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, 2001
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.)
425B Oser Avenue, Hauppauge, New York 11788
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 631-231-1177
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 10, 2001, was approximately $17,900,000.
As of December 10, 2001, the registrant had a total of 5,527,266 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 2002 are incorporated by reference into
Part III of this report.
2
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 Technology Holdings (Proprietary) Limited
("GPTHL"). On May 29, 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, which reduced the Company's ownership of GPTHL 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 GPTHL's 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") (OTC BB symbol:
OGAM.OB), a public 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 may allow GPTHL to broaden its market and
product line. With the closing of this transaction, the Company had a 23.5%
interest in GPTHL. Effective August 1, 2000, a division of IPS, GPT Cash
Systems, acquired
3
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 commence deployment of gaming machines by mid calendar
2002. On January 18, 2001, GPTHL entered into a definitive agreement to merge
its operations with Vukani Gaming Corporation ("Vukani"), (formerly South
African Video Gaming Corporation (Pty) Ltd.), a wholly owned subsidiary of
Hosken Consolidated Investments Ltd. ("HCI"). Under the terms of the agreement,
GPT's ownership has been reduced from 23.5% of GPTHL to approximately 5% of the
merged entity, with GPT and GPTHL management having the right to substantially
increase their ownership upon specified conditions.
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,
4
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.
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. In fiscal 2001, sales increased 43% to $32.2 million primarily
as a result of increased demand for our products in both Australia and Russia,
as well as the addition of several new customers during the year.
The Company's international sales amounted to 89%, 83% and 80% of net sales in
fiscal 2001, 2000 and 1999, 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 may 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.
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
5
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. 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 is in its final stages of product development and expects to
begin field trials of its new vending validator early in its second fiscal
quarter 2002, with production and sales 90 days thereafter. In fiscal 2002, the
Company's strategy is to successfully deploy its new vending product through its
already existing distribution and affiliate channels, as well as create
additional alliances to further penetrate this market. The beverage and vending
industry is approximately $375 million or three times that of the gaming market.
Management believes this strategy will assist in providing the Company with
increased visibility and credibility in the overall beverage and vending
industry.
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, South Africa and Russia 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
6
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. In May 2001, the Company formed a strategic alliance with
Smart Card Integrators, Inc., a smart card applications system integrator, to
jointly develop new products that combine the attributes of the traditional
paper currency validator with the capabilities to process transactions using
credit cards, debit cards, and smart cards.
In July 2001, the Company signed a definitive agreement with Table Trac, Inc.
(OTC/BB: TBTC) to distribute and sell the new product which automates and
monitors, on a real time basis, the operations and revenues of casino table
games. The estimated market for casino table games is in excess of 35,000
tables.
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 $150,000, $225,000 and $300,000 during fiscal 2001,
2000 and 1999, 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(TM), the Company's new gaming validator, was launched at the World Gaming
Congress in October 2000. Sales of this new product represented 30% of validator
sales in the fourth quarter of fiscal 2001 and are expected to increase to 70%
by the second fiscal quarter of 2002. In the Spring of 2002, the Company plans
to introduce a new product designed specifically to address the requirements of
the beverage and vending marketplace.
7
Building from its engineering libraries, the Company anticipates the
introduction of a another new product during fiscal 2003 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,
2000 and 2001, this shift continued and Generation II and Argus(TM) product line
sales accounted for 79%, 76% and 89%, 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 continue shifting from its Generation II product line
over the course of fiscal 2002. The Company believes it has adequately reserved
for inventory obsolescence for the shift in demand from its Generation I
products and its Generation II products and will continually assess the adequacy
of inventory reserves for the anticipated shift in demand towards 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 1999, 2000 and 2001, 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 2002 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 and
is expected to be completely phased out during 2002.
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.
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
8
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. Argus is 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. This warranty has
essentially doubled with the 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 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 2002 as opportunities arise. Over the
last three years, the Company's cost of warranting its products has varied
primarily as a
9
direct result of the increase or decrease in the unit sales, as well as improved
product performance in fiscal 2001. Warranty expense for 2001, 2000 and 1999 was
$145,000, $328,000 and $490,000, 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 reflects the Company's commitment to providing superior service
worldwide.
Customer Concentration
During fiscal 2001, the Company's largest customer, GPTA, accounted for
approximately 52% 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 92% of the Company's revenues, with the remaining 8%
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, which is expected in Spring of 2002.
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
10
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. In addition, the Company has evaluated 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. In fiscal 2001, the Company incurred
higher startup costs on its new products; however, this was offset by increased
production volumes and commensurate efficiencies resulting from a 43% increase
in sales and production.
As the Company began its transition to the Argus product line in fiscal 2001, it
incurred increased costs related to lower volumes on the two product lines. Once
the transition is substantially completed in the second quarter of fiscal 2002,
Argus is expected to be produced in a more efficient manner and cost, while at
the same time allowing the Company increased flexibility to meet customers'
demand.
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.
