiscal 1998. The sales growth in fiscal 1999 is attributable
to increased demand for the Company's bill validator products primarily in the
international gaming industry, and specifically in Australia. Increased sales in
Australia and to the domestic gaming industry amounted to approximately $7.1
million and $1.2 million, respectively. These increases were partially offset by
a decrease of approximately $1.7 million in sales to the Russian beverage and
vending market resulting from a decline in the economic conditions of that
country, as well as a decrease of approximately $1.6 million in sales to Europe.
Accordingly, gaming sales increased 20% to $39.585 million and beverage and
vending sales decreased 33% to $4.311 million. Net sales to international
customers accounted for 80.4% and 83.9% of net sales in fiscal 1999 and 1998,
respectively.
Gross Profit
Gross profit increased to $17.236 million, or 39.3% of net sales, in fiscal 1999
as compared with $16.375 million, or 41.6% of net sales, in the 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 that began during the
fourth quarter of fiscal 1998. At that time the Company began to sell directly
to its Australian and South African affiliates which subsequently sell the
Company's products into those respective markets. As a result of this change,
1999 results reflect lower sales and gross profit, and a commensurate reduction
in sales commissions within its operating expenses.
Operating Expenses
Operating expenses in fiscal 1999 decreased to $10.306 million, or 23.5% of net
sales, as compared with $10.983 million, or 27.9% of net sales, in fiscal 1998.
Primarily as a result of the shift in distribution method noted above,
commission expense decreased from $2.738 million in 1998 to $556,000 in 1999.
Excluding the effect of these commissions, operating expenses as a percentage of
net sales were 22.2% in 1999 as compared with 20.9% in 1998. This increase, as a
percentage of net sales, in 1999 is principally the result of increased staffing
and related payroll costs, primarily added during 1998, to support the
anticipated sales growth in 1999 and beyond,
19
as well as higher warranty costs to support the Company's product. Such increase
in warranty costs is primarily attributable to increased unit sales of the
Company's products, changes in design to comply with regulatory requirements and
additional costs to maintain its various components. Additionally, the Company's
decline in fourth quarter sales caused operating expenses, as a percentage of
net sales, to increase for both the fourth quarter and full year.
Net Income
For fiscal 1999, the Company's net income was $3.962 million, or $0.68 per
share, as compared with $3.356 million, or $0.56 per share, for fiscal 1998.
During fiscal 1998, the Company recognized an after-tax gain of $225,000, or
$.04 per share, which was the result of the sale of a portion of the Company's
equity interest in its South African affiliate ("GPT-SA"). In addition to its
operations, the Company owns interests in various unconsolidated affiliates in
key regions of the world, all of which are accounted for using the equity
method. Included in the results of operations for fiscal 1999 and 1998 are the
Company's share of losses (net of profits) of these affiliates of $678,000 and
$215,000, respectively. Equity in income of unconsolidated affiliates has been
reduced by approximately $1,125,000 and $400,000 in fiscal 1999 and 1998,
respectively, which represents the gross profit on the Company's sales to its
affiliates, where such sales had not then been recognized by the affiliates. In
addition, the Company owns 70% of GPT-Europe Limited, a local sales and service
organization in Europe, whose results are consolidated in the Company's
financial statements. With the establishment of a foreign sales corporation and
the continuation of the Company's international sales strength, the Company has
reduced its effective tax rate to 32.0% in fiscal 1999 as compared with 39.0% in
fiscal 1998.
Liquidity and Capital Resources
The Company's capital requirements consist primarily of those necessary to
continue to expand and improve product development and manufacturing
capabilities, sales and marketing operations, investments in affiliates and, to
a lesser degree, interest payments on the Company's indebtedness. The Company
believes that its available resources, including its credit facilities, should
be sufficient to meet its obligations as they become due and permit continuation
of its planned product development and expansion throughout fiscal 2001 and
beyond.
On July 15, 1999, the Company entered into a $10 million unsecured long-term
credit agreement with The Chase Manhattan Bank which is comprised of a
$4,000,000 five-year term loan, payable in equal monthly installments with a
fixed interest rate of 7.66% per annum and a $6,000,000 revolving line of credit
("RLC"). The term of the RLC is three years and outstanding borrowings bear
interest at the bank's prime rate, or at the Company's option, for borrowings
greater than $500,000, LIBOR plus a range of 125 to 200 basis points. The
precise borrowing rate is determined by the Company's financial performance
under certain covenants. The Company was in compliance with these covenants at
September 30, 1999. As of June 30, 2000, the Company received a waiver for
non-compliance with certain covenants. In addition, the Company received an
amendment of its covenants for the next twelve months, which the Company
believes is sufficient to operate its business. The Company was in compliance
with these amended covenants at September 30, 2000. As of September 30, 2000,
outstanding
20
borrowings under the five-year term loan and the RLC were $3,067,000 and
$1,350,000, respectively.
Net cash provided by operating activities amounted to $701,000 in fiscal 2000.
This amount is due to decreased accounts receivable of $4.095 million, decreased
prepaid expenses and other assets of $197,000 and increased accrued expenses and
other liabilities of $76,000, offset, in part, by a net loss for the year,
adjusted for non-cash items, of $933,000, increased inventory of $1.834 million,
an increase in income tax receivable of $674,000, a decrease in accounts payable
of $172,000 and a decrease in income taxes payable of $54,000. Net cash used in
operating activities amounted to $1.058 million in fiscal 1999. Net income,
adjusted for noncash items, was $5.561 million in fiscal 1999. This amount was
reduced by an increase in accounts receivable of $4.472 million, a decrease in
accrued expenses and other current liabilities of $1.155 million, a decrease in
accounts payable of $517,000, a decrease in income taxes payable of $376,000,
and an increase in prepaid expenses and other assets of $111,000. Net cash used
in operating activities amounted to $3.856 million in fiscal 1998. Net income,
adjusted for noncash items, was $3.977 million in fiscal 1998. This amount was
augmented by an increase in accrued expenses and other current liabilities of
$1.696 million and an increase in income taxes payable of $321,000 and was
offset by an increase in accounts receivable of $6.034 million, an increase in
inventory of $3.344 million, an increase in prepaid expenses and other assets of
$214,000 and a decrease in accounts payable of $258,000.