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
11
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
market's 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 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
12
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 nine 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; "Stacker Mechanism for Stacking Bank Notes" U.S. Patent No. 5899452 issued
May 4, 1999; and "Apparatus and method for detecting a security feature in a
currency note," U.S. Patent No. 6,104,036 issued August 15, 2000. 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. 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.
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
13
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 2, 2001, the Company had 183 employees, consisting of 3 executives;
12 sales, and customer service representatives; 45 engineers and software
developers, and technical support representatives; 24 materials, quality control
and quality assurance personnel; 20 administrative and clerical personnel; and
79 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 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 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 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 $309,000 in
fiscal 2001, 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. On June 1, 2001 the Company reduced it's leased square
footage in Valley Stream, New York, from 6,054 square feet to 2,058 square feet.
The lease expires on February 28, 2002 and the annual base rental is
approximately $45,000. This facility houses certain executive 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 $47,500 increasing annually to approximately $52,000 in the final
year of the term. This facility houses certain sales and service functions of
the Company.
14
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 2000 and 2001.
Common Stock
------------
Quarter Ended High Low
------------- ---- ---
December 31, 1999 11.625 7.75
March 31, 2000 10.375 7.75
June 30, 2000 8.625 4.875
September 30, 2000 6.875 5.50
December 31, 2000 6.50 3.25
March 31, 2001 5.375 2.125
June 30, 2001 3.05 2.20
September 30, 2001 4.20 3.00
b) Holders
The approximate number of beneficial holders and holders of record of the
Company's Common Stock as of December 10, 2001, were 1,351 and 51, 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.
15
Item 6. Selected Financial Data
FINANCIAL HIGHLIGHTS
(In thousands, except earnings per share)
- -----------------------------------------
- -----------------------------------------------------------------------------------------------
Year Ended September 30 1997 1998 1999 2000 2001
- -----------------------------------------------------------------------------------------------
Net sales $23,868 $39,388 $43,896 $22,507 $32,161
Net income (loss) 1,475 3,356(2) 3,962 (1,229)(2) 806
Diluted earnings (loss) per share (1) .25 .56 .68 (.22)(3) .14
Total assets 14,154 22,583 26,122 24,460 26,466
Long-term debt obligations -- -- 4,994 3,617 2,800
Stockholders' equity 10,417 13,087 17,038 16,795 17,550
(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 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)(1) (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.
- ---------------------------------------------------------------------------------------------------
Fiscal 2001
Net sales $ 6,588 $ 8,389 $ 8,573 $ 8,611 $32,161
Gross profit 2,169 2,749 2,415 2,421 9,754
Net income (loss) 112 383 181 130 806
Diluted earnings (loss) per share 0.02 0.07 .03 .02 .14
(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.
16
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Fiscal year ended September 30, 2001 compared with September 30, 2000
Sales
Net sales for fiscal 2001 increased by 42.9% to $32.161 million as compared with
$22.507 million in fiscal 2000. The sales increase in fiscal 2001 is primarily
due to greater demand for the Company's gaming bill validator products in
Australia and Russia as compared to last fiscal year. Gaming sales increased 49%
to $29.7 million, while beverage and vending sales decreased 7% to $2.4 million.
Net sales to international customers accounted for 89.6% and 83.1% of net sales
in fiscal 2001 and 2000, respectively. This year the Company has started selling
its new gaming validator, Argus(TM), which represented approximately 30% of its
validator sales in the fourth fiscal quarter 2001, and is expected to grow to
approximately 70% by the end of the Company's second fiscal quarter 2002.
Gross Profit
Gross profit increased to $9.754 million, or 30.3% of net sales, in fiscal 2001
as compared with $6.788 million, or 30.2% of net sales, in the prior-year
period. While gross profit, as a percentage of sales, remained essentially flat
with that of the prior year, the current period reflects higher startup costs on
its new products which were offset by increased volume and efficiencies
resulting from a 43% increase in sales and production. During 2002, and as early
as the second fiscal quarter, the Company anticipates benefiting from improved
manufacturing efficiencies on its new products as well as improved purchasing
from already existing purchase agreements.
Operating Expenses
Operating expenses in fiscal 2001 decreased to $8.687 million, or 27.0% of net
sales, as compared with $9.251 million, or 41.1% of net sales, in fiscal 2000.
This decrease of $564,000 was primarily the result of a reduction in certain
personnel related costs, which includes the results of cost cutting efforts in
prior periods as well as throughout this fiscal year. During the year ended
September 30, 2001, the Company also achieved a decrease in operating expenses,
as a percentage of sales, from 41.1% to 27%, while at the same time increasing
sales 43%.
Net Income (Loss)
Net income for fiscal 2001 was $806,000, or $0.14 per share, as compared with a
net loss of ($1.229) million, or ($0.22) per share, for fiscal 2000. 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 2001 and 2000
are the Company's share of net profits of these affiliates of $169,000 and
$742,000, respectively. In fiscal 2001 and 2000, equity in income of
unconsolidated affiliates includes a (decrease) increase of approximately
($11,000) and $689,000, respectively, which represents the (deferral)
recognition of the Company's share of the gross profits on
17
intercompany sales to its affiliates that (have not) have been recognized by
these affiliates. Excluding the intercompany gross profit adjustment, the
Company's share of net income of these unconsolidated affiliates was $180,000
and $53,000 for fiscal 2001 and 2000, respectively. This increase is primarily
the result of higher sales and profits at the Company's South African affiliate
and lower costs at 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. Excluding the effect of this one-time gain, the net loss was
($1,450,000), or ($.26) per share.