Net cash used in investing activities amounted to $512,000 in fiscal 2000 as
compared with $128,000 in fiscal 1999 and $633,000 in fiscal 1998. The Company
provided net fundings to its joint ventures of $181,000 in fiscal 2000 as
compared with $166,000 in fiscal 1999 and $42,000 during fiscal 1998. In
addition, during fiscal 2000 and fiscal 1998, the Company recognized a pre-tax
gain of $330,000 and $385,000, respectively, from the sale of a portion of the
equity in its South African affiliate (see Note 11). Further, the Company
received $472,000 and $39,000 in dividend distributions from its Australian and
South African affiliates, respectively, during fiscal 1999. The remaining
investing activities of $431,000 in fiscal 2000, $473,000 in fiscal 1999 and
$976,000 in fiscal 1998 were for the purchase of property and equipment.
Net cash (used in) provided by financing activities amounted to ($283,000) in
fiscal 2000, as compared with $1.686 million in fiscal 1999 and $3.411 million
in fiscal 1998. In fiscal 2000 the Company made repayments (net of proceeds) of
$1.269 million on its credit facilities as compared with proceeds received (net
of repayments) of $1.697 million and $4.097 million in fiscal 1999 and 1998,
respectively. In fiscal 1999 and 1998, the Company used a portion of these
proceeds to repurchase its common stock amounting to $247,000 (44,200 shares)
and $1.047 million (165,000 shares), respectively. The remaining cash provided
by financing activities of $986,000 in fiscal 2000, $236,000 in fiscal 1999 and
$361,000 in fiscal 1998 were from the issuance of stock upon the exercise of
common stock options and warrants.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Fiscal 2000 saw continued moderation in the level of inflation. In order to
offset the resultant rise in the costs of operations, the Company has and will
continue to assess ways to reduce
21
product manufacturing costs, thereby increasing profit margins and improve its
operations to gain efficiencies and reduce operating costs.
While the Company operates in many international markets, it does so principally
through the sale of its products with invoices denominated in the United States
currency. Additionally, the Company operates without the use of derivative or
hedging instruments. The Company is subject to the effects caused by the
strengthening or weakening United States currency, and as such may consider the
use of currency instruments in the future.
The Company has a $6.0 million revolving credit facility with borrowings subject
to interest at the bank's prime rate or LIBOR plus a range of 125 to 250 basis
points. As such, the interest rate is variable and the interest expense on
potential borrowings is based upon the types of loans and applicable interest
rates at the time of borrowing. In the event the Company had its entire
revolving credit facility, $6.0 million, outstanding for the entire year, each
100 basis point increase would result in an annual increase in interest expense
of approximately $60,000.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company required by this item are set forth
beginning on page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
22
PART III
Items 10 through 13 inclusive are omitted per General Instruction G(3). The
information required by Part III shall be incorporated by reference from the
Registrant's definitive proxy statement pursuant to Regulation 14A for the
fiscal year ended September 30, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. All Financial Statements:
Report of Independent Public Accountants (page F-1)
Consolidated Balance Sheets as of September 30, 2000 and 1999 (page F-2)
Consolidated Statements of Income for the years ended September 30,
2000, 1999 and 1998 (page F-3)
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 2000, 1999 and 1998 (page F-4)
Consolidated Statements of Cash Flows for the years ended September 30,
2000, 1999 and 1998 (page F-5)
Notes to Consolidated Financial Statements (page F-6)
2. Financial statement schedules required to be filed by Item 8 of this
Form:
Report of Independent Accountants on Financial Statement Schedule (page
S-1)
Schedule II of Valuation and Qualifying Accounts (page S-2)
3. Exhibits:
Exhibit No.
- -----------
3.1 Certificate of Incorporation (2)
3.2 Certificate of Merger (2)
3.3 By-Laws (2)
4.1 Credit Agreement dated July 15, 1999 between the Company and The Chase
Manhattan Bank ("Chase")(4)
4.1(a) Revolving Credit Note dated July 15, 1999 issued by the Company to
Chase(4)
4.1(b) Term Note dated July 15, 1999 issued by the Company to Chase(4)
4.1(c) Limited Corporate Guaranty dated July 15, 1999 issued by Abacus
Financial Management Systems Ltd. USA to Chase(4)
4.1(d) Pledge Agreement dated July 15, 1999 between the Company and Chase(4)
23
4.1(e) First Amendment and Waiver dated September 5, 2000 to the Credit
Agreement dated July 15, 1999 issued by the Company to Chase (8)
10.1 Lease dated October 1, 2000 between the Company and Heartland Associates
(8)
10.2 1994 Stock Option Plan (1)
10.3 1996 Stock Option Plan (1)
10.4 2000 Stock Option Plan (5)
10.5 Employment Agreement dated January 1, 1998 between the Company and
Robert W. Nader (3)
10.6 Employment Agreement dated January 1, 2000 between the Company and
Thomas Oliveri (6)
10.7 Employment Agreement dated May 1, 2000 between the Company and Thomas
McNeill (7)
21 List of Subsidiaries (8)
23 Consent of Independent Public Accountants (8)
27 Financial Data Schedule (8)
- -------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File #333-30829).
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1997.
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1998.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.
(5) Incorporated by reference to the Company's Proxy Statement for the
fiscal year ended September 30, 1999.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
(8) Filed herewith.
(b) Reports on Form 8-K
No Reports on Form 8-K have been filed during the last quarter of the period
covered by this Report.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Global Payment Technologies, Inc.