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
18
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 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. Excluding the effect of this one-time
gain, net loss was ($1,450,000), or ($.26) per share.
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 2002 and
beyond.
On July 15, 1999, the Company entered into a $10 million unsecured long-term
credit agreement with The Chase Manhattan Bank. The agreements are 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, 2001, and at all times during the year. As of September 30, 2001,
outstanding borrowings under the five-year term loan and the RLC were $2,267,000
and $1,400,000, respectively. The Company is currently discussing a renewal of
its RLC, which expires in June 2002, with its bank.
Net cash provided by operating activities amounted to $1,659,000 in fiscal 2001.
This amount is due to net income for the year, adjusted for non-cash items, of
$1.536 million, increased income taxes payable of $341,000, increased accounts
payable of $2.127 million, decreased other assets of $210,000 and decreased
income taxes receivable of $674,000, offset, in part, by
19
increased inventory of $1.143 million, increased accounts receivable of $1.550
million, increased prepaid expenses and other current assets of $177,000 and
decreased accrued expenses and other liabilities of $359,000. 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 current assets of $158,000, decreased other assets of $39,000 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. This amount is due to net income, adjusted for noncash items, of
$5.561 million and increased inventory of $12,000, offset, in part, by increased
accounts receivable of $4.472 million, decreased accrued expenses and other
current liabilities of $1.155 million, decreased accounts payable of $517,000,
decreased income taxes payable of $376,000, increased prepaid expenses and other
current assets of $35,000 and increased other assets of $76,000.
Net cash used in investing activities amounted to $860,000 in fiscal 2001 as
compared with $512,000 in fiscal 2000 and $128,000 in fiscal 1999. The Company
provided net fundings to its joint ventures of $298,000 in fiscal 2001 as
compared with $181,000 in fiscal 2000 and $166,000 during fiscal 1999. In
addition, during fiscal 2000 the Company recognized a pre-tax gain of $330,000,
consisting of $100,000 cash and a note for the balance, from the sale of a
portion of the equity in its South African affiliate. 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 $562,000 in fiscal 2001, $431,000 in fiscal 2000 and
$473,000 in fiscal 1999 were for the purchase of property and equipment.
Net cash (used in) provided by financing activities amounted to ($909,000) in
fiscal 2001, as compared with ($283,000) in fiscal 2000 and $1.686 million in
fiscal 1999. In fiscal 2001 the Company made repayments (net of proceeds) of
$858,000 on its credit facilities as compared with net repayments of $1.269
million in fiscal 2000 and net borrowings of $1.697 million in fiscal 1999. In
fiscal 2001 and 1999, the Company used a portion of its loan to repurchase its
common stock amounting to $205,000 (69,784 shares) and $247,000 (44,200 shares),
respectively. The remaining cash provided by financing activities of $154,000 in
fiscal 2001, $986,000 in fiscal 2000 and $236,000 in fiscal 1999 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 2001 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 gain efficiencies and reduce operating and
manufacturing costs, thereby increasing profit margins and improving its
operations.
20
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 of the 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
21
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, 2001.
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, 2001 and 2000 (page
F-2)
Consolidated Statements of Income for the years ended September 30,
2001, 2000 and 1999 (page F-3)
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 2001, 2000 and 1999 (page F-4)
Consolidated Statements of Cash Flows for the years ended September
30, 2001, 2000 and 1999 (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")(3)
4.1(a) Revolving Credit Note dated July 15, 1999 issued by the Company to
Chase (3)
4.1(b) Term Note dated July 15, 1999 issued by the Company to Chase (3)
4.1(c) Limited Corporate Guaranty dated July 15, 1999 issued by Abacus
Financial Management Systems Ltd. USA to Chase (3)
4.1(d) Pledge Agreement dated July 15, 1999 between the Company and Chase (3)
22
4.1(e) First Amendment and Waiver dated September 5, 2000 to the Credit
Agreement dated July 15, 1999 issued to the Company by Chase (6)
4.1(f) Second Amendment and Waiver dated July 13, 2000 to the Credit Agreement
dated July 15, 1999 issued to the Company by Chase (7)
4.1(g) Third Amendment and Waiver dated April 2, 2001 to the Credit Agreement
dated July 15, 1999 issued to the Company by Chase (7)
4.1(h) Fourth Amendment and Waiver dated April 27, 2001 to the Credit Agreement
dated July 15, 1999 issued to the Company by Chase (7)
4.1(I) Fifth Amendment and Waiver dated July 13, 2001 to the Credit Agreement
dated July 15, 1999 issued to the Company by Chase (7)
10.1 Lease dated October 1, 2000 between the Company and Heartland Associates
(6)
10.2 1994 Stock Option Plan (1)
10.3 1996 Stock Option Plan (1)
10.4 2000 Stock Option Plan (4)
10.5 Employment Agreement dated May 1, 2000 between the Company and Thomas
McNeill (5)
10.6 Employment Agreement dated July 1, 2001 between the Company and Thomas
Oliveri (7)
10.7 Employment Agreement dated September 1, 2001 between the Company and
Stephen Katz (7)
21 List of Subsidiaries (7)
23 Consent of Independent Public Accountants (7)
------------------------------------------------------------------------
(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 Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.