By: /s/Stephen Katz
-----------------------------
Stephen Katz
Chairman of the Board and
Chief Executive Officer
Date: December 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Stephen Katz Chairman of the Board December 21, 2000
- ---------------------------- and Chief Executive Officer
Stephen Katz
/s/Henry B. Ellis Director December 21, 2000
- ---------------------------
Henry B. Ellis
/s/Richard Gerzof Director December 21, 2000
- ---------------------------
Richard Gerzof
/s/Martin H. Kern Director December 21, 2000
- ---------------------------
Martin H. Kern
/s/Thomas McNeill Vice President, Chief Financial December 21, 2000
- --------------------------- Officer and Principal Accounting
Thomas McNeill Officer
25
GLOBAL PAYMENT TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of September 30, 2000 and 1999 F-2
Consolidated Statements of Income for the years ended September 30, 2000, 1999 and 1998 F-3
Consolidated Statements of Shareholders' Equity for the years ended September 30, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the years ended September 30, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Payment Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Global Payment
Technologies, Inc. (a Delaware corporation) and subsidiaries (the "Company") as
of September 30, 2000 and 1999, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended September 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Global Payment Technologies,
Inc. and subsidiaries as of September 30, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 2000 in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Melville, New York
November 20, 2000
F-1
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND 1999
(Dollar amounts in thousands, except share data)
ASSETS 2000 1999
--------------- -------- --------
Current assets:
Cash and cash equivalents $ 1,179 $ 1,273
Accounts receivable, less allowance for doubtful accounts of $206 and $288,
respectively 2,563 2,715
Accounts receivable from affiliates 7,580 10,919
Inventory, less allowance for obsolescence of $963 and $850, respectively 8,820 7,504
Prepaid expenses and other current assets 291 330
Deferred income tax benefit 837 981
Income taxes receivable 674 --
-------- --------
Total current assets 21,944 23,722
Property and equipment, net 1,367 1,551
Investments in unconsolidated affiliates 798 684
Other assets 351 165
-------- --------
Total assets $ 24,460 $ 26,122
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
--------------------------------------------
Current liabilities:
Current portion of long-term debt $ 908 $ 800
Accounts payable 1,355 1,527
Accrued expenses and other current liabilities 1,785 1,709
Income taxes payable -- 54
-------- --------
Total current liabilities 4,048 4,090
Long-term debt 3,617 4,994
-------- --------
Total liabilities 7,665 9,084
-------- --------
Commitments and contingencies (Note 12)
Shareholders' equity:
Common stock, 20,000,000 shares authorized; $.01 par value, 5,766,250 and
5,619,125 shares issued and outstanding, respectively 58 56
Additional paid-in capital 9,554 8,570
Retained earnings 8,477 9,706
-------- --------
18,089 18,332
Less: Treasury stock, at cost, 209,200 shares (1,294) (1,294)
-------- --------
Total shareholders' equity 16,795 17,038
-------- --------
Total liabilities and shareholders' equity $ 24,460 $ 26,122
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999
AND 1998 (Dollar amounts in thousands, except share and per share data)
2000 1999 1998
----------- ----------- -----------
Net sales:
Non-affiliates $ 11,083 $ 15,890 $ 34,572
Affiliates 11,424 28,006 4,816
----------- ----------- -----------
22,507 43,896 39,388
Cost of sales 15,719 26,660 23,013
----------- ----------- -----------
Gross profit 6,788 17,236 16,375
Operating expenses 9,251 10,306 10,983
----------- ----------- -----------
(Loss) Income from operations (2,463) 6,930 5,392
----------- ----------- -----------
Other income (expense):
Equity in income (loss) of unconsolidated affiliates 742 (678) (215)
Gain on sale of investment in unconsolidated affiliate 330 -- 385
Interest expense (479) (477) (116)
Other income 58 51 54
----------- ----------- -----------
Other income (expense) 651 (1,104) 108
----------- ----------- -----------
(Loss) income before provision for income taxes (1,812) 5,826 5,500
(Benefit) provision for income taxes (583) 1,864 2,144
----------- ----------- -----------
Net (loss) income $ (1,229) $ 3,962 $ 3,356
=========== =========== ===========
Net (loss) income per share:
Basic $ (.22) $ .74 $ .61
=========== =========== ===========
Diluted $ (.22) $ .68 $ .56
=========== =========== ===========
Common shares used in computing net income per share amounts:
Basic 5,515,626 5,381,170 5,513,414
=========== =========== ===========
Diluted 5,515,626 5,822,787 5,995,067
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER
30, 2000, 1999 AND 1998 (Dollar amounts in thousands, except share data)
Common Stock Additional
------------------------- Paid-in Retained
Shares Amount Capital Earnings
--------- --------- --------- ---------
Balance at September 30, 1997 5,506,200 $ 55 $ 7,974 $ 2,388
Exercise of common stock options and warrants 64,100 1 360 --
Purchase of treasury stock -- -- -- --
Net income -- -- -- 3,356
--------- --------- --------- ---------
Balance at September 30, 1998 5,570,300 56 8,334 5,744
Exercise of common stock options 48,825 -- 236 --
Purchase of treasury stock -- -- -- --
Net income -- -- -- 3,962
--------- --------- --------- ---------
Balance at September 30, 1999 5,619,125 56 8,570 9,706
Exercise of common stock options and warrants 147,125 2 984 --
Net loss -- -- -- (1,229)
--------- --------- --------- ---------
Balance at September 30, 2000 5,766,250 $ 58 $ 9,554 $ 8,477
========= ========= ========= =========
Treasury Stock
-------------------------
Shares Amount Total
--------- --------- ---------
Balance at September 30, 1997 -- $ -- $ 10,417
Exercise of common stock options and warrants -- -- 361
Purchase of treasury stock (165,000) (1,047) (1,047)
Net income -- -- 3,356
--------- --------- ---------
Balance at September 30, 1998 (165,000) (1,047) 13,087
Exercise of common stock options -- -- 236
Purchase of treasury stock (44,200) (247) (247)
Net income -- -- 3,962
--------- --------- ---------
Balance at September 30, 1999 (209,200) (1,294) 17,038
Exercise of common stock options and warrants -- -- 986
Net loss -- -- (1,229)
--------- --------- ---------
Balance at September 30, 2000 (209,200) $ (1,294) $ 16,795
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
(Dollar amounts in thousands)
2000 1999 1998