(4) Incorporated by reference to the Company's Proxy Statement for the
fiscal year ended September 30, 1999.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 2000
(7) 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.
23
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 20, 2001
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 20, 2001
- ---------------------- and Chief Executive Officer
Stephen Katz
s/Henry B. Ellis Director December 20, 2001
- ----------------------
Henry B. Ellis
s/Richard Gerzof Director December 20, 2001
- ----------------------
Richard Gerzof
s/Martin H. Kern Director December 20, 2001
- ----------------------
Martin H. Kern
s/Thomas McNeill Vice President, Chief Financial December 20, 2001
- ---------------------- Officer and Principal Accounting
Thomas McNeill Officer
24
GLOBAL PAYMENT TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of September 30, 2001 and 2000 F-2
Consolidated Statements of Income for the years ended
September 30, 2001, 2000 and 1999 F-3
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 2001, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended
September 30, 2001, 2000 and 1999 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, 2001 and 2000, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended September 30, 2001. 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, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 2001 in conformity with accounting principles generally accepted
in the United States.
Melville, New York
November 16, 2001
F-1
GLOBAL PAYMENT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2001 AND 2000
(Dollar amounts in thousands, except share data)
ASSETS 2001 2000
-------- --------
Current assets:
Cash and cash equivalents $ 1,069 $ 1,179
Accounts receivable, less allowance for doubtful accounts of $169 and $206,
respectively 3,747 2,563
Accounts receivable from affiliates 7,891 7,580
Inventory, less allowance for obsolescence of $980 and $963, respectively 9,783 8,820
Prepaid expenses and other current assets 468 291
Deferred income tax benefit 795 837
Income taxes receivable -- 674
-------- --------
Total current assets 23,753 21,944
Property and equipment, net 1,331 1,367
Investments in unconsolidated affiliates 1,247 798
Other assets 135 351
-------- --------
Total assets $ 26,466 $ 24,460
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 867 $ 908
Accounts payable 3,482 1,355
Accrued expenses and other current liabilities 1,426 1,785
Income taxes payable 341 --
-------- --------
Total current liabilities 6,116 4,048
Long-term debt 2,800 3,617
-------- --------
Total liabilities 8,916 7,665
-------- --------
Commitments and contingencies (Note 11)
Shareholders' equity:
Common stock, 20,000,000 shares authorized; $.01 par value,
5,806,250 and 5,766,250 shares issued and outstanding, respectively 58 58
Additional paid-in capital 9,708 9,554
Retained earnings 9,283 8,477
-------- --------
19,049 18,089
Less: Treasury stock, at cost, 278,984 and 209,200 shares, respectively (1,499) (1,294)
-------- --------
Total shareholders' equity 17,550 16,795
-------- --------
Total liabilities and shareholders' equity $ 26,466 $ 24,460
======== ========
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, 2001, 2000 AND 1999
(Dollar amounts in thousands, except share and per share data)
2001 2000 1999
----------- ----------- -----------
Net sales:
Non-affiliates $ 14,936 $ 11,083 $ 15,890
Affiliates 17,225 11,424 28,006
----------- ----------- -----------
32,161 22,507 43,896
Cost of sales 22,407 15,719 26,660
----------- ----------- -----------
Gross profit 9,754 6,788 17,236
Operating expenses 8,687 9,251 10,306
----------- ----------- -----------
Income (loss) from operations 1,067 (2,463) 6,930
----------- ----------- -----------
Other income (expense):
Equity in income (loss) of unconsolidated affiliates 169 742 (678)
Gain on sale of investment in unconsolidated affiliate -- 330 --
Interest expense (308) (479) (477)
Other income 99 58 51
----------- ----------- -----------
Other income (expense) (40) 651 (1,104)
----------- ----------- -----------
Income (loss) before provision for income taxes 1,027 (1,812) 5,826
Provision (benefit) for income taxes 221 (583) 1,864
----------- ----------- -----------
Net income (loss) $ 806 $ (1,229) $ 3,962
=========== =========== ===========
Net income (loss) per share:
Basic $ .15 $ (.22) $ .74
=========== =========== ===========
Diluted $ .14 $ (.22) $ .68
=========== =========== ===========
Common shares used in computing net income per share amounts:
Basic 5,547,195 5,515,626 5,381,170
=========== =========== ===========
Diluted 5,635,961 5,515,626 5,822,787
=========== =========== ===========
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, 2001, 2000 AND 1999
(Dollar amounts in thousands, except share data)
Common Stock Additional Treasury Stock
----------------- Paid-in Retained -------------------
Shares Amount Capital Earnings Shares Amount Total
--------- ------ ------- -------- -------- ------- --------
Balance at September 30, 1998 5,570,300 $56 $8,334 $ 5,744 (165,000) $(1,047) $ 13,087
Exercise of common stock options 48,825 -- 236 -- -- -- 236
Purchase of treasury stock -- -- -- -- (44,200) (247) (247)
Net income -- -- -- 3,962 -- -- 3,962
--------- --- ------ ------- -------- ------- --------
Balance at September 30, 1999 5,619,125 56 8,570 9,706 (209,200) (1,294) 17,038
Exercise of common stock options and warrants 147,125 2 984 -- -- -- 986
Net loss -- -- -- (1,229) -- -- (1,229)
--------- --- ------ ------- -------- ------- --------
Balance at September 30, 2000 5,766,250 58 9,554 8,477 (209,200) (1,294) 16,795
Exercise of common stock options and warrants 40,000 -- 154 -- -- -- 154
Purchase of treasury stock -- -- -- -- (69,784) (205) (205)
Net income -- -- -- 806 -- -- 806
--------- --- ------ ------- -------- ------- --------
Balance at September 30, 2001 5,806,250 $58 $9,708 $ 9,283 (278,984) $(1,499) $ 17,550
========= === ====== ======= ======== ======= ========
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, 2001, 2000 AND 1999
(Dollar amounts in thousands)
2001 2000 1999
------- ------- -------
OPERATING ACTIVITIES:
Net income (loss) $ 806 $(1,229) $ 3,962
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Equity in (income) loss of unconsolidated affiliates (169) (742) 678
Gain on sale of investment in unconsolidated affiliate -- (330) --
Depreciation and amortization 611 621 680
Provision for losses on accounts receivable 66 85 64
Provision for inventory obsolescence 180 518 574
Deferred income taxes 42 144 (397)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, including affiliates (1,550) 4,095 (4,472)
(Increase) decrease in inventory (1,143) (1,834) 12
(Increase) decrease in prepaid expenses and other current assets (177) 158 (35)
Decrease (increase) in income tax receivable 674 (674) --
Decrease (increase) in other assets 210 39 (76)
Increase (decrease) in accounts payable 2,127 (172) (517)
(Decrease) increase in accrued expenses and other liabilities (359) 76 (1,155)
Increase (decrease) in income taxes payable 341 (54) (376)
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,659 701 (1,058)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment, net of proceeds from disposals (562) (431) (473)
Proceeds from sale of investment in unconsolidated affiliate -- 100 --
Investments in unconsolidated affiliates (298) (181) (166)
Distributions from unconsolidated affiliates -- -- 511
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (860) (512) (128)
------- ------- -------
FINANCING ACTIVITIES:
(Repayments of) proceeds from notes payable to bank (858) (1,269) 1,697
Purchase of treasury stock (205) -- (247)
Issuance of stock upon exercise of stock options and warrants 154 986 236
------- ------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (909) (283) 1,686
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (110) (94) 500
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,179 1,273 773
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,069 $ 1,179 $ 1,273
======= ======= =======
CASH PAID DURING THE YEAR FOR:
Interest $ 308 $ 386 $ 446
======= ======= =======
Income taxes $ 250 $ 179 $ 2,621
======= ======= =======
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, 2001, 2000 AND 1999
1. ORGANIZATION AND NATURE OF BUSINESS
Description 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 Argus,
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.
Organization and Development of Business
The Company has a 70% controlling interest in 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.
Additionally, the Company has an 80% controlling interest in Abacus Financial
Management, Inc. USA ("Abacus-USA"), which has the exclusive right to distribute
Abacus' product in North America.
Significant Customers
The Company's largest customers for 2001, 2000 and 1999 represent the following
percentages of net sales and accounts receivable:
Net Sales 2001 2000 1999
------------------------------------------ ---- ---- ----
Customer A 52% 48% 59%
Customer B N/A 11% N/A
Accounts Receivable
------------------------------------------
Customer A 68% 64% 70%
Customer B N/A 2% N/A
There were no other customers that represented 10% or more of net sales or
accounts receivable in any of the fiscal years presented.
F-6
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
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,
-----------------------------------------------
2001 2000 1999
------------ ------------ ------------
(Amounts in 000s)
Domestic revenues (United States) $ 3,375 $ 3,756 $ 8,614
------------ ------------ ------------
International revenues:
Australia 16,781 10,312 26,110
Europe 8,127 5,577 5,771
All others 3,878 2,862 3,401
------------ ------------- -------------
28,786 18,751 35,282
------------ ------------- -------------
Total revenues $ 32,161 $ 22,507 $ 43,896
============= ============= ============
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.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Global Payment
Technologies, Inc., GPT-Europe and Abacus-USA. The accounts of GPT-Europe and
Abacus-USA are presented net of the related minority interests, which are not
material. 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.
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 Fees
and Costs." The purpose of this issue 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.