------- ------- -------
OPERATING ACTIVITIES:
Net (loss) income $(1,229) $ 3,962 $ 3,356
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Equity in (income) loss of unconsolidated affiliates (742) 678 215
Gain on sale of investment in unconsolidated affiliate (330) -- (385)
Depreciation and amortization 621 680 553
Provision for losses on accounts receivable 85 64 123
Provision for inventory obsolescence 518 574 374
Deferred income taxes 144 (397) (259)
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable, including affiliates 4,095 (4,472) (6,034)
(Increase) decrease in inventory (1,834) 12 (3,344)
Decrease (Increase) in prepaid expenses and other assets 197 (111) (214)
Increase in income tax receivable (674) -- --
Decrease in accounts payable (172) (517) (258)
Increase (decrease) in accrued expenses and other liabilities 76 (1,155) 1,696
(Decrease) increase in income taxes payable (54) (376) 321
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 701 (1,058) (3,856)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment, net of proceeds from disposals (431) (473) (976)
Proceeds from sale of investment in unconsolidated affiliate 100 -- 385
Investments in unconsolidated affiliates (181) (166) (42)
Distributions from unconsolidated affiliates -- 511 --
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (512) (128) (633)
------- ------- -------
FINANCING ACTIVITIES:
(Repayments of) proceeds from notes payable to bank (1,269) 1,697 4,097
Purchase of treasury stock -- (247) (1,047)
Issuance of stock upon exercise of stock options and warrants 986 236 361
------- ------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (283) 1,686 3,411
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (94) 500 (1,078)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,273 773 1,851
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,179 $ 1,273 $ 773
======= ======= =======
CASH PAID DURING THE YEAR FOR:
Interest $ 386 $ 446 $ 97
======= ======= =======
Income taxes $ 179 $ 2,621 $ 1,879
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
1. ORGANIZATION AND NATURE OF BUSINESS
Global Payment Technologies, Inc. (the "Company") was established in 1988. The
Company designs, manufactures and markets paper currency validating equipment
used in gaming and vending machines in the United States and other countries.
Substantially all of the Company's revenues are derived from the sale of paper
currency validators and related bill stackers, specifically the Company's IDS,
M-125, IBS, M-150 and IDUS validator models. Fluctuations in the Company's
results of operations may be caused by various factors, including the timing and
market acceptance of new products introduced by the Company and its competitors,
the size and timing of product orders and shipments, the relative mix of
products sold by the Company, specific economic conditions in the gaming
industry, from which the Company derives a substantial portion of its revenues,
and general economic conditions. Additionally, the Company depends on a single
or limited number of suppliers for certain housings, parts and components,
including certain microprocessor chips and short wave-length light sources. The
Company has entered into volume blanket purchase agreements with suppliers to
guard against unique component shortages, limiting the Company's exposure to
business interruptions.
Significant Customers
The Company's largest customers for 2000, 1999 and 1998 represent the following
percentages of net sales and accounts receivable:
Net Sales 2000 1999 1998
--------------------------------- ------ ------ ------
Customer A 48% 59% 46%
Customer B 11% N/A 10%
Accounts Receivable
Customer A 64% 70% 45%
Customer B 2% N/A 8%
There were no other customers that represented 10% or more of net sales in any
of the fiscal years presented.
Geographic Areas
The Company generates revenues both domestically and internationally. The
following summarizes the geographic dispersion of the Company's revenues:
Year Ended September 30,
----------------------------------
2000 1999 1998
(Amounts in 000s)
Domestic revenues (United States) $ 3,756 $ 8,614 $ 7,394
------- ------- -------
International revenues:
Australia 10,312 26,110 18,947
Europe 5,577 5,771 7,350
All others 2,862 3,401 5,697
------- ------- -------
18,751 35,282 31,994
------- ------- -------
Total revenues $22,507 $43,896 $39,388
======= ======= =======
All of the Company's long-lived assets are domiciled in the United States,
except for an immaterial amount at its subsidiary in the United Kingdom.
F-6
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Global Payment
Technologies, Inc. and its majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue upon shipment of products to its customers,
including shipments to its unconsolidated affiliates, or at the time services
are completed with respect to repairs not covered by warranty agreements.
Investments in Unconsolidated Affiliates
The Company applies the equity method of accounting to its investments in
entities where the Company has non-controlling ownership interests of 20% to
50%. The Company's share of these affiliates' earnings or losses is included in
the consolidated statements of income. The Company eliminates its pro rata share
of gross profit on sales to its affiliates for inventory on hand at the
affiliates at the end of the year. See Note 11 for a description of the
Company's unconsolidated affiliates and the related transactions between the
Company and these affiliates.
Cash and Cash Equivalents
Cash equivalents are stated at cost which approximates market value. Highly
liquid investments with maturities of three months or less at the purchase date
are considered cash equivalents for purposes of the consolidated balance sheets
and consolidated statements of cash flows.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or net
realizable value. The Company analyzes the net realizable value of its inventory
on an ongoing basis. In determining whether the net realizable value of its
inventory is impaired, the Company considers historical sales performance and
expected future product sales, market conditions in which the Company
distributes its products, changes in product strategy and the potential for the
introduction of new technology or products by the Company and its competitors.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets (Note 5)
or, in the case of leasehold improvements, the life of the related lease,
whichever is shorter. Maintenance and repair costs are charged to expense as
incurred. Expenditures which significantly increase value or extend useful asset
lives are capitalized.
Long-Lived Assets
The Company accounts for long-lived assets pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires
that long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of those assets may
not be recoverable. The Company did not record any impairment adjustments in
fiscal 2000, 1999 and 1998.
F-7
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
Goodwill
Goodwill, included in other assets in the accompanying consolidated balance
sheets, relates to the cost of the Company's equity investment in Abacus
Financial Management Systems, Ltd. ("Abacus") in excess of the underlying net
assets. Goodwill is being amortized on a straight-line basis over 20 years.
Accumulated amortization was $6,000 as of September 30, 2000. Consistent with
SFAS No. 121, management believes that there is no impairment to goodwill as of
September 30, 2000 (see Note 3).
Research and Development
Research and development costs incurred by the Company are included in operating
expenses in the year incurred. Such costs amounted to $225,000, $300,000 and
$350,000 in fiscal 2000, 1999 and 1998, respectively.
Warranty Policy
The Company warrants that its products are free from defects in material and
workmanship for a period of one year from the date of initial purchase. The
warranty does not cover any losses or damage that occur as a result of improper
installation, misuse or neglect and repair or modification by anyone other than
the Company and its appointed service centers. Warranty costs beyond one year
from the date of initial purchase are charged to the Company's customers.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires an asset and liability approach for financial
reporting for income taxes. Under SFAS No. 109, deferred taxes are provided for
temporary differences between the carrying values of assets and liabilities for
financial reporting and tax purposes at the enacted rates at which these
differences are expected to reverse.
Net Income (Loss) Per Share
Net income (loss) per common share amounts ("basic EPS") are computed by
dividing net earnings (loss) by the weighted average number of common shares
outstanding, excluding any potential dilution. Net income (loss) per common
share amounts assuming dilution ("diluted EPS") are computed by reflecting
potential dilution from the exercise of stock options and warrants. The effect
of dilutive securities is not presented below for 2000, as its inclusion would
be anti-dilutive.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations is as follows:
Year Ended September 30,
------------ ---------- ----------
2000 1999 1998
------------ ---------- ----------
(In thousands, except share and per share data)
Numerator
Net (loss) income attributable to common stockholders $ (1,229) $ 3,962 $ 3,356
============ ========== ==========
Denominator
Weighted average common shares outstanding - Basic 5,515,626 5,381,170 5,513,414
Effect of dilutive securities: Stock options and warrants -- 441,617 481,653
------------ ---------- ----------
Weighted average common shares outstanding - Diluted 5,515,626 5,822,787 5,995,067
============ ========== ==========
Basic EPS $ (.22) $ .74 $ .61
============ ========== ==========
Diluted EPS $ (.22) $ .68 $ .56
============ ========== ==========
F-8
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
Stock-Based Compensation
The Company applies the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" in connection with
stock-based compensation granted to employees and directors of the Company. The
Company provides the required pro forma disclosures as if the fair value method
under SFAS No. 123, "Accounting for Stock-Based Compensation" was adopted. Any
stock-based compensation awards to non-employees are accounted for using the
provisions of SFAS No. 123.
Comprehensive Income (loss)
The Company applies the provisions of 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 (loss)
is the total of net income (loss) and all other non-owner changes in equity (or
other comprehensive income (loss)) 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 (loss) 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 2000, 1999 and 1998, the Company's operations did not give rise to
material items includable in comprehensive income (loss), which were not already
included in net income (loss). Accordingly, the Company's comprehensive income
(loss) is the same as its net income (loss) for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior-year financial statement amounts have been reclassified to conform
to the current year's presentation.
Recently Issued Accounting Pronouncements
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters beginning
after June 15, 2000 (as amended by SFAS No. 137 and SFAS No. 138) and will not
require retroactive restatement of prior period financial statements. The
Company currently does not use derivative instruments or engage in hedging
activities, and, accordingly, the adoption of this standard by the Company in
the first quarter of fiscal year 2001 did not have a material effect on its
consolidated financial statements.
Shipping and Handling Costs
In September 2000, the Emerging Issue Task Force ("EITF") reached a consensus
with respect to EITF Issue No. 00-10 "Accounting for Shipping and Handling
Revenues and Costs." The purpose of this issue discussion was to clarify the
classification of shipping and handling revenues and costs. The consensus
reached was that all shipping and handling billed to customers is revenue.
F-9
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
Further, a consensus was reached that classification of shipping and handling
costs is an accounting policy decision that should be disclosed pursuant to APB
Opinion No. 22, "Disclosures of Accounting Policies". The Company may adopt a
policy of including shipping and handling costs in cost of sales. If shipping
costs are significant and are not included in cost of sales, a company should
disclose both the amount of shipping costs and the line item(s) on the income
statement that included them.
This standard will require a restatement of prior periods for changes in
classification. The Company currently nets its shipping and handling revenue
with the related costs and includes the residual amount as a selling expense.
This consensus is effective for the Company beginning with the fourth quarter of
fiscal 2001. The Company is in the process of quantifying the impact of its
adoption, which will not change reported income (loss) from operations or net
income (loss).
3. ACQUISITIONS
In June 1998, the Company formed Global Payment Technologies (Europe) Limited
("GPT-Europe"), which is based in the United Kingdom and is responsible for
sales and service for the Company's products in Europe. GPT-Europe purchased the
assets and assumed the liabilities of Global Payment Technologies (U.K.) Ltd.
("GPT-UK"), the Company's prior independent European distributor as of February
28, 1998. The excess of the cost over the fair market value of the net assets
acquired was not material. The Company, through a capital contribution of
$76,000, owns 70% of GPT-Europe, with the remaining 30% owned by GPT-Europe's
operations manager, a former principal of GPT-UK. GPT-Europe's assets and
liabilities are included in the consolidated balance sheet as of September 30,
2000 and 1999 and the results of its operations for the years ended September
30, 2000 and 1999 and for the period from March 1, 1998 to September 30, 1998
have been included in the consolidated statements of income, net of the related
minority interest in subsidiary earnings, which was not material.