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 required a restatement of prior periods for changes in
classification. This consensus was effective for the Company beginning with the
fourth quarter of fiscal 2001 and the effects of adoption were not material.
F-7
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
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 5% 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. A description of the Company's unconsolidated affiliates
and the related transactions between the Company and these affiliates is
discussed in Note 10.
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 4)
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 recognize any impairment adjustments in
fiscal 2001, 2000 and 1999.
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-UK") in excess of the underlying net
assets. Goodwill is being amortized on a straight-line basis over 20 years.
Accumulated amortization was $12,000 as of September 30, 2001. Consistent with
SFAS No. 121, management believes that there is no impairment to goodwill as of
September 30, 2001.
Research and Development
Research and development costs incurred by the Company are included in operating
expenses in the year incurred. Such costs amounted to $150,000, $225,000 and
$300,000 in fiscal 2001, 2000 and 1999, respectively.
F-8
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
Warranty Policy
The Company warrants that its products are free from defects in material and
workmanship for a period of one year, or almost two years relating to it's new
Argus product, 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. Repair costs beyond the warranty period 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 the Company incurred
a loss in 2000 and the inclusion of the effect of dilutive securities 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,
-----------------------------------------------
2001 2000 1999
----------- ----------- -----------
(In thousands, except share and per share data)
Numerator
Net income (loss) attributable to common stockholders $ 806 $ (1,229) $ 3,962
=========== =========== ===========
Denominator
Weighted average common shares outstanding - Basic 5,547,195 5,515,626 5,381,170
Effect of dilutive securities: Stock options and warrants 88,766 -- 441,617
----------- ----------- -----------
Weighted average common shares outstanding - Diluted 5,635,961 5,515,626 5,822,787
=========== =========== ===========
Basic EPS $ .15 $ (.22) $ .74
=========== =========== ===========
Diluted EPS $ .14 $ (.22) $ .68
=========== =========== ===========
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.
F-9
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
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 2001, 2000 and 1999, 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.
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.
Segment Reporting
The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". Pursuant to this pronouncement, the
reportable operating segments are determined based on the Company's management
approach. The management approach, as defined by SFAS No. 131, is based on the
way that the chief operating decision-maker organizes the segments within an
enterprise for making operating decisions and assessing performance. The
Company's results of operations are reviewed by the chief operating
decision-maker on a consolidated basis and the Company operates in only one
segment.
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, disclosure of contingent
assets and liabilities, and the reported amounts of revenues and expenses in
those financial statements. 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.
F-10
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
Recently Issued Accounting Pronouncements
Goodwill and Other Intangible Assets
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
141, "Business Combinations" and No. 142, "Goodwill and other Intangible
Assets". SFAS No. 141 requires all business combinations initiated after June
30, 2001 to be accounted for using the purchase method. Under SFAS No. 142,
goodwill and intangible assets with indefinite lives are no longer amortized but
are reviewed annually (or more frequently, if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have indefinite
lives will continue to be amortized over their useful lives (but with no maximum
life).
The Company has adopted this standard effective October 1, 2001 and,
accordingly, those intangible assets that will continue to be classified as
goodwill or as other intangibles with indefinite lives will no longer be
amortized. Additionally, in accordance with SFAS No. 142, intangible assets,
including purchased goodwill, will be evaluated periodically for impairment. The
impact of adoption of SFAS No. 142 will not be material.
Long-Lived Assets
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121 and
Accounting Principles Board Opinion No. 30 "Reporting Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions". The Statement
retains the fundamental provisions of SFAS No. 121 for recognition and
measurement of impairment, but amends the accounting and reporting standards for
segments of a business to be disposed of. The provisions of this statement are
required to be adopted no later than fiscal years beginning after December 31,
2001, with early adoption encouraged. The Company is currently evaluating the
impact of the adoption of SFAS No. 144, which the Company expects will not be
material.
3. INVENTORY
The following is a summary of the composition of inventory:
September 30,
-----------------------------
2001 2000
---------- -------------
(in 000s)
Raw materials $ 2,547 $ 3,313
Work-in-process 6,569 4,772
Finished goods 667 735
---------- -------------
$ 9,783 $ 8,820
========== ===========
F-11
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
4. PROPERTY AND EQUIPMENT, NET
Major classifications of property and equipment are as follows:
September 30,
---------------------------
Useful Lives 2001 2000
-------------- ---------- ----------
(in 000s)
Leasehold improvements Shorter of the $ 271 $ 266
life of the
lease or useful
life of asset
Furniture and fixtures 3 - 7 years 570 507
Machinery and equipment 3 - 10 years 1,789 1,468
Computer software 5 years 938 863
Computer hardware 3 years 920 822
---------- ------------
4,488 3,926
Less: Accumulated depreciation and amortization (3,157) (2,559)
---------- ------------
$ 1,331 $ 1,367
========== ==========
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
September 30,
-----------------------------
2001 2000
----------- -----------
(in 000s)
Compensation and employee benefits $ 421 $ 530
Warranty costs 382 332
Administrative and other 623 923
----------- -----------
$ 1,426 $ 1,785
=========== ===========
6. NOTES PAYABLE TO BANK
At September 30, 2001, the Company had a $67,000 note payable to a bank. The
note bears interest at approximately 8% and matures November 30, 2001.