In April 1999, the Company acquired a 25% equity interest in Abacus, a UK-based
software company, for a de minimis amount (Note 11). This investment is being
accounted for under the equity method. Abacus has developed a cash management
system, of which the Company's validators are a key component, that offers the
retail market a mechanism for counting, storing and transporting its cash
receipts. In addition, the Company and the principal of Abacus have formed
Abacus Financial Management, Inc. USA ("Abacus USA"), which is 80% owned by the
Company and which has the exclusive right to distribute Abacus' product in North
America. Abacus USA's assets and liabilities are included in the consolidated
balance sheet as of September 30, 2000 and the results of its operations for the
year then ended have been included in the consolidated statements of income, net
of the related minority interest in subsidiary earnings, which was not material.
4. INVENTORY
The following is a summary of the composition of inventory:
September 30,
--------------------------
2000 1999
-------- --------
(in 000s)
Raw materials $3,313 $2,501
Work-in-process 4,772 3,715
Finished goods 735 1,288
------ ------
$8,820 $7,504
====== ======
F-10
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
5. PROPERTY AND EQUIPMENT, NET
Major classifications of property and equipment are as follows:
September 30,
--------------------------
Useful Lives 2000 1999
-------- ---------
(in 000s)
Leasehold improvements 5 years $ 266 $ 258
Furniture and fixtures 3 - 7 years 507 452
Machinery and equipment 3 - 10 years 1,468 1,335
Computer software 5 years 863 691
Computer hardware 3 years 822 759
-------- --------
3,926 3,495
Less: Accumulated depreciation and amortization (2,559) (1,944)
-------- --------
$ 1,367 $ 1,551
======== ========
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
September 30,
-----------------------
2000 1999
-------- --------
(in 000s)
Compensation and employee benefits $ 530 $ 742
International commissions 72 69
Warranty costs 332 244
Administrative and other 851 654
------ ------
$1,785 $1,709
====== ======
7. NOTES PAYABLE TO BANK
At September 30, 2000 the Company had a $108,000 note payable to a bank. The
note bears interest at approximately 8% and matures January 31, 2001.
8. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 2000:
Revolving credit note $1,350
Term note 3,067
------
4,417
Less: current portion of long-term debt 800
------
$3,617
======
F-11
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
In July 1999, the Company entered into a $10 million unsecured long-term credit
agreement with The Chase Manhattan Bank which is comprised of a $4,000,000
five-year term loan (maturing June 30, 2004), payable in equal monthly
installments with a fixed interest rate of 7.66% per annum and a $6,000,000
revolving line of credit ("RLC"). The RLC expires on July 15, 2002 and
outstanding borrowings bear interest at the bank's prime rate or at the
Company's option, for borrowings greater then $500,000, LIBOR plus a range of
125 to 200 basis points. The precise borrowing rate is determined by the
Company's financial performance under certain covenants. Simultaneous with the
signing of the new credit agreement, the Company repaid all of its then
outstanding bank debt and terminated its existing credit facilities. As of
September 30, 2000, annual principal maturities for the amount outstanding under
the term note were as follows:
Fiscal Year Ended September 30, Amount
---------------------------------------------------- --------
2001 $ 800
2002 800
2003 800
2004 667
--------
$ 3,067
========
9. SHAREHOLDERS' EQUITY
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. In October 1998 and January 1999, respectively, the Company
purchased 41,000 shares of its common stock at a cost of $223,000 and 3,200
shares of its common stock at a cost of $24,000.
Stock Option Plans
In October 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan") covering up to 300,000 of the Company's common shares pursuant to which
officers, directors and key employees of the Company and consultants to the
Company are eligible to receive incentive and/or non-qualified stock options. In
March 1996, the Board of Directors adopted the 1996 Stock Option Plan (the "1996
Plan"). The purpose and provisions of the 1996 Plan are essentially the same as
the 1994 Plan. The 1996 Plan originally covered 400,000 of the Company's common
shares. The total shares available for grant under the 1996 Plan were increased
to 900,000 by the Board of Directors in September 1996. The 1996 Plan, as so
amended, was approved by the shareholders of the Company. In January 2000, the
Company adopted the 2000 Stock Option Plan (the "2000 Plan"). The purpose and
provisions of the 2000 Plan are essentially the same as the 1994 Plan and 1996
Plan. The 2000 plan covers up to 300,000 shares of the Company's common stock.
The 1994 Plan, which expires on October 17, 2004, the 1996 Plan, which expires
on March 18, 2006, and the 2000 Plan, which expires January 25, 2010 are all
administered by the Compensation and Stock Option Committee of the Board of
Directors. The selection of participants, grant of options, determination of
price and other conditions relating to the exercise of options are determined by
the Compensation and Stock Option Committee of the Board of Directors.
Incentive stock options granted under the 1994 Plan, the 1996 Plan, and the 2000
Plan are exercisable for a period of up to 10 years from the date of grant at an
exercise price which is not less than the fair market value of the common shares
on the date of the grant, except that the term of an incentive stock option
granted under each of the plans to a shareholder owning more than 10% of the
outstanding common shares may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the common shares on the date
of the grant.
F-12
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
During fiscal 1998, a total of 147,750 incentive stock options and 7,500
non-qualified options were granted under the 1996 Plan. All options granted in
1998 will become exercisable over a four-year period in equal amounts commencing
with the first anniversary of the date of grant.
During fiscal 1999, a total of 148,850 incentive stock options and 23,500
non-qualified options were granted under the 1996 Plan. All options granted in
1999 will become exercisable over a four-year period in equal amounts commencing
with the first anniversary of the date of grant.
During fiscal 2000, a total of 162,050 incentive stock options and 51,000
non-qualified options were granted under the 1996 Plan. All options granted in
2000 will become exercisable over varying terms up to five years. Included in
this amount are 186,050 five-year options that contain an acceleration clause to
as early as two years based upon achievement of specific company financial
performance goals.
The Company accounts for option awards granted to employees and directors under
APB Opinion No. 25, under which compensation cost is recognized for stock
options granted at an exercise price less than the market value of the options
on the grant date. No compensation cost has been recorded by the Company
pursuant to APB Opinion No. 25. Had compensation cost for all stock option
grants in fiscal years 2000, 1999 and 1998 been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been:
2000 1999 1998
-------- ------- -------
(in 000s, except per share data)
Net income: As Reported $ (1,229) $ 3,962 $ 3,356
Pro Forma (1,574) 3,721 3,227
Net income per common share - basic: As Reported $ (.22) $ .74 $ .61
Pro forma (.29) .69 .59
Net income per common share - diluted: As Reported $ (.22) $ .68 $ .56
Pro forma (.29) .64 .54
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to option awards
granted prior to fiscal-year 1997, and additional awards in future years are
anticipated.
A summary of the Company's stock option plans as of September 30, 2000, 1999 and
1998, and changes during the years then ended, is presented below.
2000 1999 1998
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- -------- -------- ------- --------
Outstanding at the beginning of the year 910,425 $5.66 813,150 $4.94 726,400 $4.08
Granted at fair value 213,050 $6.13 172,350 $8.98 155,250 $8.97
Forfeited (71,700) $9.12 (26,250) $6.40 (20,900) $4.15
Exercised (20,375) $4.83 (48,825) $4.89 (47,600) $5.24
--------- ------- -------
Outstanding at end of the year 1,031,400 $5.54 910,425 $5.66 813,150 $4.94
========= ======= =======
Options exercisable at year end 556,300 $3.96 526,510 $3.57
======= =======
Weighted-average fair value of options
granted during the year (a) 3.42 N/A $5.39 N/A $5.04 N/A
F-13
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
(a) The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
Year Ended September 30,
2000 1999 1998
-------- ------- -------
Risk-free interest rates 5.97% 5.87% 5.22%
Expected lives 5 years 5 years 5 years
Expected volatility 63% 65% 60%
Expected dividend yields -- -- --
Summarized information about the Company's stock options outstanding and
exercisable at September 30, 2000 is as follows:
Outstanding Exercisable
------------------------------ --------------------
Average Average Average
Exercise Price Range Options Life Price Options Price
----------------------- --------- --------- --------- ------- -------
$3.00 to $4.50 517,200 5.53 $ 3.32 497,800 $ 3.30
$4.51 to $5.50 15,000 6.08 $ 5.00 9,000 $ 5.00
$5.51 to $6.50 194,650 5.81 $ 5.82 -- --
$6.51 to $7.50 83,600 4.96 $ 6.56 41,100 $ 6.56
$7.51 to $8.50 17,500 5.69 $ 7.75 4,375 $ 7.75
$8.51 to $9.50 116,450 5.98 $ 9.03 29,075 $ 9.03
$9.51 to $10.50 16,000 6.38 $ 10.00 8,000 $ 10.00
$10.51 to $11.50 12,000 5.41 $ 11.25 3,000 $ 11.25
$11.51 to $12.50 34,000 6.43 $ 11.62 23,625 $ 11.60
$12.51 to $13.50 -- -- -- --
$13.51 to $14.50 25,000 4.52 $ 14.35 12,500 $ 14.35
---------- -------
$3.00 to $14.50 1,031,400 5.83 $ 5.54 628,475 $ 4.49
========== =======
Underwriters' Warrants
In connection with the Company's initial public offering of common stock in
February 1995, the Company granted warrants to purchase 150,000 shares of common
stock at $6.60 per share to the underwriters of that public offering. The
exercise price of $6.60 per share represented in excess of 110% of the initial
public offering price. As of September 2000, all of these warrants were
exercised.
10. INCOME TAXES
The (benefit from) provision for income taxes consists of the following:
For the Fiscal Years Ended September 30,
----------------------------------------
2000 1999 1998
(in 000s)
Current:
Federal $ (727) $ 1,945 $ 1,965
State and local -- 316 438
------- ------- -------
(727) 2,261 2,403
------- ------- -------
Deferred:
Federal 144 (343) (179)
State and local -- (54) (80)
------- ------- -------
144 (397) (259)
------- ------- -------
Total $ (583) $ 1,864 $ 2,144
======= ======= =======
F-14
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
Significant components of deferred tax assets and liabilities are as follows:
As of September 30,
---------------------------
2000 1999 1998
------- ------ ------
(in 000s)
Current deferred tax assets:
Accounts receivable $ 66 $ 91 $ 80
Inventory 308 270 306
Accrued expenses and other, net 195 136 68
Elimination of gross profit on sales to affiliates 268 484 130
---- ---- ----
Deferred tax asset $837 $981 $584
==== ==== ====
The Company believes that, based upon its history of profitable operations, it
is probable that the net deferred tax assets will be realized, primarily from
the generation of future taxable income.
Reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate is as follows:
For the Fiscal Years Ended September 30,
--------------------------------
2000 1999 1998
--------- -------- --------
U.S. Federal statutory rate (34.0)% 34.0% 34.0%
State income taxes, net of Federal benefit -- 3.0 4.3
Exempt foreign sales corporation income -- (3.5) --
All other, net 1.9 (1.5) .7
---- ---- ----
Effective income tax rate (32.1)% 32.0% 39.0%
==== ==== ====
11. TRANSACTIONS WITH UNCONSOLIDATED AFFILIATES
South Africa
In August 1996, the Company acquired a 50% non-controlling interest in a South
African affiliate, Global Payment Technology Holdings (Proprietary) Limited
("GPTHL"). This entity is responsible for sales and service of the Company's
products in the South African region, on an exclusive basis. In May, 1998,
Hosken Consolidated Investments ("HCI"), a South African investment company,
purchased a one-third interest in GPTHL. Terms of the transaction called for HCI
to purchase certain shares from the Company and the Bevin Trust (GPTHL's
founding shareholders) as well as additional shares directly from GPTHL. The
Company recognized a pre-tax gain of $385,000 on the transaction and its
ownership of GPTHL was reduced from 50% to 33%.