Subsequent to November 30, 2001, the Company renewed the note payable.
F-12
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
7. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 2001:
Revolving credit note $ 1,400
Term note 2,267
---------
3,667
Less: current portion of long-term debt 867
---------
$ 2,800
=========
In July 1999, the Company entered into a $10 million unsecured long-term credit
agreement with a 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, however, it is classified as
long-term based on the Company's intent and ability to refinance or extend the
RLC. Outstanding borrowings on the RLC 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. 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
------------------------------- ------
2002 $ 800
2003 800
2004 667
2005 --
---------
$ 2,267
=========
8. 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, using a separately established line of credit. In fiscal 1999 and 2001,
the Company purchased, in a series of transactions, 44,200 and 69,784 shares,
respectively, of its common stock at an aggregate cost of $247,000 and $205,000,
respectively.
Stock Option Plans
The Company has several active stock option plans covering in the aggregate
1,500,000 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. The stock option plans,
which expire at varying dates beginning on October 17, 2004 through 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 and administered in accordance with the stock option plans as approved
by the shareholders.
F-13
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
Incentive stock options granted under these various plans 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.
During fiscal 1999, a total of 148,850 incentive stock options and 23,500
non-qualified options were granted. 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. 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.
During fiscal 2001, a total of 132,950 incentive stock options and 270,000
non-qualified options were granted. All options granted in 2001 will become
exercisable over varying terms up to five years. As part of the aforementioned
stock option grants, one executive was granted 30,000 incentive stock options
and 270,000 non-qualified options, which both vested upon the grant date of
those options.
The Company applies the provisions of APB Opinion No. 25 and the related
interpretations in accounting for stock options granted under these programs.
Under APB Opinion No. 25, no compensation expense is recognized if the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of the grant. Accordingly, no compensation cost has
been recognized. SFAS No. 123 requires the Company to provide pro forma
information regarding net income (loss) and net income (loss) per common share
as if compensation cost for the Company's stock option programs had been
determined in accordance with the fair value method prescribed therein.
Had compensation cost for these programs been determined based upon the fair
value at the grant dates consistent with SFAS No. 123, the Company's pro forma
net income (loss) and net income (loss) per common share would have been as
follows:
2001 2000 1999
------ -------- -------
(in 000s, except per share data)
Net income (loss): As Reported $ 806 $ (1,229) $ 3,962
Pro Forma (99) (1,574) 3,721
Net income (loss) per common share - basic: As Reported $ .15 $ (.22) $ .74
Pro forma (.02) (.29) .69
Net income (loss) per common share - diluted: As Reported $ .14 $ (.22) $ .68
Pro forma (.02) (.29) .64
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
F-14
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
A summary of the Company's stock option plans as of September 30, 2001, 2000 and
1999, and changes during the years then ended, is presented below.
2001 2000 1999
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
---------- -------------- -------- -------------- --------- --------------
Outstanding at the beginning of the year 1,031,400 $5.54 910,425 $5.66 813,150 $4.94
Granted at fair value 402,950 $3.02 213,050 $6.13 172,350 $8.98
Forfeited (513,500) $4.34 (71,700) $9.12 (26,250) $6.40
Exercised (40,000) $3.88 (20,375) $4.83 (48,825) $4.89
--------- --------- --------
Outstanding at end of the year 880,850 $5.16 1,031,400 $5.54 910,425 $5.66
========= ========= ========
Options exercisable at year end 520,670 $4.61 628,475 $4.49 556,300 $3.96
========= ========= ========
Weighted-average fair value of options
granted during the year (a) $1.81 $3.42 $5.39
(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,
------------------------------------------------
2001 2000 1999
------------ ------------ -----------
Risk-free interest rates 3.12% 5.97% 5.87%
Expected lives 5 years 5 years 5 years
Expected volatility 70% 63% 65%
Expected dividend yields -- -- --
Summarized information about the Company's stock options outstanding and
exercisable at September 30, 2001 is as follows:
Outstanding Exercisable
------------------------------------ ---------------------
Average Average Average
Exercise Price Range Options Life Price Options Price
-------------------- ---------- --------- --------- --------- ---------
$2.40 to $4.00 444,150 5.24 $ 3.08 351,200 $ 3.18
$4.01 to $6.00 215,650 5.82 $ 5.60 62,930 $ 5.32
$6.01 to $8.00 71,100 4.13 $ 6.79 39,660 $ 6.73
$8.01 to $10.00 110,950 5.00 $ 9.23 41,180 $ 9.17
$10.01 to $12.00 34,000 5.07 $ 11.60 22,700 $ 11.60
$12.01 to $14.40 5,000 3.58 $ 14.25 3,000 $ 14.25
--------- ---------
880,850 5.25 $ 5.16 520,670 $ 4.61
========= =========
F-15
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