On November 1, 1999, GPTHL formed International Payment Systems Pty Ltd. ("IPS")
and assigned to IPS its rights to all of the non-gaming activities, primarily
the distribution of Ingenico, De La Rue and Scan Coin Products. The Company
currently has a 30% interest in IPS. GPTHL holds the exclusive distribution
rights to the Company's products in the South African region. Also on November
1, 1999, On-Line Gaming Systems Inc. ("On-Line"), a Florida-based Nasdaq-listed
company specializing in internet wagering and other casino-based products,
acquired a 23.5% equity interest in GPTHL through the purchase of shares from
the three partners and management of GPTHL. With the subsequent closing of this
transaction, GPTHL repurchased 1,000 of its shares owned by the Company. In
addition, the Company sold 650 shares of its stock in GPTHL to On-Line. The
Company recognized a pre-tax gain of $330,000, resulting in an after-tax gain of
$221,000, on the two transactions. The Company now has a 23.5% interest in
GPTHL. The Company's consolidated results of operations include the Company's
equity in the results of operations of this affiliate in the amounts of $92,000,
$1,000 and $1,400 in fiscal 2000, 1999 and 1998, respectively. For fiscal 2000
and 1999, the Company increased (reduced) its equity in income of unconsolidated
affiliates by $91,000 and ($122,000), respectively, which amounts represent the
gross profit on sales to this affiliate which have (have not then) been
recognized by the affiliate.
F-15
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
China
In January 1997, the Company acquired a 50% non-controlling interest in a
China-based affiliate. This entity manufactures plastic and metal components,
some of which are used by the Company in its production. In addition, the
Company is obligated to loan up to an aggregate of $299,000 to this entity,
which will bear interest at the rate of 1.5% above the prime rate prevailing
from time to time at the Company's bank, per annum. The Company has loaned
$244,000 to this entity, all prior to fiscal 1999. No repayments have been
received by the Company as of September 30, 2000. These amounts are included as
part of the Company's investment in unconsolidated affiliates in the
accompanying consolidated balance sheets as of September 30, 2000 and 1999. The
Company's consolidated results of operations include the Company's equity in the
income of this affiliate in the amounts of $4,000, $38,000 and ($169,000) in
fiscal 2000, 1999 and 1998, respectively.
Australia
In August 1997, the Company acquired a 50% non-controlling interest in an
Australian affiliate. This entity is responsible for sales and service of the
Company's products in Australia and New Zealand, on an exclusive basis. The
Company's consolidated results of operations include the Company's equity in the
results of operations of this affiliate in the amounts of $848,000, ($638,000)
and ($47,000) in fiscal 2000, 1999 and 1998, respectively. For fiscal 2000, 1999
and 1998, the Company increased (reduced) its equity in income of unconsolidated
affiliates by $597,000, ($1,003,000) and (400,000), respectively, which amounts
represent the gross profit on sales to this affiliate which have (have not then)
been recognized by the affiliate.
Abacus - UK
In April 1999, the Company acquired a 25% interest in Abacus . Abacus is a
software company based in the United Kingdom that has developed a cash
management system, of which the Company's validators are a key component, that
offers the retail market a mechanism for counting, storing and transporting its
cash receipts. The Company invested $162,000 in this entity to acquire the 25%
ownership interest. In fiscal 2000 the Company invested an additional $171,000
in Abacus. The Company's consolidated results of operations for the year ended
September 30, 2000 and 1999 include the Company's equity in the loss of this
affiliate of $202,000 and $79,000, respectively.
12. COMMITMENTS AND CONTINGENCIES
Minimum Lease Commitments
The operations of the Company are conducted in leased premises, one of which is
leased from an affiliate owned partially by the Company's Chairman. The Company
also leases various office equipment. At September 30, 2000, the approximate
minimum annual rentals under these leases, which expire through fiscal year
2006, were as follows:
Total (including
For the Fiscal Year Related Party Related Party
Ending September 30, Commitments) Commitments
-------------------------- ------------------- ------------------
(in 000s) (in 000s)
2001 530 164
2002 448 70
2003 390 --
2004 367 --
2005 360 --
2006 278 --
Total rent expense for all operating leases was $525,000, $494,000 and $430,000
in fiscal 2000, 1999 and 1998, respectively, including $152,000, $133,000 and
$121,000, respectively, paid to the affiliate. The Company's management believes
this lease with the affiliate is on terms which approximate fair market value.
F-16
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000, 1999 AND 1998
Employment Agreements
The Company has entered into various employment agreements with three officers
of the Company expiring through the end of fiscal 2002, with minimum
compensation requirements as follows:
For the Fiscal Year
Ending September 30, (in 000s)
-------------------- ---------
2001 330
2002 119
Litigation
There are no material legal proceedings pending against the Company.
F-17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To Global Payment Technologies, Inc.:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Global Payment
Technologies, Inc. and Subsidiaries included in this Form 10-K and have issued
our report theron dated November 20, 2000. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. This
schedule (Schedule II - Schedule of Valuation and Qualifying Accounts) is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
Schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Melville, New York
November 20, 2000
S-1
SCHEDULE II
GLOBAL PAYMENT TECHNOLOGIES, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------- ------------------- -------------------- -------------------- -------------------
Balance at Charged to Deductions - Balance
beginning costs and write off at end
Description of period expenses of accounts of period
- -------------------------------------------- ------------------- -------------------- -------------------- -------------------
Allowance for doubtful accounts:
September 30, 1998 $ 225 $ 123 $ 100 $ 248
====== ======= ======= =======
September 30, 1999 $ 248 $ 64 $ 24 $ 288
====== ======= ======= =======
September 30, 2000 $ 288 $ 85 $ 167 $ 206
====== ======= ======= =======