9. INCOME TAXES
The provision for (benefit from) income taxes consists of the following:
For the Fiscal Years Ended September 30,
----------------------------------------
2001 2000 1999
------- -------- -------
(in 000s)
Current:
Federal $ 220 $ (727) $ 1,945
State and local 43 -- 316
----- ------- -------
263 (727) 2,261
----- ------- -------
Deferred:
Federal (34) 144 (343)
State and local (8) -- (54)
----- ------- -------
(42) 144 (397)
----- ------- -------
Total $ 221 $ (583) $ 1,864
===== ======= =======
Significant components of deferred tax assets are as follows:
As of September 30,
----------------------------------------
2001 2000 1999
------ ------ ------
(in 000s)
Current deferred tax assets:
Accounts receivable $ 48 $ 66 $ 91
Inventory 286 308 270
Accrued expenses and other, net 215 195 136
Elimination of gross profit on sales to affiliates 246 268 484
---- ---- ----
Deferred tax asset $795 $837 $981
==== ==== ====
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,
--------------------------------------------
2001 2000 1999
-------- -------- --------
U.S. Federal statutory rate 34.0% (34.0)% 34.0%
State income taxes, net of Federal benefit 2.1 -- 3.0
Exempt foreign sales corporation income (16.5) -- (3.5)
All other, net 1.9 1.9 (1.5)
---- ---- ----
Effective income tax rate 21.5% (32.1)% 32.0%
==== ==== ====
10. TRANSACTIONS WITH UNCONSOLIDATED AFFILIATES
South Africa
The Company has a 5% 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 addition, the Company has a 30%
interest in International Payment Systems Pty Ltd. ("IPS") which has the
distribution rights of Ingenico, DeLa Rue and Scan Coin products.
F-16
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
On January 18, 2001, GPTHL merged its operations with Vukani Gaming Corporation
("Vukani"), (formerly South African Video Gaming Corporation (Pty) Ltd.), a
wholly owned subsidiary of Hosken Consolidated Investments Ltd. ("HCI"). GPTHL
has the rights to distribute both the Company's and On-Line's products. Under
the terms of the agreement, the Company has the right to substantially increase
their ownership upon specified conditions.
The Company's consolidated results of operations include its equity in the
results of operations of these affiliates in the amounts of $84,000, $92,000 and
$1,000 in fiscal 2001, 2000 and 1999, respectively. For fiscal 2000, the Company
increased its equity in income of unconsolidated affiliates by $91,000, which
amount represents the gross profit on sales of the Company's products to these
affiliates which have been sold by these affiliates as of fiscal year-end.
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, 2001. These amounts are included as
part of the Company's investment in unconsolidated affiliates in the
accompanying consolidated balance sheets as of September 30, 2001 and 2000. The
Company's consolidated results of operations include the Company's equity in the
income of this affiliate in the amounts of $2,000, $4,000 and $38,000 in fiscal
2001, 2000 and 1999, 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 $224,000, $848,000 and
($638,000) in fiscal 2001, 2000 and 1999, respectively. For fiscal 2001, 2000
and 1999, the Company (reduced) increased its equity in income of unconsolidated
affiliates by $(11,000), $597,000 and $(1,003,000), respectively, which amounts
represent the gross profit on sales of the Company's products to this affiliate
which were (unsold) sold by the affiliate as of fiscal year-end.
Abacus - UK
In April 1999, the Company acquired a non-controlling 25% interest in Abacus-UK.
Abacus-UK 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,
which 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% non-controlling ownership interest. In fiscal 2001 and 2000, the
Company invested an additional $228,000 and $171,000, respectively, in
Abacus-UK. The Company's consolidated results of operations for the years ended
September 30, 2001, 2000 and 1999 include the Company's equity in the loss of
this affiliate of $141,000, $202,000 and $79,000 respectively.
F-17
GLOBAL PAYMENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, 2000 AND 1999
11. 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 (this lease
expires in February 2002). The Company also leases various office equipment. At
September 30, 2001, 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)
2002 $ 448 $ 70
2003 390 --
2004 367 --
2005 360 --
2006 278 --
Thereafter -- --
Total rent expense for all operating leases was $530,000, $525,000 and $494,000
in fiscal 2001, 2000 and 1999, respectively, including $164,000, $152,000 and
$133,000, respectively, paid to the related party affiliate. The Company's
management believes this lease with the affiliate is on terms which approximate
fair market value.
Employment Agreements
The Company has entered into employment agreements with three officers of the
Company which expire through the end of fiscal 2004, with minimum compensation
requirements as follows:
For the Fiscal Year
Ending September 30, (in 000s)
-------------------- ---------
2002 $ 402
2003 335
2004 280
Litigation
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
F-18
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 thereon dated November 16, 2001. 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 16, 2001
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, 1999 $ 248 $ 64 $ 24 $ 288
====== ======= ======= =======
September 30, 2000 $ 288 $ 85 $ 167 $ 206
====== ======= ======= =======
September 30, 2001 $ 206 $ 66 $ 103 $ 169
====== ======= ======= =======